Investing in our common
stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below and all information contained in this Quarterly Report on Form 10-Q, as each of these risks could adversely affect our business,
operating results and financial condition. If any of the possible adverse events described below actually occurs, we may be unable to conduct our business as currently planned and our financial condition and operating results could be harmed. In
addition, the trading price of our common stock could decline due to the occurrence of any of these risks, and you may lose all or part of your investment.
Please see the language regarding forward-looking statements in Managements Discussion and Analysis of Financial Condition and Results of Operations.
We have marked with an asterisk (*) those risk factors below that reflect substantive changes from the risk factors included in our Annual Report
on Form 10-K filed with the Securities and Exchange Commission on March 14, 2012.
Risks Related to Our Business
We need to raise substantial additional funding to complete the development of and potentially commercialize vosaroxin.*
We believe that with $76.6 million in cash and investments as of September 30, 2012, we currently have the resources to fund our
operations to the end of 2014.
However, we will need to raise substantial additional capital to:
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complete the development of and potentially commercialize vosaroxin;
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fund additional clinical trials of vosaroxin and seek regulatory approvals;
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expand our development activities;
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implement additional internal systems and infrastructure; and
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build or access commercialization and additional manufacturing capabilities and supplies.
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Our future funding requirements and sources will depend on many factors, including but not limited to:
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the rate of progress and cost of our clinical trials, including the VALOR trial in particular;
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the need for additional or expanded clinical trials;
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the timing, economic and other terms of any licensing, collaboration or other similar arrangement into which we may enter;
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the costs and timing of seeking and obtaining FDA and other regulatory approvals;
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the extent of our other development activities;
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the costs associated with building or accessing commercialization and additional manufacturing capabilities and supplies;
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the costs of acquiring or investing in businesses, product candidates and technologies, if any;
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the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
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the effect of competing technological and market developments, and;
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the costs, if any, of supporting our arrangements with Biogen Idec and Millennium or any potential future licensees or partners.
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Until we can generate a sufficient amount of licensing, collaboration or product revenue to finance our cash
requirements, which we may never do, we expect to finance future cash needs primarily through equity issuances, debt arrangements, a possible license, collaboration or other similar arrangement with respect to development and/or commercialization
rights to vosaroxin, or a combination of the above. Any issuance of convertible debt securities, preferred stock or common stock may be at a discount from the then-current trading price of our common stock. If we issue additional common or preferred
stock or securities convertible into common stock, our stockholders will experience additional dilution, which may be significant. Further, we do not know whether additional funding will be available on acceptable terms, or at all. If we are unable
to raise substantial additional funding on acceptable terms or at all, we will be forced to delay or reduce the scope of our vosaroxin development program, potentially including the VALOR trial, and/or limit or cease our operations.
We have incurred losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We may not ever achieve or
sustain profitability.*
We are not profitable and have incurred losses in each year since our inception in 1998. Our net losses for
the nine months ended September 30, 2012 and the years ended December 31, 2011 and 2010 were $39.9 million, $20.1 million and $24.6 million, respectively. As of September 30, 2012, we had an accumulated deficit of $441.0 million. We
do not currently have any products that have been approved for marketing, and we continue to incur substantial development and general and administrative expenses related to our operations. We expect to continue to incur losses for the foreseeable
future, and we expect these losses to increase significantly as the VALOR trial progresses, as we seek regulatory approvals for vosaroxin, and as we commercialize vosaroxin, if approved. Our losses, among other things, have caused and will continue
to cause our stockholders equity and working capital to decrease.
To date, we have derived substantially all of our revenue from
license and collaboration agreements. On March 31, 2011, the only remaining collaboration agreement, which was with Biogen Idec, was amended and restated to provide for the discovery, development and commercialization of small molecule
inhibitors of a unique preclinical kinase inhibitor program involved in immunology. Concurrently, we entered into a license agreement with Millennium, under which we granted Millennium exclusive licenses for the development of our oral, selective
pan-Raf kinase inhibitor and one additional undisclosed kinase inhibitor program in oncology. While we are entitled to certain pre-commercialization event-based and royalty payments under each of the Restated Biogen Idec Agreement and Millennium
Agreement, we cannot predict whether we will receive any such payments under these agreements in the foreseeable future, or at all.
We also
do not anticipate that we will generate revenue from the sale of products for the foreseeable future. In the absence of additional sources of capital, which may not be available to us on acceptable terms, or at all, the development of vosaroxin or
future product candidates, if any, may be reduced in scope, delayed or terminated. If our product candidates or those of our collaborators fail in clinical trials or do not gain regulatory approval, or if our future products do not achieve market
acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.
The development of vosaroxin could be halted or significantly delayed for various reasons; our clinical trials for vosaroxin may not demonstrate safety or efficacy or lead to regulatory approval.
Vosaroxin is vulnerable to the risks of failure inherent in the drug development process. We may need to conduct significant
additional preclinical studies and clinical trials before we can attempt to demonstrate that vosaroxin is safe and effective to the satisfaction of the FDA and other regulatory authorities. Failure can occur at any stage of the development process,
and successful preclinical studies and early clinical trials do not ensure that later clinical trials will be successful. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after
obtaining promising results in earlier trials.
For example, we terminated two Phase 2 clinical trials of vosaroxin in small cell and
non-small cell lung cancer. If our clinical trials result in unacceptable toxicity or lack of efficacy, we may have to terminate them. If clinical trials are halted, or if they do not show that vosaroxin is safe and effective in the indications for
which we are seeking regulatory approval, our future growth will be limited and we may not have any other product candidates to develop.
