| IMCLONE SYSTEMS INC ITEM 1A RISK FACTORS Risks Relating to Our Business and Other Matters The outcome of the review of our strategic alternatives currently being performed by the Company with the assistance of Lazard is uncertain |
| We recently announced that our Board of Directors has engaged the investment bank Lazard to conduct, in conjunction with management, a full review of the Company’s strategic alternatives to maximize shareholder value |
| These alternatives could include a merger, sale or strategic alliance |
| We are proceeding in consultation with our existing partners as the process moves forward |
| It is uncertain whether any particular strategic alternative will be pursued or that any transaction will occur, or on what terms |
| We do not plan to release additional information about the status of the review of alternatives until a definitive agreement is entered into or the process is otherwise completed |
| Royalty and manufacturing revenue from sales of ERBITUX represent a substantial portion of our revenues |
| If ERBITUX does not receive continued market acceptance, sales may not continue and we may not earn sufficient revenues |
| Our future growth and a significant portion of our future revenues depend on the continued commercial success of ERBITUX, our only FDA-approved product |
| We cannot be certain that ERBITUX will continue to be licensed or approved in the United States or in any foreign market |
| A number of factors may affect the rate and level of market acceptance of ERBITUX, including: · The perception by physicians and other members of the healthcare community of ERBITUX’s safety or efficacy or that of competing products; · The effectiveness of our and BMS’ sales and marketing efforts in the United States and the effectiveness of Merck KGaA’s sales and marketing efforts outside the United States; · The ability to obtain additional FDA approvals to market ERBITUX in additional treatment indications and tumor types; · Any unfavorable publicity concerning ERBITUX or competitive drugs; · The price of ERBITUX relative to other drugs or competing treatments; · The availability and level of third-party reimbursement for sales of ERBITUX; · The continued availability of adequate supplies of ERBITUX to meet demand; and · Regulatory developments related to the manufacture or continued use of ERBITUX If ERBITUX does not continue to be accepted, our revenues would decline, which would impact our profitability and the price of our common stock |
| We depend on BMS and Merck KGaA to co-promote market and sell ERBITUX If either BMS or Merck KGaA becomes unable to meet its obligations, or we fail to adequately maintain our relationship with these partners, it would negatively impact our revenues and harm our business |
| Under our agreement with BMS, BMS has the exclusive right to distribute ERBITUX in the United States and Canada, in exchange for which we receive royalty payments of 39prca of BMS’ net sales of ERBITUX in the United States and Canada |
| Under our agreement with Merck KGaA, Merck has the exclusive right to market ERBITUX outside of the United States, Canada and Japan, in exchange for which we receive royalty payments based on Merck’s gross profit from ERBITUX sales |
| These royalty payments from BMS and Merck represent a significant portion of our current revenues |
| In addition, we receive milestone payments and reimbursements of various regulatory and clinical expenses as well as 40 ______________________________________________________________________ certain marketing and administrative expenses from BMS and Merck |
| Our reliance on these relationships creates a number of potential risks, including the risk that we may be unable to control whether our corporate partners devote sufficient resources to our programs or product |
| If either BMS or Merck becomes unable to market effectively and sell sufficient quantities of ERBITUX, or otherwise unable to meet its contractual obligations, our revenues would be negatively impacted and it would harm our business |
| We operate in a highly competitive industry, including in terms of product pricing, that is subject to rapid and significant technological change |
| The pharmaceutical industry in which we operate is highly competitive |
| Our present and potential competitors include major pharmaceutical and biotechnology companies, as well as specialty pharmaceutical firms |
| Certain of these companies have considerably greater financial, research, clinical, regulatory, manufacturing, and marketing resources than we do |
| We have already experienced significant competition to ERBITUX from Avastin® (bevacizumab) (a non-chemotherapeutic biopharmaceutical product manufactured by Genentech, Inc |
| and approved by the FDA as a first-line treatment for patients with metastatic colorectal cancer) and Xeloda® (a chemotherapeutic biopharmaceutical product manufactured by Roche Laboratories, Inc |
| and also approved by the FDA as a first-line treatment for patients with metastatic colorectal cancer) |
| We believe that, notwithstanding the fact that the FDA has approved Avastin®, Xeloda® and ERBITUX for the treatment of metastatic colorectal cancer in different indications, physicians have prescribed Avastin® and Xeloda® outside of their approved indications and within ERBITUX’s approved indications |
| We are also aware of products in development at other biotechnology or pharmaceutical companies that, if successful in clinical trials and approved for marketing, may be priced competitively and compete with ERBITUX for the indication for which we have FDA approval, or for indications for which we are seeking, or may seek, FDA approval |
| Business combinations among our competitors may increase competition and the resources available to these competitors |
| In addition, the pharmaceutical industry has undergone, and is expected to continue to undergo, rapid and significant technological change, and we expect competition to increase with technical advances |
| The development of products or processes by our competitors with significant advantages over those that we are seeking to develop could cause the marketability of our products to stagnate or decline |
| We are subject to extensive governmental regulation |
| If we are unable to obtain or maintain regulatory approvals for our product or product candidates, we will not be able to market our product or further develop our product candidates |
