You should carefully consider the following risk factors, in addition to
other information included in this quarterly report on Form 10-Q and in other documents we file with the SEC, in evaluating Curis and our business. If any of the following risks occur, our business, financial condition and operating results could be
materially adversely affected. The following risk factors restate and supersede the risk factors previously disclosed in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2013.
RISKS RELATING TO OUR FINANCIAL RESULTS AND NEED FOR FINANCING
We have incurred substantial losses, expect to continue to incur substantial losses for the foreseeable future and may never generate significant revenue
or achieve profitability.
As of June 30, 2014, we had an accumulated deficit of approximately $768,286,000. We have incurred net
losses of $7,460,000 for the six months ended June 30, 2014, and $12,322,000, $16,417,000 and $9,859,000 for the years ended December 31, 2013, 2012 and 2011, respectively. Other than Erivedge, which was developed and is being
commercialized by our collaborators Roche and Genentech, we have not successfully commercialized any products to date, either alone or in collaboration with others.
We have historically derived a substantial portion of our operating cash flow from the research funding, milestone payments and royalty
revenues under collaboration agreements with third parties. We expect that our only source of cash flows from operations for the foreseeable future will be:
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up-front license payments and research and development funding that we may receive if we are able to successfully enter into new collaboration agreements for our technologies under development;
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contingent cash payments that we may receive for the achievement of development objectives under any new collaborations or our existing collaborations with Genentech, Debiopharm and LLS; and
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royalty payments that are contingent upon the successful commercialization of products based upon these collaborations.
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We may not be able to successfully enter into or continue any corporate collaborations and the timing, amount and likelihood of us receiving
payments under such collaborations is highly uncertain.
Our wholly-owned subsidiary Curis Royalty, received a $30,000,000 loan pursuant
to a credit agreement entered into by and among Curis, Curis Royalty and BioPharma-II. In connection with the loan, we transferred to Curis Royalty our right to certain future royalty and royalty-related payments on commercial sales of Erivedge by
Genentech. The loan and accrued interest will be repaid by Curis Royalty from the proceeds of the royalty and royalty-related payments that it receives from time to time from Genentech. Curis Royalty will be entitled to receive and distribute to
Curis only those royalty amounts, if any, in excess of the amounts it is required to remit each quarter to BioPharma-II. As a result, for the foreseeable future, we will only receive royalties under our collaboration agreement with Genentech to the
extent net sales are generated at a level sufficient to derive royalties in excess of Curis Royaltys obligation to remit such royalties to BioPharma-II in repayment of the loan.
To become and remain profitable, we must develop and eventually commercialize one or more drug candidates with significant market potential.
This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our drug candidates, obtaining marketing approval for these drug candidates, manufacturing, marketing and
selling those drugs for which we may obtain marketing approval and satisfying any post-marketing requirements. We may never succeed in these activities and, even if we do, may never generate revenues that are significant or large enough to achieve
profitability. We are currently only in early clinical testing for our most advanced drug candidates. For the foreseeable future, we will need to spend significant capital in an effort to develop and commercialize products and we expect to incur
substantial operating losses. Our failure to become and remain profitable would, among other things, depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our research and
development programs or continue our operations.
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We will require substantial additional capital, which may be difficult to obtain.
We will require substantial funds to continue our research and development programs and to fulfill our planned operating goals. In particular,
our currently planned operating and capital requirements include the need for substantial working capital to support our research and development activities for CUDC-427, CUDC-907, and other drug candidates that we may seek to develop in the future
and to fund our general and administrative costs and expenses.
We anticipate that existing cash, cash equivalents, marketable securities,
investments and working capital at June 30, 2014 should enable us to maintain current and planned operations into 2016. Our future capital requirements, however, may vary from what we currently expect. There are a number of factors that may
affect our planned future capital requirements and accelerate our need for additional working capital, many of which are outside our control, including the following:
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unanticipated costs in our research and development programs;
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the timing and cost of obtaining regulatory approvals for our drug candidates;
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the timing, receipt and amount of payments, if any, from current and potential future collaborators;
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the timing and amount of payments due to licensors of patent rights and technology used in our drug candidates;
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the costs of commercialization activities for any of our product candidates that receive marketing approval, to the extent such costs are not the responsibility of one of our collaborators, including the costs and
timing of establishing product sales, marketing, distribution and manufacturing capabilities;
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unplanned costs to prepare, file, prosecute, maintain and enforce patent claims and other patent-related costs, including litigation costs and technology license fees; and
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unexpected losses in our cash investments or an inability to otherwise liquidate our cash investments due to unfavorable conditions in the capital markets.
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Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or drug
candidates.
Identifying potential drug candidates and conducting preclinical testing and clinical trials is a time-consuming,
expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our drug candidates, if approved, may not achieve
commercial success. Our commercial revenues, if any, will be derived from sales of drug candidates that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to
achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.
We may seek
additional funding through public or private financings of debt or equity. For example, in July 2013 we entered into a sales agreement with Cowen and Company, LLC, or Cowen, pursuant to which, from time to time, we may offer and sell through Cowen,
acting as agent, up to $30,000,000 of registered common stock pursuant to our universal shelf registration statement in one or more at the market or other specified offerings. We have received gross proceeds of approximately $16,900,000
as of June 30, 2014 through such sales. The market for emerging life science stocks in general, and the market for our common stock in particular, are highly volatile. Due to this and various other factors, including potentially adverse general
market conditions and the early stage of development of our drug candidates, additional funding may not be available to us on acceptable terms, if at all, and we may not be able to sell shares under the arrangement with Cowen at favorable prices, if
at all. In addition, the terms of any potential financing may be dilutive or otherwise adversely affect other rights of our stockholders. We also expect to seek additional funds through arrangements with collaborators, licensees or other third
parties. These arrangements would generally require us to relinquish or encumber rights to some of our technologies or drug candidates, and we may not be able to enter into such arrangements on acceptable terms, if at all.
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If we are unable to obtain such additional funding on a timely basis, whether through payments
under existing or future collaborations or license agreement or sales of debt or equity, we may be required to:
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delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for one or more of our drug candidates; or
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delay, limit, reduce or terminate our establishment of sales and marketing capabilities, either internally or through third parties, or other activities that may be necessary to commercialize our drug candidates.
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We transferred and encumbered certain royalty and royalty-related payments on the commercial sales of Erivedge in connection with our
credit agreement with BioPharma-II and, as a result, we could lose all rights to future royalty and royalty-related payments.
In
December 2012, our wholly-owned subsidiary, Curis Royalty, received a $30,000,000 loan pursuant to a credit agreement with BioPharma-II. In connection with the loan, we transferred to Curis Royalty our right to receive certain future royalty and
royalty-related payments on the commercial sales of Erivedge that we receive from Genentech. The loan and accrued interest will be repaid by Curis Royalty using such royalty and royalty-related payments. To secure repayment of the loan, Curis
Royalty granted a first priority lien and security interest (subject only to permitted liens) to BioPharma-II in all of its assets and all real, intangible and personal property, including all of its right, title and interest in and to the royalty
and royalty-related payments. The loan constitutes an obligation of Curis Royalty, and is intended to be non-recourse to Curis.
Per the
terms of the credit agreement, neither Curis nor Curis Royalty guaranteed any level of future royalty or royalty-related payments or the value of such payments as collateral to the loan. However, in certain circumstances, the obligations of Curis
Royalty under the credit agreement to repay the loan may be accelerated, including:
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if any payment of principal is not made within three days of when such payment is due and payable or otherwise made in accordance with the terms of the credit agreement;
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if any representations or warranties made in the credit agreement or any other transaction document prove to be incorrect or misleading in any material respect when made;
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if there occurs a default in the performance of affirmative and negative covenants set forth in the credit agreement or under certain ancillary transaction documents;
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the failure by Genentech to pay material amounts owed under the collaboration agreement with Genentech because of an actual breach or default by Curis under the collaboration agreement;
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a material breach or default by Curis Royalty under certain ancillary transaction documents, in each case, which breach or default is not cured within 30 days after written demand thereof by BioPharma-II;
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the voluntary or involuntary commencement of bankruptcy proceedings by either Curis or Curis Royalty and other insolvency related defaults;
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any materially adverse effect on the binding nature of any of the transaction documents or the Genentech collaboration agreement;
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if any person shall be designated as an independent director of Curis Royalty other than in accordance with its limited liability company operating agreement; or
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if Curis shall at any time cease to own, of record and beneficially, 100% of the equity interests in Curis Royalty.
