| HEMISPHERX BIOPHARMA INC Item 1A Risk Factors 24 ITEM 1A Risk Factors |
| The following cautionary statements identify important factors that could cause our actual result to differ materially from those projected in the forward-looking statements made in this Form 10-K Among the key factors that have a direct bearing on our results of operations are: No assurance of successful product development Ampligen(R) and related products |
| The development of Ampligen(R) and our other related products is subject to a number of significant risks |
| Ampligen(R) may be found to be ineffective or to have adverse side effects, fail to receive necessary regulatory clearances, be difficult to manufacture on a commercial scale, be uneconomical to market or be precluded from commercialization by proprietary right of third parties |
| Our products are in various stages of clinical and pre-clinical development and, require further clinical studies and appropriate regulatory approval processes before any such products can be marketed |
| We do not know when, if ever, Ampligen(R) or our other products will be generally available for commercial sale for any indication |
| Generally, only a small percentage of potential therapeutic products are eventually approved by the FDA for commercial sale |
| The clinical development of the experimental therapeutic, Ampligen(R) for CFS was initiated approximately 16 years ago |
| To date federal health agencies have yet to reach a consensus regarding various aspects of ME/CFS, including parameters of "e promising therapies "e for ME/CFS and which aspects of ME/CFS are anticipated to be "e serious or life-threatening "e |
| 24 Over its developmental history, Ampligen(R) has received various designations, including Orphan Drug Product Certification (FDA), Emergency (compassionate) Cost Recovery Sales Authorization (FDA) and "e promising "e clinical outcome recognition based on the evaluation of certain summary clinical reports (AHRQ, Agency Health Research Quality) |
| However to date, the FDA has determined it has yet to receive sufficient information to support the potential of Ampligen(R) to treat a serious or life threatening aspect of ME/CFS The definition of the "e seriousness of a condition "e , according to Guidance for Industry documents published in July 2004 is "e a matter of judgment, but generally based on its impact on such factors as survival, day-to-day functioning, or the likelihood that the disease, if left untreated, will progress from a less severe condition to a more serious one "e |
| The FDA has recently requested a "e complete and audited report of the Amp 516 study to determine whether Ampligen(R) has a clinically meaningful benefit on a serious or life threatening aspect of ME/CFS in order to evaluate whether the Amp 516 study results do or do not support a "e fast track designation "e |
| The FDA has also invited us to include a schedule for completion of all ME/CFS studies as well as a proposed schedule for our NDA submission |
| Because we believe our ME/CFS studies are complete, we intend to request a pre-NDA meeting to obtain advice on preparing and submitting our NDA, which may eliminate the need for Fast Track Designation |
| Meanwhile, we will continue with our existing ongoing efforts to prepare a complete and audited report of our various studies, including the well-controlled Amp 516 study |
| We are using our best efforts to complete the requisite reports including the hiring of new staff and various recognized expert medical/regulatory consultants, but can provide no assurance as to whether the outcome of this large data collection and filing process (approximately 750 patients, treated more than 45cmam000 times) will be favorable or unfavorable, specifically with respect to the FDAapstas perspective |
| Also, we can provide no guidance as to the tentative date at which the compilation and filing of such data will be complete, as significant factors are outside our control including, without limitation, the ability and willingness of the independent clinical investigators to complete the requisite reports at an acceptable regulatory standard, the ability to collect overseas generated data, and the ability of Hollister-Stier facilities to interface with our own New Brunswick staff/facilities to meet the manufacturing regulatory standards |
| Although Alferon N Injection(R) is approved for marketing in the United States for the intralesional treatment of refractory or recurring external genital warts in patients 18 years of age or older; to date it has not been approved for other indications |
| We face many of the risks discussed above, with regard to developing this product for use to treat other ailments such as multiple sclerosis and cancer |
| Our drug and related technologies are investigational and subject to regulatory approval |
| If we are unable to obtain regulatory approval, our operations will be significantly affected |
| All of our drugs and associated technologies, other than Alferon N Injection(R), are investigational and must receive prior regulatory approval by appropriate regulatory authorities for general use and are currently legally available only through clinical trials with specified disorders |
| At present, Alferon N Injection(R) is only approved for the intralesional treatment of refractory or recurring external genital warts in patients 18 years of age or older |
| Use of Alferon N Injection(R) for other indications will require regulatory approval |
| In this regard, ISI, the company from which we obtained our rights to Alferon N Injection(R), conducted clinical trials related to use of Alferon N Injection(R) for treatment of HIV and Hepatitis C In both instances, the FDA determined that additional studies were necessary in order to fully evaluate the efficacy of Alferon N Injection(R) in the treatment of HIV and Hepatitis C diseases |
| We have no immediate plans to conduct these additional studies at this time |
| 25 Our products, including Ampligen(R), are subject to extensive regulation by numerous governmental authorities in the US and other countries, including, but not limited to, the FDA in the US, the Health Protection Branch ( "e HPB "e ) of Canada, and the Agency for the Evaluation of Medicinal Products ( "e EMEA "e ) in Europe |
| Obtaining regulatory approvals is a rigorous and lengthy process and requires the expenditure of substantial resources |
