| SEATTLE GENETICS INC /WA Item 1A Risk Factors |
| You should carefully consider the risks described below, together with all of the other information included in this annual report on Form 10-K and the information incorporated by reference herein |
| If we do not effectively address the risks we face, our business will suffer and we may never achieve or sustain profitability |
| See “Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| ” This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties |
| Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this annual report on Form 10-K Our product candidates are at early stages of development and, if we are not able to successfully develop and commercialize them, we may not generate sufficient revenues to continue our business operations |
| All of our product candidates are in early stages of development |
| Significant further research and development, financial resources and personnel will be required to develop commercially viable products and obtain regulatory approvals |
| Currently, SGN-30, SGN-40 and SGN-33 are in clinical trials and SGN-35, SGN-70 and SGN-75 are in preclinical development |
| We expect that much of our efforts and expenditures over the next few years will be devoted to these clinical and preclinical product candidates |
| We have no products that have received regulatory approval for commercial sale |
| Our ability to commercialize our product candidates depends on first receiving FDA approval |
| Thereafter, the commercial success of these product candidates will depend upon their acceptance by physicians, patients, third party payors and other key decision-makers as therapeutic and cost-effective alternatives to currently available products |
| If we fail to gain approval from the FDA or to produce a commercially successful product, we may not be able to earn sufficient revenues to continue as a going concern |
| We will continue to need significant amounts of additional capital that may not be available to us |
| We expect to make additional capital outlays and to increase operating expenditures over the next several years as we hire additional employees and support our preclinical development, manufacturing and clinical trial activities |
| We will need to seek additional funding through public or private financings, including equity financings, and through other means, such as collaborations and license agreements |
| However, changes in our 17 ______________________________________________________________________ [43]Table of Contents business may occur that would consume available capital resources sooner than we expect |
| If adequate funds are not available to us, we will be required to delay, reduce the scope of or eliminate one or more of our development programs |
| We do not know whether additional financing will be available when needed, or that, if available, we will obtain financing on terms favorable to our stockholders or us |
| Our future capital requirements will depend upon a number of factors, including: • the size, complexity and timing of our clinical programs; • our receipt of milestone-based payments or other revenue from our collaborations or license arrangements; • the ability to manufacture sufficient drug supply to complete clinical trials; • progress with clinical trials; • the time and costs involved in obtaining regulatory approvals; • the costs associated with acquisitions or licenses of additional products, including licenses we may need to commercialize our products; • the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims; • the timing and cost of milestone payment obligations as our product candidates progress towards commercialization; • competing technological and market developments; and • preparation for product commercialization |
| To the extent that we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution |
| To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to relinquish some rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us |
| Clinical trials for our product candidates are expensive, time consuming and their outcome is uncertain |
| Before we can obtain regulatory approval for the commercial sale of any product candidate that we wish to develop, we are required to complete preclinical development and extensive clinical trials in humans to demonstrate its safety and efficacy |
| Each of these trials requires the investment of substantial expense and time |
| We are currently conducting phase II clinical trials of our most advanced product candidate and phase I clinical trials of two additional product candidates |
| We expect to commence additional trials of these and other product candidates in the future |
| There are numerous factors that could delay each of these clinical trials or prevent us from completing these trials successfully |
| Commercialization of our product candidates will ultimately depend upon successful completion of additional research and development and testing in both clinical trials and preclinical models |
| At the present time, SGN-30, SGN-40 and SGN-33 are our only product candidates in clinical development and SGN-35, SGN-70 and SGN-75 are our only product candidates in preclinical development |
| As a result, any delays or difficulties we encounter with these product candidates may impact our ability to generate revenue and cause our stock price to decline significantly |
| Ongoing and future clinical trials of our product candidates may not show sufficient safety or efficacy to obtain requisite regulatory approvals |
| We still only have limited efficacy data from our phase I and phase II clinical trials of SGN-30 and our phase I clinical trials of SGN-40, and we only recently commenced our phase I clinical trial of SGN-33 |
| Phase I and phase II clinical trials are not primarily designed to test the efficacy of a drug candidate but rather to test safety, to study pharmacokinetics and pharmacodynamics and to understand the drug candidate’s side effects at various doses and dosing schedules |
