| NORTHFIELD LABORATORIES INC /DE/ Item 1A Risk Factors |
| You should consider the following matters when reviewing the information contained in this document |
| You also should consider the other information incorporated by reference in this document |
| We are a development stage company without revenues or profits |
| Northfield was founded in 1985 and is a development stage company |
| Since 1985, we have been engaged primarily in the development and clinical testing of PolyHeme |
| No revenues have been generated to date from commercial sales of PolyHeme |
| Our revenues to date have consisted solely of license fees |
| We cannot ensure that our clinical testing will be successful, that regulatory approval of PolyHeme will be obtained, that we will be able to manufacture PolyHeme at an acceptable cost and in appropriate quantities or that we will be able to successfully market and sell PolyHeme |
| We also cannot ensure that we will not encounter unexpected difficulties which will have a material adverse effect on us, our operations or our properties |
| We have a history of losses and our future profitability is uncertain |
| From our inception through May 31, 2006, we have incurred net operating losses totaling dlra172cmam136cmam000 |
| We will require substantial additional expenditures to complete clinical trials, to pursue regulatory approval for PolyHeme, to establish commercial scale manufacturing processes and facilities, and to establish marketing, sales and administrative capabilities |
| These expenditures are expected to result in substantial losses for at least the next few years and are expected to substantially exceed our currently available capital resources |
| The expense and the time required to realize any product revenues or profitability are highly uncertain |
| We cannot ensure that we will be able to achieve product revenues or profitability on a sustained basis or at all |
| We are developing a single product that is subject to a high level of technological risk |
| To succeed as a company, we must develop PolyHeme commercially and sell adequate quantities of PolyHeme at a high enough price to generate a profit |
| We may not accomplish either of these objectives |
| Our operations have to date consisted primarily of the development and clinical testing of PolyHeme |
| We do not expect to realize product revenues unless we successfully develop and achieve commercial introduction of PolyHeme |
| We expect that such revenues, if any, will be derived solely from sales of PolyHeme directly or through licensees |
| We also expect the use of PolyHeme initially to be limited to the acute blood loss segment of the transfusion market |
| The biomedical field has undergone rapid and significant technological changes |
| Technological developments may result in PolyHeme becoming obsolete or non-competitive before we are able to recover any portion of the research and development and other expenses we have incurred to develop and clinically test PolyHeme |
| Any such occurrence would have a material adverse effect on us and our operations |
| We are required to receive FDA approval before we may sell PolyHeme commercially, data from our clinical trials to date may not be adequate to obtain FDA approval, and we may be required to conduct additional clinical trials in the future |
| We recently completed patient enrollment in a pivotal Phase III trial in which PolyHeme was used for the first time to treat severely injured patients before they reach the hospital |
| We anticipate that we will require approximately three months from the date of the completion of patient enrollment to monitor and lock the database from our pivotal Phase III trial |
| There can be no assurance that we will be able to complete our evaluation of or report the data from our pivotal Phase III trial within these time periods |
| There can also be no assurance that the data, once reported, will be favorable or will be sufficient to demonstrate the safety and effectiveness of our PolyHeme product for purposes of obtaining FDA approval for the commercial sale of the product in the United States |
| The preparation of a BLA is a complex and time-consuming process and there can be no assurance 13 _________________________________________________________________ [67]Table of Contents that we will be able to submit our BLA within this time period |
| If the completion of our BLA takes longer than expected, FDA approval for the commercial sale of PolyHeme may be substantially delayed |
| FDA previously issued an RTF to us in 2001 when we submitted a BLA based on data from our prior Phase II trauma trials |
| We recently applied to FDA for Fast Track designation for PolyHeme |
| We also plan to seek priority review of our BLA filing |
| Even if FDA accepts our BLA filing, there can be no assurance that FDA will grant PolyHeme Fast Track designation or will grant the BLA priority review |
| There can also be no assurance that FDA will determine that the trial data included in our BLA are sufficient to demonstrate that PolyHeme is safe or that we have achieved the clinical endpoints for effectiveness that are part of the trial protocol for our pivotal Phase III trial |
| FDA may accordingly refuse to approve PolyHeme for commercial sale or may require us to conduct additional clinical trials of PolyHeme in order to obtain approval |
| Even if FDA approval for the commercial sale of PolyHeme is obtained, it may include significant limitations on the indicated uses for which PolyHeme may be marketed |
| FDA requires a separate approval for each proposed indication for the use of PolyHeme in the United States |
| If we want to expand PolyHeme’s indications, we will have to design additional clinical trials, submit the trial designs to FDA for review and complete those trials successfully |
| Our business, financial condition and results of operations are critically dependent on receiving FDA approval of PolyHeme |