We
do not know whether our ongoing clinical trials or any other future clinical trials with vosaroxin or any of our product candidates, including the VALOR trial in particular, will be completed on schedule, or at all, or whether our ongoing or planned
clinical trials will begin or progress on the time schedule we anticipate. The commencement of future clinical trials could be substantially delayed or prevented by several factors, including:
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delays or failures to raise additional funding;
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results of meetings with the FDA and/or other regulatory bodies;
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a limited number of, and competition for, suitable patients with particular types of cancer for enrollment in our clinical trials;
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delays or failures in obtaining regulatory approval to commence a clinical trial;
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delays or failures in obtaining sufficient clinical materials;
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delays or failures in obtaining approval from independent institutional review boards to conduct a clinical trial at prospective sites; or
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delays or failures in reaching acceptable clinical trial agreement terms or clinical trial protocols with prospective sites.
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The completion of our clinical trials, including the VALOR trial, could be substantially delayed or prevented by several
factors, including:
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delays or failures to raise additional funding;
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slower than expected rates of patient recruitment and enrollment;
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failure of patients to complete the clinical trial;
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delays or failures in reaching the number of events pre-specified in the trial design;
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the need to expand the clinical trial;
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delays or failures in obtaining sufficient clinical materials, including vosaroxin, its matching placebo and cytarabine;
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unforeseen safety issues;
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lack of efficacy during clinical trials;
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inability or unwillingness of patients or clinical investigators to follow our clinical trial protocols; and
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inability to monitor patients adequately during or after treatment.
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Additionally, our clinical trials may be suspended or terminated at any time by the FDA, other regulatory authorities, or ourselves. Any failure to complete or significant delay in completing clinical
trials for our product candidates could harm our financial results and the commercial prospects for our product candidates.
We rely on
a limited number of third-party manufacturers that are capable of manufacturing the vosaroxin active pharmaceutical ingredient, or API, and finished drug product, or FDP, to supply us with our vosaroxin API and FDP and the placebo used in the VALOR
trial. If we fail to obtain sufficient quantities of these materials, the VALOR trial and the development of vosaroxin could be halted or significantly delayed. In addition, we have previously identified product impurities in the vosaroxin API that
negatively impact FDP quality. Process improvements have been implemented to minimize these impurities, however there is no assurance they will not occur in the future.*
We do not currently own or operate manufacturing facilities and lack the capability to manufacture vosaroxin on a clinical or commercial scale. As a result, we rely on third parties to manufacture
vosaroxin API and FDP and the placebo product used in the VALOR trial. The vosaroxin API is classified as a cytotoxic substance, limiting the number of available manufacturers for both API and FDP.
We currently rely on two contract manufacturers for the vosaroxin API. We also currently rely on a single contract manufacturer to formulate the
vosaroxin API and fill and finish vials of the vosaroxin FDP. If our third-party vosaroxin API or FDP manufacturers are unable or unwilling to produce the vosaroxin API or FDP or placebo we require, we would need to establish arrangements with one
or more alternative suppliers. However, establishing a relationship with an alternative supplier would likely delay our ability to produce vosaroxin API or FDP by six to nine months. Our ability to replace an existing manufacturer would also be
difficult and time consuming because the number of potential manufacturers is limited and the FDA must approve any replacement manufacturer before it can be an approved commercial supplier. Such approval would require new testing, stability programs
and compliance inspections. It may be difficult or impossible for us to identify and engage a replacement manufacturer on acceptable terms in a timely manner, or at all. We expect to continue to depend on third-party contract manufacturers for all
our vosaroxin API, FDP and placebo needs for the foreseeable future.
Vosaroxin requires precise, high quality manufacturing. We have observed
visible particles during stability studies of two vosaroxin FDP lots. We have since identified a process impurity in the vosaroxin API that, when formulated into the packaged vial of the vosaroxin FDP, can result in the formation of particles over
time. As a response to these findings, we implemented a revised manufacturing process to seek to control the impurity and thereby prevent particle formation. Five lots of vosaroxin API manufactured using a revised manufacturing process were
formulated into FDP lots that have both completed up to 24 months of stability testing at room temperature without formation of particles. Three additional lots of API have been manufactured using this improved process, and four lots of FDP have
been successfully manufactured using the API resulting from the improved process. All FDP lots made with the new API have passed quality testing and have been released for use in the VALOR trial. All lots have been
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placed on an International Conference on Harmonization, or ICH, compliant stability program. It will take time to evaluate whether or not our revised manufacturing process for vosaroxin API will
be successful in stopping the formation of particles in FDP lots over the longer term, and to evaluate whether or not such control of particle formation can also be reliably and consistently achieved in subsequent lots over the shorter or longer
term. If our changes in the manufacturing process do not adequately control the formation of visible particles, we will need to discuss other possibilities with the FDA and/or other regulatory bodies, which could include a temporary clinical hold of
the VALOR trial until the issue has been resolved to their satisfaction.
In addition to process impurities, the failure of our contract
manufacturers to achieve and maintain high manufacturing standards in compliance with current Good Manufacturing Practice, or cGMP, regulations could result in other manufacturing errors leading to patient injury or death, product recalls or
withdrawals, delays or interruptions of production or failures in product testing or delivery. Although contract manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict
compliance with cGMP and other applicable government regulations and corresponding foreign standards, any such performance failures on the part of a contract manufacturer could result in the delay or prevention of filing or approval of marketing
applications for vosaroxin, cost overruns or other problems that could seriously harm our business. This would deprive us of potential product revenue and result in additional losses.