| We are subject to stringent regulation with respect to product safety and efficacy by various international and US federal, state and local authorities |
| Of particular significance are the FDA’s requirements covering research and development, testing, manufacturing, quality control, labeling and promotion of drugs for human use |
| Any biopharmaceutical that we may develop cannot be marketed in the United States until it has been approved by the FDA, and then can only be marketed for the indications and claims approved by the FDA As a result of these requirements, the length of time, the level of expenditures and the laboratory and clinical information required for approval of an NDA or a BLA, or any supplements thereto, are substantial and can require a number of years, and the ability to obtain regulatory approval is uncertain |
| In addition, after any of our products receives regulatory approval, it remains subject to ongoing FDA regulation, including with respect to, for example, changes to the product, its manufacturing or label, new or revised regulatory requirements for manufacturing practices, additional clinical study requirements, restricted distribution, written warnings to physicians, a product recall, and withdrawal of a previously obtained approval |
| Similarly extensive regulation exists outside of the United States, including in Europe and Japan |
| 41 ______________________________________________________________________ We cannot be sure that we will be able to receive necessary regulatory approvals on a timely basis, if at all, for any of the product candidates we are developing or that we can maintain or receive any additional necessary regulatory approvals for ERBITUX Any delay in obtaining such approval or failure to maintain regulatory approvals could prevent us from marketing our product and would have a material adverse effect on our business |
| Moreover, it is possible that the current regulatory framework could change or additional regulations could arise at any stage during our product development or marketing processes, which may affect our ability to obtain or maintain approval of our products |
| Our revenues will diminish if our collaborators fail to obtain acceptable prices or adequate reimbursement for ERBITUX from third-party payors |
| All our revenues from ERBITUX are based on sales of the product by our two collaborators, BMS and Merck KGaA The continuing efforts of US and foreign government and third-party payors to contain or reduce the costs of health care may limit the revenues that we earn from these sales of ERBITUX If government and other third-party payors do not provide adequate coverage and reimbursement for our product, physicians may not prescribe it |
| In some foreign markets, pricing and profitability of prescription pharmaceuticals are subject to government control |
| In the United States, there is, and we expect that there will continue to be, federal, state and local legislation aimed at imposing similar controls |
| In addition, we expect managed care initiatives in the United States to continue to put pressure on the pricing of pharmaceutical products |
| Cost control initiatives would decrease the price received by our collaborators for any of our products in the future |
| Further, cost control initiatives would impair or diminish our ability or incentive, or the ability or incentive of our partners or potential partners, to commercialize our other product candidates, and accordingly, our ability to earn revenues |
| Our ability to commercialize any other product candidates, alone or with collaborators, will continue to depend in part on the availability of reimbursement from: · government and health administration authorities, including Medicare and Medicaid; · private health insurers; and · other third-party payors |
| Third-party payors, including Medicare, are increasingly challenging the prices charged for medical products and services |
| Government and other third-party payors increasingly are limiting both coverage and level of reimbursement for new drugs and, in some cases, refusing to provide coverage for a patient’s use of an approved drug for purposes not approved by the FDA Our royalty and collaborative agreement revenues could vary significantly and may adversely impact our business |
| Royalty and collaborative agreement revenues in future periods could vary significantly |
| Major factors affecting these revenues include, but are not limited to: · Variations in BMS’ and Merck KGaA’s and other licensees’ sales of licensed products; · The expiration or termination of existing arrangements with our collaborative partners, particularly Merck KGaA and BMS, which may include development and marketing arrangements for our products in the US, Europe and other countries outside the United States; · The timing of US and non-US approvals, if any, for our products licensed to BMS, Merck KGaA and other licensees; 42 ______________________________________________________________________ · The initiation of new collaborative agreements with other companies; · Whether and when collaborative agreement benchmarks and milestones are achieved; · The failure or refusal of a licensee to pay royalties; · The expiration or invalidation of our patents or licensed intellectual property; · Decreases in licensees’ sales of our products due to competition, manufacturing difficulties or other factors affecting sales of products, including any safety issues; and · Disputes arising with respect to the interpretation of provisions in existing or future agreements with our collaborative partners |
| If we are unable to earn sufficient revenues from ERBITUX, our operating results or financial condition could be adversely affected |
| We will be required to expend significant resources for research and development of our products in development and these products may not be developed successfully, which would adversely affect our prospects for future revenue growth and our stock price |
| Our only approved product is ERBITUX while our product candidates are still undergoing clinical trials and are in the early stages of development |
| Any successful development of our product candidates is highly uncertain and depends on a number of factors, many of which are beyond our control |