| A significant delay in achieving or failure to achieve FDA approval for commercial sales of PolyHeme would have a material adverse effect on us and could result in the cessation of our business |
| There may be limitations in the supply of the starting material for PolyHeme |
| We currently purchase donated red blood cells from The American Red Cross and Blood Centers of America for use as the starting material for PolyHeme |
| We have also entered into an agreement with hemerica, Inc, a subsidiary of Blood Centers of America, under which hemerica would supply us with up to 160cmam000 units per year of packed red cells, the source material for PolyHeme |
| We have not purchased any blood supplies under this agreement to date |
| We have plans to enter into long-term supply arrangements with other blood collectors |
| We cannot ensure that we will be able to enter into satisfactory long-term arrangements with blood bank operators, that the price we may be required to pay for starting material will permit us to price PolyHeme competitively or that we will be able to obtain an adequate supply of starting material |
| Additional demand for blood may arise from competing human hemoglobin-based oxygen carrier products, thereby limiting our available supply of starting material |
| The market may not accept our product |
| Even if PolyHeme is approved for commercial sale by FDA, the degree of market acceptance of PolyHeme by physicians, healthcare professionals and third party payors, and our profitability and growth will depend on a number of factors, including: • relative convenience and ease of administration; • the prevalence and severity of any adverse side effects; • effectiveness of our sales and marketing strategy; and • the price of PolyHeme compared with other hemoglobin-based oxygen carrier products |
| In addition, even if PolyHeme does achieve market acceptance, we may not be able to maintain that market acceptance over time if new products are introduced that are more favorably received than PolyHeme or render PolyHeme obsolete |
| 14 _________________________________________________________________ [68]Table of Contents We rely on third parties to coordinate our clinical trials and perform data collection and analysis, which may result in costs and delays that prevent us from successfully commercializing our product |
| We do not have the ability to conduct our clinical trials independently |
| We rely and will continue to rely on clinical investigators, third-party clinical research organizations and consultants to perform some of the functions associated with clinical trials |
| Our BLA may be delayed, suspended or terminated if: • these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines; • these third parties need to be replaced; or • the quality or accuracy of the data obtained by third parties is compromised due to their failure to adhere to our clinical protocol or regulatory requirements or for other reasons |
| Failure to perform by these third parties may increase our development costs, delay our ability to obtain regulatory approval and prevent the commercialization of our product |
| Our activities are and will continue to be subject to extensive government regulation |
| Our research, development, testing, manufacturing, marketing and distribution of PolyHeme are, and will continue to be, subject to extensive regulation, monitoring and approval by FDA The regulatory approval process to establish the safety and effectiveness of PolyHeme and the safety and reliability of our manufacturing process has already consumed considerable time and expenditures |
| We have taken advantage of Special Protocol Assessment, or SPA, one of the features of the Food and Drug Modernization Act of 1997 |
| Our SPA reflects an agreement with FDA on our trial design, the trial endpoints and the broad concepts for clinical indications those endpoints would support in an application for product approval by FDA The assessment of efficacy in our trial will be based on the data on patient survival at 30 days |
| A key feature of our SPA is the agreement on dual primary endpoints of superiority and non-inferiority between the treatment and control groups |
| Either of these endpoints may be used to provide evidence of efficacy |
| The SPA agreement, however, is not a guarantee of product approval by FDA or approval of any permissible claims about the product |
| In particular, it is not binding on the FDA if previously unrecognized public health concerns later comes to light, other new scientific concerns regarding product safety or efficacy arise, the sponsor fails to comply with the protocol agreed upon, or FDA’s reliance on data, assumptions or information are determined to be wrong |
| Even after an SPA agreement is finalized, the SPA agreement may be changed by the sponsor company or the FDA on written agreement of both parties, and the FDA retains significant latitude and discretion in interpreting the terms of the SPA agreement and the data and results from any study that is the subject of the SPA agreement |
| In addition, the data obtained from clinical trials are susceptible to varying interpretations, which could delay, limit or prevent FDA regulatory approval |
| Even if we demonstrate evidence of efficacy, our data may not demonstrate safety |
| We cannot ensure that, even after extensive clinical trials, regulatory approval will ever be obtained for PolyHeme |
| If PolyHeme is approved, it would be the first hemoglobin-based oxygen carrier for human use to receive FDA approval |
| We will be required to submit a Biologics License Application, or BLA, with FDA in order to obtain regulatory approval for the commercial sale of PolyHeme in the United States |
| Under FDA guidelines, FDA may comment upon the acceptability of a BLA following its submission |
| After a BLA is submitted there is an initial review by FDA to be sure that all of the required elements are included in the submission |