| In order to obtain final regulatory approval of a new drug, we must demonstrate to the satisfaction of the regulatory agency that the product is safe and effective for its intended uses and that we are capable of manufacturing the product to the applicable regulatory standards |
| We require regulatory approval in order to market Ampligen(R) or any other proposed product and receive product revenues or royalties |
| We cannot assure you that Ampligen(R) will ultimately be demonstrated to be safe or efficacious |
| In addition, while Ampligen(R) is authorized for use in clinical trials in the United States, we cannot assure you that additional clinical trial approvals will be authorized in the United States or in other countries, in a timely fashion or at all, or that we will complete these clinical trials |
| If Ampligen(R) or one of our other products does not receive regulatory approval in the US or elsewhere, our operations most likely will be materially adversely affected |
| Although preliminary in vitro testing indicates that Ampligen(R) enhances the effectiveness of different drug combinations on avian influenza, preliminary testing in the laboratory is not necessarily predictive of successful results in clinical testing or human treatment |
| Ampligen(R) is undergoing pre-clinical testing for possible treatment of avian flu |
| Although preliminary in vitro testing indicates that Ampligen(R) enhances the effectiveness of different drug combinations on avian flu, preliminary testing in the laboratory is not necessarily predictive of successful results in clinical testing or human treatment |
| Use of Ampligen(R) in the treatment of avian flu requires prior regulatory approval |
| Only the FDA can determine whether a drug is safe, effective or promising for treating a specific application |
| As discussed in the prior risk factor, obtaining regulatory approvals is a rigorous and lengthy process |
| In addition, Ampligen(R) is being tested on one strain of avian flu |
| No assurance can be given that a Ampligen(R) will be effective on any strains that might infect humans |
| We may continue to incur substantial losses and our future profitability is uncertain |
| We began operations in 1966 and last reported net profit from 1985 through 1987 |
| Since 1987, we have incurred substantial operating losses, as we pursued our clinical trial effort and expanded our efforts in Europe |
| As of December 31, 2005 our accumulated deficit was approximately dlra149cmam677cmam000 |
| We have not yet generated significant revenues from our products and may incur substantial and increased losses in the future |
| We cannot assure that we will ever achieve significant revenues from product sales or become profitable |
| We require, and will continue to require, the commitment of substantial resources to develop our products |
| We cannot assure that our product development efforts will be successfully completed or that required regulatory approvals will be obtained or that any products will be manufactured and marketed successfully, or be profitable |
| 26 We may require additional financing which may not be available |
| The development of our products will require the commitment of substantial resources to conduct the time-consuming research, preclinical development, and clinical trials that are necessary to bring pharmaceutical products to market |
| As of December 31, 2005, we had approximately dlra16cmam204cmam000 in cash and cash equivalents and short-term investments |
| These funds should be sufficient to meet our operating cash requirements, including debt service, for the near term |
| However, we may need to raise additional funds through additional equity or debt financing or from other sources in order to complete the necessary clinical trials and the regulatory approval processes including the commercializing of Ampligen(R) products |
| There can be no assurances that we will raise adequate funds which may have a material adverse effect on our ability to develop our products |
| Also, we have the ability to curtail discretionary spending, including some research and development activities, if required to conserve cash |
| Under the common stock purchase agreement signed with Fusion Capital on July 8, 2005, we only have the right to receive dlra40cmam000 per trading day unless our stock price equals or exceeds dlra2dtta00, in which case the daily amount may be increased under certain conditions as the price of our common stock increases (For a more detailed description of the terms of this agreement, see the agreement filed as an exhibit to our Current Report on Form 8-K filed with the SEC on July 11, 2005) |
| Fusion Capital does not have the right nor the obligation to purchase any shares of our common stock on any trading days that the market price of our common stock is less than dlra1dtta00 |
| Since we initially registered 10cmam000cmam000 shares purchasable by Fusion Capital pursuant to the common stock purchase agreement, the selling price of our common stock to Fusion Capital will have to average at least dlra2dtta00 per share for us to receive the maximum proceeds of dlra20dtta0 million without registering additional shares of common stock |
| As of March 24, 2006, we need an average selling price of dlra0dtta99 per share for the remainder of the agreement to realize the dlra20cmam000cmam000 in proceeds |
| Subject to approval by our board of directors, we have the right, but not the obligation, to issue more than 10cmam000cmam000 shares to Fusion Capital |
| In the event we elect to issue more than 10cmam000cmam000 shares, we will be required to file a new registration statement and have it declared effective by the Securities and Exchange Commission |
| In the event that we decide to issue more than 10cmam113cmam278 (19dtta99prca of our outstanding shares of common stock as of the date of our agreement), we would first be required to seek stockholder approval in order to be in compliance with the American Stock Exchange Market rules |
| As of March 24, 2006, Fusion Capital has purchased 8cmam211cmam508 shares amounting to dlra18cmam230cmam011 in our receipt of gross proceeds |
| The extent to which we rely on Fusion Capital as a source of funding will depend on a number of factors including, the prevailing market price of our common stock and the extent to which we are able to secure working capital from other sources |