| Furthermore, success in preclinical and early 18 ______________________________________________________________________ [44]Table of Contents clinical trials does not ensure that later large-scale trials will be successful nor does it predict final results |
| Acceptable results in early trials may not be repeated in later trials |
| We believe that any clinical trial designed to test the efficacy of SGN-30, SGN-40 or SGN-33, whether phase II or phase III, will likely involve a large number of patients to achieve statistical significance and will be expensive |
| We may conduct lengthy and expensive clinical trials of SGN-30, SGN-40 or SGN-33, only to learn that the drug candidate is not an effective treatment |
| We may experience significant setbacks in advanced clinical trials, even after promising results in earlier trials |
| In addition, clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals |
| Negative or inconclusive results or adverse medical events during a clinical trial could cause it to be redone or terminated |
| For example, although we generated data showing an encouraging trend in our phase II clinical trials of SGN-15, we decided to discontinue development of SGN-15 to prioritize our other programs |
| In addition, failure to construct appropriate clinical trial protocols could result in the test or control group experiencing a disproportionate number of adverse events and could cause a clinical trial to be redone or terminated |
| The length of time necessary to complete clinical trials and to submit an application for marketing approval for a final decision by the FDA or another regulatory authority may also vary significantly based on the type, complexity and novelty of the product involved, as well as other factors |
| Our clinical trials may take longer to complete than we project or they may not be completed at all |
| The timing of the commencement, continuation and completion of clinical trials may be subject to significant delays relating to various causes, including scheduling conflicts with participating clinicians and clinical institutions, difficulties in identifying and enrolling patients who meet trial eligibility criteria, and shortages of available drug supply |
| Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the existence of competing clinical trials and the availability of alternative or new treatments |
| We have experienced enrollment-related delays in our current and previous clinical trials and may experience similar delays in our future trials |
| We depend on medical institutions and clinical research organizations to conduct our clinical trials and to the extent they fail to enroll patients for our clinical trials or are delayed for a significant time in achieving full enrollment, we may be affected by increased costs, program delays or both, which may harm our business |
| In addition, we may conduct clinical trials in foreign countries in the future which may subject us to further delays and expenses as a result of increased drug shipment costs, additional regulatory requirements and the engagement of foreign clinical research organizations, as well as expose us to risks associated with foreign currency transactions insofar as we might desire to use US dollars to make contract payments denominated in the foreign currency where the trial is being conducted |
| Clinical trials must be conducted in accordance with FDA or other applicable foreign government guidelines and are subject to oversight by the FDA, other foreign governmental agencies and institutional review boards at the medical institutions where the clinical trials are conducted |
| In addition, clinical trials must be conducted with supplies of our product candidates produced under the FDA’s current Good Manufacturing Practices and other requirements in foreign countries, and may require large numbers of test patients |
| We, the FDA or other foreign governmental agencies could delay or halt our clinical trials of a product candidate for various reasons, including: • deficiencies in the conduct of the clinical trials; • the product candidate may have unforeseen adverse side effects; • the time required to determine whether the product candidate is effective may be longer than expected; • fatalities or other adverse events arising during a clinical trial due to medical problems that may not be related to clinical trial treatments; • the product candidate may not appear to be more effective than current therapies; 19 ______________________________________________________________________ [45]Table of Contents • quality or stability of the product candidate may fall below acceptable standards; or • we may not be able to produce sufficient quantities of the product candidate to complete the trials |
| Due to these and other factors, our current product candidates or any of our other future product candidates could take a significantly longer time to gain regulatory approval than we expect or may never gain approval, which could reduce or eliminate our revenue by delaying or terminating the potential commercialization of our product candidates |
| We currently rely on third-party manufacturers and other third parties for production of our drug products and our dependence on these manufacturers may impair the development of our product candidates |
| We do not currently have the ability to manufacture ourselves the drug products that we need to conduct our clinical trials and rely upon a limited number of manufacturers to supply our drug products |
| For SGN-30, we contracted with ICOS to manufacture preclinical and early-stage clinical supplies and with Abbott Laboratories for later-stage clinical and potential future commercial supplies |