To date, vosaroxin has been manufactured in quantities appropriate for preclinical studies and clinical trials. New lots of API and FDP may need to be manufactured and released to support our VALOR trial,
and for stability assessments required for regulatory approval. There can be no assurance that we will be able to obtain a sufficient supply of vosaroxin API and FDP to supply our VALOR trial at the anticipated rate of enrollment or to continue the
trial without interruption. Prior to approval for commercial sale, we will need to manufacture registration
batches of API and FDP, which
will be accompanied by process validation studies. Process validation studies are conducted at risk prior to FDA review and approval. If the results of these process validation studies do not meet preset criteria, the regulatory approval or
commercial launch of vosaroxin may be delayed.
We rely on third-party distributors for the supply of cytarabine for our VALOR trial.
Cytarabine has until recently been in short supply throughout the world, and there is no guarantee we can procure sufficient quantities to supply our VALOR trial.*
The cytarabine used in our VALOR trial is procured from third-party distributors. Cytarabine has until recently been in short supply throughout the world. Following the sample size adjustment based on the
pre-specified interim analysis by the DSMB, additional procurement of cytarabine will be necessary to complete the VALOR trial. If we are unable to procure the necessary supplies to support our VALOR trial in a timely manner, the trial will be
delayed. Any significant delay could seriously harm our business.
The failure to enroll patients for clinical trials may cause delays
in developing vosaroxin.
We may encounter delays if we are unable to enroll enough patients to complete clinical trials of vosaroxin,
including the VALOR trial. Patient enrollment depends on many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites, the number and nature of competing treatments and ongoing
clinical trials of competing drugs for the same indication, and the eligibility criteria for the trial. Patients participating in our trials may elect to leave our trials and switch to alternative treatments that are available to them, either
commercially or on an expanded access basis, or in other clinical trials. Competing treatments include nucleoside analogs, anthracyclines and hypomethylating agents. Moreover, when one product candidate is evaluated in multiple clinical trials
simultaneously, patient enrollment in ongoing trials can be adversely affected by negative results from completed trials. In the VALOR trial, vosaroxin is being tested in patients with AML, which can be a difficult patient population to recruit.
The results of preclinical studies and clinical trials may not satisfy the requirements of the FDA or other regulatory agencies.
Prior to receiving approval to commercialize vosaroxin or future product candidates, if any, in the United States or abroad, we must
demonstrate with substantial evidence from well-controlled clinical trials, to the satisfaction of the FDA and other regulatory authorities, that such product candidates are safe and effective for their intended uses. The results from preclinical
studies and clinical trials can be interpreted in different ways, and the favorable results from previous trials of vosaroxin may not be experienced in the VALOR trial. Even if we believe the preclinical or clinical data are promising, such data may
not be sufficient to support approval by the FDA and other regulatory authorities. In addition, although we believe that our discussions with the FDA support the potential approval of vosaroxin for the treatment of AML based on positive results from
the VALOR trial without the need to conduct additional clinical trials, the FDA has substantial discretion in the approval process and may not grant approval based on data from this trial.
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We rely on third parties to conduct our clinical trials. If these third parties do not successfully
carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for, or commercialize vosaroxin.
We rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, to conduct our planned and existing clinical trials for
vosaroxin. If the third parties conducting our clinical trials do not perform their contractual duties or obligations, do not meet expected deadlines or need to be replaced, or if the quality or accuracy of the clinical data they obtain is
compromised due to the failure to adhere to our clinical trial protocols or for any other reason, we may need to enter into new arrangements with alternative third parties and our clinical trials may be extended, delayed or terminated or may need to
be repeated, and we may not be able to obtain regulatory approval for or commercialize the product candidate being tested in such trials.
We expect to expand our development capabilities, and any difficulties hiring or retaining key personnel or managing this growth could disrupt our
operations.
We are highly dependent on the principal members of our development staff. We expect to expand our development
capabilities by increasing expenditures in these areas, hiring additional employees and potentially expanding the scope of our current operations. Future growth will require us to continue to implement and improve our managerial, operational and
financial systems and continue to retain, recruit and train additional qualified personnel, which may impose a strain on our administrative and operational infrastructure. The competition for qualified personnel in the biopharmaceutical field is
intense. We are highly dependent on our continued ability to attract, retain and motivate highly qualified management and specialized personnel required for clinical development. Due to our limited resources, we may not be able to effectively manage
any expansion of our operations or recruit and train additional qualified personnel. If we are unable to retain key personnel or manage our growth effectively, we may not be able to implement our business plan.
If we are sued for infringing intellectual property rights of third parties, litigation will be costly and time consuming and could prevent us from
developing or commercializing vosaroxin.
Our commercial success depends on not infringing the patents and other proprietary rights of
third parties and not breaching any collaboration or other agreements we have entered into with regard to our technologies and product candidates. If a third party asserts that we are using technology or compounds claimed in issued and unexpired
patents owned or controlled by the third party, we may need to obtain a license, enter into litigation to challenge the validity of the patents or incur the risk of litigation in the event that a third party asserts that we infringe its patents.
If a third party asserts that we infringe its patents or other proprietary rights, we could face a number of challenges that could seriously
harm our competitive position, including:
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infringement and other intellectual property claims, which would be costly and time consuming to litigate, whether or not the claims have merit, and
which could delay the regulatory approval process and divert managements attention from our business;
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substantial damages for past infringement, which we may have to pay if a court determines that vosaroxin or any future product candidates infringe a
third partys patent or other proprietary rights;
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a court order prohibiting us from selling or licensing vosaroxin or any future product candidates unless a third party licenses relevant patent or
other proprietary rights to us, which it is not required to do; and
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if a license is available from a third party, we may have to pay substantial royalties or grant cross-licenses to our patents or other proprietary
rights.
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If our competitors develop and market products that are more effective, safer or less expensive than
vosaroxin, our commercial opportunities will be negatively impacted.