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If any of the above were to occur, Curis Royalty may not have sufficient funds to pay the accelerated obligation and BioPharma-II could foreclose on the
secured royalty and royalty-related payment stream. In such an event, we could lose our right to royalty and royalty-related payments not transferred to BioPharma-II, including those we would otherwise be entitled to receive if, or when, Curis
Royalty satisfied its obligations to BioPharma-II under the credit agreement.
Fluctuations in our quarterly and annual operating results could
adversely affect the price of our common stock.
Our quarterly and annual operating results may fluctuate significantly. Some of the
factors that may cause our operating results to fluctuate on a period-to-period basis include:
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the status of, and level of expenses incurred in connection with, our preclinical and clinical development programs, including development costs relating to CUDC-427 and CUDC-907;
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any intellectual property infringement lawsuit or other litigation in which we may become involved;
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the implementation of restructuring and cost-savings strategies;
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the occurrence of an event of default under the credit agreement by and among Curis, Curis Royalty and BioPharma II;
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any changes in the fair value of our warrant liability;
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the implementation or termination of collaboration, licensing, manufacturing or other material agreements with third parties, and non-recurring revenue or expenses under any such agreement; and
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compliance with regulatory requirements.
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Unstable market and economic conditions may have serious adverse
consequences on our business, financial condition and stock price.
Our general business strategy and prospects may be adversely
affected by the uncertain economic conditions, volatile business environment and continued unpredictable and unstable market conditions, both domestically and abroad. If equity and credit markets are unfavorable, it is likely to make future debt or
equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price
and could require us to delay or abandon research and development plans.
At June 30, 2014, we had $59,028,000 of cash, cash
equivalents and investments consisting of cash, money market, commercial paper, corporate debt securities, and government obligations. A deterioration in conditions of the global credit and financial markets could negatively impact our current
portfolio of cash equivalents and marketable securities and our ability to meet our financing objectives. Further dislocations in the credit market may adversely impact the value and liquidity of marketable securities owned by us.
There is a possibility that our stock price may decline due to the volatility of the stock market in recent years.
RISKS RELATING TO THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS
We are reliant on Genentech and Roche for the successful development and commercialization of Erivedge. If Genentech does not successfully commercialize
Erivedge for advanced BCC, or develop Erivedge for other indications, our future prospects may be substantially harmed.
In January
2012, Erivedge was approved by the FDA as the first and only FDA-approved medicine for people with advanced BCC. Erivedge has also been approved in a number of foreign countries. Genentech and/or Roche have filed regulatory submissions in additional
territories seeking approval to commercialize Erivedge for this same indication. Genentech and Roche are also conducting phase 2 clinical trials of Erivedge in patients with less severe forms of BCC, a phase 1b/2 trial in relapsed/ refractory AML
and MDS, and Erivedge is currently being tested in other cancers under collaborative agreements between Genentech and either third-party investigators or the NCI. Our levels of revenue in each period and our near-term prospects substantially depend
upon Genentechs ability to successfully develop and commercialize Erivedge in one or more additional indications and to demonstrate its safety and efficacy, as well as its superiority over existing therapies and standards of care. The
development and commercialization of Erivedge could be unsuccessful if:
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Erivedge for the treatment of advanced BCC is no longer accepted as safe, efficacious, cost-effective, and preferable to current therapies in the medical community and by third-party payors;
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Genentech and/or Roche fails to continue to apply the necessary financial resources and expertise to manufacturing, marketing and selling Erivedge for advanced BCC and to regulatory approvals for this indication outside
of the U.S.;
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Genentech and/or Roche do not continue to develop and implement effective marketing, sales and distribution strategies and operations, for development and commercialization of Erivedge for advanced BCC;
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Genentech and/or Roche do not continue to develop, validate and maintain a commercially viable manufacturing process for Erivedge that is compliant with current good manufacturing practices;
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Genentech and Roche do not obtain full approval to commercialize Erivedge in the EU based upon the results of the STEVIE trial;
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Genentech and/or Roche do not successfully obtain third party reimbursement and generate commercial demand that results in sales of Erivedge for advanced BCC in any geographic areas where requisite approvals have been,
or may be, obtained;
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we or Genentech and/or Roche encounter any third party patent interference, derivation,
inter partes
review, post-grant review, reexamination or patent infringement claims with respect to Erivedge;
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Genentech and/or Roche do not comply with any and all regulatory and legal requirements applicable to the sale of Erivedge for advanced BCC;
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competing products are approved for the same indications as Erivedge;
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new safety risks are identified; and/or
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Erivedge does not demonstrate acceptable safety and efficacy in current or future clinical trials, or otherwise does not meet applicable regulatory standards for approval in indications other than advanced BCC.
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In addition, pursuant to the terms of our credit agreement with BioPharma-II, for the foreseeable future we will only
retain royalty revenue under our collaboration agreement with Genentech to the extent that sales are generated by Genentech and Roche at a level sufficient for us to receive royalties in excess of the obligation of our wholly-owned subsidiary, Curis
Royalty, to remit such royalties to BioPharma-II.
The therapeutic efficacy of drug candidates being developed by us and our collaborators is unproven
in humans, and we may not be able to successfully develop and commercialize drug candidates pursuant to these programs.
Our drug
candidates are novel chemical entities and their potential benefit as therapeutic cancer drugs is unproven. Our ability to generate revenues from these drug candidates, which we do not expect will occur in the short term, if ever, will depend
heavily on their successful development and commercialization, which is subject to many potential risks. For example, our drug candidates may not prove to be effective inhibitors of the molecular targets they are being designed to act against and
may not demonstrate in patients any or all of the pharmacological benefits that may have been demonstrated in preclinical studies. These drug candidates may interact with human biological systems in unforeseen, ineffective or harmful ways. If the
FDA determines that any of our drug candidates are associated with significant side effects or have characteristics that are unexpected, we may need to delay or abandon their development or limit development to certain uses or subpopulations in
which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Moreover, many drug candidates that initially showed promise in early stage testing for treating cancer
have later been found to cause side effects that prevented further development of the compound or their removal from the market. As a result of these and other risks described herein that are inherent in the development and commercialization of
novel therapeutic agents, we may never successfully develop, enter into or maintain third party licensing or collaboration transactions with respect to, or successfully commercialize drug candidates, in which case we will not achieve profitability
and the value of our stock may decline.
We may expend our limited resources to pursue a particular drug candidate or indication and fail to capitalize
on drug candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have
limited financial and managerial resources, we focus on research programs and drug candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other drug candidates or for other indications
that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future proprietary research and
development programs and drug candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish
valuable rights to that drug candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such drug candidate.
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We depend on third parties for the development of certain of our programs. If one or more of our collaborators
fails or delays in developing or commercializing drug candidates based upon our technologies, our business prospects and operating results would suffer and our stock price would likely decline.
We currently have a collaboration with Genentech pursuant to which we have granted to Genentech exclusive rights to develop and commercialize
products based upon our Hedgehog pathway technologies. In addition, we entered into a license agreement with Debiopharm pursuant to which Debiopharm is developing Debio 0932, our HSP90 inhibitor. Our collaboration agreement with Genentech and our
license agreement with Debiopharm may not be scientifically or commercially successful due to a number of factors, including the following:
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Genentech and Debiopharm each have significant discretion in determining the efforts and resources that they will apply to their respective collaboration with us. The timing and amount of any cash payments that we may
receive under such collaborative arrangements will depend on, among other things, our collaboration partners efforts, allocation of resources and successful development and commercialization of our drug candidates under their respective
agreements with us.