| Specifically, Fusion Capital shall not have the right nor the obligation to purchase any shares of our common stock on any trading days that the market price of our common stock is less than dlra1dtta00 |
| If obtaining sufficient financing from Fusion Capital were to prove unavailable or prohibitively dilutive and if we are unable to commercialize and sell Ampligen(R) and/or increase sales of Alferon N Injection(R) or our other products, we will need to secure another source of funding in order to satisfy our working capital needs |
| Even if we are able to access the full dlra20dtta0 million under the common stock purchase agreement with Fusion Capital, we may still need additional capital to fully implement our business, operating and development plans |
| Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences would materially adversely affect our business, operating results, financial condition and prospects |
| 27 We may not be profitable unless we can protect our patents and/or receive approval for additional pending patents |
| We need to preserve and acquire enforceable patents covering the use of Ampligen(R) for a particular disease in order to obtain exclusive rights for the commercial sale of Ampligen(R) for such disease |
| We obtained all rights to Alferon N Injection(R), and we plan to preserve and acquire enforceable patents covering its use for existing and potentially new diseases |
| Our success depends, in large part, on our ability to preserve and obtain patent protection for our products and to obtain and preserve our trade secrets and expertise |
| Certain of our know-how and technology is not patentable, particularly the procedures for the manufacture of our drug product which are carried out according to standard operating procedure manuals |
| We have been issued certain patents including those on the use of Ampligen(R) and Ampligen(R) in combination with certain other drugs for the treatment of HIV We also have been issued patents on the use of Ampligen(R) in combination with certain other drugs for the treatment of chronic Hepatitis B virus, chronic Hepatitis C virus, and a patent which affords protection on the use of Ampligen(R) in patients with Chronic Fatigue Syndrome |
| We have not yet been issued any patents in the United States for the use of Ampligen(R) as a sole treatment for any of the cancers, which we have sought to target |
| With regard to Alferon N Injection(R), we have acquired from ISI its patents for natural alpha interferon produced from human peripheral blood leukocytes and its production process |
| We cannot assure that our competitors will not seek and obtain patents regarding the use of similar products in combination with various other agents, for a particular target indication prior to our doing such |
| If we cannot protect our patents covering the use of our products for a particular disease, or obtain additional patents, we may not be able to successfully market our products |
| The patent position of biotechnology and pharmaceutical firms is highly uncertain and involves complex legal and factual questions |
| To date, no consistent policy has emerged regarding the breadth of protection afforded by pharmaceutical and biotechnology patents |
| There can be no assurance that new patent applications relating to our products or technology will result in patents being issued or that, if issued, such patents will afford meaningful protection against competitors with similar technology |
| It is generally anticipated that there may be significant litigation in the industry regarding patent and intellectual property rights |
| Such litigation could require substantial resources from us and we may not have the financial resources necessary to enforce the patent rights that we hold |
| No assurance can be made that our patents will provide competitive advantages for our products or will not be successfully challenged by competitors |
| No assurance can be given that patents do not exist or could not be filed which would have a materially adverse effect on our ability to develop or market our products or to obtain or maintain any competitive position that we may achieve with respect to our products |
| Our patents also may not prevent others from developing competitive products using related technology |
| 28 There can be no assurance that we will be able to obtain necessary licenses if we cannot enforce patent rights we may hold |
| In addition, the failure of third parties from whom we currently license certain proprietary information or from whom we may be required to obtain such licenses in the future, to adequately enforce their rights to such proprietary information, could adversely affect the value of such licenses to us |
| If we cannot enforce the patent rights we currently hold we may be required to obtain licenses from others to develop, manufacture or market our products |
| There can be no assurance that we would be able to obtain any such licenses on commercially reasonable terms, if at all |
| We currently license certain proprietary information from third parties, some of which may have been developed with government grants under circumstances where the government maintained certain rights with respect to the proprietary information developed |
| No assurances can be given that such third parties will adequately enforce any rights they may have or that the rights, if any, retained by the government will not adversely affect the value of our license |
| There is no guarantee that our trade secrets will not be disclosed or known by our competitors |
| To protect our rights, we require certain employees and consultants to enter into confidentiality agreements with us |
| There can be no assurance that these agreements will not be breached, that we would have adequate and enforceable remedies for any breach, or that any trade secrets of ours will not otherwise become known or be independently developed by competitors |
| If our distributors do not market our products successfully, we may not generate significant revenues or become profitable |
| We have limited marketing and sales capability |
| We are dependent upon existing and, possibly future, marketing agreements and third party distribution agreements for our products in order to generate significant revenues and become profitable |