The life sciences industry is highly competitive, and we face
significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching, developing and marketing products designed to address the treatment of cancer, including AML. Many of our competitors have
significantly greater financial, manufacturing, marketing and drug development resources than we do. Large pharmaceutical companies in particular have extensive experience in the clinical testing of, obtaining regulatory approvals for, and marketing
drugs.
We believe that our ability to successfully compete in the marketplace with vosaroxin and any future product candidates, if any, will
depend on, among other things:
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our ability to develop novel compounds with attractive pharmaceutical properties and to secure, protect and maintain intellectual property rights based
on our innovations;
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the efficacy, safety and reliability of our product candidates;
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the speed at which we develop our product candidates;
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our ability to design and successfully execute appropriate clinical trials;
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our ability to maintain a good relationship with regulatory authorities;
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our ability to obtain, and the timing and scope of, regulatory approvals;
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our ability to manufacture and sell commercial quantities of future products to the market; and
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acceptance of future products by physicians and other healthcare providers.
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Vosaroxin is a small molecule therapeutic that will compete with other drugs and therapies currently used for AML, such as nucleoside analogs, anthracyclines, hypomethylating agents, Flt-3 inhibitors,
other inhibitors of topoisomerase II, and other novel agents. Additionally, other compounds currently in development could become potential competitors of vosaroxin, if approved for marketing.
We expect competition for vosaroxin for the treatment of AML to increase as additional products are developed and approved in various patient
populations. If our competitors market products that are more effective, safer or less expensive than vosaroxin or our other future products, if any, or that reach the market sooner we may not achieve commercial success or substantial market
penetration. In addition, the biopharmaceutical industry is characterized by rapid change. Products developed by our competitors may render vosaroxin or any future product candidates obsolete.
Our proprietary rights may not adequately protect vosaroxin or future product candidates, if any.
Our commercial success will depend on our ability to obtain patents and maintain adequate protection for vosaroxin and any future product candidates in
the United States and other countries. We own, co-own or have rights to a significant number of issued U.S. and foreign patents and pending U.S. and foreign patent applications. We will be able to protect our proprietary rights from unauthorized use
by third parties only to the extent that our proprietary technologies and future products are covered by valid and enforceable patents or are effectively maintained as trade secrets.
We apply for patents covering both our technologies and product candidates, as we deem appropriate. However, we may fail to apply for patents on important technologies or product candidates in a timely
fashion, or at all. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products and technologies. In addition, we generally do not
exclusively control the patent prosecution of subject matter that we license to or from others. Accordingly, in such cases we are unable to exercise the same degree of control over this intellectual property as we would over our own. Moreover, the
patent positions of biopharmaceutical companies are highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. As a result, the validity and enforceability of patents cannot be predicted
with certainty. In addition, we do not know whether:
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we, our licensors or our collaboration partners were the first to make the inventions covered by each of our issued patents and pending patent
applications;
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we, our licensors or our collaboration partners were the first to file patent applications for these inventions;
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others will independently develop similar or alternative technologies or duplicate any of our technologies;
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any of our or our licensors or our collaboration partners pending patent applications will result in issued patents;
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any of our, our licensors or our collaboration partners patents will be valid or enforceable;
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any patents issued to us, our licensors or our collaboration partners will provide us with any competitive advantages, or will be challenged by third
parties;
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we will develop additional proprietary technologies that are patentable; or
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the patents of others will have an adverse effect on our business.
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We also rely on trade secrets to protect some of our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to maintain. While
we use reasonable efforts to protect our trade secrets, our or our collaboration partners employees, consultants, contractors or scientific and other advisors, or those of our licensors, may unintentionally or willfully disclose our
proprietary information to competitors. Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming and uncertain. In addition, foreign courts are sometimes less willing than U.S. courts to
protect trade secrets. If our competitors independently develop equivalent knowledge, methods and know-how, we would not be able to assert our trade secret protection against them and our business could be harmed.
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The initial composition of matter patents covering vosaroxin are due to expire in 2015. Even if
vosaroxin is approved by the FDA and foreign equivalents thereof, we may not be able to recover our development costs prior to the expiration of these patents.*
The vosaroxin composition of matter is covered by U.S. Patent No. 5,817,669 and its counterpart patents in 43 foreign jurisdictions. This patent is due to expire in October 2015, and most of its
foreign counterparts are due to expire in June 2015. In November 2010, the USPTO granted us a patent covering pharmaceutical compositions of vosaroxin, including the formulation used in our VALOR trial. In January 2011, the European Patent Office,
or EPO, granted us a similar patent, which has been validated in multiple EPC member states. These patents are due to expire in 2025. In December 2009, the EPO granted us a patent covering combinations of vosaroxin with cytarabine, which is due to
expire in 2025 in multiple European Patent Convention, or EPC, member states. In June 2011, the USPTO granted us a similar patent, which is due to expire in 2026. In August 2011, the USPTO granted us a patent covering methods of use of vosaroxin at
clinically relevant dose ranges and schedules for the treatment of leukemia. This patent has been granted a substantial patent term adjustment, which extends its term through late 2026. In February 2012, the USPTO granted us a patent covering
certain vosaroxin hydrate forms, which is due to expire in 2028. In March 2012, the USPTO granted us a patent covering certain compositions related to vosaroxin, which is due to expire in 2030. Vosaroxin must undergo extensive clinical trials before
it can be approved by the FDA. We do not know when, if ever, vosaroxin will be approved by the FDA. Even if vosaroxin is approved by the FDA in the future, we may not have sufficient time to commercialize our vosaroxin product to enable us to
recover our development costs prior to the expiration of the U.S. and foreign patents covering vosaroxin. We do not know whether patent term extensions and data exclusivity periods will be available in the future for any or all of the patents we own
or have licensed. Our obligation to pay royalties to Dainippon, the company from which we licensed vosaroxin, may extend beyond the patent expiration, which would further erode the profitability of this product. In addition, our potential obligation
to pay RPI royalties pursuant to the Royalty Agreement could also further erode the profitability of this product.