| There can be no assurance that the submission will be accepted for filing or that FDA may not issue a refusal to file, or RTF If an RTF is issued, there is opportunity for dialogue between the sponsor and FDA in an effort to resolve all concerns |
| There can be no assurance that such a dialogue will be successful in leading to the filing of the BLA We received an RTF from FDA in November 2001 in connection with our submission of a BLA seeking approval to market PolyHeme for use in the treatment of urgent, life-threatening blood loss based on data from patients in the hospital setting only |
| The subsequent dialogue with FDA resulted in the mutual 15 _________________________________________________________________ [69]Table of Contents decision to proceed with our pivotal Phase III trial |
| If a new BLA submission is filed, the timing of the FDA review process is uncertain and there can be no assurance that the full review will result in product approval |
| Moreover, if regulatory approval of PolyHeme is granted, the approval may include limitations on the indicated uses for which PolyHeme may be marketed |
| Further clinical trials will likely be required to gain approval to promote the use of PolyHeme for any additional indications |
| Further, discovery of previously unknown problems with PolyHeme or unanticipated problems with our manufacturing facilities, even after FDA approval of PolyHeme for commercial sale, may result in the imposition of significant restrictions, including withdrawal of PolyHeme from the market or restrictions on approved indications |
| Additional laws and regulations may also be enacted which could prevent or delay regulatory approval of PolyHeme, including laws or regulations relating to the price or cost-effectiveness of medical products |
| Other laws and regulations may be enacted that could require us to comply with post-marketing requirements for PolyHeme that may be time-consuming and expensive |
| Any delay or failure to achieve regulatory approval of commercial sales of PolyHeme or to maintain compliance with current or future laws and regulations is likely to have a material adverse effect on our financial condition |
| FDA continues to monitor products even after they receive approval |
| If and when FDA approves PolyHeme, its manufacture and marketing will be subject to ongoing regulation, including compliance with current good manufacturing practices, adverse event reporting requirements and FDA’s general prohibitions against promoting products for unapproved or “off-label” uses |
| We are also subject to inspection and market surveillance by FDA for compliance with these and other requirements |
| Any enforcement action resulting from failure, even by inadvertence, to comply with these requirements could affect the manufacture and marketing of PolyHeme |
| In addition, FDA could withdraw a previously approved product from the market upon receipt of newly discovered information |
| FDA could also require us to conduct additional, and potentially expensive, studies in areas outside our approved indicated uses |
| The lack of established criteria for evaluating the safety and effectiveness of hemoglobin-based oxygen-carrying products could also delay or prevent FDA approval |
| In October 2004, FDA published for comment a draft guidance document indicating suggested criteria for testing the safety and efficacy of oxygen therapeutics as substitutes for human red blood cells and providing guidance on the design of clinical trials to assess the risks and benefits associated with the use of such products |
| The draft guidance document was based in part on a conference on hemoglobin-based oxygen-carrying products convened at National Institutes of Health in 1999 |
| The draft guidance will not be finalized and implemented until completion of a public comment process |
| We cannot be certain when the definitive guidance will be issued by FDA or what effect, if any, the definitive guidance may have on our clinical trial |
| It is possible that, as a result of the definitive guidance, we may be required to undertake additional pre-clinical or clinical trials or modify the way data from our trial are analyzed or presented |
| FDA’s definitive guidance relating to the evaluation of the effectiveness of hemoglobin-based oxygen-carrying products could delay or prevent FDA regulatory approval of PolyHeme |
| In addition, delay or rejection could be caused by other future changes in FDA policies and regulations |
| We have submitted an application for Fast Track designation to FDA and plan to seek priority review of PolyHeme |
| Products awarded Fast Track designation are eligible for more frequent meetings with the agency to discuss the drug’s development plan, approval based on endpoints reasonably likely to predict clinical benefit, and rolling review of the product’s application |
| We cannot guarantee that FDA will award PolyHeme Fast Track designation |
| Award of the designation does not ensure product approval by the agency |
| A BLA in a Fast Track drug development program ordinarily will be eligible for “priority review” by FDA, although the law does not require it |
| Products awarded priority review are given abbreviated review goals by the agency |
| Priority review is requested at the time the BLA is submitted |
| FDA makes a decision as part of the agency’s review of the application for filing |
| We cannot guarantee that the agency will give PolyHeme priority review and cannot predict if awarded, what impact, if any, it will have on the review time for PolyHeme |
| Priority review does not ensure that FDA will ultimately approve PolyHeme |
| 16 _________________________________________________________________ [70]Table of Contents We expect to need to raise additional capital in the future to continue our business |
| We expect to need to raise additional capital in the future to continue our business |