| For SGN-40, Genentech manufactured initial quantities of clinical grade material that have been transferred to us, and we have contracted with Abbott Laboratories for later-stage clinical and potential future commercial supplies |
| For SGN-33, we received clinical-grade material from PDL BioPharma to support currently planned phase I trials and plan to enter into contract manufacturing arrangements to supplement these supplies as necessary |
| For SGN-35, we are utilizing antibody manufactured by Abbott, have contracted with Albany Molecular Research for GMP manufacturing of our proprietary drug-linker system and are working with a contract manufacturing organization for conjugation of the antibody to the proprietary drug-linker system |
| We are also planning a contract manufacturing campaign during 2006 to support our planned initiation of clinical trials with SGN-70 in 2007 |
| In addition, we rely on other third parties to perform additional steps in the manufacturing process, including vialing and storage of our product candidates |
| For the foreseeable future, we expect to continue to rely on contract manufacturers and other third parties to produce, vial and store sufficient quantities of our product candidates for use in our clinical trials |
| If our contract manufacturers or other third parties fail to deliver our product candidates for clinical use on a timely basis, with sufficient quality, and at commercially reasonable prices, and we fail to find replacement manufacturers or to develop our own manufacturing capabilities, we may be required to delay or suspend clinical trials or otherwise discontinue development and production of our product candidates |
| In addition, we depend on outside vendors for the supply of raw materials used to produce our product candidates |
| If the third party suppliers were to cease production or otherwise fail to supply us with quality raw materials and we were unable to contract on acceptable terms for these raw materials with alternative suppliers, our ability to have our product candidates manufactured and to conduct preclinical testing and clinical trials of our product candidates would be adversely affected |
| Securing phase III and commercial quantities of our product candidates from contract manufacturers will require us to commit significant capital and resources |
| We may also be required to enter into long-term manufacturing agreements that contain exclusivity provisions and/or substantial termination penalties |
| In addition, contract manufacturers have a limited number of facilities in which our product candidates can be produced and any interruption of the operation of those facilities due to events such as equipment malfunction or failure or damage to the facility by natural disasters could result in the cancellation of shipments, loss of product in the manufacturing process or a shortfall in available product candidates |
| Our contract manufacturers are required to produce our clinical product candidates under FDA current Good Manufacturing Practices in order to meet acceptable standards for our clinical trials |
| If such standards change, the ability of contract manufacturers to produce our product candidates on the schedule we require for our clinical trials may be affected |
| In addition, contract manufacturers may not perform their obligations under their agreements with us or may discontinue their business before the time required by us to successfully produce and market our product candidates |
| Any difficulties or delays in our contractors’ manufacturing and supply of product candidates could increase our costs, cause us to lose revenue or make us postpone or cancel clinical trials |
| 20 ______________________________________________________________________ [46]Table of Contents The FDA requires that we demonstrate structural and functional comparability between the same drug product manufactured by different organizations |
| Because we have used or intend to use multiple sources to manufacture SGN-30, SGN-40 and SGN-33, we will need to conduct comparability studies to assess whether manufacturing changes have affected the product safety, identity, purity or potency of any commercial drug candidate compared to the drug candidate used in clinical trials |
| If we are unable to demonstrate comparability, the FDA could require us to conduct additional clinical trials, which would be expensive and significantly delay any commercialization |
| Our second generation ADC technology is still at an early-stage of development and has not yet entered human clinical trials |
| Our second generation ADC technology, utilizing proprietary stable linkers and highly potent cell-killing drugs, is still at a relatively early stage of development |
| This ADC technology is used in our SGN-35 and SGN-75 product candidates and is the basis of our collaborations with Genentech, UCB Celltech, PDL BioPharma, CuraGen, Bayer, MedImmune and PSMA Development Company |
| We and our corporate collaborators are still conducting toxicology, pharmacology, pharmacokinetics and other preclinical studies, and significant additional studies will be required before any of these ADC product candidates enter human clinical trials |
| For example, we have observed evidence of toxicity in some preclinical models with certain drug-linker forms and are focusing our efforts on forms with the best efficacy and lowest toxicity in order to maximize the therapeutic window of our ADC technology |
| In addition, preclinical models to study anti-cancer activity of compounds are not necessarily predictive of toxicity or efficacy of these compounds in the treatment of human cancer and there is no assurance that we will be able to use these technologies in the treatment of humans |
| Any failures or setbacks in our ADC program could have a detrimental impact on our internal product candidate pipeline and our ability to maintain and/or enter into new corporate collaborations regarding these technologies, which would negatively affect our business and financial position |
