Set forth below and elsewhere in this report, and in other documents we file
with the SEC are descriptions of risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. Because of the following factors, as well as
other variables affecting our operating results, past financial performance should not be considered a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends in future periods. The
risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our results of operations and financial condition.
Risks Relating to our Business
We cannot be certain
that our most advanced product candidate tecemotide will be successfully developed or receive regulatory approval or be successfully commercialized.
Our most advanced cancer vaccine product candidate, tecemotide, is being evaluated for the treatment of NSCLC. Under our license agreement with Merck
KGaA for tecemotide, Merck KGaA is entirely responsible for the development, manufacture and worldwide commercialization of tecemotide. In December 2012, Merck KGaA announced that the Phase 3 START trial of tecemotide did not meet its primary
endpoint of an improvement in overall survival in patients with unresectable, locally advanced Stage IIIA or Stage IIIB NSCLC. Merck KGaA announced, however, that notable treatment effects were seen for tecemotide in certain subgroups and in May
2013, Merck KGaA announced that in a predefined subgroup of patients receiving initial concurrent chemoradiotherapy, a combination of chemotherapy and radiotherapy given at the same time, a median overall survival of 30.8 months versus 20.6 months
was observed based on a post hoc analysis in patients treated with tecemotide versus placebo respectively. Merck Serono, the biopharmaceutical division of Merck KGaA, is conducting a new Phase 3 trial called START2 based on the outcome of the prior
START trial. START2 is a Phase 3, multicenter, randomized, double-blind, placebo-controlled clinical trial designed to assess the efficacy, safety and tolerability of tecemotide in 1,000 patients with unresectable, locally advanced (Stage IIIA or
IIIB) NSCLC who have had a response or stable disease after at least two cycles of platinum-based concurrent chemoradiotherapy. In addition, the ongoing clinical program of tecemocide that includes studies in the Asia Pacific region is continuing.
Before being able to submit a biologic license application or its foreign equivalent for approval, we expect that Merck KGaA must successfully complete START2 and/or other clinical trials in NSCLC. This process could take many years and require the
expenditure of substantial resources, and may ultimately be unsuccessful.
Pursuant to our agreement with Merck KGaA, Merck KGaA is responsible for
the development and the regulatory approval process and any subsequent commercialization of tecemotide. We cannot assure you that Merck KGaA will complete additional clinical trials of tecemotide or continue to advance the development and
commercialization of tecemotide. In the event ongoing clinical trials proceed or additional clinical trials are pursued and these clinical trials fail to demonstrate that tecemotide is safe and effective, it will not receive regulatory approval.
Even if tecemotide receives regulatory approval, it may never be successfully commercialized. If tecemotide does not receive regulatory approval or is not successfully commercialized, or if Merck KGaA decides not to continue to advance the
development and commercialization of tecemotide, we may not be able to generate revenue, become profitable or continue our operations which would have a material adverse effect on our business, operating results, and financial condition and could
result in a substantial decline in the price of our common stock.
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Products that appear promising in research and development may be delayed or may fail to reach later
stages of clinical development.
The successful development of pharmaceutical products is highly uncertain. Products that appear promising
in research and development may be delayed or fail to reach later stages of development. For example, our product candidate tecemotide did not meet its primary endpoint in a Phase 3 clinical trial and the Phase 2 clinical trials for PX-866 failed to
demonstrate that PX-866 is sufficiently effective to warrant further development. In addition, the ongoing Phase 1 trials for ONT-380 and ONT-10 may fail to demonstrate that ONT-380 or ONT-10 is sufficiently safe and effective to warrant further
development.
Furthermore, decisions regarding the further development of product candidates must be made with limited and incomplete data, which
makes it difficult to ensure or even accurately predict whether the allocation of limited resources and the expenditure of additional capital on specific product candidates will result in desired outcomes. Preclinical and clinical data can be
interpreted in different ways, and negative or inconclusive results or adverse medical events during a clinical trial could delay, limit or prevent the development of a product candidate, which could harm our business, financial condition and
results or the trading price of our securities. There can be no assurance as to whether or when we will receive regulatory approvals for any of our product candidates, including tecemotide, ONT-380 or ONT-10.
Tecemotide and ONT-10 are based on novel technologies, which may raise new regulatory issues that could delay or make FDA or foreign regulatory
approval more difficult.
The process of obtaining required FDA, and other regulatory approvals, including foreign approvals, is expensive,
often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. Tecemotide and ONT-10 are novel; therefore, regulatory agencies may lack experience with them, which may lengthen the regulatory
review process, increase our development costs and delay or prevent commercialization of tecemotide, ONT-10 and our other active vaccine products under development.
To date, the FDA has approved for commercial sale in the United States only one active vaccine designed to stimulate an immune response against cancer.
Consequently, there is limited precedent for the successful development or commercialization of products based on our technologies in this area. This may lengthen the regulatory review process, increase our development costs and delay or prevent
commercialization of our products under development.
If we fail to acquire and develop products or product candidates at all or on
commercially reasonable terms, we may be unable to grow our business.
The success of our product pipeline strategy depends, in part, on
our ability to identify, select and acquire product candidates. Proposing, negotiating and implementing an economically viable product acquisition or license is a lengthy and complex process. We compete for partnering arrangements and license
agreements with pharmaceutical and biotechnology companies and academic research institutions. Our competitors may have stronger relationships with third parties with whom we are interested in collaborating or may have more established histories of
developing and commercializing products. As a result, our competitors may have a competitive advantage in entering into partnering arrangements with such third parties. In addition, even if we find promising product candidates, and generate interest
in a partnering or strategic arrangement to acquire such product candidates, we may not be able to acquire rights to additional product candidates or approved products on terms that we find acceptable, if at all. If we fail to acquire and develop
product candidates from others, we may be unable to grow our business.