| Our future capital requirements will depend on many factors, including the scope and results of our clinical trials, the timing and outcome of regulatory reviews, administrative and legal expenses, the status of competitive products, the establishment of manufacturing capacity and the establishment of collaborative relationships |
| We cannot ensure that additional funding will be available or, if it is available, that it can be obtained on terms and conditions we will deem acceptable |
| We expect to file a shelf registration statement with the SEC in the future to allow us the flexibility to raise additional capital when we believe it is appropriate to do so |
| Any additional funding derived from the sale of equity securities may result in significant dilution to our existing stockholders |
| In addition, we are subject to a putative class action lawsuit alleging violations of the federal securities laws and we also have received separate requests from both the SEC and the Senate Committee on Finance asking us voluntarily to provide certain information |
| These matters involve risks and uncertainties that may prevent Northfield from raising additional capital or may cause the terms upon which Northfield raises additional capital, if additional capital is available, to be less favorable to Northfield than would otherwise be the case |
| We currently manufacture PolyHeme at a single location and, if we were unable to utilize this facility, our ability to manufacture PolyHeme will be significantly affected, and we will be delayed or prevented from commercializing PolyHeme |
| We currently manufacture PolyHeme at a single location and we have no alternative manufacturing capacity in place at this time |
| We plan to construct our initial commercial manufacturing facility at this same location |
| Damage to this manufacturing facility due to fire, contamination, natural disaster, power loss, unauthorized entry or other events could force us to cease the manufacturing of PolyHeme |
| Any lack of supply could, in turn, delay our clinical trial and any potential commercial sales |
| In addition, if the facility or the equipment in the facility is significantly damaged or destroyed for any reason, we may not be able to replace our manufacturing capacity for an extended period of time, and our business, financial condition and results of operations will be materially and adversely affected |
| We intend to seek FDA approval of this facility for the commercial production of PolyHeme if and when marketing approval of PolyHeme is obtained |
| This facility will be subject to FDA inspections and extensive regulation, including compliance with current good manufacturing practices and FDA approval |
| Failure to comply may result in enforcement action, which may significantly delay or suspend manufacturing operations |
| Failure to increase manufacturing capacity may impair PolyHeme’s market acceptance and prevent us from achieving profitability |
| Currently, we have a manufacturing capacity of approximately 10cmam000 units of PolyHeme per year in our current pilot facility |
| Commercial-scale manufacturing of PolyHeme will require the construction of a manufacturing facility significantly larger than that currently being used to produce PolyHeme for our clinical trial |
| A commercial-scale manufacturing facility will be subject to FDA inspections and extensive regulation, including compliance with current good manufacturing practices and FDA approval of scale-up changes |
| Failure to comply may result in enforcement action, which may significantly delay or suspend manufacturing operations |
| We have no experience in large-scale manufacturing, and there can be no assurance that we can achieve large-scale manufacturing capacity |
| It is also possible that we may incur substantial cost overruns and delays compared to existing estimates in building and equipping a large-scale manufacturing facility |
| Moreover, in order to seek FDA approval of the sale of PolyHeme produced at a larger-scale manufacturing facility, we may be required to conduct additional studies with product manufactured at that facility |
| A significant delay in achieving scale-up of commercial manufacturing capabilities would have a material adverse effect on sales of PolyHeme |
| There are significant competitors developing similar products |
| We may be unable to compete successfully in developing and marketing our product |
| If approved for commercial sale, PolyHeme will compete directly with established therapies for acute blood loss and may compete with other technologies currently under development |
| We cannot ensure that PolyHeme will have 17 _________________________________________________________________ [71]Table of Contents advantages which will be significant enough to cause medical professionals to adopt it rather than continue to use established therapies or to adopt other new technologies or products |
| We also cannot ensure that the cost of PolyHeme will be competitive with the cost of established therapies or other new technologies or products |
| The development of hemoglobin-based oxygen-carrying products is a continuously evolving field |
| Competition is intense and may increase |
| Several companies have developed or are in the process of developing technologies which are, or in the future may be, the basis for products which will compete with PolyHeme |
| Certain of these companies are pursuing different approaches or means of accomplishing the therapeutic effects sought to be achieved through the use of PolyHeme |
| Some of these companies may have substantially greater financial resources, larger research and development staffs, more extensive facilities and more experience in testing, manufacturing, marketing and distributing medical products |
| We cannot ensure that one or more other companies will not succeed in developing technologies or products which will become available for commercial use prior to PolyHeme, which will be more effective or less costly than PolyHeme or which would otherwise render PolyHeme obsolete or non-competitive |
| We do not have experience in the sale and marketing of medical products |