| We expect to continue to incur net losses and may not achieve or maintain profitability for some time, if at all |
| We have incurred substantial net losses in each of our years of operation and, as of December 31, 2005, we had an accumulated deficit of approximately dlra143dtta6 million |
| We expect to make substantial expenditures to further develop and commercialize our product candidates and anticipate that our rate of spending will accelerate as the result of the increased costs and expenses associated with research, development, clinical trials, manufacturing, regulatory approvals and commercialization of our potential products |
| In the near term, we expect our revenues to be derived from technology licensing fees, sponsored research fees and milestone payments under existing and future collaborative arrangements |
| In the longer term, our revenues may also include royalties from collaborations with current and future strategic partners and commercial product sales |
| However, our revenue and profit potential is unproven and our limited operating history makes our future operating results difficult to predict |
| We have never been profitable and may never achieve profitability and if we do achieve profitability, it may not be sustainable |
| In some circumstances we rely on collaborators to assist in the research and development activities necessary for the commercialization of our product candidates |
| If we are not able to locate suitable collaborators or if our collaborators do not perform as expected, we may not be able to commercialize our product candidates |
| We have established and intend to continue to establish alliances with third-party collaborators to develop and market some of our current and future product candidates and to license our ADC technology |
| We have licensed our ADC technology to Genentech, UCB Celltech, PDL BioPharma, CuraGen, Bayer, MedImmune and PSMA Development Company |
| These collaborations provide us with cash and revenues through technology access and license fees, sponsored research fees, equity sales and potential milestone and royalty payments |
| We use these funds to partially fund the development costs of our internal pipeline of product candidates |
| Collaborations can also create and strengthen our relationships with leading biotechnology and pharmaceutical companies and may provide synergistic benefits by combining our technologies with the technologies of our 21 ______________________________________________________________________ [47]Table of Contents collaborators |
| For example, in July 2004, we formed a collaboration with Celera Genomics to jointly discover and develop antibody-based therapies for cancer |
| Under certain conditions, our collaborators may terminate their agreements with us and discontinue use of our technologies |
| We cannot control the amount and timing of resources our collaborators may devote to products incorporating our technology |
| Additionally, our relationships with our collaborators divert significant time and effort of our scientific staff and management team and require effective allocation of our resources to multiple internal and collaborative projects |
| Our collaborators may separately pursue competing products, therapeutic approaches or technologies to develop treatments for the diseases targeted by us or our collaborators |
| Even if our collaborators continue their contributions to the collaborative arrangements, they may nevertheless determine not to actively pursue the development or commercialization of any resulting products |
| Our collaborators may fail to perform their obligations under the collaboration agreements or may be slow in performing their obligations |
| If any of our collaborators terminate or breach our agreements with them, or otherwise fail to complete their obligations in a timely manner, it may have a detrimental effect on our financial position by reducing or eliminating the potential for us to receive technology access and license fees, milestones and royalties, as well as possibly requiring us to devote additional efforts and incur costs associated with pursuing internal development of product candidates |
| Furthermore, if our collaborators do not prioritize and commit substantial resources to programs associated with our product candidates, we may be unable to commercialize our product candidates, which would limit our ability to generate revenue and become profitable |
| In the future, we may not be able to locate third party collaborators to develop and market our product candidates and we may lack the capital and resources necessary to develop all our product candidates alone |
| We depend on a small number of collaborators for most of our current revenue |
| The loss of any one of these collaborators could result in a substantial decline in our revenue |
| We have collaborations with a limited number of companies |
| To date, almost all of our revenue has resulted from payments made under agreements with our corporate collaborators, and we expect that most of our future revenue will continue to come from corporate collaborations until the approval and commercialization of one or more of our product candidates |
| The failure of our collaborators to perform their obligations under their agreements with us, including paying license or technology fees, milestone payments or royalties, could have a material adverse effect on our financial performance |
| In addition, a significant portion of revenue received from our corporate collaborators is derived from research and material supply fees, and a decision by any of our corporate collaborators to conduct more research and development activities themselves could significantly reduce the revenue received from these collaborations |