| In addition, each of our product candidates under development will require significant additional research and development resources to be expended prior to their commercialization |
| Even if we spend substantial amounts on research and development, our potential products may not be developed successfully |
| If the product candidates on which we have expended significant amounts for research and development are not commercialized, we will not earn a return on their research and development expenditures, which would adversely affect our prospects for future revenue growth and our stock price |
| Difficulties or delays in product manufacturing and finishing could cause shortfalls in the supply of ERBITUX or our product candidates currently being developed which would harm our business and, in the case of ERBITUX, our ability to meet our financial obligations |
| Cardinal Health Inc |
| is currently our sole provider of filling and finishing services—the final stage of manufacturing for ERBITUX In addition, we currently manufacture ERBITUX at our BB36 manufacturing facility and through Cardinal Health Inc |
| Any prolonged interruption in the operations of our or our contractors’ manufacturing and finishing facilities could result in cancellations of shipments, loss of product in the process of being manufactured, or a shortfall of available product inventory |
| A number of factors could cause interruptions, including a failure of our or our contractors’ manufacturing and finishing facilities to obtain FDA approval and maintain compliance with current good manufacturing practice requirements, changes in the FDA’s regulatory requirements or standards that require modifications to our manufacturing processes, action by the FDA that results in the halting of production of one or more of our products due to regulatory issues, a contract manufacturer going out of business, natural or other disasters, or other similar factors |
| Because our manufacturing and finishing processes and those of our contractors are highly complex and are subject to a lengthy FDA approval process and extensive ongoing regulation, alternative qualified production capacity may not be available on a timely basis or at all |
| We may also experience insufficient available capacity to manufacture existing or new products which could cause shortfalls of available product inventory |
| Difficulties or delays in our and our contractors’ manufacturing and supply of existing or new products could increase our costs, cause us to lose revenue or market share and damage our reputation |
| 43 ______________________________________________________________________ Although the FDA has approved our BB36 manufacturing facilities and the facilities have passed multiple subsequent inspections, if we are unable to maintain FDA approval for BB36, it may cause shortfalls in our product inventory which would negatively impact our revenues and our business |
| Our marketing partners may experience pressure to lower the price of ERBITUX because of new and/or proposed federal legislation, which would reduce our royalty revenue and may harm our business |
| Federal legislation enacted in December 2003 altered the way in which physician administered drugs covered by Medicare, such as ERBITUX, are reimbursed, generally leading to lower reimbursement levels |
| This legislation also added an outpatient prescription drug benefit to Medicare, effective January 2006 |
| The outpatient prescription drug benefit is provided primarily through private entities, which will attempt to negotiate price concessions from pharmaceutical manufacturers, including our collaborators |
| These negotiations may increase pressures to lower pricing for ERBITUX While the law specifically prohibits the United States government from interfering in price negotiations between manufacturers and Medicare drug plan sponsors, some members of Congress are pursuing legislation that would permit the United States government to use its enormous purchasing power to demand discounts from pharmaceutical companies, thereby creating de facto price controls on prescription drugs, such as ERBITUX In addition, the new law contains triggers for Congressional consideration of cost containment measures for Medicare in the event Medicare cost increases exceed a certain level |
| These cost containment measures could include some sorts of limitations on prescription drug prices that our collaborators charge for ERBITUX which would reduce our royalty revenue and harm our business |
| If we become subject to importation of products from Canada and other countries, it will affect our profitability and harm our business |
| ERBITUX and other products that we may develop may become subject to competition from lower priced imports from Canada, Mexico and other countries where government price controls or other market dynamics have resulted in lower priced products |
| The ability of patients and other customers to obtain these lower priced imports has grown significantly as a result of the Internet, an expansion of pharmacies in Canada and elsewhere targeted to American purchasers, the increase in US-based businesses affiliated with Canadian pharmacies marketing to American purchasers and other factors |
| However, the volume of imports continues to rise due to the limited enforcement resources of the FDA and the US Customs Service, and the pressure in the current political environment to permit the imports as a mechanism for expanding access to lower priced medicines |
| In addition, in December 2003, federal legislation was enacted to modify United States import laws and expand the ability for lower priced pharmaceutical products to be imported from Canada, where government price controls have been enacted |
| These changes to the import laws will not take effect unless and until the Secretary of Health and Human Services certifies that the changes will lead to substantial savings for consumers and will not create a public health safety issue |
| The current Secretary of Health and Human Services has indicated that there is not a basis to make such a certification at this time |
| However, it is possible that this Secretary or a subsequent Secretary could make such a certification in the future |