| As a result, any revenues received by us will be dependent on the efforts of third parties, and there is no assurance that these efforts will be successful |
| Our agreement with Accredo offers the potential to provide some marketing and distribution capacity in the United States while agreements with Biovail Corporation and Laboratorios Del Dr |
| Esteve SA may provide a sales force in Canada, Spain and Portugal |
| We also had an agreement with Bioclones (Proprietary), Ltd ( "e Bioclones "e ) that covered South America, Africa, United Kingdom, Australia and New Zealand |
| However, we deem this marketing arrangement with Bioclones void due to the numerous and long standing failures of performance by Bioclones |
| In addition, in December 2004, we initiated a lawsuit in Federal Court identifying a conspiratorial group seeking to illegally manipulate our stock for purposes of bringing about the hostile takeover of Hemispherx |
| This conspiratorial group includes Bioclones |
| We cannot assure that our domestic or foreign marketing partners will be able to successfully distribute our products, or that we will be able to establish future marketing or third party distribution agreements on terms acceptable to us, or that the cost of establishing these arrangements will not exceed any product revenues |
| The failure to continue these arrangements or to achieve other such arrangements on satisfactory terms could have a materially adverse effect on us |
| 29 There are no long-term agreements with suppliers of required materials |
| If we are unable to obtain the required raw materials, we may be required to scale back our operations or stop manufacturing Alferon N Injection(R) and/or Ampligen(R) |
| We do not have long-term agreements for the supply of any of such materials |
| There can be no assurance we can enter into long-term supply agreements covering essential materials on commercially reasonable terms, if at all |
| There are a limited number of manufacturers in the United States available to provide the polymers for use in manufacturing Ampligen(R) |
| At present, we do not have any agreements with third parties for the supply of any of these polymers |
| We are establishing relevant manufacturing operations within our New Brunswick, New Jersey facility for the production of Ampligen(R) raw materials in order to obtain polymers on a more consistent manufacturing basis |
| The establishment of an Ampligen(R) raw materials production line within our own facilities, while having obvious advantages with respect to regulatory compliance (other parts of the of our 43cmam000 sq |
| wholly owned FDA approved facility are already in compliance for the manufacture of Alferon N Injection(R)), may delay certain steps in the commercialization process, specifically a targeted NDA filing |
| If we are unable to obtain or manufacture the required raw materials, we may be required to scale back our operations or stop manufacturing |
| The costs and availability of products and materials we need for the production of Ampligen(R) and the commercial production of Alferon N Injection(R) and other products which we may commercially produce are subject to fluctuation depending on a variety of factors beyond our control, including competitive factors, changes in technology, and FDA and other governmental regulations and there can be no assurance that we will be able to obtain such products and materials on terms acceptable to us or at all |
| There is no assurance that successful manufacture of a drug on a limited scale basis for investigational use will lead to a successful transition to commercial, large-scale production |
| Small changes in methods of manufacturing, including commercial scale-up, may affect the chemical structure of Ampligen(R) and other RNA drugs, as well as their safety and efficacy, and can, among other things, require new clinical studies and affect orphan drug status, particularly, market exclusivity rights, if any, under the Orphan Drug Act |
| The transition from limited production of pre-clinical and clinical research quantities to production of commercial quantities of our products will involve distinct management and technical challenges and will require additional management and technical personnel and capital to the extent such manufacturing is not handled by third parties |
| There can be no assurance that our manufacturing will be successful or that any given product will be determined to be safe and effective, capable of being manufactured economically in commercial quantities or successfully marketed |
| 30 We have limited manufacturing experience and capacity |
| Ampligen(R) has been only produced in limited quantities for use in our clinical trials and we are dependent upon third party suppliers for key components of our products and for substantially all of the production process |
| The failure to continue these arrangements or to achieve other such arrangements on satisfactory terms could have a material adverse affect on us |
| Also, to be successful, our products must be manufactured in commercial quantities in compliance with regulatory requirements and at acceptable costs |
| To the extent we are involved in the production process, our current facilities are not adequate for the production of our proposed products for large-scale commercialization, and we currently do not have adequate personnel to conduct commercial-scale manufacturing |
| We intend to utilize third-party facilities if and when the need arises or, if we are unable to do so, to build or acquire commercial-scale manufacturing facilities |
| We will need to comply with regulatory requirements for such facilities, including those of the FDA pertaining to current Good Manufacturing Practices ( "e cGMP "e ) regulations |
| There can be no assurance that such facilities can be used, built, or acquired on commercially acceptable terms, or that such facilities, if used, built, or acquired, will be adequate for our long-term needs |
| In connection with settling various manufacturing infractions previously noted by the FDA, Schering-Plough ( "e Schering "e ) entered into a "e Consent Decree "e with the FDA whereby, among other things, it agreed to discontinue various contract (third party) manufacturing activities at various facilities including its San Juan, Puerto Rico, plant |
| Ampligen(R) (which was not involved in any of the cited infractions) was produced at this Puerto Rico plant from year 2000-2004 |