Any future workforce
and expense reductions may have an adverse impact on our internal programs, our ability to hire and retain key personnel and may be distracting to management.
We have, in the past, implemented a number of workforce reductions. Depending on our need for additional funding and expense control, we may be required to implement further workforce and expense
reductions in the future. Further workforce and expense reductions could result in reduced progress on our internal programs. In addition, employees, whether or not directly affected by a reduction, may seek future employment with our business
partners or competitors. Although our employees are required to sign a confidentiality agreement at the time of hire, the confidential nature of certain proprietary information may not be maintained in the course of any such future employment.
Further, we believe that our future success will depend in large part upon our ability to attract and retain highly skilled personnel. We may have difficulty retaining and attracting such personnel as a result of a perceived risk of future workforce
and expense reductions. In addition, the implementation of expense reduction programs may result in the diversion of efforts of our executive management team and other key employees, which could adversely affect our business.
We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our
employees former employers.
Many of our employees were previously employed at biotechnology or pharmaceutical companies,
including our competitors or potential competitors. We may be subject to claims that we or our employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be
necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key personnel or the work product of current or former
personnel could hamper or prevent our ability to commercialize vosaroxin, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to
management.
We currently have limited marketing staff and no sales or distribution organization. If we are unable to develop a sales
and marketing and distribution capability on our own or through collaborations with marketing partners, we will not be successful in commercializing vosaroxin.
We currently have no sales or distribution capabilities and limited marketing staff. We intend to establish our own sales and marketing organization with technical expertise and supporting distribution
capabilities to commercialize vosaroxin in North America, and potentially in Europe, which will be expensive and time consuming. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely
impact the commercialization of these products. We plan to collaborate with third parties that have direct sales forces and established distribution systems to commercialize vosaroxin. To the extent that we enter into co-promotion or other licensing
arrangements, our product revenue is likely to be lower than if we marketed or sold vosaroxin directly. In addition, any revenue we receive will depend upon the efforts of third parties, which may not be successful and are only partially within our
control. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize vosaroxin. If we are not successful in commercializing vosaroxin or our future product candidates, if any,
either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur significant additional losses.
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We depend on various consultants and advisors for the success and continuation of our development
efforts.
We work extensively with various consultants and advisors, who provide advice and/or services in various business and
development functions, including clinical development, operations and strategy, regulatory matters, accounting and finance. The potential success of our drug development programs depends, in part, on continued collaborations with certain of these
consultants and advisors. Our consultants and advisors are not our employees and may have commitments and obligations to other entities that may limit their availability to us. We do not know if we will be able to maintain such relationships or that
such consultants and advisors will not enter into other arrangements with competitors, any of which could have a detrimental impact on our development objectives and our business.
If conflicts of interest arise between our current or future licensees or collaboration partners, if any, and us, any of them may act in their self-interest, which may be adverse to our interests.
If a conflict of interest arises between us and one or more of our current or potential future licensees or collaboration partners, if
any, they may act in their own self-interest or otherwise in a way that is not in the interest of our company or our stockholders. Biogen Idec, Millennium, or potential future licensees or collaboration partners, if any, are conducting or may
conduct product development efforts within the disease area that is the subject of a license or collaboration with our company. In current or potential future licenses or collaborations, if any, we have agreed or may agree not to conduct,
independently or with any third party, any research that is competitive with the research conducted under our licenses or collaborations. Our licensees or collaboration partners, however, may develop, either alone or with others, products in related
fields that are competitive with the product candidates that are the subject of these licenses or collaborations. Competing products, either developed by our licensees or collaboration partners or to which our licensees or collaboration partners
have rights, may result in their withdrawal of support for a product candidate covered by the license or collaboration agreement.
If one or
more of our current or potential future licensees or collaboration partners, if any, were to breach or terminate their license or collaboration agreements with us or otherwise fail to perform their obligations thereunder in a timely manner, the
preclinical or clinical development or commercialization of the affected product candidates could be delayed or terminated. We do not know whether our licensees or collaboration partners will pursue alternative technologies or develop alternative
product candidates, either on their own or in collaboration with others, including our competitors, as a means for developing treatments for the diseases targeted by licenses or collaboration agreements with our company.
Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.
Changing laws, regulations and standards relating to corporate governance and public disclosure may create uncertainty regarding compliance matters. New
or changed laws, regulations and standards are subject to varying interpretations in many cases. As a result, their application in practice may evolve over time. We are committed to maintaining high standards of corporate governance and public
disclosure. Complying with evolving interpretations of new or changed legal requirements may cause us to incur higher costs as we revise current practices, policies and procedures, and may divert management time and attention from potential
revenue-generating activities to compliance matters. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our
reputation may also be harmed. Further, our board members, chief executive officer and chief financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty
attracting and retaining qualified board members and executive officers, which could harm our business.