We expect that any product candidate to which we acquire rights will
require additional development efforts prior to commercial sale, including extensive clinical evaluation and approval by the FDA and non-U.S. regulatory authorities. All product candidates are subject to the risks of failure inherent in
pharmaceutical product development, including the possibility that the product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. Even if the product candidates are approved, we can make no
assurance that we would be capable of economically producing the product or that the product would be commercially successful.
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We have a history of net losses, we anticipate additional losses and we may never become profitable.
Other than the year ended December 31, 2008, we have incurred net losses in each fiscal year since we commenced our research
activities. The net income we realized in 2008 was due entirely to our December 2008 transactions with Merck KGaA, and we do not anticipate realizing net income again for the foreseeable future. As of June 30, 2014, our accumulated deficit was
approximately $447.7 million. Our losses have resulted primarily from expenses incurred in research and development of our product candidates. We may make significant capital commitments to fund the development of our product candidates. If these
development efforts are unsuccessful, the development costs would be incurred without any future revenue, which could have a material adverse effect on our financial condition. We do not know when or if we will complete our product development
efforts, receive regulatory approval for any of our product candidates, or successfully commercialize any approved products. As a result, it is difficult to predict the extent of any future losses or the time required to achieve profitability, if at
all. Any failure of our products to complete successful clinical trials and obtain regulatory approval and any failure to become and remain profitable would adversely affect the price of our common stock and our ability to raise capital and continue
operations.
There is no assurance that we will be granted regulatory approval for any of our product candidates.
Merck KGaA has been testing our most advanced cancer vaccine product candidate, tecemotide, in clinical trials for the treatment of NSCLC. We are
currently conducting Phase 1 trials for ONT-10 and ONT-380. There can be no assurance that we will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals. A number of companies in the biotechnology and pharmaceutical
industries, including our company, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. For example, in December 2012, we and Merck KGaA announced that tecemotide did not meet its primary
endpoint of improvement in overall survival in a Phase 3 trial in patients with NSCLC.
Further, we, any of our collaborators or Merck KGaA may be
unable to submit applications to regulatory agencies within the time frame we currently expect. Once submitted, applications must be approved by various regulatory agencies before we, any of our collaborators or Merck KGaA can commercialize the
product described in the application. Additionally, even if applications are submitted, regulatory approval may not be obtained for any of our product candidates, and regulatory agencies could require additional studies to verify safety or efficacy,
which could make further development of our product candidates impracticable. If our product candidates are not shown to be safe and effective in clinical trials, we may not receive regulatory approval, which would have a material adverse effect on
our business, financial condition and results of operations.
We and our collaborators currently rely on third-party manufacturers to supply
our product candidates. Any disruption in production, inability of these third-party manufacturers to produce adequate quantities to meet our needs or our collaborators needs or other impediments with respect to development or manufacturing
could adversely affect the clinical development and commercialization of tecemotide, our ability to continue our research and development activities or successfully complete pre-clinical studies and clinical trials, delay submissions of our
regulatory applications or adversely affect our ability to commercialize our other product candidates in a timely manner, or at all.
Merck
KGaA currently depends on a single manufacturer, Baxter International Inc. (Baxter), for the supply of our most advanced product candidate, tecemotide, and on Corixa Corp. (now a part of GlaxoSmithKline plc, or GSK) for the manufacture of the
adjuvant in tecemotide. Additionally, under our collaboration agreement with Array for the development of ONT-380, Array is responsible for the manufacture of ONT-380, which they outsource to third parties. If Arrays third-party manufacturers
cease or interrupt production or if Arrays third-party manufacturers and other service providers fail to supply materials, products or services to them for any reason, such interruption could delay progress on our programs, with the potential
for additional costs.
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Our product candidates have not yet been manufactured on a commercial scale. In order to commercialize a
product candidate, the third-party manufacturer may need to increase its manufacturing capacity, which may require the manufacturer to fund capital improvements to support the scale up of manufacturing and related activities. With respect to certain
of our product candidates, we may be required to provide all or a portion of these funds. The third-party manufacturer may not be able to successfully increase its manufacturing capacity for our product candidate for which we obtain marketing
approval in a timely or economic manner, or at all. If any manufacturer is unable to provide commercial quantities of a product candidate, we (or Merck KGaA or Array, in the case of tecemotide or ONT-380, respectively) will need to successfully
transfer manufacturing technology to a new manufacturer. Engaging a new manufacturer for a particular product candidate could require us (or Merck KGaA or Array, in the case of tecemotide or ONT-380, respectively) to conduct comparative studies or
use other means to determine equivalence between product candidates manufactured by a new manufacturer and those previously manufactured by the existing manufacturer, which could delay or prevent commercialization of our product candidates. If any
of these manufacturers is unable or unwilling to increase its manufacturing capacity or if alternative arrangements are not established on a timely basis or on acceptable terms, the development and commercialization of our product candidates may be
delayed or there may be a shortage in supply.
Any manufacturer of our products must comply with cGMP, requirements enforced by the FDA through its
facilities inspection program or by foreign regulatory agencies. These requirements include quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our products may be unable to comply with these cGMP
requirements and with other FDA, state and foreign regulatory requirements. We have little control over our manufacturers compliance with these regulations and standards. A failure to comply with these requirements may result in fines and
civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of any quantities supplied is compromised due to our manufacturers failure to
adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our products.
Pre-clinical and clinical trials are expensive and time consuming, and any failure or delay in commencing or completing clinical trials for our
product candidates could severely harm our business.