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Our agreements with Genentech and Debiopharm each permits the other party wide discretion in deciding which drug candidates to advance through the clinical trial process. It is possible for Genentech or Debiopharm to
reject drug candidates at any point in the research, development and clinical trial process, without triggering a termination of the applicable agreement. In the event of any such decision, our business and prospects may be adversely affected and we
may not have the commercial rights or the resources necessary to advance such programs on our own.
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We have granted clinical development rights to Genentech and Debiopharm, respectively, under our agreements with each of them. If they fail to allocate sufficient time, attention and resources to clinical trials of drug
candidates under these collaborations, or fail to comply with good clinical practices or other applicable regulatory requirements for such clinical trials, the successful clinical development and commercialization of such drug candidates is likely
to be adversely affected, as will our ability to generate revenue from such collaborations.
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Genentech or Debiopharm may develop and commercialize, either alone or with others, products that are similar to or competitive with the drug candidates that are the subject of its collaboration with us. For example,
Genentech and Debiopharm each are seeking to develop several other cancer drug therapies.
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Genentech or Debiopharm may change the focus of its development and commercialization efforts or pursue higher-priority programs. Our ability to successfully commercialize drug candidates under collaboration with
Genentech or Debiopharm could be limited if Genentech or Debiopharm decreases or fails to increase spending related to such drug candidates.
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Our collaborators may enter into one or more transactions with third parties, including a merger, consolidation, reorganization, sale of substantial assets, sale of substantial stock or change of control. Any such
transaction could divert the attention of our collaborative partners management and adversely affect its ability to retain and motivate key personnel who are important to the continued development of the programs under such collaboration. In
addition, an acquirer could determine to reprioritize our collaborators development programs such that our collaborator ceases to diligently pursue the development of our programs, and/or terminates its collaboration with us.
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Genentech is a wholly-owned member of the Roche Group and as such is subject to the risk that Roche could determine to reprioritize Genentechs development programs which could reduce Genentechs efforts on
the development or commercialization of Erivedge or cause Genentech to terminate our collaboration.
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Genentech or Debiopharm may, under specified circumstances, terminate its collaboration with us on short notice and for circumstances outside of our control, which could make it difficult for us to attract new
collaborators or adversely affect how we are perceived in the scientific, biotech, pharma and financial communities.
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Both Genentech and Debiopharm have the first right to maintain or defend intellectual property rights associated with the drug candidate under their respective agreements and, although we may have the right to assume
the maintenance and defense of our intellectual property rights if our collaborators do not, our ability to do so may be compromised by our collaborators acts or omissions.
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Genentech or Debiopharm may utilize our intellectual property rights in such a way as to invite litigation that could jeopardize or invalidate our intellectual property rights or expose us to potential liability.
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Genentech or Debiopharm may not comply with all applicable regulatory requirements, may select clinical investigators who are not qualified or who fail to comply with protocols or applicable regulatory requirements, or
may fail to report safety data in accordance with all applicable regulatory requirements.
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If either Genentech or Debiopharm were to breach or terminate its arrangement with us, the development and commercialization of the affected drug candidate could be delayed, curtailed or terminated because we may not
have sufficient financial resources or capabilities to continue development and commercialization of the drug candidate on our own.
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Either Genentech or Debiopharm may not have sufficient resources necessary to advance clinical development of drug candidates under our collaborations with each of them or may not obtain the necessary regulatory
approvals.
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If Genentech or Debiopharm fails to successfully develop and commercialize our drug candidates
under collaboration, we may not be able to develop and commercialize these candidates independently or successfully enter into one or more alternative collaborations, in which event our financial condition, results of operations and stock price may
be adversely affected.
We may not be successful in establishing additional strategic collaborations, which could adversely affect our ability to
develop and commercialize products.
Our current strategy is to seek corporate collaborators or licensees for the further development
and commercialization of one or more of our drug candidates. We do not currently have the resources or capacity to advance these programs into later stage clinical development (i.e., phase 3) or commercialization on our own. As such, our success
will depend, in part, on our ability to enter into one or more such collaborations. We face significant competition in seeking appropriate collaborators and a number of recent business combinations in the biotechnology and pharmaceutical industry
may continue to result in a reduced number of potential future collaborators. In addition, collaborations are complex and time-consuming to negotiate and document. Moreover, we may not be successful in our efforts to establish a collaboration or
other alternative arrangements because our research and development pipeline may be insufficient, our programs may be deemed to be at too early of a stage of development for collaborative effort and/or third parties may not view our drug candidates
and programs as having the requisite potential to demonstrate safety and efficacy or sufficiently differentiated compared to existing or emerging treatments. We are also restricted under the terms of certain of our existing collaboration agreements
from entering into collaborations regarding or otherwise developing product candidates that are similar to the product candidates that are subject to those agreements, such as developing product candidates that inhibit the same molecular target. In
addition, collaboration agreements that we enter into in the future may contain further restrictions on our ability to enter into potential collaborations or to otherwise develop specified product candidates. Even if we are successful in our efforts
to establish new collaborations, the terms that we agree upon may not be favorable to us and such collaboration agreements may not lead to development or commercialization of drug candidates in the most efficient manner or at all.
Moreover, if we fail to establish and maintain additional collaborations related to our drug candidates:
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the development of certain of our current or future drug candidates may be terminated or delayed;
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our cash expenditures related to development of certain of our current or future drug candidates would increase significantly and we may need to seek additional financing;
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we may be required to hire additional employees or otherwise develop expertise, such as additional clinical, regulatory, sales and marketing expertise, for which we have not budgeted;
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we will bear all of the risk related to the development of any such drug candidates; and
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our future prospects may be adversely affected and our stock price could decline.
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If preclinical studies
and clinical trials of our drug candidates are not successful then our future profitability and success could be adversely affected.
In order to obtain regulatory approval for the commercial sale of our drug candidates, we and any current or potential future collaborators
will be required to complete extensive preclinical studies as well as clinical trials in humans to demonstrate to the FDA and foreign regulatory authorities that our drug candidates are safe and effective for each indication for which approval is
sought.
Development, including preclinical and clinical testing, is a long, expensive and uncertain process. Preclinical testing and
clinical trials of our drug candidates may not be successful. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development,
and we cannot be certain that we will not face similar setbacks. We and our collaborators could experience delays or failures in preclinical testing or clinical trials of any of our drug candidates for a number of reasons including, for example:
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preclinical studies or clinical trials may produce negative, inconsistent or inconclusive results;
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we or any collaborators may decide, or regulators may require us, to conduct additional preclinical studies or clinical trials or terminate testing for a particular drug candidate;
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the results from preclinical studies and early clinical trials may not be statistically significant or predictive of results that will be obtained from expanded, advanced clinical trials;
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preclinical and clinical data are often susceptible to varying interpretations and analyses and even if we, or our collaborators, believe that the results of clinical trials for our product candidates to be successful,
regulatory authorities may disagree with our interpretations and analyses;
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we may encounter difficulties or delays in manufacturing sufficient quantities of the drug candidate used in any preclinical study or clinical trial;
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we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
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the cost of clinical trials of our drug candidates may be greater than we anticipate;
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the timing and completion of clinical trials of our drug candidates depend on, among other factors, the number of patients required to be enrolled in the clinical trials and the rate at which those patients are
enrolled, and any increase in the required number of patients, decrease in recruitment rates or difficulties retaining trial participants may result in increased costs, program delays or program termination;
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our products under development may not be effective in treating cancer or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may prevent or limit their commercial use;
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we, our clinical investigators, or our current or potential future collaborators and subcontractors, may fail to comply with applicable regulatory requirements, including good clinical practices and requirements
regarding the disclosure of clinical trial information;
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institutional review boards, regulators, including the FDA or its foreign equivalents, or any collaborators may hold, suspend or terminate our clinical research or the clinical trials of our drug candidates for various
reasons, including failure to achieve established success criteria, noncompliance with regulatory requirements or if, in their opinion, the participating subjects are being exposed to unacceptable health risks; and
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we, along with any of our current or potential future collaborators and subcontractors, may not employ, in any capacity, persons who have been debarred under the FDAs Application Integrity Policy, or similar
policy under foreign regulatory authorities, nor may we or any of our current or potential future collaborators or subcontractors use disqualified clinical investigators or institutions to perform clinical trials of our drug candidates. Employment
or use of such a debarred or disqualified person or institution may result in delays in FDAs or foreign equivalents review or approval of our products, or the rejection of data developed with the involvement of such person(s) or
institution(s).