Raising funds through lending
arrangements or revenue participation agreements may restrict our operations or produce other adverse results.*
Our Loan Agreement
with the Lenders contains a variety of affirmative and negative covenants, including required financial reporting, limitations on certain dispositions of assets, limitations on the incurrence of additional debt and other requirements. To secure our
performance of our obligations under this Loan Agreement, on October 18, 2011, we granted a perfected first priority security interest in substantially all of our assets, other than intellectual property assets, to the Lenders. Additionally,
following the purchase of the Revenue Participation Right by RPI on September 18, 2012, we granted both the Lenders and RPI a security interest in certain of our assets, including the Companys intellectual property related to vosaroxin,
which may only be perfected following first product approval in any country or territory. The Lenders will retain a senior position to RPIs security interest for so long as any indebtedness under the Loan Agreement remains outstanding. Our
failure to comply with the covenants in the Loan Agreement, the occurrence of a material impairment in our prospect of repayment or in the perfection or priority of the Lenders lien on our assets, as determined by the Lenders, or the
occurrence of certain other specified events could result in an event of default that, if not cured or waived, could result in the acceleration of all or a substantial portion of our debt, potential foreclosure on our assets and other adverse
results.
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In addition, following the purchase of the Revenue Participation Right by RPI, we are required to pay RPI a
specified percentage of any net sales of vosaroxin. If we fail to make payments due to RPI under the Royalty Agreement in a timely manner, RPI may require us to repurchase the Revenue Participation Right. As collateral for these payments, we granted
RPI a security interest in certain of our assets, including our intellectual property related to vosaroxin, as detailed above.
Economic
conditions may make it costly and difficult to raise additional capital.
There has been turmoil in the world economy, which has led to
volatility on the U.S. stock market and reduced credit availability. Investors have been unwilling to buy certain corporate stocks and bonds. If economic conditions continue to affect the capital markets, our ability to raise capital, via our
existing controlled equity facilities, debt facility or otherwise, may be adversely affected.
We are exposed to risks related to
foreign currency exchange rates and European sovereign debt.*
Some of our costs and expenses are denominated in foreign currencies.
Most of our foreign expenses are associated with activities related to the VALOR trial that are occurring outside of the United States, and in particular in Western Europe. When the U.S. dollar weakens against the Euro or British pound, the U.S.
dollar value of the foreign currency denominated expense increases, and when the U.S. dollar strengthens against the Euro or British pound, the U.S. dollar value of the foreign currency denominated expense decreases. Consequently, changes in
exchange rates, and in particular a weakening of the U.S. dollar, may adversely affect our results of operations. We have and may continue to purchase certain European currencies or highly-rated investments denominated in such currencies to manage
the risk of future movements in foreign exchange rates that would affect such payables, in accordance with our investment policy. However, there is no guarantee that the related gains and losses will substantially offset each other, and we may be
subject to significant exchange gains or losses as currencies fluctuate from quarter to quarter.
In addition, the current sovereign debt
crisis concerning certain European countries, including Greece, Italy, Ireland, Portugal and Spain, and related European financial restructuring efforts, may cause the value of European currencies, including the Euro, to deteriorate. Such
deterioration could adversely impact our investments denominated in Euros, which had an aggregate fair value of $4.4 million as of September 30, 2012, all of which was invested in corporate debt securities. Recent rating agency downgrades on
European sovereign debt and growing concern over the potential default of European government issuers has further contributed to this uncertainty. Should governments default on their obligations, we may experience loss of principal on any
investments in European sovereign debt.
Our facilities are located near known earthquake fault zones, and the occurrence of an
earthquake or other catastrophic disaster could cause damage to our facilities and equipment, which could require us to cease or curtail operations.
Our facilities are located in the San Francisco Bay Area near known earthquake fault zones and are vulnerable to significant damage from earthquakes. We are also vulnerable to damage from other types of
disasters, including fires, floods, power loss, communications failures and similar events. If any disaster were to occur, our ability to operate our business at our facilities may be seriously or completely impaired and our data could be lost or
destroyed.
Risks Related to Our Industry
The regulatory approval process is expensive, time consuming and uncertain and may prevent us from obtaining approval for the commercialization of vosaroxin.
The research, testing, manufacturing, selling and marketing of product candidates
are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations differ from country to country. Neither we nor our present or potential future collaboration or licensing
partners, if any, are permitted to market our product candidates in the United States until we receive approval of a new drug application, or NDA, from the FDA, or in any other country without the equivalent marketing approval from such country. We
have not received marketing approval for vosaroxin in any jurisdiction. None of our collaboration or licensing partners have had a product resulting from our collaboration enter clinical trials. In addition, failure to comply with FDA and other
applicable U.S. and foreign regulatory requirements may subject us to administrative or judicially imposed sanctions, including warning letters, civil and criminal penalties, injunctions, product seizure or detention, product recalls, total or
partial suspension of production, and refusal to approve pending NDAs, supplements to approved NDAs or their foreign equivalents.
Regulatory
approval of an NDA or NDA supplement or a foreign equivalent is not guaranteed, and the approval process is expensive, uncertain and may take several years. Furthermore, the development process for oncology products may take longer than in other
therapeutic areas. Regulatory authorities have substantial discretion in the drug approval process. Despite the time and expense exerted, failure can occur at any stage, and we could encounter problems that cause us to abandon clinical trials or to
repeat or
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perform additional preclinical studies and clinical trials. The number of preclinical studies and clinical trials that will be required for marketing approval varies depending on the drug
candidate, the disease or condition that the drug candidate is designed to address, and the regulations applicable to any particular drug candidate. In particular, although we believe that our discussions with the FDA support the potential approval
of vosaroxin for the treatment of AML based on positive results from the VALOR trial without the need to conduct additional clinical trials, the FDA has substantial discretion in the approval process and may not grant approval based on data from
this trial.
The FDA or a foreign regulatory authority can delay, limit or deny approval of a drug candidate for many reasons, including:
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the drug candidate may not be deemed safe or effective;
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regulatory officials may not find the data from preclinical studies and clinical trials sufficient;
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the FDA or foreign regulatory authority might not approve our or our third-party manufacturers processes or facilities; or
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the FDA or foreign regulatory authority may change its approval policies or adopt new regulations.