| Payments under our existing and future collaboration agreements are also subject to significant fluctuations in both timing and amount, which could cause our revenue to fall below the expectations of securities analysts and investors and cause a decrease in our stock price |
| We rely on license agreements for certain aspects of our product candidates and technology |
| Failure to maintain these license agreements or to secure any required new licenses could prevent us from developing or commercializing our product candidates and technology |
| We have entered into agreements with third-party commercial and academic institutions to license technology for use in our ADC technology and product candidates |
| Currently, we have license agreements with Bristol-Myers Squibb, Arizona State University, Genentech, PDL BioPharma, CLB Research and Development, ICOS Corporation, Mabtech AB, and the University of Miami, among others |
| Some of these license agreements contain diligence and milestone-based termination provisions, in which case our failure to meet any agreed upon diligence requirements or milestones may allow the licensor to terminate the agreement |
| Many of our license agreements grant us exclusive licenses to the underlying technologies |
| If our licensors terminate our license agreements or if we are unable to maintain the exclusivity of our exclusive license agreements, we may be unable to continue to develop and commercialize our product candidates |
| In addition, continued development and commercialization of our product candidates may require us to secure licenses to additional technologies |
| We may not be able to secure these licenses on commercially reasonable terms, if at all |
| 22 ______________________________________________________________________ [48]Table of Contents We rely on third parties to provide services in connection with our preclinical and clinical development programs |
| The inadequate performance by or loss of any of these service providers could affect our product candidate development |
| Several third parties provide services in connection with our preclinical and clinical development programs, including in vitro and in vivo studies, assay and reagent development, immunohistochemistry, toxicology, pharmacokinetics and other outsourced activities |
| If these service providers do not adequately perform the services for which we have contracted or cease to continue operations and we are not able to quickly find a replacement provider or we lose information or items associated with our product candidates, our development programs may be delayed |
| If we are unable to enforce our intellectual property rights, we may not be able to commercialize our product candidates |
| Similarly, if we fail to sustain and further build our intellectual property rights, competitors may be able to develop competing therapies |
| Our success depends, in part, on obtaining and maintaining patent protection and successfully defending these patents against third party challenges in the United States and other countries |
| We own multiple US and foreign patents and pending patent applications for our technologies |
| We also have rights to issued US patents, patent applications, and their foreign counterparts, relating to our monoclonal antibody and drug-based technologies |
| Our rights to these patents and patent applications are derived in part from worldwide licenses from Bristol-Myers Squibb, Arizona State University, Genentech and PDL BioPharma, among others |
| In addition, we have licensed our US and foreign patents and patent applications to third parties |
| The standards that the US Patent and Trademark Office and foreign patent offices use to grant patents are not always applied predictably or uniformly and can change |
| Consequently, our pending patent applications may not be allowed and, if allowed, may not contain the type and extent of patent claims that will be adequate to conduct our business as planned |
| Additionally, any issued patents may not contain claims that will permit us to stop competitors from using similar technology |
| Similarly, the standards that courts use to interpret patents are not always applied predictably or uniformly and may evolve, particularly as new technologies develop |
| We rely on trade secrets and other proprietary information where we believe patent protection is not appropriate or obtainable |
| However, trade secrets and other proprietary information are difficult to protect |
| We have taken measures to protect our unpatented trade secrets and know-how, including the use of confidentiality and assignment of inventions agreements with our employees, consultants and certain contractors |
| It is possible, however, that these persons may breach the agreements or that our competitors may independently develop or otherwise discover our trade secrets or other proprietary information |
| Our research collaborators may publish data and information to which we have rights |
| If we cannot maintain the confidentiality of our technology and other confidential information in connection with our collaborations, then our ability to receive patent protection or protect our proprietary information may be impaired |
| We may incur substantial costs and lose important rights as a result of litigation or other proceedings relating to patent and other intellectual property rights |
| The defense and enforcement of intellectual property rights in a court of law, US Patent and Trademark Office interference proceedings and related legal and administrative proceedings in the United States and elsewhere involve complex legal and factual questions |
| These proceedings are costly and time-consuming |
| If we become involved in any litigation, interference or other administrative proceedings, we will incur substantial expense and it will divert the efforts of our technical and management personnel |