| Operating under instructions from the Consent Decree, Schering has advised us that it would no longer manufacture Ampligen(R) in this facility beyond 2004 and would assist us in an orderly transfer of said activities to other non Schering facilities |
| On December 9, 2005, we executed a Supply Agreement with Hollister-Stier Laboratories LLC of Spokane, Washington ( "e Hollister-Stier "e ), for the contract manufacturing of Ampligen(R) for a five year term |
| Pursuant to the agreement we will supply the key raw materials and Hollister-Stier will formulate and bottle the Ampligen(R) |
| We paid a dlra100cmam000 deposit in order to initiate the manufacturing project and expensed this payment as a research and development cost |
| The achievement of the initial objectives described in the agreement, in combination with our polymer production facility under construction in New Brunswick, NJ, may enable us to manufacture the raw materials for approximately 10cmam000 doses of Ampligen(R) per week |
| We executed a confidentiality agreement with Hollister-Stier; therefore, we commenced the transfer of our manufacturing technology to Hollister-Stier |
| Currently, Hollister-Stier has completed two pilot manufacturing runs of Ampligen(R) for stability testing |
| We have identified two other capable cGMP facilities in the US for the manufacture of Ampligen(R) and obtained proposals from both |
| If either of these two facilities are acceptable, we would be able to maintain a minimum of two independent production sites for the production of Ampligen(R) |
| The purified drug concentrate utilized in the formulation of Alferon N Injection(R) is manufactured in our New Brunswick, New Jersey facility and Alferon N Injection(R) was formulated and packaged at a production facility formerly owned and operated by Abbott Laboratories located in Kansas |
| Abbott Laboratories has sold the facility to Hospira |
| Hospira completed the production of 12cmam000 vials in November 2005 |
| Hospira ceased the labeling and packaging of Alferon N Injection(R) as they are seeking larger production runs for cost efficiency purposes |
| We have identified two manufacturers to replace Hospira and, on February 8, 2006, we executed a Manufacturing and Safety Agreement with Hyaluron, Inc |
| ( "e Hyaluron "e ) of Burlington, Massachusetts, for the formulation, packaging and labeling of Alferon N Injection(R) |
| Pursuant to the Agreement, we will supply raw materials in sufficient quantity and provide any pertinent information to the project |
| 31 We may not be profitable unless we can produce Ampligen(R) or other products in commercial quantities at costs acceptable to us |
| We have never produced Ampligen(R) or any other products in large commercial quantities |
| We must manufacture our products in compliance with regulatory requirements in large commercial quantities and at acceptable costs in order for us to be profitable |
| We intend to utilize third-party manufacturers and/or facilities if and when the need arises or, if we are unable to do so, to build or acquire commercial-scale manufacturing facilities |
| If we cannot manufacture commercial quantities of Ampligen(R) or enter into third party agreements for its manufacture at costs acceptable to us, our operations will be significantly affected |
| Also, each production lot of Alferon N Injection(R) is subject to FDA review and approval prior to releasing the lots to be sold |
| This review and approval process could take considerable time, which would delay our having product in inventory to sell |
| Rapid technological change may render our products obsolete or non-competitive |
| The pharmaceutical and biotechnology industries are subject to rapid and substantial technological change |
| Technological competition from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase |
| Most of these entities have significantly greater research and development capabilities than us, as well as substantial marketing, financial and managerial resources, and represent significant competition for us |
| There can be no assurance that developments by others will not render our products or technologies obsolete or noncompetitive or that we will be able to keep pace with technological developments |
| Our products may be subject to substantial competition |
| Competitors may be developing technologies that are, or in the future may be, the basis for competitive products |
| Some of these potential products may have an entirely different approach or means of accomplishing similar therapeutic effects to products being developed by us |
| These competing products may be more effective and less costly than our products |
| In addition, conventional drug therapy, surgery and other more familiar treatments may offer competition to our products |
| Furthermore, many of our competitors have significantly greater experience than us in pre-clinical testing and human clinical trials of pharmaceutical products and in obtaining FDA, HPB and other regulatory approvals of products |
| Accordingly, our competitors may succeed in obtaining FDA, HPB or other regulatory product approvals more rapidly than us |
| There are no drugs approved for commercial sale with respect to treating ME/CFS in the United States |
| The dominant competitors with drugs to treat HIV diseases include Gilead Pharmaceutical, Pfizer, Bristol-Myers, Abbott Labs, Glaxo SmithKline, Merck and Schering-Plough Corp |
| These potential competitors are among the largest pharmaceutical companies in the world, are well known to the public and the medical community, and have substantially greater financial resources, product development, and manufacturing and marketing capabilities than we have |
| Although we believe our principal advantage is the unique mechanism of action of Ampligen(R) on the immune system, we cannot assure that we will be able to compete |
| Many potential competitors are among the largest pharmaceutical companies in the world, are well known to the public and the medical community, and have substantially greater financial resources, product development, and manufacturing and marketing capabilities than we have |
| Alferon N Injection(R) currently competes with Scheringapstas injectable recombinant alpha interferon product (INTRON(R) A) for the treatment of genital warts |