| If approved for commercial sale, we currently intend to market PolyHeme in the United States using our own sales force |
| We have no experience in the sale or marketing of medical products |
| Our ability to implement our sales and marketing strategy for the United States will depend on our ability to recruit, train and retain a marketing staff and sales force with sufficient technical expertise |
| We cannot ensure that we will be able to establish an effective marketing staff and sales force, that the cost of establishing such a marketing staff and sales force will not exceed revenues from the sale of PolyHeme or that our marketing and sales efforts will be successful |
| Our profitability will be affected if we incur product liability claims in excess of our insurance coverage |
| The testing and marketing of medical products, even after FDA approval, have an inherent risk of product liability |
| Claims by users of PolyHeme, or by others selling PolyHeme, could expose us to substantial product liability |
| We maintain limited product liability insurance coverage for our clinical trials in the total amount of dlra10 million |
| However, our profitability would be adversely affected by a successful product liability claim in excess of our insurance coverage |
| We cannot ensure that product liability insurance will be available in the future or be available on reasonable terms |
| Our pivotal Phase III trial was conducted under a federal regulation that allows research to be conducted in certain emergent, life-threatening situations using an exception from the requirement for informed patient consent |
| Under the applicable federal regulation, an IRB may give approval for patient enrollment in trials in emergency situations without requiring individual informed consent provided specific criteria are met |
| Individual informed consent is often a defense raised against product liability claims asserted by patients participating in clinical trials of medical products |
| We cannot ensure that IRB approval of patient enrollment in our trial, even if given in full compliance with the applicable federal regulations, will provide us with a defense against product liability claims by patients participating in our trial |
| It is also possible that we may be subject to legal claims by patients objecting to being enrolled in our trial without their individual informed consent, even if the patients do not suffer any injuries in connection with our trial |
| We depend on the services of a limited number of key personnel |
| Our success is highly dependent on the continued services of a limited number of skilled managers and scientists |
| The loss of any of these individuals could have a material adverse effect on us |
| In addition, our success will depend, among other factors, on the recruitment and retention of additional highly skilled and experienced management and technical personnel |
| We cannot ensure that we will be able to retain existing employees or to attract and retain additional skilled personnel on acceptable terms given the competition for such personnel among numerous large and well-funded pharmaceutical and health care companies, universities and non-profit research institutions |
| 18 _________________________________________________________________ [72]Table of Contents Our ability to generate revenue from our product will depend on reimbursement and drug pricing policies and regulations |
| Our ability to achieve acceptable levels of reimbursement for PolyHeme by governmental authorities, private health insurers and other organizations will have an effect on our ability to successfully commercialize PolyHeme |
| We cannot be sure that reimbursement in the United States, Europe or elsewhere will be available for PolyHeme or, if reimbursement should become available, that it will not be decreased or eliminated in the future |
| If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize PolyHeme, and may not be able to obtain a satisfactory financial return on PolyHeme |
| Third-party payers increasingly are challenging prices charged for medical products and services |
| Also, the trend toward managed health care in the United States and the changes in health insurance programs, as well as legislative proposals to reform health care or reduce government insurance programs, may result in lower prices for pharmaceutical products, including PolyHeme |
| Cost-cutting measures that health care providers are instituting, and the effect of any health care reform, could harm our ability to sell PolyHeme |
| Moreover, we are unable to predict what additional legislation or regulation, if any, relating to the health care industry or third-party coverage and reimbursement may be enacted in the future or what effect this legislation or regulation would have on our business |
| In the event that governmental authorities enact legislation or adopt regulations which affect third-party coverage and reimbursement, demand for PolyHeme may be reduced, thereby harming our sales and profitability |
| Failure to obtain regulatory approval in foreign jurisdictions would prevent our product from being marketed abroad |
| We have entered into license agreements with Pfizer Inc, formerly known as Pharmacia Corporation, and Hemocare Ltd, an Israeli corporation, to develop, manufacture and distribute PolyHeme in certain European, Middle Eastern and African countries |
| The license agreements permit Pfizer and Hemocare to sell PolyHeme in return for the payment of royalties based upon sales of PolyHeme in the licensed territories |
| In order for Pfizer, Hemocare or anyone else, including us, to market our products in the European Union and many other foreign jurisdictions, we or our licensees must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements |
| The approval procedure varies among countries and can involve additional testing |
| The time required to obtain approval may differ from that required to obtain FDA approval |