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If we are required to conduct additional clinical trials or other testing of our drug candidates beyond
those that we currently contemplate, if we are unable to successfully complete clinical trials of our drug candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety
concerns, we may:
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be delayed in obtaining marketing approval for our drug candidates;
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not obtain marketing approval at all;
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obtain approval for indications that are not as broad as intended or with labeling that highlights undesirable safety risks;
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have the product removed from the market after obtaining marketing approval;
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be subject to additional post-marketing testing requirements;
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be subject to restrictions on how the product is distributed or used; or
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be unable to obtain reimbursement for use of the product.
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If any of the above were to occur,
our reputation and our ability to raise additional capital will be materially impaired and our stock price is likely to decline.
If we experience
delays in the enrollment of patients in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented
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We may not be able to initiate or continue clinical trials for our drug candidates if we are unable to locate and enroll a sufficient number
of eligible patients to participate in these trials. Patient enrollment is a significant factor in the timing of clinical trials, and is affected by many factors, including:
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the size and nature of the patient population;
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the severity of the disease under investigation;
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the proximity of patients to clinical sites;
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the eligibility criteria and design for the trial; and
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clinicians and patients perceptions as to the potential advantages and risks of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the
indications we are investigating.
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In addition, many of our competitors have ongoing clinical trials for drug candidates
that could be competitive with our drug candidates. Patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors drug candidates or rely upon treatment with existing therapies that
may preclude them from eligibility for our clinical trials.
Enrollment delays in our clinical trials may result in increased development
costs for our drug candidates, which would cause the value of our stock price to decline. Moreover, our inability to enroll a sufficient number of patients for any of our current or future clinical trials, and/or the reporting of adverse events by
companies with competing drug candidates, could result in significant delays or may require us to abandon one or more clinical trials altogether.
We
rely in part on third parties to conduct clinical trials of our internally-developed drug candidates, and if such third parties perform inadequately, including failing to meet deadlines for the completion of such trials, research or testing, then we
will not be able to successfully develop and commercialize drug candidates and grow our business.
For the foreseeable future, we
expect to rely substantially on third parties such as consultants, clinical investigators, contract research organizations and other similar entities to complete certain aspects of our preclinical testing and clinical trials and provide services in
connection with such clinical trials. Despite having contractual remedies available to us under our agreements with such contractors, we cannot control whether or not they devote sufficient time, skill and resources to our ongoing development
programs. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. These third parties may not complete activities on schedule, or at all, or may not conduct our clinical trials in
accordance with the clinical trial protocol or design. In addition, the FDA and its foreign equivalents require us to comply with certain standards, referred to as good clinical practices, and applicable regulatory requirements, for conducting,
recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third parties that we
do not control does not relieve us of these responsibilities and requirements. If any of the third party contractors on whom we rely do not comply with good clinical practices or other applicable regulatory requirements, we may not be able to use
the data and reported results from the applicable trial. Any failure by a third party to conduct our clinical trials as planned or in accordance with regulatory requirements could delay or otherwise adversely affect our efforts to obtain regulatory
approvals for and commercialize our drug candidates.
If we and our collaborative partners do not obtain, or if there are delays in obtaining,
necessary regulatory approvals, then we will not be able to commercialize our drug candidates and our business will be materially impaired and the market price of our common stock could substantially decline.
We and our collaborators will be required to obtain regulatory approval in order to successfully advance drug candidates through the clinic
and prior to marketing and selling such products. We have limited experience in filing and prosecuting applications to obtain marketing approval. The process of obtaining required regulatory approvals is expensive and the time required for these
approvals is uncertain and typically takes a number of years, depending on the type, complexity and novelty of the product. During the course of this process, the FDA or a foreign equivalent may determine that a drug candidate is not effective, or
is only moderately effective, or has undesirable or unintended side effects, toxicities, safety profile or other characteristics that preclude our obtaining marketing approval. With respect to our internal programs, we have limited experience in
filing and prosecuting applications to obtain marketing approval.
Any regulatory approval to market a product may be subject to
limitations on the approved indicated uses for which we or our collaborative partners may market the product, to labeling that highlights undesirable safety risks, or to distribution and use restrictions or other requirements under a Risk Evaluation
and Mitigation Strategy, or REMS. These limitations may restrict the size of the market for the product and affect reimbursement by third-party payors. In addition, regulatory agencies may not grant approvals on a timely basis or may revoke or
significantly modify previously granted approvals.
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We and our collaborators are subject to numerous foreign regulatory requirements governing the
manufacturing and marketing of potential future products outside of the U.S. The approval procedure varies among countries, additional testing may be required in some jurisdictions, and the time required to obtain foreign approvals often differs
from that required to obtain FDA approvals. Moreover, approval by the FDA or a foreign equivalent does not ensure approval by regulatory authorities in other countries, and vice versa.
In addition, regulatory agencies may change existing requirements or adopt new requirements or policies. We and any collaborative partners may
be slow to adapt or may not be able to adapt to these changes or new requirements.
As a result of these factors, we and any collaborators
may not successfully begin or complete clinical trials and/or obtain regulatory approval to market and sell drug candidates in the time periods estimated, if at all. Moreover, if we or any collaborators incur costs and delays in development programs
or fail to successfully develop and commercialize products based upon our technologies, our ability to generate revenues will be materially impaired and our stock price could decline.
Any product candidate for which we obtain marketing approval could be subject to post-marketing restrictions or withdrawal from the market and we may be
subject to substantial penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with such products.
Even if we or any collaborators obtain regulatory approval of a drug candidate, such product, along with the manufacturing processes,
post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and
other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the
distribution of samples to physicians and recordkeeping.
The FDA may also impose requirements for costly post-marketing studies or
clinical trials and surveillance to monitor the safety or efficacy of the product, including the requirement to implement a risk evaluation and mitigation strategy. The FDA closely regulates the post-approval marketing and promotion of products to
ensure products are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers communications regarding off-label use and if we do not
market our products for their approved indications, we may be subject to enforcement action for, among other things, off-label marketing. Violations of the Federal Food, Drug, and Cosmetic Act relating to the promotion or manufacturing of
prescription products may lead to investigations by the FDA, Department of Justice, and state Attorneys General alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection laws.
In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing
processes, or failure to comply with regulatory requirements, may yield various results, including:
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restrictions on such products, manufacturers or manufacturing processes;
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restrictions on the labeling or marketing of a product;
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restrictions on product distribution or use;
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requirements to conduct post-marketing studies or clinical trials;
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withdrawal of the products from the market;
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refusal to approve pending applications or supplements to approved applications that we submit;
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fines, restitution or disgorgement of profits or revenue;
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suspension or withdrawal of regulatory approvals;
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refusal to permit the import or export of our products;
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injunctions or the imposition of civil or criminal penalties.
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Our current and future relationships with customers and third-party payors in the U.S. and elsewhere may be
subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil
penalties, contractual damages, reputational harm, administrative burdens, and diminished profits and future earnings.
Healthcare
providers, physicians and third-party payors in the U.S. and elsewhere will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third-party payors
and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for
which we obtain marketing approval. In addition, we may be subject to transparency laws and patient privacy regulation by U.S. federal and state governments and by governments in foreign jurisdictions in which we conduct our business. The applicable
federal, state, and foreign healthcare laws and regulations that may affect our ability to operate include:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to
induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid;
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federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which impose criminal and civil penalties, including civil whistleblower or
qui tam
actions,
against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid,
decrease or conceal an obligation to pay money to the federal government;
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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements
relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and their respective implementing regulations, which imposes obligations, including mandatory contractual terms, on
covered healthcare providers, health plans, and healthcare clearinghouses, as well as their business associates, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
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the federal Open Payments program, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Childrens Health Insurance Program,
with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments or other transfers of value made to physicians, and teaching hospitals with data collection,
requirements for manufacturers to submit reports to CMS on the 90th day of each calendar year, and disclosure of such information to be made by CMS on a publicly available website beginning in September 2014; and
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analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by
non-governmental third-party payors, including private insurers; state and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the relevant compliance guidance
promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to
physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are
not preempted by HIPAA, thus complicating compliance efforts.