We are currently conducting clinical trials for ONT-380 and ONT-10. Each of our
product candidates must undergo extensive pre-clinical studies and clinical trials as a condition to regulatory approval. Pre-clinical studies and clinical trials are expensive and take many years to complete. The commencement and completion of
clinical trials for our product candidates may be delayed by many factors, including:
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safety issues or side effects;
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delays in patient enrollment and variability in the number and types of patients available for clinical trials;
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poor effectiveness of product candidates during clinical trials;
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governmental or regulatory delays and changes in regulatory requirements, policy and guidelines;
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our or our collaborators ability to obtain regulatory approval to commence a clinical trial and conduct a trial in accordance with good clinical practices;
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our or our collaborators ability to manufacture or obtain from third parties materials sufficient for use in pre-clinical studies and clinical trials; and
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varying interpretation of data by the FDA and similar foreign regulatory agencies.
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It is possible that
none of our product candidates will complete clinical trials in any of the markets in which we or our collaborators intend to sell those product candidates. Accordingly, we or our collaborators may not receive the regulatory approvals necessary to
market our product candidates. Any failure or delay in commencing or completing clinical trials or obtaining regulatory approvals for product candidates would prevent or delay their commercialization and severely harm our business and financial
condition.
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The failure to enroll patients for clinical trials may cause delays in developing our product
candidates.
We may encounter delays if we, any collaboration partner or Merck KGaA are unable to enroll enough patients to timely initiate
or complete clinical trials. Patient enrollment depends on many factors, including, the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites and the eligibility criteria for the trial. Moreover,
when one product candidate is evaluated in multiple clinical trials simultaneously, patient enrollment in ongoing trials can be adversely affected by negative results from completed trials. Our product candidates are focused in oncology, which can
be a difficult patient population to recruit. If we fail to enroll patients for clinical trials, our clinical trials may be delayed or suspended, which could delay our ability to generate revenues.
We and our collaborators rely on third parties to conduct our clinical trials. If these third parties do not perform as contractually required or
otherwise expected, we or our collaborators may not be able to obtain regulatory approval for or be able to commercialize our product candidates.
We and our collaborators rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract
laboratories, to assist in conducting our clinical trials. We and our collaborators have, in the ordinary course of business, entered into agreements with these third parties. Nonetheless, we and our collaborators are responsible for confirming that
each of our clinical trials is conducted in accordance with its general investigational plan and protocol. Moreover, the FDA and foreign regulatory agencies require us and our collaborators to comply with regulations and standards, commonly referred
to as good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third
parties does not relieve us or our collaborators of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties
need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our and our collaborators pre-clinical development
activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for our product candidates.
Our product candidates may never achieve market acceptance even if we obtain regulatory approvals.
Even if we receive regulatory approvals for the commercial sale of our product candidates, the commercial success of these product candidates will
depend on, among other things, their acceptance by physicians, patients, third-party payers such as health insurance companies and other members of the medical community as a therapeutic and cost-effective alternative to competing products and
treatments. New patterns of care, alternative new treatments or different reimbursement and payor paradigms, possibly due to economic conditions or governmental policies, could negatively impact the commercial viability of our product candidates. If
our product candidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business. Market acceptance of, and demand for, any product that we may develop and commercialize will depend on many factors,
including:
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our ability to provide acceptable evidence of safety and efficacy;
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the prevalence and severity of adverse side effects;
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availability, relative cost and relative efficacy of alternative and competing treatments;
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the effectiveness of our marketing and distribution strategy;
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publicity concerning our products or competing products and treatments; and
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our ability to obtain sufficient third-party insurance coverage or reimbursement.
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If our product
candidates do not become widely accepted by physicians, patients, third-party payers and other members of the medical community, our business, financial condition and results of operations would be materially and adversely affected.
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The suspension or termination of Mercks clinical development program for tecemotide could
severely harm our business.
Pursuant to our agreement, Merck KGaA has the exclusive right to develop, manufacture and commercialize
tecemotide in return for our right to receive cash payments upon the occurrence of certain events and royalties based on net sales. Merck KGaA has the right to terminate the license agreement upon 30 days prior written notice if, in its
reasonable judgment, it determines there are issues concerning the safety or efficacy of tecemotide that would materially and adversely affect tecemotides medical, economic or competitive viability. Merck KGaA may ultimately decide not to
continue development of tecemotide and may terminate the 2008 license agreement. Any future payments under the license agreement, including royalties to us, will depend on the extent to which Merck KGaA advances tecemotide through development and
commercialization. The opportunity for us to realize these payments is dependent upon Merck KGaA continuing to develop tecemotide.
If Merck KGaA
terminates the agreement for safety or efficacy reasons, or breaches the agreement, the further development and commercialization of tecemotide would be severely impaired, and the development of ONT-10 may be negatively impacted, as both ONT-10 and
tecemotide are targeted at the MUC1 antigen. We could also become involved in disputes with Merck KGaA, which could lead to delays in or termination of our development and commercialization of tecemotide and time-consuming and expensive litigation
or arbitration. If Merck KGaA terminates or breaches its agreement with us, or otherwise fails to complete its obligations in a timely manner, the likelihood of successfully developing or commercializing tecemotide would be materially and adversely
affected.
Even if regulatory approval is received for our product candidates, the later discovery of previously unknown problems with a
product, manufacturer or facility may result in restrictions, including withdrawal of the product from the market.
Approval of a product
candidate may be conditioned upon certain limitations and restrictions as to the drugs use, or upon the conduct of further studies, and may be subject to continuous review. After approval of a product, if any, there will be significant ongoing
regulatory compliance obligations, and if we or our collaborators, including Array, fail to comply with these requirements, we, any of our collaborators or Merck KGaA could be subject to penalties, including:
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withdrawal of regulatory approval;
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operating restrictions;
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disgorgement of profits;
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Regulatory agencies may require us, any of our collaborators or Merck KGaA to
delay, restrict or discontinue clinical trials on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. In addition, all statutes and regulations governing the conduct of clinical trials
are subject to change in the future, which could affect the cost of such clinical trials. Any unanticipated delays in clinical studies could delay our ability to generate revenues and harm our financial condition and results of operations.
Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing our products internationally.
We intend to have our product candidates marketed outside the United States. In order to market our products in the European Union and many other
non-U.S. jurisdictions, we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. To date, we have not filed for marketing approval for any of our product candidates and may not receive the approvals
necessary to commercialize our product candidates in any market.
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The approval procedure varies among countries and may include all of the risks associated with obtaining
FDA approval. The time required to obtain foreign regulatory approval may differ from that required to obtain FDA approval, and additional testing and data review may be required. We may not obtain foreign regulatory approvals on a timely basis, if
at all. Additionally, approval by the FDA does not ensure approval by regulatory agencies in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory agencies in other foreign countries or by the FDA.
However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in other jurisdictions, including approval by the FDA. The failure to obtain regulatory approval in
foreign jurisdictions could limit commercialization of our products, reduce our ability to generate profits and harm our business.
Our
ability to continue with our planned operations is dependent on our success at raising additional capital sufficient to meet our obligations on a timely basis. If we fail to obtain additional financing when needed, we may be unable to complete the
development, regulatory approval and commercialization of our product candidates.
We have expended and continue to expend substantial
funds in connection with our product development activities and clinical trials and regulatory approvals. The very limited funds generated currently from our operations will be insufficient to enable us to bring all of our products currently under
development to commercialization. Accordingly, we need to raise additional funds from the sale of our securities, partnering arrangements or other financing transactions in order to finance the commercialization of our product candidates. We cannot
be certain that additional financing will be available when and as needed or, if available, that it will be available on acceptable terms. If financing is available, it may be on terms that adversely affect the interests of our existing stockholders
or restrict our ability to conduct our operations. To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to relinquish some rights to our technologies or product candidates, or grant
licenses on terms that are not favorable to us. If adequate financing is not available, we may need to continue to reduce or eliminate our expenditures for research and development, testing, production and marketing for some of our product
candidates. Our actual capital requirements will depend on numerous factors, including:
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activities and arrangements related to the commercialization of our product candidates;
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the progress of our research and development programs;
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the progress of pre-clinical and clinical testing of our product candidates;
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the time and cost involved in obtaining regulatory approvals for our product candidates;
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the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights with respect to our intellectual property;
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the effect of competing technological and market developments;
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the effect of changes and developments in our existing licensing and other relationships; and
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the terms of any new collaborative, licensing and other arrangements that we may establish.
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If we
require additional financing and cannot secure sufficient financing on acceptable terms, we may need to delay, reduce or eliminate some or all of our research and development programs, any of which would be expected to have a material adverse effect
on our business, operating results, and financial condition.
We may expand our business through the acquisition of companies or businesses or
by entering into collaborations or in-licensing product candidates that could disrupt our business and harm our financial condition.
We
have in the past and may in the future seek to expand our pipeline and capabilities by acquiring one or more companies or businesses, entering into collaborations or in-licensing one or more product candidates. For example, in May 2013 we announced
that we are collaborating with Array to develop ONT-380. Acquisitions, collaborations and in-licenses, including our ONT-380 collaboration, involve numerous risks, including:
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substantial cash expenditures;
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potentially dilutive issuance of equity securities;
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incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition;
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difficulties in assimilating the operations of the acquired companies;
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potential disputes regarding contingent consideration;
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diverting our managements attention away from other business concerns;
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entering markets in which we have limited or no direct experience; and
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potential loss of our key employees or key employees of the acquired companies or businesses.
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Our
experience in making acquisitions, entering collaborations and in-licensing product candidates is limited. We cannot assure you that any acquisition, collaboration or in-license will result in short-term or long-term benefits to us. We may
incorrectly judge the value or worth of an acquired company or business or in-licensed product candidate. In addition, our future success would depend in part on our ability to manage the rapid growth associated with some of these acquisitions,
collaborations and in-licenses. We cannot assure you that we would be able to successfully combine our business with that of acquired businesses, manage a collaboration or integrate in-licensed product candidates or that such efforts would be
successful. Furthermore, the development or expansion of our business or any acquired business or company or any collaboration or in-licensed product candidate may require a substantial capital investment by us. We may also seek to raise funds by
selling shares of our capital stock, which could dilute our current stockholders ownership interest, or securities convertible into our capital stock, which could dilute current stockholders ownership interest upon conversion.
If we are unable to maintain and enforce our proprietary rights, we may not be able to compete effectively or operate profitably.
Our success is dependent in part on maintaining and enforcing our patents and other proprietary rights and will depend in large part on our ability to:
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defend patents once issued;
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preserve trade secrets; and
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operate without infringing the patents and proprietary rights of third parties.
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As of June 30,
2014, we owned approximately 11 U.S. patents and 10 U.S. patent applications, as well as the corresponding foreign patents and patent applications, and held exclusive or partially exclusive licenses to approximately 17 U.S. patents and patent
applications as well as the corresponding foreign patents and patent applications. The degree of future protection for our proprietary rights is uncertain. For example:
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we might not have been the first to make the inventions covered by any of our patents, if issued, or our pending patent applications;
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we might not have been the first to file patent applications for these inventions;
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under our collaboration agreement with Array, they are responsible for the prosecution of patents related to
ONT-380,
and they may not effectively prosecute and protect those
patents;
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others may independently develop similar or alternative technologies or products and/or duplicate any of our technologies and/or products;
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it is possible that none of our pending patent applications will result in issued patents or, if issued, these patents may not be sufficient to protect our technology or provide us with a basis for commercially-viable
products and may not provide us with any competitive advantages;
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if our pending applications issue as patents, they may be challenged by third parties as infringed, invalid or unenforceable under U.S. or foreign laws;
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if issued, the patents under which we hold rights may not be valid or enforceable; or
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we may develop additional proprietary technologies that are not patentable and which may not be adequately protected through trade secrets, if for example a competitor were to independently develop duplicative, similar
or alternative technologies.