| The foreign regulatory approval process entails all of the risks associated with obtaining FDA approval |
| We and our licensees may fail to obtain foreign regulatory approvals on a timely basis, if at all |
| Approval by FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by FDA We and our licensees may not be able to file for, and may not receive, necessary regulatory approvals to commercialize our product in any market |
| If we or our licensees fail to obtain these approvals, our business, financial condition and results of operations could be materially and adversely affected |
| Our financial results are expected to be affected by changes in the accounting rules governing the recognition of stock-based compensation expense |
| The Financial Accounting Standards Board recently issued its Statement of Financial Accounting Standards Nodtta 123 (revised 2004), Share-Based Payment (Statement 123R), which addresses the accounting for employee stock options |
| Statement 123R requires that the cost of all employee stock options, as well as other equity-based compensation arrangements, be reflected in financial statements based on the estimated fair value of the awards |
| Upon our implementation of Statement 123R, we expect to be required to recognize additional compensation expense |
| Section 404 of the Sarbanes-Oxley Act of 2002 requires us to include a report by our management on our internal controls over financial reporting in our annual reports filed with the SEC This report must contain an assessment by management of the effectiveness of our internal controls over financial reporting as of the end of our fiscal year and a statement as to whether or not our internal controls are effective |
| The report must also contain a statement that our independent auditors have issued an attestation report on management’s assessment of such internal controls |
| Our efforts to comply with Section 404 have resulted in, and are likely to continue to result in, significant costs, the commitment of time and operational resources and the diversion of management’s attention |
| If our management identifies one or more material weaknesses in our internal controls over financial reporting, we will be unable to assert our internal controls are effective |
| If we are unable to assert that our internal controls over financial reporting are effective, or if our independent auditors are unable to attest that our management’s report is fairly stated or they are unable to express an opinion on our management’s evaluation or on the effectiveness of our internal controls, our business may be harmed |
| Market perception of our financial condition and the trading price of our stock may be adversely affected and customer perception of our business may suffer |
| We are subject to a variety of federal, state and local laws, rules and regulations related to the discharge or disposal of toxic, volatile or other hazardous chemicals |
| Although we believe that we are in material compliance with these laws, rules and regulations, the failure to comply with present or future regulations could result in fines being imposed on us, suspension of production or cessation of operations |
| Third parties may also have the right to sue to enforce compliance |
| Moreover, it is possible that increasingly strict requirements imposed by environmental laws and enforcement policies could require us to make significant capital expenditures |
| The operation of a manufacturing plant entails the inherent risk of environmental damage or personal injury due to the handling of potentially harmful substances, and there can be no assurance that we will not incur material costs and liabilities in the future because of an accident or other event resulting in personal injury or unauthorized release of such substances to the environment |
| In addition, we generate hazardous materials and other wastes that are disposed of at various offsite facilities |
| We may be liable, irrespective of fault, for material cleanup costs or other liabilities incurred at these disposal facilities in the event of a release of hazardous substances by such facilities into the environment |
| We are subject to a putative class action lawsuit and have received requests from both the SEC and the Senate Committee on Finance asking us voluntarily to provide information |
| Steven A Gould, Northfield’s Chief Executive Officer, are subject to a putative class action pending in the United States District Court for the Northern District of Illinois Eastern Division, purportedly brought on behalf of a class of Northfield’s shareholders |
| The complaint alleges, among other things, that during the period from December 22, 2003 to February 21, 2006, the named defendants made or caused to be made a series of materially false or misleading statements and omissions about the Company’s elective surgery clinical trial and business prospects in violation of Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act |
| Plaintiffs allege that those allegedly false and misleading statements and omissions caused the purported class to purchase Northfield common stock at artificially inflated prices |
| As relief, the complaint seeks, among other things, a declaration that the action be certified as a proper class action, unspecified compensatory damages (including interest) and payment of costs and expenses (including fees for legal counsel and experts) |
| If the outcome of this lawsuit is unfavorable to Northfield, or Northfield determines that it is advisable to enter into a settlement of the lawsuit, Northfield could be required to pay significant monetary damages or make significant settlement payments to the plaintiffs in the lawsuit |
| 20 _________________________________________________________________ [74]Table of Contents While Northfield maintains directors and officers liability insurance, there can be no assurance that the proceeds of this insurance will be available with respect to all or part of any damages, costs or expenses that may be incurred by Northfield in connection with the aforementioned putative class action lawsuit |