| 3M Pharmaceuticals also received FDA approval for its immune-response modifier, Aldara(R), a self-administered topical cream, for the treatment of external genital and perianal warts |
| Alferon N Injection(R) also competes with surgical, chemical, and other methods of treating genital warts |
| We cannot assess the impact products developed by our competitors, or advances in other methods of the treatment of genital warts, will have on the commercial viability of Alferon N Injection(R) |
| If and when we obtain additional approvals of uses of this product, we expect to compete primarily on the basis of product performance |
| Our potential competitors have developed or may develop products (containing either alpha or beta interferon or other therapeutic compounds) or other treatment modalities for those uses |
| In the United States, three recombinant forms of beta interferon have been approved for the treatment of relapsing-remitting multiple sclerosis |
| There can be no assurance that, if we are able to obtain regulatory approval of Alferon N Injection(R) for the treatment of new indications, we will be able to achieve any significant penetration into those markets |
| In addition, because certain competitive products are not dependent on a source of human blood cells, such products may be able to be produced in greater volume and at a lower cost than Alferon N Injection(R) |
| Currently, our wholesale price on a per unit basis of Alferon N Injection(R) is higher than that of the competitive recombinant alpha and beta interferon products |
| Other companies may succeed in developing products earlier than we do, obtaining approvals for such products from the FDA more rapidly than we do, or developing products that are more effective than those we may develop |
| While we will attempt to expand our technological capabilities in order to remain competitive, there can be no assurance that research and development by others or other medical advances will not render our technology or products obsolete or non-competitive or result in treatments or cures superior to any therapy we develop |
| Possible side effects from the use of Ampligen(R) or Alferon N Injection(R) could adversely affect potential revenues and physician/patient acceptability of our product |
| We believe that Ampligen(R) has been generally well tolerated with a low incidence of clinical toxicity, particularly given the severely debilitating or life threatening diseases that have been treated |
| A mild flushing reaction has been observed in approximately 15prca of patients treated in our various studies |
| This reaction is occasionally accompanied by a rapid heart beat, a tightness of the chest, urticaria (swelling of the skin), anxiety, shortness of breath, subjective reports of "e feeling hot, "e sweating and nausea |
| The reaction is usually infusion-rate related and can generally be controlled by slowing the infusion rate |
| Other adverse side effects include liver enzyme level elevations, diarrhea, itching, asthma, low blood pressure, photophobia, rash, transient visual disturbances, slow or irregular heart rate, decreases in platelets and white blood cell counts, anemia, dizziness, confusion, elevation of kidney function tests, occasional temporary hair loss and various flu-like symptoms, including fever, chills, fatigue, muscular aches, joint pains, headaches, nausea and vomiting |
| These flu-like side effects typically subside within several months |
| One or more of the potential side effects might deter usage of Ampligen(R) in certain clinical situations and therefore, could adversely affect potential revenues and physician/patient acceptability of our product |
| At present, Alferon N Injection(R) is only approved for the intralesional (within the lesion) treatment of refractory or recurring external genital warts in adults |
| In clinical trials conducted for the treatment of genital warts with Alferon N Injection(R), patients did not experience serious side effects; however, there can be no assurance that unexpected or unacceptable side effects will not be found in the future for this use or other potential uses of Alferon N Injection(R) which could threaten or limit such productapstas usefulness |
| We may be subject to product liability claims from the use of Ampligen(R), Alferon N Injection(R), or other of our products which could negatively affect our future operations |
| We face an inherent business risk of exposure to product liability claims in the event that the use of Ampligen(R) or other of our products results in adverse effects |
| This liability might result from claims made directly by patients, hospitals, clinics or other consumers, or by pharmaceutical companies or others manufacturing these products on our behalf |
| Our future operations may be negatively affected from the litigation costs, settlement expenses and lost product sales inherent to these claims |
| While we will continue to attempt to take appropriate precautions, we cannot assure that we will avoid significant product liability exposure |
| Although we currently maintain product liability insurance coverage, there can be no assurance that this insurance will provide adequate coverage against Ampligen(R) and/or Alferon N Injection(R) product liability claims |
| A successful product liability claim against us in excess of Ampligen(R)apstas dlra1cmam000cmam000 in insurance coverage; dlra3cmam000cmam000 in aggregate, or in excess of Alferon N Injection(R)apstas dlra5cmam000cmam000 in insurance coverage; dlra5cmam000cmam000 in aggregate; or for which coverage is not provided could have a negative effect on our business and financial condition |
| William A Carterapstas services could hurt our chances for success |
| Our success is dependent on the continued efforts of Dr |
| William A Carter because of his position as a pioneer in the field of nucleic acid drugs, his being the co-inventor of Ampligen(R), and his knowledge of our overall activities, including patents and clinical trials |
| Carterapstas services could have a material adverse effect on our operations and chances for success |
| We have secured key man life insurance in the amount of dlra2cmam000cmam000 on the life of Dr |
| Carter and we have an employment agreement with Dr |
| Carter that, as amended, runs until December 31, 2010 |
| Carter has the right to terminate his employment upon not less than 30 days prior written notice |