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Efforts to ensure that our business arrangements with third
parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or
case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant
civil, criminal and administrative penalties,
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including, without limitation, damages, fines, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or
restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, it may be subject to criminal, civil or administrative
sanctions, including exclusions from participation in government funded healthcare programs.
Governments outside the United States tend to impose
strict price controls, which may adversely affect our revenues, if any.
In some countries, such as the countries of the EU, the
pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain
reimbursement or pricing approval in some countries, we, or our collaborators, may be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available therapies. If reimbursement of our products is
unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially harmed.
If we or any of our
collaborators fail to achieve market acceptance for any approved products, our future revenue and ability to achieve profitability may be adversely affected.
Our future products, including those developed under collaborations with third parties, may not gain commercial acceptance among physicians,
patients and third-party payors, even if necessary marketing approvals have been obtained. The degree of market acceptance of our drug candidates, if approved for commercial sale, will depend on a number of factors, including:
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the prevalence and severity of any side effects;
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efficacy and potential advantages compared to alternative treatments;
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the price we charge for our drugs;
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convenience and ease of administration compared to alternative treatments;
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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
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our ability to successfully develop companion diagnostics that effectively identify patient populations likely to benefit from treatment with our therapeutic products;
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the strength of marketing and distribution support; and
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sufficient third party coverage or reimbursement.
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The potential market opportunities for our
product candidates are difficult to precisely estimate. Our estimates of the potential market opportunities are predicated on many assumptions including industry knowledge and publications, third party research reports and other surveys. While we
believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherently uncertain and the reasonableness of these assumptions has not been assessed by an
independent source. If any of the assumptions proves to be inaccurate, the actual markets for our product candidates could be smaller than our estimates of the potential market opportunities.
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RISKS RELATED TO OUR BUSINESS, INDUSTRY, STRATEGY AND OPERATIONS
We and our collaborators may not achieve projected research, development, commercialization and marketing goals in the time frames that we or they
announce, which could have an adverse impact on our business and could cause our stock price to decline.
We set goals for, and make
public statements regarding, the timing of certain accomplishments, such as the commencement and completion of preclinical studies, initiation and completion of clinical trials, and other developments and milestones under our proprietary programs
and those programs being developed under collaboration agreements. Genentech is a wholly-owned member of the Roche Group, and Roche has also made public statements regarding its expectations for the clinical development, commercialization and
marketing of Erivedge, and may in the future make additional statements about its goals and expectations for Erivedge and/or its collaboration with us. The actual timing of these events can vary dramatically due to a number of factors including
without limitation delays or failures in our and our current and potential future collaborators preclinical studies or clinical trials, the amount of time, effort and resources committed to our programs by us and our current and potential
future collaborators and the uncertainties inherent in the regulatory approval and commercialization process. As a result:
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our or our current and potential future collaborators preclinical studies and clinical trials may not advance or be completed in the time frames we or they announce or expect;
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we or our current and potential future collaborators may not make regulatory submissions, receive regulatory approvals or commercialize approved products as planned; and
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we or our current and potential future collaborators may not be able to adhere to our current schedule for the achievement of key milestones under any of our internal or collaborative programs.
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If we or any collaborators fail to achieve research, development and commercialization goals as planned, our business could be materially
adversely affected and the price of our common stock could decline.
We face substantial competition, which may result in our competitors discovering,
developing or commercializing products before or more successfully than we do.
Our drug candidates face competition from existing and
new technologies and products being developed by biotechnology, medical device and pharmaceutical companies, as well as universities and other research institutions. For example, we are aware of several biotechnology and pharmaceutical companies
that have drug development programs relating to compounds that modulate the Hedgehog pathway. We believe that there are currently at least five other companies that have progressed Hedgehog pathway inhibitors into clinical development: Eli Lilly and
Company, Exelixis, Inc. (in co-development with the Bristol-Myers Squibb Company); Pfizer Inc.; Novartis; and Millennium: The Takeda Oncology Company. Novartis recently announced that its Hedgehog pathway inhibitor met the primary endpoint in a
pivotal phase 2 trial in patients with advanced basal cell carcinoma. Under the terms of our collaboration agreement with Genentech, our royalty would be reduced in any country where another drug that binds to the same molecular target receives
regulatory approval for the same indication as Erivedge and is subsequently commercialized in that country.
In addition, there are
several companies developing drug candidates that target the same molecular targets that we are targeting or that are testing drug candidates in the same cancer indications that we are testing. For example, while we are not aware of other molecules
in clinical testing that are designed as one chemical entity to target both PI3K and HDAC, there are commercially-available drugs that individually target HDAC or PI3K and there are multiple companies testing HDAC or PI3K inhibitors that are in
various stages of clinical development. In addition, Debiopharm, Novartis and TetraLogic are all developing antagonists of IAP proteins and several companies are investigating HSP90 inhibitors.
Many of our competitors have substantially greater capital resources, research and development staffs and facilities, and more extensive
experience than we have. As a result, efforts by other biotechnology, medical device and pharmaceutical companies could render our programs or products uneconomical or result in therapies superior to those that we develop alone or with a
collaborator. For those programs that we have selected for internal development, we face competition from companies that are more experienced in product development and commercialization, obtaining regulatory approvals and product manufacturing.
Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Other smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient
registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our
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programs. As a result, any of these companies may be more successful in obtaining collaboration agreements or other monetary support, approval and commercialization of their products and/or may
develop competing products more rapidly and/or at a lower cost.
If we are not able to compete effectively, then we may not be able,
either alone or with others, to advance the development and commercialization of our drug candidates, which would adversely affect our ability to grow our business and become profitable.
Product liability lawsuits against us could divert our resources, cause us to incur substantial liabilities and limit commercialization of any products
that we may develop.
Product liability claims are inherent in the process of researching, developing and commercializing human health
care products and could expose us to significant liabilities and prevent or interfere with the development or commercialization of our drug candidates. Any such product liability claims may include allegations of defects in manufacturing, defects in
design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Regardless of their merit or eventual outcome, product liability claims would require us to spend significant time, money and other
resources to defend such claims, could result in:
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decreased demand for our product candidates or products that we may develop;
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injury to our reputation and significant negative media attention;
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withdrawal of clinical trial participants;
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significant costs to defend resulting litigation;
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substantial monetary awards to trial participants or patients;
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reduced resources of our management to pursue our business strategy; and
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the inability to commercialize any products that we may develop
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Although we currently have
product liability insurance for our clinical trials, this insurance is subject to deductibles and coverage limitations and may not be adequate in scope to protect us in the event of a successful product liability claim. Product liability insurance
is expensive and may be difficult to retain. As such, it is possible that we will not be able to retain product liability insurance on acceptable terms, if at all, or that our product liability insurance coverage will prove to be inadequate to
protect us from all potential claims.
If we are not able to attract and retain key management and scientific personnel and advisors, we may not
successfully develop our drug candidates or achieve our other business objectives.
We depend upon our senior management team. The
loss of the service of any of the key members of our senior management may significantly delay or prevent the achievement of product development and other business objectives. Our officers all serve pursuant to at will employment
arrangements and can terminate their employment with us at any time. We do not maintain key man life insurance on any of these officers. Replacing key employees may be difficult and may take an extended period of time because of the limited number
of individuals in our industry with the breadth of skills and experience required to research, develop and successfully commercialize products in our areas of core competency.
Our ability to operate successfully will depend on our ability to attract and retain qualified personnel, consultants and advisors. We face
intense competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities, governmental entities and other research institutions. We may be unable to attract and retain these individuals, and our failure to
do so would have an adverse effect on our business.
We may seek to acquire complementary businesses and technologies or otherwise seek to expand our
operations to grow our business, which may divert management resources and adversely affect our financial condition and operating results.