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The patent position of biotechnology and pharmaceutical firms is highly uncertain and involves many
complex legal and technical issues. There is no clear policy involving the breadth of claims allowed in patents or the degree of protection afforded under patents. Although we believe our potential rights under patent applications provide a
competitive advantage, it is possible that patent applications owned by or licensed to us will not result in patents being issued, or that, if issued, the patents will not give us an advantage over competitors with similar products or technology,
nor can we assure you that we can obtain, maintain and enforce all ownership and other proprietary rights necessary to develop and commercialize our product candidates.
In addition to the intellectual property and other rights described above, we also rely on unpatented technology, trade secrets, trademarks and
confidential information, particularly when we do not believe that patent protection is appropriate or available. However, trade secrets are difficult to protect and it is possible that others will independently develop substantially equivalent
information and techniques or otherwise gain access to or disclose our unpatented technology, trade secrets and confidential information. We require each of our employees, consultants and advisors to execute a confidentiality and invention
assignment agreement at the commencement of an employment or consulting relationship with us. However, it is possible that these agreements will not provide effective protection of our confidential information or, in the event of unauthorized use of
our intellectual property or the intellectual property of third parties, provide adequate or effective remedies or protection.
If we are
unable to obtain intellectual property rights to develop or market our products or we infringe on a third-party patent or other intellectual property rights, we may need to alter or terminate a product development program.
If our vaccine technology or our product candidates infringe or conflict with the rights of others, we may not be able to manufacture or market our
product candidates, which could have a material and adverse effect on us and on our collaborations with Merck KGaA and Array.
Issued patents held
by others may limit our ability to develop commercial products. All issued patents are entitled to a presumption of validity under the laws of the United States. If we need licenses to such patents to permit us to develop or market our product
candidates, we may be required to pay significant fees or royalties, and we cannot be certain that we would be able to obtain such licenses on commercially reasonable terms, if at all. Competitors or third parties may obtain patents that may cover
subject matter we use in developing the technology required to bring our products to market, that we use in producing our products, or that we use in treating patients with our products.
We know that others have filed patent applications in various jurisdictions that relate to several areas in which we are developing products. Some of
these patent applications have already resulted in the issuance of patents and some are still pending. We may be required to alter our processes or product candidates, pay licensing fees or cease activities. Certain parts of our vaccine technology,
including the MUC1 antigen, originated from third-party sources.
These third-party sources include academic, government and other research
laboratories, as well as the public domain. If use of technology incorporated into or used to produce our product candidates is challenged, or if our processes or product candidates conflict with patent rights of others, third parties could bring
legal actions against us, in Europe, the United States and elsewhere, claiming damages and seeking to enjoin manufacturing and marketing of the affected products. Additionally, it is not possible to predict with certainty what patent claims may
issue from pending applications. In the United States, for example, patent prosecution can proceed in secret prior to issuance of a patent. As a result, third parties may be able to obtain patents with claims relating to our product candidates,
which they could attempt to assert against us. Further, as we develop our products, third parties may assert that we infringe the patents currently held or licensed by them and it is difficult to provide the outcome of any such action. Ultimately,
we could be prevented from commercializing a product, or forced to cease some aspect of our business operations, as a result of claims of patent infringement or violation of other intellectual property rights, which could have a material and adverse
effect on our business, financial condition and results of operations.
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We may incur substantial costs as a result of litigation or other proceedings relating to patent and
other intellectual property rights, and we may be unable to protect our rights in, or to use, our technology.
There has been significant
litigation in the biotechnology industry over patents and other proprietary rights and if we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. Others may
challenge the validity, inventorship, ownership, enforceability or scope of our patents or other technology used in or otherwise necessary for the development and commercialization of our product candidates. We may not be successful in defending
against any such challenges. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license, grant cross-licenses and pay substantial royalties in order to continue to manufacture
or market the affected products.
Moreover, the cost of litigation to uphold the validity of patents to prevent infringement or to otherwise
protect our proprietary rights can be substantial. If the outcome of litigation is adverse to us, third parties may be able to use the challenged technologies without payment to us. There is also the risk that, even if the validity of a patent were
upheld, a court would refuse to stop the other party from using the inventions, including on the ground that its activities do not infringe that patent. There is no assurance that we would prevail in any legal action or that any license required
under a third-party patent would be made available on acceptable terms or at all. If any of these events were to occur, our business, financial condition and results of operations would be materially and adversely effected.
If any products we develop become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform
initiatives, our ability to successfully commercialize our products will be impaired.
Our future revenues, profitability and access to
capital will be affected by the continuing efforts of governmental and private third-party payers to contain or reduce the costs of health care through various means. We expect a number of federal, state and foreign proposals to control the cost of
drugs through government regulation. We are unsure of the impact recent health care reform legislation may have on our business or what actions federal, state, foreign and private payers may take in response to the recent reforms. Therefore, it is
difficult to predict the effect of any implemented reform on our business. Our ability to commercialize our products successfully will depend, in part, on the extent to which reimbursement for the cost of such products and related treatments will be
available from government health administration authorities, such as Medicare and Medicaid in the United States, private health insurers and other organizations. Significant uncertainty exists as to the reimbursement status of newly approved health
care products, particularly for indications for which there is no current effective treatment or for which medical care typically is not sought. Adequate third-party coverage may not be available to enable us to maintain price levels sufficient to
realize an appropriate return on our investment in product research and development. If adequate coverage and reimbursement levels are not provided by government and third-party payers for use of our products, our products may fail to achieve market
acceptance and our results of operations will be harmed.