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We may be subject to costly claims related to our clinical trials and may not be able to obtain adequate insurance.
Because we conduct clinical trials in humans, we face the risk that the use of vosaroxin or future product candidates, if any, will result in adverse side
effects. We cannot predict the possible harms or side effects that may result from our clinical trials. Although we have clinical trial liability insurance for up to $10.0 million in aggregate, our insurance may be insufficient to cover any such
events. We do not know whether we will be able to continue to obtain clinical trial coverage on acceptable terms, or at all. We may not have sufficient resources to pay for any liabilities resulting from a claim excluded from, or beyond the limit
of, our insurance coverage. There is also a risk that third parties that we have agreed to indemnify could incur liability. Any litigation arising from our clinical trials, even if we were ultimately successful, would consume substantial amounts of
our financial and managerial resources and may create adverse publicity.
Even if we receive regulatory approval to sell vosaroxin, the
market may not be receptive to vosaroxin.
Even if vosaroxin obtains regulatory approval, it may not gain market acceptance among
physicians, patients, healthcare payors and/or the medical community. We believe that the degree of market acceptance will depend on a number of factors, including:
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timing of market introduction of competitive products;
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efficacy of our product;
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prevalence and severity of any side effects;
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potential advantages or disadvantages over alternative treatments;
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strength of marketing and distribution support;
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price of vosaroxin, both in absolute terms and relative to alternative treatments; and
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availability of reimbursement from health maintenance organizations and other third-party payors.
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For example, the potential toxicity of single and repeated doses of vosaroxin has been explored in a number of animal studies that suggest the
dose-limiting toxicities in humans receiving vosaroxin may be similar to some of those observed with approved cytotoxic agents, including reversible toxicity to bone marrow cells, the gastrointestinal system and other systems with rapidly dividing
cells. In our Phase 1 and Phase 2 clinical trials of vosaroxin, we have witnessed the following side effects, irrespective of causality, ranging from mild to more severe: lowered white blood cell count that may lead to a serious or possibly
life-threatening infection, hair loss, mouth sores, fatigue, nausea with or without vomiting, lowered platelet count, which may lead to an increase in bruising or bleeding, lowered red blood cell count (anemia), weakness, tiredness, shortness of
breath, diarrhea and intestinal blockage.
If vosaroxin fails to achieve market acceptance, due to unacceptable side effects or any other
reasons, we may not be able to generate significant revenue or to achieve or sustain profitability.
Even if we receive regulatory
approval for vosaroxin, we will be subject to ongoing FDA and other regulatory obligations and continued regulatory review, which may result in significant additional expense and limit our ability to commercialize vosaroxin.
Any regulatory approvals that we or our potential future collaboration partners receive for vosaroxin or our future product candidates, if any, may also
be subject to limitations on the indicated uses for which the product may be marketed or contain requirements for potentially costly post-marketing trials. In addition, even if approved, the labeling, packaging, adverse event reporting, storage,
advertising, promotion and recordkeeping for any product will be subject to extensive and ongoing regulatory requirements. The subsequent discovery of previously unknown problems with a product, including adverse events of unanticipated severity or
frequency, may result in restrictions on the marketing of the product, and could include withdrawal of the product from the market.
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Regulatory policies may change and additional government regulations may be enacted that could prevent or
delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are not
able to maintain regulatory compliance, we might not be permitted to market vosaroxin or our future products and we may not achieve or sustain profitability.
The coverage and reimbursement status of newly approved drugs is uncertain, and failure to obtain adequate coverage and reimbursement could limit our ability to market vosaroxin and decrease our
ability to generate revenue.
There is significant uncertainty related to the third party coverage and reimbursement of newly approved
drugs both nationally and internationally. The commercial success of vosaroxin and our future products, if any, in both domestic and international markets depends on whether third-party coverage and reimbursement is available for the ordering of our
future products by the medical profession for use by their patients. Medicare, Medicaid, health maintenance organizations and other third-party payors are increasingly attempting to manage healthcare costs by limiting both coverage and the level of
reimbursement of new drugs and, as a result, they may not cover or provide adequate payment for our future products. These payors may not view our future products as cost-effective, and reimbursement may not be available to consumers or may not be
sufficient to allow our future products to be marketed on a competitive basis. Likewise, legislative or regulatory efforts to control or reduce healthcare costs or reform government healthcare programs could result in lower prices or rejection of
our future products. Changes in coverage and reimbursement policies or healthcare cost containment initiatives that limit or restrict reimbursement for our future products may reduce any future product revenue.
Failure to obtain regulatory approval in foreign jurisdictions will prevent us from marketing vosaroxin abroad.
We intend to market vosaroxin in international markets either directly or through a potential future collaboration partner, if any. In order to market
vosaroxin in the European Union, Canada and many other foreign jurisdictions, we or a potential future collaboration partner must obtain separate regulatory approvals. We have, and potential future collaboration partners may have, had limited
interactions with foreign regulatory authorities, and the approval procedures vary among countries and can involve additional testing at significant cost. The time required to obtain approval may differ from that required to obtain FDA approval.
Approval by the 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 the FDA. The foreign
regulatory approval processes may include all of the risks associated with obtaining FDA approval. We or a potential future collaboration partner may not obtain foreign regulatory approvals on a timely basis, if at all. We or a potential future
collaboration partner may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize vosaroxin or any other future products in any market.
Foreign governments often impose strict price controls, which may adversely affect our future profitability.