We may seek to expand our operations, including without limitation through internal growth and/or the acquisition of businesses and
technologies that we believe are a strategic complement to our business model. We may not be able to identify suitable acquisition candidates or expansion strategies and successfully complete such acquisitions or successfully
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execute any such other expansion strategies. We may never realize the anticipated benefits of any efforts to expand our business. Furthermore, the expansion of our business, either through
internal growth or through acquisitions, poses significant risks to our existing operations, financial condition and operating results, including:
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a diversion of management from our existing operations;
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increased operating complexity of our business, requiring greater personnel and resources;
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significant additional cash expenditures to expand our operations and acquire and integrate new businesses and technologies;
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unanticipated expenses and potential delays related to integration of the operations, technology and other resources of any acquired companies;
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uncertainty related to the value, benefits or legitimacy of intellectual property or technologies acquired;
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retaining and assimilating key personnel and the potential impairment of relationships with our employees;
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incurrence of debt, other liabilities and contingent liabilities, including potentially unknown contingent liabilities; and
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dilutive stock issuances.
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Any business that we conduct in China will expose us to risks resulting from
adverse changes in political, legal and economic policies of the Chinese government, which could impede our efforts in China and materially and adversely affect the development of our targeted cancer drug candidates.
We have a subsidiary in China, Curis Shanghai, which is currently licensed to conduct business but is not operational.
Conducting business in China exposes us to a variety of risks and uncertainties that are unique to China. The economy of China has been
transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of
productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the Chinese government. In addition, the Chinese government continues to play a
significant role in regulating industrial development. It also exercises significant control over Chinas economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary
policy and providing preferential treatment to particular industries or companies. Recent evidence of a slowdown in the pace of growth of the Chinese economy could result in interruptions of our development efforts in China. If our research and
development efforts in China are delayed due to such interruptions, we may not realize the reductions in costs anticipated from doing business in China. We would also have to consider moving our chemistry and/or biology research that is currently
conducted by contract research organizations in China to U.S. or European providers, thereby potentially either increasing our overall costs for such services or reducing the total number of chemists and or/biologists that we could engage. In
addition, we cannot predict the effect of future developments in the Chinese legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by
national laws. Our business could be materially harmed by any changes in the political, legal or economic climate in China or the inability to enforce applicable Chinese laws and regulations.
If the estimates we make and the assumptions on which we rely in preparing our financial statements prove inaccurate, our actual results may vary
significantly.
Our financial statements have been prepared in accordance with generally accepted accounting principles, or GAAP. The
preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, the amounts of charges taken by us and related disclosure. Such estimates and
judgments include the carrying value of our property, equipment and intangible assets, revenue recognition, the value of certain liabilities, including the fair value of our warrant liability, the repayment term of our loan with BioPharma-II and
stock-based compensation expense. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. However, these estimates and judgments, or the assumptions
underlying them, may change over time. Accordingly, our actual financial results may vary significantly from the estimates contained in our financial statements.
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For a further discussion of the estimates and judgments that we make and the critical accounting
policies that affect these estimates and judgments, see Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies and Estimates set forth in this Quarterly Report on Form
10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2013.
Our business and operations would suffer in the event of system
failures.
Despite the implementation of security measures, our internal computer systems are vulnerable to damage from computer
viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Any system failure, accident or security breach that causes interruptions in our operations could result in a material disruption of our
product development programs. To the extent that any disruption or security breach results in a loss or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we may incur liability and the
further development of our drug candidates may be delayed.
RISKS RELATING TO OUR INTELLECTUAL PROPERTY
We may not be able to obtain and maintain patent protection for our technologies and products, our licensors may not be able to obtain and maintain patent
protection for the technology or products that we license from them and the patent protection we or they do obtain may not be sufficient to stop our competitors from using similar technology.
The long-term success of our business depends in significant part on our ability to:
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obtain patents to protect our technologies and discoveries;
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protect trade secrets from disclosure to third-party competitors;
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operate without infringing upon the proprietary rights of others; and
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prevent others from infringing on our proprietary rights.
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The patent positions of
pharmaceutical and life science companies, including ours, are generally uncertain and involve complex legal, scientific and factual questions. The laws, procedures and standards that the U.S. Patent and Trademark Office and various foreign
intellectual property offices use to grant patents, and the standards that courts use to interpret patents, are not always applied predictably or uniformly and have changed in significant ways and are expected to continue to change. In addition, the
laws of foreign countries may not protect our rights to the same extent or in the same manner as the laws of the U.S. For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does.
Consequently, the level of protection, if any, that will be obtained and provided by our patents if we attempt to enforce them, and they are challenged, is uncertain.
Patents may not issue from any of the patent applications that we own or license. If patents do issue, the type and extent of patent claims
issued to us may not be sufficient to protect our technology from exploitation by our competitors. Our patents also may not afford us protection against competitors with similar technology. Assuming the other requirements for patentability are met,
currently, the first to file a patent application is generally entitled to the patent. Prior to March 16, 2013, in the United States, patent applications were subject to a first to invent rule of law. Applications filed on or after
March 16, 2013 (with the exception of certain applications claiming priority to applications filed prior to March 16, 2013, such as continuations and divisionals) are subject to a first to file rule of law. Publications of
discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Additionally, how
the U.S. Patent & Trademark Office and U.S. courts will interpret the new laws remains significantly uncertain at this time. We cannot be certain that any existing or future application will be subject to the first to file or
first to invent rule of law, that we were the first to make the inventions claimed in our existing patents or pending patent applications subject to the prior laws, or that we were the first to file for patent protection of such
inventions subject to the new laws.
We may not have rights under patents that may cover one or more of our drug candidates. In some
cases, these patents may be owned or controlled by third-party competitors and may prevent or impair our ability to exploit our technology. As a result, we or our current or potential future collaborative partners may be required to obtain licenses
under third-party patents to develop and commercialize some of our drug candidates. If we are unable to secure licenses to such patented technology on acceptable terms, we or our collaborative partners may not be able to develop and commercialize
the affected drug candidate or candidates.
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It is also possible that we will fail to identify patentable aspects of our research and
development output before it is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering
technology or products that we license from third parties and are reliant on our licensors. For example, we do not control the prosecution of certain patent rights licensed to us under our IAP agreement with Genentech. Therefore, we cannot be
certain that these patents and applications will be prosecuted and enforced in a manner consistent with the best interests of our business.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may
be challenged in the courts or patent offices in the U.S. and abroad. Such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or
commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of new drug candidates,
patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing
products similar or identical to ours.
We may become involved in expensive and unpredictable patent litigation or other contentious intellectual
property proceedings, which could result in liability for damages or require us to cease our development and commercialization efforts.
There are substantial litigation and other adversarial opposition proceedings regarding patent and other intellectual property rights in the
pharmaceutical and life science industries. We may become a party to patent litigation or other proceedings regarding intellectual property rights.
Situations that may give rise to patent litigation or other disputes over the use of our intellectual property include:
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initiation of litigation or other proceedings against third parties to enforce our patent rights, to seek to invalidate the patents held by these third parties or to obtain a judgment that our drug candidates do not
infringe the third parties patents;
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participation in interference and/or derivation proceedings to determine the priority of invention if our competitors file U.S. patent applications that claim technology also claimed by us;
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initiation of opposition, reexamination, post grant review or inter partes review proceedings by third parties that seek to limit or eliminate the scope of our patent protection;
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initiation of litigation by third parties claiming that our processes or drug candidates or the intended use of our drug candidates infringes their patent or other intellectual property rights; and
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initiation of litigation by us or third parties seeking to enforce contract rights relating to intellectual property that may be important to our business.
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The costs associated with any patent litigation or other proceeding, even if resolved favorably, will likely be substantial and a distraction
to management. Some of our competitors may be able to sustain the cost of such litigation or other proceedings more effectively than we can because of their substantially greater financial resources. In addition, our collaborators and licensors may
have rights to file and prosecute claims of infringement of certain of our intellectual property and we are reliant on them. If a patent litigation or other intellectual property proceeding is resolved unfavorably, we or any collaborative partners
may be enjoined from manufacturing or selling our future products without a license from the other party and be held liable for significant damages. Moreover, we may not be able to obtain required licenses on commercially acceptable terms or any
terms at all. In addition, we could be held liable for lost profits if we are found to have infringed a valid patent, or liable for treble damages if we are found to have willfully infringed a valid patent. Litigation results are highly
unpredictable and we or any collaborative partner may not prevail in any patent litigation or other proceeding in which we may become involved. Any changes in, or unexpected interpretations of the patent laws may adversely affect our ability to
enforce our patent position. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could damage our ability to compete in the marketplace.