| An adverse determination may subject us to significant liabilities or require us to seek licenses that may not be available from third parties on commercially reasonable terms, if at all |
| We may be restricted or prevented from developing and commercializing our product candidates in the event of an adverse determination in a judicial or administrative proceeding, or if we fail to obtain necessary licenses |
| 23 ______________________________________________________________________ [49]Table of Contents If we lose our key personnel or are unable to attract and retain additional qualified personnel, our future growth and ability to compete would suffer |
| We are highly dependent on the efforts and abilities of the principal members of our senior management |
| Additionally, we have several scientific personnel with significant and unique expertise in monoclonal antibodies and related technologies |
| The loss of the services of any one of the principal members of our managerial or scientific staff may prevent us from achieving our business objectives |
| The competition for qualified personnel in the biotechnology field is intense, and our future success depends upon our ability to attract, retain and motivate highly skilled scientific, technical and managerial employees |
| In order to commercialize our products successfully, we will be required to expand our workforce, particularly in the areas of manufacturing, clinical trials management, regulatory affairs, business development and sales and marketing |
| These activities will require the addition of new personnel, including management, and the development of additional expertise by existing management personnel |
| We face intense competition for qualified individuals from numerous pharmaceutical and biotechnology companies, as well as academic and other research institutions |
| To the extent we are not able to attract and retain these individuals on favorable terms, our business may be harmed |
| We face intense competition and rapid technological change, which may result in others discovering, developing or commercializing competing products before or more successfully than we do |
| The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change |
| We are aware of many pharmaceutical and biotechnology companies that are actively engaged in research and development in areas related to antibody therapy |
| Some of these competitors have successfully commercialized antibody products or are developing or testing product candidates that do or may in the future compete directly with our product candidates |
| For example, we believe that companies including Genentech, Amgen, ImmunoGen, Biogen IDEC, Medarex, Chiron and Wyeth are developing and/or marketing products or technologies that may compete with ours |
| Other potential competitors include large, fully integrated pharmaceutical companies and more established biotechnology companies, which have significant resources and expertise in research and development, manufacturing, testing, obtaining regulatory approvals and marketing |
| Also, academic institutions, government agencies and other public and private research organizations conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and marketing |
| It is possible that these competitors will succeed in developing technologies that are more effective than our product candidates or that would render our technology obsolete or noncompetitive |
| If our competitors develop superior products, manufacturing capability or marketing expertise, our business may fail |
| Our business may fail because we face intense competition from major pharmaceutical companies and specialized biotechnology companies engaged in the development of other products directed at cancer |
| Many of our competitors have greater financial and human resources expertise and more experience in the commercialization of product candidates |
| Our competitors may, among other things: • develop safer or more effective products; • implement more effective approaches to sales and marketing; • develop less costly products; • obtain quicker regulatory approval; • have access to more manufacturing capacity; • form more advantageous strategic alliances; or • establish superior proprietary positions |
| 24 ______________________________________________________________________ [50]Table of Contents In addition, if we receive regulatory approvals, we may compete with well-established, FDA-approved therapies that have generated substantial sales over a number of years |
| We anticipate that we will face increased competition in the future as new companies enter our market and scientific developments surrounding other cancer therapies continue to accelerate |
| We have no experience in commercializing products on our own and, to the extent we do not develop this ability or contract with a third party to assist us, we may not be able to successfully sell our product candidates |
| We do not have a sales and marketing force and may not be able to develop this capacity |
| If we are unable to establish sales and marketing capabilities, we will need to enter into sales and marketing agreements to market our products in the United States |
| For sales outside the United States, we plan to enter into third-party arrangements |
| In these foreign markets, if we are unable to establish successful distribution relationships with pharmaceutical companies, we may fail to realize the full sales potential of our product candidates |
| Additionally, our product candidates may not gain market acceptance among physicians, patients, healthcare payors and the medical community |
| The degree of market acceptance of any approved product candidate will depend on a number of factors, including: establishment and demonstration of clinical efficacy and safety; cost-effectiveness of a product; its potential advantage over alternative treatment methods; and marketing and distribution support for the product |