| In addition, legislation has been proposed to implement the changes to the import laws without any requirement for certification from the Secretary of Health and Human Services, and to broaden permissible imports in other ways |
| Even if these changes to the import laws do not take effect, and other changes are not enacted, lower priced imports of products from Canada and elsewhere may continue to increase due to market and political forces, and the limited enforcement resources of the FDA, the US Customs Service, and other government agencies |
| For example, state and local governments have suggested that they may import drugs from Canada for employees covered by state health plans or others, and some have already enacted such plans |
| 44 ______________________________________________________________________ Lower priced imports will adversely affect our profitability |
| This impact could become more significant in the future, and the impact could be even greater if there is a further change in the law or if state or local governments take further steps to permit lower priced imports from abroad |
| We depend on key employees in a competitive market for skilled personnel, and the loss of the services of any of our key employees would affect our ability to develop our business |
| We are highly dependent on the principal members of our management, operations and scientific staff |
| We experience intense competition for qualified personnel |
| Our future success depends in part on the continued service of our executive management and scientific personnel and our ability to recruit, train and retain highly qualified management, scientific, manufacturing and sales and marketing personnel |
| If we lose the services of any of these personnel, our research and product development and marketing goals, including the maintenance of relationships with leading research institutions and key collaborators, could be delayed or curtailed |
| In addition, we do not maintain “key man” life insurance on any of our employees |
| As a result, we may be unable to minimize the negative impact on our business stemming from the loss of a key employee |
| The law or FDA policy could change and expose us to competition from “generic” or “follow-on” versions of our products, which may impact our market share and harm our business |
| Under current US law and FDA policy, generic versions of conventional chemical drug compounds, sometimes referred to as small molecule compounds, may be approved through an abbreviated approval process |
| In general terms, the generic applicant references an approved innovator product for which full clinical data demonstrating safety and effectiveness exist for the approved conditions of use |
| The generic applicant in turn need only demonstrate that its product has the same active ingredient(s), dosage form, strength, route of administration, and conditions of use (labeling) as the referenced innovator drug, and that the generic product is absorbed in the body at the same rate and to the same extent as the referenced innovator drug (this is known as bioequivalence) |
| In addition, the generic application must contain information regarding the manufacturing processes and facilities that will be used to ensure product quality, and must contain certifications to patents listed with the FDA for the referenced innovator drug |
| There is no such abbreviated approval process under current law for biological products approved under the Public Health Service Act through a BLA, such as monoclonal antibodies, cytokines, growth factors, enzymes, interferons and certain other proteins |
| However, various proposals have been made to establish an abbreviated approval process to permit approval of generic or follow-on versions of these types of biological products |
| The proposals include proposals for legislation, and proposals for the FDA to extend its existing authority to this area |
| For example, some have proposed that the FDA allow a generic or follow-on copy of certain therapeutic biologics to be approved under an existing mechanism known as a 505(b)(2) application |
| A 505(b)(2) application is a form of an NDA, where the applicant does not have a right to reference some of the data being relied upon for approval |
| Under current regulations, 505(b)(2) applications can be used where the applicant is relying in part on published literature or on findings of safety or effectiveness in another company’s NDA 505(b)(2) applications have not been used to date for therapeutic biologic products |
| In addition, the use of 505(b)(2) applications even for conventional chemical drug products is the subject of ongoing legal challenge |
| It is thus not clear what the permitted use of a 505(b)(2) application might be in the future for biologics products, or whether any other proposals on generic or follow-on biologics will be adopted |
| However, if the law is changed or if the FDA somehow extends its existing authority in new ways, and third parties are permitted to obtain approvals of versions of our products through an abbreviated approval mechanism and without conducting full clinical studies of their own, it could adversely affect our business |
| Such products would be significantly less costly than ours to bring to market, and could lead to the existence of multiple lower priced competitive products |
| This would substantially limit our ability to obtain a return on the investments we have made in those products |
| 45 ______________________________________________________________________ Risks Relating to Intellectual Property and Legal Matters Protecting our proprietary rights is difficult and costly |
| If we fail to adequately protect or enforce our proprietary rights, we could lose revenue |
| Our success depends in large part on our ability to obtain, maintain and enforce our patents |
| Our ability to commercialize any product successfully will largely depend on our ability to obtain and maintain patents of sufficient scope to prevent third parties from developing similar or competitive products |
| In the absence of patent protection, competitors may cause a negative impact to our business by developing and marketing substantially equivalent products and technology |
| Patent disputes are frequent and can preclude the commercialization of products |
| We have in the past been, are currently, and may in the future be, involved in material patent litigation, such as the matters discussed under |