Governments often impose strict price controls, which may adversely affect our
future profitability.
We intend to seek approval to market our future products in both the United States and foreign jurisdictions. If we
obtain approval in one or more foreign jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our product. In some foreign countries, particularly in the European Union, prescription drug pricing is subject to
government control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug candidate. To obtain reimbursement or pricing approval in some countries, we may
be required to conduct a clinical trial that compares the cost-effectiveness of our future product to other available therapies.
In addition, it
is unclear what impact, if any, recent health care reform legislation will have on the price of drugs in the United States. In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability
Reconciliation Act, or collectively, PPACA, became law in the United States. PPACA substantially changes the way healthcare is financed by both governmental and private insurers and significantly affects the pharmaceutical industry.
We anticipate that the PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage
criteria and downward pressure on the price for any approved product, and could seriously harm our prospects. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private
payers. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
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We face potential product liability exposure, and if successful claims are brought against us, we may
incur substantial liability for a product candidate and may have to limit its commercialization.
The use of our product candidates in
clinical trials and the sale of any products for which we obtain marketing approval expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, health care providers, pharmaceutical companies
or others selling our products. If we cannot successfully defend ourselves against these claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for our product candidates;
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impairment of our business reputation;
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withdrawal of clinical trial participants;
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costs of related litigation;
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substantial monetary awards to patients or other claimants;
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the inability to commercialize our product candidates.
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Although we currently have product liability
insurance coverage for our clinical trials for expenses or losses up to a $10 million aggregate annual limit, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any or all expenses or losses we may suffer.
Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We intend to expand
our insurance coverage to include the sale of commercial products if we obtain marketing approval for our product candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved
for marketing. On occasion, large judgments have been awarded in class action lawsuits based on products that had unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock price to
fall and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.
We face substantial
competition, which may result in others discovering, developing or commercializing products before, or more successfully, than we do.
The
life sciences industry is highly competitive, and we face significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching and marketing products designed to address cancer indications for which we
are currently developing products or for which we may develop products in the future. Our future success depends on our ability to demonstrate and maintain a competitive advantage with respect to the design, development and commercialization of our
product candidates. We expect any product candidate that we commercialize with our collaborative partners or on our own will compete with existing, market-leading products and products in development.
Tecemotide.
There are currently two products approved as maintenance therapy following treatment of inoperable locoregional Stage III NSCLC with
induction chemotherapy, Tarceva (erlotinib), a targeted small molecule from Genentech, Inc., a member of the Roche Group, and Alimta (pemetrexed), a chemotherapeutic from Eli Lilly and Company. Tecemotide has not been tested in combination with or
in comparison to these products. It is possible that other existing or new agents will be approved for this indication. Transgene is developing the vaccine TG-4010 for NSCLC in Phase 2/3. TG-4010 also targets MUC1, although using technology
different from tecemotide.
ONT-380.
ONT-380 is an inhibitor of the receptor tyrosine kinase HER2, also known as ErbB2. There are multiple
marketed products which target HER2, including the antibodies trastuzumab (Herceptin®) and pertuzumab (Perjeta®) and the antibody toxin conjugate T-DM1 (KadcylaTM), all from Roche/Genentech. In addition, GlaxoSmithKline markets the dual
HER1/HER2 oral kinase inhibitor lapatinib (Tykerb®) for the treatment of metastatic breast cancer, and Puma Biotechnology is developing the HER1/HER2/HER4 inhibitor neratinib in Phase 3.
ONT-10.
ONT-10 is a MUC1-based liposomal glycolipopeptide cancer vaccine. It is currently in the early stages of development for many
indications, for which there are likely to be other competitors, including other MUC1-based cancer vaccines, such as tecemotide.
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Many of our potential competitors have substantially greater financial, technical and personnel resources
than we have. In addition, many of these competitors have significantly greater commercial infrastructures than we have. Our ability to compete successfully will depend largely on our ability to:
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design and develop products that are superior to other products in the market;
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attract qualified scientific, medical, sales and marketing and commercial personnel;
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obtain patent and/or other proprietary protection for our processes and product candidates;
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obtain required regulatory approvals; and
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successfully collaborate with others in the design, development and commercialization of new products.
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Established competitors may invest heavily to quickly discover and develop novel compounds that could make our product candidates obsolete. In
addition, any new product that competes with a generic market-leading product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome severe price competition and to be commercially successful.
If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer.
If we are unable to enter into agreements with partners to perform sales and marketing functions, or build these functions ourselves, we will not
be able to commercialize our product candidates.
We currently do not have any internal sales, marketing or distribution capabilities. In
order to commercialize any of our product candidates, we must either acquire or internally develop a sales, marketing and distribution infrastructure or enter into agreements with partners to perform these services for us. Under our agreements with
Merck KGaA, Merck KGaA is responsible for developing and commercializing tecemotide. Under our agreement with Array, we are responsible for a defined set of proof-of-concept trials for ONT-380, we and Array will jointly conduct any Phase 3
development supported by the proof-of-concept studies and Array is responsible for commercialization of ONT-380 worldwide. Any problems with our relationship with Merck KGaA or with Array could delay the development and commercialization of
tecemotide or ONT-380. Additionally, we may not be able to enter into arrangements with respect to our product candidates not covered by the Merck KGaA or Array agreements on commercially acceptable terms, if at all. Factors that may inhibit our
efforts to commercialize our product candidates without entering into arrangements with third parties include:
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our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
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the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products;
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the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
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unforeseen costs and expenses associated with creating a sales and marketing organization.