| Moreover, government health administrative authorities, private health insurers and other organizations are increasingly challenging both the need for and the price of new medical products and services |
| Consequently, uncertainty exists as to the reimbursement status of newly approved therapeutics and diagnostics |
| For these and other reasons, physicians, patients, third-party payors and the medical community may not accept and utilize any product candidates that we develop and even if they do, reimbursement may not be available for our products to enable us to maintain price levels sufficient to realize an appropriate return on our investment in research and product development |
| Similarly, even if we do receive reimbursement, the target market for our products may be small or the focus of intense competition and we may not realize an appropriate return on our investment in research and product development |
| The holders of our Series A convertible preferred stock have voting and other rights that they could exercise against the best interests of our common stockholders |
| The holders of our Series A convertible preferred stock currently have rights to designate two members of our Board of Directors and to vote as a separate class on certain significant corporate transactions, including the issuance of securities that would rank on a par with or senior to the Series A convertible preferred stock or the incurrence of debt in excess of dlra20 million |
| The holders of Series A convertible preferred stock are not entitled to receive any cumulative or non-cumulative dividends, and may only receive a dividend when and as declared by our Board of Directors or if any dividends are paid on any other shares of our capital stock based on the number of shares of common stock into which such holder’s shares of Series A convertible preferred stock would then convert |
| In addition, upon our liquidation or dissolution (including a merger or acquisition), the holders of our Series A convertible preferred stock are entitled to receive a liquidation preference in an amount equal to the greater of the original offering price of dlra25dtta00 per share of Series A convertible preferred stock or the amount that would have been paid had each such share of Series A convertible preferred stock been converted to common stock |
| The holders of Series A convertible preferred stock also have the right under certain circumstances in the event of our merger or acquisition approved by our Board of Directors to receive their liquidation preference in cash or a combination of cash and new preferred securities of the acquiring or surviving corporation |
| This requirement to pay cash or issue new preferred securities does not apply if the consideration to be received by the Series A holders has an aggregate value of more than dlra6dtta25 per share (calculated on an as-if-converted to common stock basis) determined on the date definitive documentation for such sale transaction is signed or if holders of 2/3rds of the outstanding shares of Series A convertible preferred stock waive this requirement |
| The holders of Series A convertible preferred stock may exercise these rights to the detriment of our common stockholders |
| 25 ______________________________________________________________________ [51]Table of Contents The holders of our Series A convertible preferred stock also have the right at any time to request that we register for resale the shares of our common stock that they acquire upon conversion of their Series A convertible preferred stock or upon exercise of their warrants to purchase our common stock, subject to certain limitations |
| In addition, the holders of our Series A convertible preferred stock may convert their Series A convertible preferred stock into common stock at any time and sell shares of the common stock acquired upon such conversion in the public market in reliance upon Rule 144 |
| Future sales in the public market of such common stock, or the perception that such sales might occur, could adversely affect the prevailing market price of our common stock and could make it more difficult for us to raise funds through a public offering or private placement of our equity securities |
| We face product liability risks and may not be able to obtain adequate insurance to protect us against losses |
| We currently have no products that have been approved for commercial sale |
| However, the current and future use of our product candidates by us and our corporate collaborators in clinical trials, and the sale of any approved products in the future, may expose us to liability claims |
| These claims might be made directly by consumers or healthcare providers or indirectly by pharmaceutical companies, our corporate collaborators or others selling such products |
| We may experience financial losses in the future due to product liability claims |
| We have obtained limited general commercial liability insurance coverage for our clinical trials |
| We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for any of our product candidates |
| However, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses |
| If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired |
| Our operations involve hazardous materials and are subject to environmental, health and safety controls and regulations |
| We are subject to environmental, health and safety laws and regulations, including those governing the use of hazardous materials |
| The cost of compliance with environmental, health and safety regulations is substantial |
| Our business activities involve the controlled use of hazardous materials and we cannot eliminate the risk of accidental contamination or injury from these materials |
| In the event of an accident or environmental discharge, we may be held liable for any resulting damages, which may materially harm our business, financial condition and results of operations |