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We face risks relating to the enforcement of our intellectual property rights in China that could adversely
affect our business.
We have historically conducted synthetic chemistry work through a contract research agreement with a medicinal
chemistry provider in China. We seek to protect our intellectual property rights under this arrangement through, among other things, non-disclosure and assignment of invention covenants. Enforcement of intellectual property rights and
confidentiality protections in China may not be as effective as in the U.S. or other countries. Policing unauthorized use of proprietary technology is difficult and expensive, and we might need to resort to litigation to enforce or defend patents
issued to us or to determine the enforceability, scope and validity of our proprietary rights or those of others. The experience and capabilities of Chinese courts in handling intellectual property litigation varies, and outcomes are unpredictable.
Further, such litigation may require significant expenditure of cash and management efforts and could harm our business, financial condition and results of operations. An adverse determination in any such litigation will impair our intellectual
property rights and may harm our business, prospects and reputation.
If we are unable to keep our trade secrets confidential, our technology and
proprietary information may be used by others to compete against us.
We rely significantly on trade secrets, including unpatented
know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect this information through confidentiality and intellectual property license or assignment provisions in agreements with our employees,
consultants and other third-party contractors, including our contract research agreement with a medicinal chemistry provider in China, as well as through other security measures. The confidentiality and intellectual property provisions of our
agreements and security measures may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors.
If we fail to comply with our obligations in the agreements under which we license rights to technology from third parties, we could lose license rights
that are important to our business.
We are party to agreements that provide for licenses to us of intellectual property or sharing of
rights to intellectual property that is important to our business, and we may enter into additional agreements in the future that provide licenses to us of valuable technology. These licenses impose, and future licenses may impose, various
commercialization, milestone and other obligations on us, including the obligation to terminate our use of patented subject matter under certain contingencies. If a licensor becomes entitled to, and exercises, termination rights under a license, we
would lose valuable rights and could lose our ability to develop our products. We may need to license other intellectual property to commercialize future products. Our business may suffer if any current or future licenses terminate, if the licensors
fail to abide by the terms of the license or fail to prevent infringement by third parties, if the licensed patents or other rights are found to be invalid or if we are unable to enter into necessary licenses on acceptable terms.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at other biotechnology or
pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets
or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to
management.
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RISKS RELATING TO MANUFACTURING AND SALES
We depend on third parties to produce our drug candidates, and if these third parties do not successfully formulate or manufacture these drug candidates,
our business will be harmed.
We have no manufacturing experience or manufacturing capabilities. In order to continue to develop drug
candidates, apply for regulatory approvals, and commercialize products, we or any collaborators must be able to manufacture drug candidates in adequate clinical and commercial quantities, in compliance with regulatory requirements, including those
related to quality control and quality assurance, at acceptable costs and in a timely manner. The manufacture of our drug candidates may be complex, difficult to accomplish and difficult to scale-up when large-scale production is required.
Manufacture may be subject to delays, inefficiencies and poor or low yields of quality products. The cost of manufacturing some of our drug candidates may make them prohibitively expensive.
To the extent that we or any collaborators seek to enter into manufacturing arrangements with third parties, we and such collaborators will
depend upon these third parties to perform their obligations in a timely and effective manner and in accordance with government regulations. Contract manufacturers may breach their manufacturing agreements because of factors beyond our and our
collaborators control or may terminate or fail to renew a manufacturing agreement based on their own business priorities at a time that is costly or inconvenient for us and our collaborators.
Any contract manufacturers with whom we or our collaborators enter into manufacturing arrangements will be subject to ongoing periodic,
unannounced inspection by the FDA and corresponding state and foreign agencies or their designees to ensure strict compliance with current good manufacturing practices and other governmental regulations and corresponding foreign standards. Any
failure by contract manufacturers, collaborators, or us to comply with applicable regulations could result in sanctions being imposed, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of
drug candidates, delays, suspension or withdrawal of approvals, imposition of clinical holds, seizures or recalls of drug candidates, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our
business. If we or a collaborator need to change manufacturers, the FDA and corresponding foreign regulatory agencies must approve any new manufacturers in advance. This would involve testing and pre-approval inspections to ensure compliance with
FDA and foreign regulations and standards.
If third-party manufacturers fail to perform their obligations, our competitive position and
ability to generate revenue may be adversely affected in a number of ways, including;
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we and any collaborators may not be able to initiate or continue certain preclinical and/or clinical trials of products that are under development;
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we and any collaborators may be delayed in submitting applications for regulatory approvals for our drug candidates; and
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we and any collaborators may not be able to meet commercial demands for any approved products.
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Because we
rely on a limited number of suppliers for the raw materials used in our drug candidates, any delay or interruption in the supply of such raw materials could lead to delays in the manufacture and supply of our drug candidates.
We rely on third parties to supply certain raw materials necessary to produce our drug candidates for preclinical studies and clinical trials.
There are a small number of suppliers for certain raw materials that we use to manufacture our drug candidates. We purchase these materials from our suppliers on a purchase order basis and do not have long-term supply agreements in place. Such
suppliers may not sell these raw materials to us at the times we need them or on commercially reasonable terms, or delivery of these raw materials may be delayed or interrupted. Although we generally do not begin a preclinical study or clinical
trial unless we believe we have a sufficient supply of a drug candidate to complete such study or trial, any significant delay in the supply of raw materials for our drug candidates for an ongoing clinical trial due to the need to replace a
third-party supplier could considerably delay completion of certain preclinical studies and/or clinical trials. Moreover, if we were unable to purchase raw materials after regulatory approval had been obtained for our drug candidates, the commercial
launch of our drug candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of our drug candidates.
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We have no sales or marketing experience and, as such, plan to depend significantly on third parties who may
not successfully market and sell any products we develop.
We have no sales, marketing or product distribution experience or
capabilities. If we receive required regulatory approvals to commercialize any of our drug candidates, we plan to rely primarily on sales, marketing and distribution arrangements with third parties, including our collaborative partners. For example,
as part of our agreements with Genentech and Debiopharm, we have granted Genentech and Debiopharm the exclusive rights to distribute certain products resulting from such collaborations, and Genentech is currently commercializing Erivedge. We may
have to enter into additional marketing and/or sales arrangements in the future and we may not be able to enter into these additional arrangements on terms that are favorable to us, if at all. In addition, we may have limited or no control over the
sales, marketing and distribution activities of these third parties and sales through these third parties could be less profitable to us than direct sales. These third parties could sell competing products and may devote insufficient sales efforts
to our products. Our future revenues will be materially dependent upon the success of the efforts of these third parties.
We may seek to
independently market and sell products that are not already subject to agreements with other parties. If we determine to perform sales, marketing and distribution functions ourselves, we could face a number of additional risks, including:
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we may not be able to attract and build a significant and skilled marketing staff or sales force;
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the cost of establishing a marketing staff or sales force may not be justifiable in light of the revenues generated by any particular product; and
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our direct sales and marketing efforts may not be successful.
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Even if we successfully commercialize any
products under development, either alone or in collaboration, we face uncertainty with respect to pricing, third-party reimbursement and healthcare reform, all of which could adversely affect the commercial success of our drug candidates.
Our ability to collect significant revenues from sales of our products, if commercialized successfully, may depend on our ability, and the
ability of any current or potential future collaboration partners or customers, to obtain adequate levels of coverage and reimbursement for such products from third-party payers such as:
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government health administration authorities;
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private health insurers;
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health maintenance organizations;
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pharmacy benefit management companies; and
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other healthcare-related organizations.
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A primary trend in the U.S. healthcare industry and
elsewhere is cost containment. Third party payers are increasingly challenging the prices charged for medical products and services. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of
reimbursement for particular medications. We cannot be sure that reimbursement will be available for any product that we commercialize and, if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the
price of, any drug candidate for which we obtain marketing approval. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any drug candidate for which we obtain marketing
approval.