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If we are
not able to partner with a third party and are not successful in recruiting sales and marketing personnel or in building a sales and marketing and distribution infrastructure, we will have difficulty commercializing our product candidates, which
would adversely affect our business and financial condition.
If we lose key personnel, or we are unable to attract and retain
highly-qualified personnel on a cost-effective basis, it would be more difficult for us to manage our existing business operations and to identify and pursue new growth opportunities.
Our success depends in large part upon our ability to attract and retain highly qualified scientific, clinical, manufacturing, and management
personnel. In addition, future growth will require us to continue to implement and improve our managerial, operational and financial systems, and continue to retain, recruit and train additional qualified personnel, which may impose a strain on our
administrative and operational infrastructure. Any difficulties in hiring or retaining key personnel or managing this growth could disrupt our operations. The competition for qualified personnel in the biopharmaceutical field is intense. We are
highly dependent on our continued ability to attract, retain and motivate highly-qualified management, clinical and scientific personnel. Due to our limited resources, we may not be able to effectively recruit, train and retain additional qualified
personnel. If we are unable to retain key personnel or manage our growth effectively, we may not be able to implement our business plan.
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Furthermore, we have not entered into non-competition agreements with all of our key employees. In
addition, we do not maintain key person life insurance on any of our officers, employees or consultants. The loss of the services of existing personnel, the failure to recruit additional key scientific, technical and managerial personnel
in a timely manner, and the loss of our employees to our competitors would harm our research and development programs and our business.
Our
business is subject to increasingly complex environmental legislation that has increased both our costs and the risk of noncompliance.
Our
business may involve the use of hazardous material, which will require us to comply with environmental regulations. We face increasing complexity in our product development as we adjust to new and upcoming requirements relating to the materials
composition of many of our product candidates. If we use biological and hazardous materials in a manner that causes contamination or injury or violates laws, we may be liable for damages. Environmental regulations could have a material adverse
effect on the results of our operations and our financial position. We maintain insurance under our general liability policy for any liability associated with our hazardous materials activities, and it is possible in the future that our coverage
would be insufficient if we incurred a material environmental liability.
If we fail to establish and maintain proper and effective internal
controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our consolidated operating results, our ability to operate our business, and our stock price and could result in
litigation or similar actions.
Ensuring that we have adequate internal financial and accounting controls and procedures in place to
produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Failure on our part to have effective internal financial and accounting controls would cause our financial
reporting to be unreliable, could have a material adverse effect on our business, operating results, and financial condition, and could cause the trading price of our common stock to fall dramatically. Our management is responsible for establishing
and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that
the control systems objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues
and instances of fraud, if any, within the company will have been detected.
We cannot be certain that the actions we have taken to ensure we have
adequate internal controls over financial reporting will be sufficient. In future periods, if the process required by Section 404 of the Sarbanes-Oxley Act reveals any material weaknesses or significant deficiencies, the correction of any such
material weaknesses or significant deficiencies could require remedial measures which could be costly and time-consuming. In addition, in such a case, we may be unable to produce accurate financial statements on a timely basis. Any associated
accounting restatement could create a significant strain on our internal resources and cause delays in our release of quarterly or annual financial results and the filing of related reports, increase our cost and cause management distraction. Any of
the foregoing could cause investors to lose confidence in the reliability of our consolidated financial statements, which could cause the market price of our common stock to decline and make it more difficult for us to finance our operations and
growth.
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We may face risks related to securities litigation that could result in significant legal expenses
and settlement or damage awards.
We have in the past been, and may in the future become, subject to claims and litigation alleging
violations of the securities laws or other related claims, which could harm our business and require us to incur significant costs. For example, in April 2013, a putative shareholder derivative action was filed in the United States District Court
for the Western District of Washington, purportedly on behalf of Oncothyreon and naming certain executive officers and the members of our board of directors as defendants. The complaint asserted claims for breaches of fiduciary duty, unjust
enrichment, abuse of control, and mismanagement based on allegedly false statements made by us in public filings and press releases in 2011 and 2012. In September 2013, the court entered an order granting our motion to dismiss the lawsuit with
prejudice, which means that the plaintiff was not permitted to further amend his complaint to bolster his claims. The period to appeal the dismissal order has now expired, with no appeal being filed, so the lawsuit is concluded. We are generally
obliged, to the extent permitted by law, to indemnify our current and former directors and officers who are named as defendants in these types of lawsuits. Any future litigation may require significant attention from management and could result in
significant legal expenses, settlement costs or damage awards that could have a material impact on our financial position, results of operations, and cash flows.
Risks Related to the Ownership of Our Common Stock
The
trading price of our common stock may be volatile.
The market prices for and trading volumes of securities of biotechnology companies,
including our securities, have been historically volatile. In particular, we experienced significant volatility after we and Merck KGaA announced in December 2012 that tecemotide failed to meet its primary endpoint in a Phase 3 trial. We experienced
additional volatility in May 2013 following an additional release regarding the Merck KGaA study of tecemotide and the release of the results of our trials of PX-866. The market has from time to time experienced significant price and volume
fluctuations unrelated to the operating performance of particular companies. The market price of our common shares may fluctuate significantly due to a variety of factors, including:
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the results of pre-clinical testing and clinical trials by us, our collaborators, our competitors and/or companies that are developing products that are similar to ours (regardless of whether such products are
potentially competitive with ours);
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public concern as to the safety of products developed by us or others;
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technological innovations or new therapeutic products;
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governmental regulations;
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developments in patent or other proprietary rights;
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comments by securities analysts;
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the issuance of additional shares of common stock, or securities convertible into, or exercisable or exchangeable for, shares of our common stock in connection with financings, acquisitions or otherwise;
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the incurrence of debt;
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general market conditions in our industry or in the economy as a whole; and
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political instability, natural disasters, war and/or events of terrorism.