| In addition, Northfield is a party to an indemnification agreement under which it may be required to indemnify and advance defense costs to its current and former directors and officers in connection with this putative class action lawsuit |
| Even if this lawsuit is ultimately resolved in favor of Northfield, Northfield still may incur substantial legal fees and expenses in defending the lawsuit |
| On March 13, 2006, the SEC notified Northfield that it is conducting an informal inquiry, and requested that Northfield voluntarily provide the SEC with certain categories of documents from 1998 to the present primarily relating to the company’s public disclosures concerning the clinical development of PolyHeme |
| Northfield is cooperating with the SEC and has been providing the SEC with the requested documents and information on a rolling basis |
| While Northfield does not know and cannot predict the ultimate outcome or future of the aforementioned SEC inquiry, the SEC has the authority to pursue formal civil enforcement actions, civil penalties, and equitable remedies, including disgorgement of funds and injunctions against future violations of the federal securities laws, and may refer criminal violations of the federal securities laws to the United States Department of Justice for prosecution |
| On March 7, 2006, Northfield also received a letter from Senator Charles E Grassley, Chairman of the Senate Committee on Finance, informing Northfield that the Committee is concerned that Northfield’s Phase III clinical trauma trial may not satisfy all of the criteria of the federal regulation that allows a waiver of informed consent in the context of emergency research |
| While Northfield does not know and cannot predict the ultimate outcome of the Committee’s investigation, actions by legislative bodies such as the Senate could prevent or materially delay FDA approval of the commercial sale of PolyHeme |
| RISKS RELATED TO OUR INTELLECTUAL PROPERTY Our success depends upon our ability to protect our intellectual property and our proprietary technology |
| Our success depends in part on our ability to obtain and maintain intellectual property protection for PolyHeme as well as our technology and know-how |
| Our policy is to seek to protect PolyHeme and our technologies by, among other methods, filing United States and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of PolyHeme |
| The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions |
| Our ability to maintain and solidify our proprietary position for our technology will depend on our success in obtaining effective patent claims and enforcing those claims once granted |
| We do not know whether any of our patent applications will result in the issuance of any patents |
| Our issued patents and those that may issue in the future may be challenged, invalidated, rendered unenforceable or circumvented, which could limit our ability to stop competitors from marketing related products or the length of term of patent protection that we may have for PolyHeme |
| Our United States patents have expiration dates that extend to 2017 |
| The broadest of our issued patents expires in June 2007 |
| Although we expect to be granted an extension of this patent to 2011, we cannot ensure that an extension will not be for less than five years or that it will be granted at all |
| In addition, the rights granted under any issued patents may not provide us with competitive advantages against competitors with similar compounds or technologies |
| Furthermore, our competitors may independently develop similar technologies or duplicate any technology developed by us in a manner that does not infringe our patents or other intellectual property |
| Because of the extensive time required for development, testing and regulatory review of PolyHeme, it is possible that, before PolyHeme can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantages of the patent |
| We rely on trade secrets and other confidential information to maintain our proprietary position |
| In addition to patent protection, we also rely on protection of trade secrets, know-how and confidential and proprietary information |
| To maintain the confidentiality of trade secrets and proprietary information, we have entered into confidentiality agreements with our employees, consultants and collaborators upon the 21 _________________________________________________________________ [75]Table of Contents commencement of their relationships with us |
| These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties |
| Our agreements with employees also provide that inventions conceived by the individual in the course of rendering services to us will be our exclusive property |
| Individuals with whom we have these agreements may not comply with their terms |
| In the event of the unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection for our trade secrets or other confidential information |
| To the extent that our employees, consultants or contractors use technology or know-how owned by others in their work for us, disputes may arise as to the rights in related inventions |
| Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information |
| The disclosure of our trade secrets would impair our competitive position and could have a material adverse effect on our operating results, financial condition and future growth prospects |
| We may be involved in lawsuits to protect or enforce our patents, which could be expensive and time consuming |
| Competitors may infringe our patents |
| To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming |
| In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover its technology |
| An adverse determination of any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing |
| Interference proceedings brought by the United States Patent and Trademark Office may be necessary to determine the priority of inventions with respect to our patent applications or those of our collaborators or licensors |
| Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and be a distraction to our management |
| We may not be able to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States |
| Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation |
| In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments |
| If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock |
| We may not prevail in any litigation or interference proceeding in which we are involved |
| Even if we do prevail, these proceedings can be very expensive and distract our management |
| Third parties may own or control patents or patent applications that are infringed by our product or technologies |
| Our success depends in part on avoiding the infringement of other parties’ patents and proprietary rights |
| In the United States, patent applications filed in recent years are confidential for 18 months, while older applications are not published until the patent issues |
| As a result, there may be patents of which we are unaware, and avoiding patent infringement may be difficult |
| We may inadvertently infringe third-party patents or patent applications |
| These third parties could bring claims against us that, even if resolved in our favor, could cause us to incur substantial expenses and, if resolved against us, could additionally cause us to pay substantial damages |
| Further, if a patent infringement suit were brought against us, we could be forced to stop or delay research, development, manufacturing or sales of PolyHeme in the country or countries covered by the patent we infringe, unless we can obtain a license from the patent holder |
| Such a license may not be available on acceptable terms, or at all, particularly if the third party is developing or marketing a product competitive with PolyHeme |
| Even if we were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property |
| 22 _________________________________________________________________ [76]Table of Contents We also may be required to pay substantial damages to the patent holder in the event of an infringement |
| Under some circumstances in the United States, these damages could be triple the actual damages the patent holder incurs |
| If we have supplied infringing products to third parties for marketing or licensed third parties to manufacture, use or market infringing products, we may be obligated to indemnify these third parties for any damages they may be required to pay to the patent holder and for any losses the third parties may sustain themselves as the result of lost sales or damages paid to the patent holder |
| Any successful infringement action brought against us may also adversely affect marketing of PolyHeme in other markets not covered by the infringement action |
| Furthermore, we may suffer adverse consequences from a successful infringement action against us even if the action is subsequently reversed on appeal, nullified through another action or resolved by settlement with the patent holder |
| The damages or other remedies awarded, if any, may be significant |
| As a result, any infringement action against us would likely delay the regulatory approval process, harm our competitive position, be very costly and require significant time and attention of our key management and technical personnel |
| RISKS RELATED TO OUR COMMON STOCK Our stock price could be volatile |
| The market price of our common stock has fluctuated significantly in response to a number of factors, many are which are beyond our control, including: • regulatory developments relating to our PolyHeme product; • announcements by us relating to the results of our clinical trials of PolyHeme; • developments relating to our efforts to obtain additional financing to fund our operations; • announcements by us regarding transactions with potential strategic partners; • announcements relating to blood substitute products being developed by our competitors; • changes in industry trends or conditions; • our issuance of additional equity or debt securities; and • sales of significant amounts of our common stock or other securities in the market |
| In addition, the stock market in general, and the Nasdaq Global Market and the biotechnology industry market in particular, have experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of listed companies |
| These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance |
| In the past, securities class action litigation has often been instituted following periods of volatility in the market price of a company’s securities |
| A securities class action suit against us could result in substantial costs, potential liabilities and the diversion of our management’s attention and resources |
| Anti-takeover provisions contained in our charter and bylaws could discourage potential takeover attempts |
| Our certificate of incorporation contains a “fair price” provision which requires approval of the holders of at least 80prca of our voting stock, excluding shares held by certain interested stockholders and their affiliates, as a condition to mergers or certain other business combinations with, or proposed by, any holder of 15prca or more of our voting stock, except in cases where approval of our disinterested directors is obtained or certain minimum price criteria and other procedural requirements are satisfied |
| In addition, our board of directors has the authority, without further action by our stockholders, to fix the rights and preferences and issue shares of preferred stock |
| These provisions, and other provisions of our certificate of incorporation and bylaws and Delaware law, may have the effect of deterring hostile takeovers or delaying or preventing changes in our control or management, including transactions in which stockholders might otherwise receive a premium for their shares over the then prevailing market prices |