There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the
purposes for which the drug is approved by the FDA or a foreign equivalent. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development,
manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be
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sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on
reimbursement levels already set for lower cost drugs, and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private
payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the US. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting
their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating
results, our ability to raise capital needed to commercialize products and our overall financial condition.
In the United States and some
foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of any product candidate that we develop, restrict or regulate
post-approval activities and affect our ability to profitably sell profitably or commercialize any product candidate for which we obtain marketing approval or that we may in-license. The pharmaceutical industry has been a particular focus of these
efforts and has been significantly affected by legislative initiatives. Current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on
the price that we receive for any approved product.
In the United States, the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003, or the MMA, changed the way Medicare covers and pays for pharmaceutical products. Cost reduction initiatives and other provisions of this legislation could limit coverage of and reduce the price that we receive for any approved
products. While the MMA applies only to product benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement
that results from the MMA or other healthcare reform measures may result in a similar reduction in payments from private payors.
In March
2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively PPACA. Among the provisions of PPACA of importance to our potential
products are the following:
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an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government
healthcare programs;
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an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively;
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expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;
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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage
gap period, as a condition for a manufacturers outpatient drugs to be covered under Medicare Part D;
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extension of manufacturers Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
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expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain
individuals with income at or below 133% of the federal poverty level beginning in 2014, thereby potentially increasing a manufacturers Medicaid rebate liability;
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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
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the new requirements under the federal Open Payments program and its implementing regulations;
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a new requirement to annually report product samples that manufacturers and distributors provide to physicians; and
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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
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In addition, other legislative changes have been proposed and adopted since PPACA was enacted
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These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013
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In January 2013, President Obama signed into law the American Taxpayer Relief Act of
2012, which, among other things, reduced Medicare payments to several types of providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years
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These new laws may
result in additional reductions in Medicare and other healthcare funding.
Legislative and regulatory proposals have been made to expand
post-approval requirements and restrict sales and promotional activities for pharmaceutical products
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We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will
be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, or in-licensed products, if any, may be
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RISKS RELATED TO OUR COMMON STOCK
Our
stock price may fluctuate significantly and the market price of our common stock could drop below the price paid.
The trading price
of our common stock has been volatile and is likely to continue to be volatile in the future. For example, our stock traded within a range of a high price of $5.65 and a low price of $1.60 per share for the period January 1, 2012 through
August 1, 2014. The stock market, particularly in recent years, has experienced significant volatility with respect to pharmaceutical and biotechnology company stocks. Prices for our stock will be determined in the marketplace and may be
influenced by many factors, including:
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announcements regarding new technologies and/or drug candidates by us or our competitors;
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market conditions in the biotechnology and pharmaceutical sectors;
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rumors relating to us or our collaborators or competitors;
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litigation or public concern about the safety of our drug candidates;
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actual or anticipated variations in our quarterly operating results and any subsequent restatement of such results;
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the amount and timing of any royalty revenue we receive from Genentech related to Erivedge;
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actual or anticipated changes to our research and development plans;
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deviations in our operating results from the estimates of securities analysts;
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entering into new collaboration agreements or termination of existing collaboration agreements;
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adverse results or delays in clinical trials being conducted by us or any collaborators;
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any intellectual property or other lawsuits involving us;
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third-party sales of large blocks of our common stock;
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sales of our common stock by our executive officers, directors or significant stockholders;
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equity sales by us of our common stock to fund our operations;
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the loss of any of our key scientific or management personnel;
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FDA or international regulatory actions;
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the limited trading volume in our common stock; and
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general economic and market conditions, including recent adverse changes in the domestic and international financial markets.
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While we cannot predict the individual effect that these factors may have on the price of our common stock, these factors, either individually
or in the aggregate, could result in significant variations in price during any given period of time.
In the past, securities class
action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our managements attention and resources.
Future sales of shares of our common stock, including shares issued upon the exercise of currently outstanding options and warrants or pursuant to our
universal shelf registration statement could result in dilution to our stockholders and negatively affect our stock price.
Most of
our outstanding common stock can be traded without restriction at any time. As such, sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the
holders of a large number of shares intend to sell such shares, could reduce the market price of our common stock. In addition, we have a significant number of shares that are subject to outstanding options and warrants and in the future we may
issue additional options, warrants or other derivative securities convertible into our common stock. The exercise of any such options, warrants or other derivative securities, and the subsequent sale of the underlying common stock could cause a
further decline in our stock price. These sales also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Furthermore, as of June 30, 2014, we have outstanding warrants to purchase 1,373,517 shares of our common stock that contain antidilution
adjustment provisions that will result in a decrease in the price and an increase in the number of shares of common stock issuable upon exercise of such warrants in the event of certain issuances of common stock by us at prices below $3.55 per
share. To the extent that we are required to adjust the price and number of shares underlying these warrants as a result of this antidilution clause, and thereafter such warrants are exercised, additional shares of our common stock will be
issued that will be eligible for resale in the public market, which could result in added dilution to our security holders and could also have an adverse effect on the market price of our common stock.
We currently have on file with the SEC a universal shelf registration statement which allows us to offer and sell registered
common stock, preferred stock and warrants from time to time pursuant to one or more offerings at prices and terms to be determined at the time of sale. For example, in July 2013 we entered into a sales agreement with Cowen pursuant to which, from
time to time, we may offer and sell through Cowen, acting as agent, up to $30,000,000 of the registered common stock that was on this shelf registration statement pursuant to one or more at the market offerings. We have received gross
proceeds of approximately $16,900,000 as of June 30, 2014 through such sales. In addition, with our prior written approval, Cowen may also sell these shares of common stock by any other method permitted by law, including in privately negotiated
transactions. Sales of substantial amounts of shares of our common stock or other securities under this registration statement could lower the market price of our common stock and impair our ability to raise capital through the sale of equity
securities.
If we are not able to maintain effective internal controls under Section 404 of the Sarbanes-Oxley Act, our business and stock price
could be adversely affected
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Section 404 of the Sarbanes-Oxley Act of 2002 requires us, on an annual basis, to review and
evaluate our internal controls, and requires our independent auditors to attest to the effectiveness of our internal controls. Any failure by us to maintain the effectiveness of our internal controls in accordance with the requirements of
Section 404 of the Sarbanes-Oxley Act, as such requirements exist today or may be modified, supplemented or amended in the future, could have a material adverse effect on our business, operating results and stock price.
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We do not intend to pay dividends on our common stock, and any return to investors will come, if at all, only
from potential increases in the price of our common stock.
At the present time, we intend to use available funds to finance our
operations. Accordingly, while payment of dividends rests within the discretion of our board of directors, no common stock dividends have been declared or paid by us and we have no intention of paying any common stock dividends in the foreseeable
future.
Insiders have substantial influence over us and could delay or prevent a change in corporate control.
As of June 30, 2014, we believe that our directors, executive officers and principal stockholders, together with their affiliates, owned,
in the aggregate, approximately 23% of our outstanding common stock. As a result, these stockholders, if acting together, will be able to exert influence over the management and affairs of our company and over matters requiring stockholder approval,
including the election of directors and approval of significant corporate transactions. This concentration of ownership could harm the market price of our common stock by:
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delaying, deferring or preventing a change in control of our company;
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impeding a merger, consolidation, takeover or other business combination involving our company; or
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entrenching our management or the board of directors.
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We have anti-takeover defenses that could delay or
prevent an acquisition that our stockholders may consider favorable or prevent attempts by our stockholders to replace or remove our current management and the market price of our common stock may be lower as a result.
Provisions of our certificate of incorporation, our bylaws and Delaware law may have the effect of deterring unsolicited takeovers or delaying
or preventing changes in control of our management, including transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best interest. For example, we have divided our board of directors into three classes that serve staggered three-year terms, we may issue shares of our authorized blank
check preferred stock and our stockholders are limited in their ability to call special stockholder meetings.
In addition, we are
subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person
which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. These provisions could discourage, delay or prevent a change in control transaction.