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We may seek to raise additional capital in the future; however, such capital may not be available to
us on reasonable terms, if at all, when or as we require additional funding. If we issue additional shares of our common stock or other securities that may be convertible into, or exercisable or exchangeable for, our common stock, our existing
stockholders would experience further dilution.
We expect that we will seek to raise additional capital from time to time in the future.
For example, in connection with our June 2013 registered direct offering, we sold an aggregate of 5,000,000 shares of our common stock and warrants to purchase 5,000,000 shares of our common stock. Future financings may involve the issuance of debt,
equity and/or securities convertible into or exercisable or exchangeable for our equity securities. These financings may not be available to us on reasonable terms or at all when and as we require funding. Additionally, if we are unable to increase
our authorized capital stock, we may not have sufficient authorized but unissued capital stock to issue or sell additional capital stock in potential financings. If we are able to consummate financings, the trading price of our common stock could be
adversely affected and/or the terms of such financings may adversely affect the interests of our existing stockholders. Any failure to obtain additional working capital when required would have a material adverse effect on our business and financial
condition and would be expected to result in a decline in our stock price. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital stock,
would have a dilutive effect on the voting and economic interest of our existing stockholders.
In February 2012 we entered into an agreement with
Cowen and Company, LLC (Cowen) to sell shares of our common stock having aggregate sales proceeds of $50,000,000, from time to time, through an at-the-market equity offering program under which Cowen will act as sales agent. When we
access the at the market equity offering program, we set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitation on the number of shares
that may be sold in any one trading day and any minimum price below which sales may not be made. Subject to the terms and conditions of our agreement with Cowen, they may sell the shares by methods deemed to be an at-the-market offering
as defined in Rule 415 under the Securities Act, including sales made directly on The NASDAQ Global Market or other trading market or through a market maker. In July 2013, we commenced selling our common stock through this at-the-market
equity offering program. As of June 30, 2014, we had sold an aggregate of 8,364,379 shares for aggregate gross proceeds of approximately $16.6 million. The sale of additional shares of our common stock pursuant to our agreement with Cowen will
have a dilutive impact on our existing stockholders. Sales by us through Cowen could cause the market price of our common stock to decline significantly. Sales of our common stock under such agreement, or the perception that such sales will occur,
could encourage short sales by third parties, which could contribute to the further decline of our stock price.
Because we do not expect to
pay dividends on our common stock, stockholders will benefit from an investment in our common stock only if it appreciates in value.
We
have never paid cash dividends on our common shares and have no present intention to pay any dividends in the future. We are not profitable and do not expect to earn any material revenues for at least several years, if at all. As a result, we intend
to use all available cash and liquid assets in the development of our business. Any future determination about the payment of dividends will be made at the discretion of our board of directors and will depend upon our earnings, if any, capital
requirements, operating and financial conditions and on such other factors as our board of directors deems relevant. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. There is no
guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.
We can
issue shares of preferred stock that may adversely affect the rights of a stockholder of our common stock.
Our certificate of
incorporation authorizes us to issue up to 10,000,000 shares of preferred stock with designations, rights, and preferences determined from time-to-time by our board of directors. Accordingly, our board of directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of holders of our common stock. For example, an issuance of shares of preferred stock could:
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adversely affect the voting power of the holders of our common stock;
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make it more difficult for a third party to gain control of us;
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discourage bids for our common stock at a premium;
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limit or eliminate any payments that the holders of our common stock could expect to receive upon our liquidation; or
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otherwise adversely affect the market price or our common stock.
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We have in the past issued, and we
may at any time in the future, issue additional shares of authorized preferred stock.
We expect our quarterly operating results to fluctuate
in future periods, which may cause our stock price to fluctuate or decline.
Our quarterly operating results have fluctuated in the past,
and we believe they will continue to do so in the future. Some of these fluctuations may be more pronounced than they were in the past as a result of the issuance by us in May 2009 and September 2010 of warrants to purchase shares of our common
stock in connection with equity financings. As of June 30, 2014, there were outstanding warrants from the September 2010 financing exercisable for up to 3,182,147 shares of our common stock. These warrants are classified as a liability.
Accordingly, the fair value of the warrants is recorded on our consolidated balance sheet as a liability, and such fair value is adjusted at each financial reporting date with the adjustment to fair value reflected in our consolidated statement of
operations. The fair value of the warrants is determined using the Black-Scholes option-pricing model. Fluctuations in the assumptions and factors used in the Black-Scholes model can result in adjustments to the fair value of the warrants reflected
on our balance sheet and, therefore, our statement of operations. Due to the classification of such warrants and other factors, quarterly results of operations are difficult to forecast, and period-to-period comparisons of our operating results may
not be predictive of future performance. In one or more future quarters, our results of operations may fall below the expectations of securities analysts and investors. In that event, the market price of our common stock could decline. In addition,
the market price of our common stock may fluctuate or decline regardless of our operating performance.
Our management will have broad
discretion over the use of proceeds from the sale of shares of our common stock and may not use such proceeds in ways that increase the value of our stock price.
In July 2013, we commenced selling our common stock through the at the market equity offering program under our Sales Agreement with Cowen.
As of June 30, 2014, we had sold an aggregate of 8,364,379 shares for net proceeds of approximately $16.1 million. We will have broad discretion over the use of proceeds from the sale of those shares and the sale of additional shares of common
stock to Cowen pursuant to the at the market equity offering program, and we could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. Our failure to apply these funds
effectively could have a material adverse effect on our business, delay the development of our product candidates and cause the price of our common stock to decline.