| We may engage in future acquisitions that increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities and subject us to other risks |
| We actively evaluate various strategic transactions on an ongoing basis, including licensing or acquiring complementary products, technologies or businesses |
| Any potential acquisitions may entail numerous risks, including increased operating expenses and cash requirements, assimilation of operations and products, retention of key employees, diversion of our management’s attention and uncertainties in our ability to maintain key business relationships of the acquired entities |
| In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense |
| Moreover, we may not be able to locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business |
| Legislative actions, potential new accounting pronouncements and higher insurance costs are likely to impact our future financial position or results of operations |
| Future changes in financial accounting standards may cause adverse, unexpected revenue fluctuations and affect our financial position or results of operations |
| New pronouncements and varying interpretations of pronouncements have occurred with frequency in the past and may occur again in the future and as a result we may be required to make changes in our accounting policies |
| Compliance with new regulations regarding corporate governance and public disclosure may result in additional expenses |
| Changing laws, regulations and 26 ______________________________________________________________________ [52]Table of Contents standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and Nasdaq National Market rules and the recent accounting changes to expense stock options, are creating uncertainty for companies such as ours and insurance costs are increasing as a result of this uncertainty and other factors |
| As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from science and business activities to compliance activities |
| For example, we have incurred and expect to continue to incur substantial costs and expend significant resources to comply with the regulations promulgated under Section 404 of the Sarbanes-Oxley Act of 2002 |
| Our stock price may be volatile and our shares may suffer a decline in value |
| The market prices for securities of biotechnology companies have in the past been, and are likely to continue in the future to be, very volatile |
| During the fourth quarter of 2005, our stock price fluctuated between dlra4dtta50 and dlra5dtta79 per share |
| As a result of fluctuations in the price of our common stock, you may be unable to sell your shares at or above the price you paid for them |
| The market price of our common stock may be subject to substantial volatility in response to many risk factors listed in this section, and others beyond our control, including: • announcements regarding the results of discovery efforts and preclinical and clinical activities by us or our competitors; • changes in our existing corporate partnerships or licensing arrangements; • establishment of new corporate partnering or licensing arrangements by us or our competitors; • our ability to raise capital; • developments or disputes concerning our proprietary rights; • issuance of new or changed analysts’ reports and recommendations regarding us or our competitors; • share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; • changes in government regulations; and • economic or other external factors |
| Our existing stockholders have significant control of our management and affairs |
| Our executive officers and directors and holders of greater than five percent of our outstanding voting stock, together with entities that may be deemed affiliates of, or related to, such persons or entities, beneficially owned approximately 41dtta8 percent of our voting power as of March 3, 2006 |
| As a result, these stockholders, acting together, may be able to control our management and affairs and matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets |
| Consequently, this concentration of ownership may have the effect of delaying, deferring or preventing a change in control, including a merger, consolidation, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control, which might affect the market price of our common stock |
| Anti-takeover provisions could make it more difficult for a third party to acquire us |
| In addition to the 1cmam500cmam000 shares of Series A convertible preferred stock that are currently outstanding, as of November 4, 2005, our Board of Directors has the authority to issue up to an additional 3cmam360cmam000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders |
| The rights of the holders of common stock may be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future |
| The issuance of preferred stock may have the effect of delaying, deferring or preventing a change of control of Seattle Genetics without further action by the stockholders and may adversely affect the 27 ______________________________________________________________________ [53]Table of Contents voting and other rights of the holders of common stock |
| Further, certain provisions of our charter documents, including provisions eliminating the ability of stockholders to take action by written consent and limiting the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice, may have the effect of delaying or preventing changes in control or management of Seattle Genetics, which could have an adverse effect on the market price of our stock |
| In addition, our charter documents provide for a classified board, which may make it more difficult for a third party to gain control of our Board of Directors |
| Similarly, state anti-takeover laws in Delaware and Washington related to corporate takeovers may prevent or delay a change of control of Seattle Genetics |