| Carter or other personnel, or the failure to recruit additional personnel as needed could have a materially adverse effect on our ability to achieve our objectives |
| Uncertainty of health care reimbursement for our products |
| Our ability to successfully commercialize our products will depend, in part, on the extent to which reimbursement for the cost of such products and related treatment will be available from government health administration authorities, private health coverage insurers and other organizations |
| Significant uncertainty exists as to the reimbursement status of newly approved health care products, and from time to time legislation is proposed, which, if adopted, could further restrict the prices charged by and/or amounts reimbursable to manufacturers of pharmaceutical products |
| We cannot predict what, if any, legislation will ultimately be adopted or the impact of such legislation on us |
| There can be no assurance that third party insurance companies will allow us to charge and receive payments for products sufficient to realize an appropriate return on our investment in product development |
| 34 There are risks of liabilities associated with handling and disposing of hazardous materials |
| Our business involves the controlled use of hazardous materials, carcinogenic chemicals, flammable solvents and various radioactive compounds |
| Although we believe that our safety procedures for handling and disposing of such materials comply in all material respects with the standards prescribed by applicable regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated |
| In the event of such an accident or the failure to comply with applicable regulations, we could be held liable for any damages that result, and any such liability could be significant |
| We do not maintain insurance coverage against such liabilities |
| Risks Associated With an Investment in Our Common Stock We reported material weaknesses in our internal control over financial reporting that, if not remedied, could adversely affect our internal controls |
| In connection with the review of our internal control over financial reporting as of December 31, 2005, it was determined that the accounting principles applied to certain features of our convertible debentures, the valuation of debenture related and other common stock warrants dating back to 2003 were inaccurately reflected in our interim financial statements through 2003 and 2005 and our annual financial statements for the years ended December 31, 2003 and 2004 |
| Our processes and procedures related to the preparation and audit of the quarterly and annual financial statements were not adequate to ensure that the financials were prepared in accordance with generally accepted accounting principles |
| While the result of applying the proper accounting principles decreased our net loss per share by only dlra0dtta02 and dlra0dtta01 for the years ended December 31, 2003 and 2004, respectively we consider our accounting review process to be a material weakness that resulted in a material misstatement to our consolidated financial statements |
| We have taken and plan to take, during 2006, additional steps to remediate these internal control weaknesses |
| In March 2006, we increased the time allocated by our financial consultants with regards to remediate these disclosed internal control weaknesses and spend additional time monitoring our internal controls on an ongoing basis |
| Notwithstanding the foregoing, the measures we have taken and any future measures to remediate the internal control weaknesses reported that we may take, we may not be able to effectively maintain effective internal control over financial reporting in the future |
| In addition, additional deficiencies in our internal controls may be discovered in the future |
| Any failure to remediate the reported material weakness or to implement new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements |
| Any such failure also could affect the ability of our management to certify in our 2006 Form 10-K and 10-Q that our internal controls are effective when it provides an assessment of our internal control over financial reporting, and could affect the results of our independent registered public accounting firmapstas related attestation report regarding our managementapstas assessment |
| Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our securities |
| 35 The market price of our stock may be adversely affected by market volatility |
| In addition to general economic, political and market conditions, the price and trading volume of our stock could fluctuate widely in response to many factors, including: o announcements of the results of clinical trials by us or our competitors; o adverse reactions to products; o governmental approvals, delays in expected governmental approvals or withdrawals of any prior governmental approvals or public or regulatory agency concerns regarding the safety or effectiveness of our products; o changes in US or foreign regulatory policy during the period of product development; o developments in patent or other proprietary rights, including any third party challenges of our intellectual property rights; o announcements of technological innovations by us or our competitors; o announcements of new products or new contracts by us or our competitors; o actual or anticipated variations in our operating results due to the level of development expenses and other factors; o changes in financial estimates by securities analysts and whether our earnings meet or exceed the estimates; o conditions and trends in the pharmaceutical and other industries; new accounting standards; and o the occurrence of any of the risks described in these "e Risk Factors "e |
| Our common stock is listed for quotation on the American Stock Exchange |
| For the 12-month period ended December 31, 2005, the price of our common stock has ranged from dlra1dtta25 to dlra3dtta70 per share |
| The average daily trading volume of our common stock varies significantly |
| Our relatively low average volume and low average number of transactions per day may affect the ability of our stockholders to sell their shares in the public market at prevailing prices and a more active market may never develop |
| In the past, following periods of volatility in the market price of the securities of companies in our industry, securities class action litigation has often been instituted against companies in our industry |
| If we face securities litigation in the future, even if without merit or unsuccessful, it would result in substantial costs and a diversion of management attention and resources, which would negatively impact our business |
| 36 Our stock price may be adversely affected if a significant amount of shares are sold in the public market |
| As of March 24, 2006, approximately 899cmam772 shares of our common stock, constituted "e restricted securities "e as defined in Rule 144 under the Securities Act of 1933 |
| Also, we have registered 22cmam331cmam890 shares issuable (i) to Fusion Capital pursuant to the common stock purchase agreement with Fusion Capital; (ii) upon conversion of approximately 135prca of Debentures that we issued in 2003 and 2004; (iii) as payment of 135prca of the interest on all of the Debentures; (iv) upon exercise of 135prca of certain Warrants; and (v) upon exercise of certain other warrants |
| Registration of the shares permits the sale of the shares in the open market or in privately negotiated transactions without compliance with the requirements of Rule 144 |
| To the extent the exercise price of the warrants is less than the market price of the common stock, the holders of the warrants are likely to exercise them and sell the underlying shares of common stock and to the extent that the conversion price and exercise price of these securities are adjusted pursuant to anti-dilution protection, the securities could be exercisable or convertible for even more shares of common stock |
| We also may issue shares to be used to meet our capital requirements or use shares to compensate employees, consultants and/or directors |
| We are unable to estimate the amount, timing or nature of future sales of outstanding common stock |
| Sales of substantial amounts of our common stock in the public market could cause the market price for our common stock to decrease |
| Furthermore, a decline in the price of our common stock would likely impede our ability to raise capital through the issuance of additional shares of common stock or other equity securities |
| The sale of our common stock to Fusion Capital may cause dilution and the sale of the shares of common stock acquired by Fusion Capital and other shares registered for selling stockholders could cause the price of our common stock to decline |
| The sale by Fusion Capital and other selling stockholders of our common stock will increase the number of our publicly traded shares, which could depress the market price of our common stock |
| Moreover, the mere prospect of resales by Fusion Capital and other selling stockholders could depress the market price for our common stock |
| The issuance of shares to Fusion Capital under the common stock purchase agreement dated July 8, 2005, will dilute the equity interest of existing stockholders and could have an adverse effect on the market price of our common stock |
| The purchase price for the common stock to be sold to Fusion Capital pursuant to the common stock purchase agreement will fluctuate based on the price of our common stock |
| Fusion Capital may sell none, some or all of the shares of common stock purchased from us at any time |
| We expect that the shares will be sold over a period of in excess of 25 months from August 3, 2005 |
| Depending upon market liquidity at the time, a sale of shares under this offering at any given time could cause the trading price of our common stock to decline |
| The sale of a substantial number of shares of our common stock to Fusion Capital pursuant to the purchase agreement, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales |
| Provisions of our Certificate of Incorporation and Delaware law could defer a change of our management which could discourage or delay offers to acquire us |
| Provisions of our Certificate of Incorporation and Delaware law may make it more difficult for someone to acquire control of us or for our stockholders to remove existing management, and might discourage a third party from offering to acquire us, even if a change in control or in management would be beneficial to our stockholders |
| For example, our Certificate of Incorporation allows us to issue shares of preferred stock without any vote or further action by our stockholders |
| Our Board of Directors has the authority to fix and determine the relative rights and preferences of preferred stock |
| Our Board of Directors also has the authority to issue preferred stock without further stockholder approval |
| As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock |
| In this regard, in November 2002, we adopted a stockholder rights plan and, under the Plan, our Board of Directors declared a dividend distribution of one Right for each outstanding share of Common Stock to stockholders of record at the close of business on November 29, 2002 |
| Each Right initially entitles holders to buy one unit of preferred stock for dlra30dtta00 |
| The Rights generally are not transferable apart from the common stock and will not be exercisable unless and until a person or group acquires or commences a tender or exchange offer to acquire, beneficial ownership of 15prca or more of our common stock |
| Carter, our chief executive officer, who already beneficially owns 9dtta4prca of our common stock, the Planapstas threshold will be 20prca, instead of 15prca |
| The Rights will expire on November 19, 2012, and may be redeemed prior thereto at $ |
| 01 per Right under certain circumstances |
| 37 Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, you should not place undue reliance on any such forward-looking statements |
| Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or reflect the occurrence of unanticipated events |
| New factors emerge from time to time, and it is not possible for us to predict which will arise |
| In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements |
| Our research in clinical efforts may continue for the next several years and we may continue to incur losses due to clinical costs incurred in the development of Ampligen(R) for commercial application |
| Possible losses may fluctuate from quarter to quarter as a result of differences in the timing of significant expenses incurred and receipt of licensing fees and/or cost recovery treatment revenues in Europe, Canada and in the United States |