We intend to seek approval to market vosaroxin in both the United States and foreign jurisdictions either directly or through a potential future collaboration partner. If we or a potential future
collaboration partner obtain approval in one or more foreign jurisdictions, we or a potential future collaboration partner will be subject to rules and regulations in those jurisdictions relating to vosaroxin. In some foreign countries, particularly
in the European Union, prescription drug pricing is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug candidate. To
obtain reimbursement or pricing approval in some countries, we or a potential future collaboration partner may be required to conduct a clinical trial that compares the cost-effectiveness of vosaroxin to other available therapies. If reimbursement
of vosaroxin is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
We may incur significant costs complying with environmental laws and regulations, and failure to comply with these laws and regulations could expose us to significant liabilities.
We, through third-party contractors, use hazardous chemicals and radioactive and biological materials in our business and are subject
to a variety of federal, state, regional and local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these materials. Although we believe our safety procedures for handling and disposing of these
materials and waste products comply with these laws and regulations, we cannot eliminate the risk of accidental injury or contamination from the use, storage, handling or disposal of hazardous materials. In the event of contamination or injury, we
could be held liable for any resulting damages, and any liability could significantly exceed our insurance coverage, which is limited for pollution cleanup and contamination.
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Risks Related to Our Common Stock
The price of our common stock may continue to be volatile, and the value of an investment in our common stock may decline.*
In the nine months ended September 30, 2012, our common stock traded as low as $1.17 and as high as $5.98, and in 2011, traded as low as $1.01 and as high as $3.21. Factors that could cause continued
volatility in the market price of our common stock include, but are not limited to:
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our ability to raise additional capital to carry through with our clinical development plans and current and future operations and the terms of any
related financing arrangement;
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results from, and any delays in or discontinuance of, ongoing and planned clinical trials for vosaroxin;
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announcements of FDA non-approval of vosaroxin, delays in filing regulatory documents with the FDA or other regulatory agencies, or delays in the
review process by the FDA or other foreign regulatory agencies;
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announcements relating to restructuring and other operational changes;
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delays in the commercialization of vosaroxin or our future products, if any;
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market conditions in the pharmaceutical, biopharmaceutical and biotechnology sectors;
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issuance of new or changed securities analysts reports or recommendations;
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developments or disputes concerning our intellectual property or other proprietary rights;
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clinical and regulatory developments with respect to potential competitive products;
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failure to maintain compliance with the covenants in our Loan Agreement;
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introduction of new products by our competitors;
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issues in manufacturing vosaroxin drug substance or drug product, or future products, if any;
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market acceptance of vosaroxin or our future products, if any;
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announcements relating to our arrangements with Biogen Idec, Millennium or RPI;
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actual and anticipated fluctuations in our quarterly operating results;
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deviations in our operating results from the estimates of analysts;
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third-party healthcare reimbursement policies;
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FDA or other U.S. or foreign regulatory actions affecting us or our industry;
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litigation or public concern about the safety of vosaroxin or future products, if any;
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failure to develop or sustain an active and liquid trading market for our common stock;
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sales of our common stock by our officers, directors or significant stockholders; and
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additions or departures of key personnel.
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If we fail to maintain compliance with the continued listing requirements of The NASDAQ Capital Market, our common stock may be delisted and the price of our common stock and our ability to access
the capital markets could be negatively impacted.
Our common stock currently trades on The NASDAQ Capital Market under the symbol
SNSS. This market has continued listing standards that we must comply with in order to maintain the listing of our common stock. The continued listing standards include, among others, a minimum bid price requirement of $1.00 per share
and any of: (i) a minimum stockholders equity of $2.5 million; (ii) a market value of listed securities of at least $35.0 million; or (iii) net income from continuing operations of $500,000 in the most recently completed fiscal
year or in the two of the last three fiscal years. Our results of operations and fluctuating stock price directly impact our ability to satisfy these continued listing standards. In the event we are unable to maintain these continued listing
standards, our common stock may be subject to delisting from The NASDAQ Capital Market.
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We have been out of compliance with the minimum bid price requirement in the past, and as mentioned above,
the price of our common stock can be volatile; accordingly, there can be no assurance that we will continue to meet the minimum $1.00 bid price requirement or the other NASDAQ continued listing requirements in the future, and we may be subject to
delisting as a result. If we are delisted, we would expect our common stock to be traded in the over-the-counter market, which could adversely affect the liquidity of our common stock. Additionally, we could face significant material adverse
consequences, including:
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a limited availability of market quotations for our common stock;
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a reduced amount of analyst coverage for us;
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a decreased ability to issue additional securities or obtain additional financing in the future;
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reduced liquidity for our stockholders;
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potential loss of confidence by collaboration partners and employees; and
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loss of institutional investor interest.
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Provisions of our charter documents or Delaware law could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and could make it more
difficult to change management.
Provisions of our amended and restated certificate of incorporation and amended and restated bylaws
may discourage, delay or prevent a merger, acquisition or other change in control that stockholders might otherwise consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. In addition,
these provisions may frustrate or prevent any attempt by our stockholders to replace or remove our current management by making it more difficult to replace or remove our board of directors. These provisions include:
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a classified board of directors so that not all directors are elected at one time;
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a prohibition on stockholder action through written consent;
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limitations on our stockholders ability to call special meetings of stockholders;
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an advance notice requirement for stockholder proposals and nominations; and
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the authority of our board of directors to issue preferred stock with such terms as our board of directors may determine.
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In addition, Delaware law prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder,
generally a person who, together with its affiliates, owns or within the last three years has owned 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. Accordingly, Delaware law may discourage, delay or prevent a change in control of our company.
Provisions in our charter documents and provisions of Delaware law could limit the price that investors are willing to pay in the future for shares of our common stock.
The ownership of our capital stock is highly concentrated, and your interests may conflict with the interests of our existing stockholders.
Our executive officers and directors and their affiliates beneficially owned approximately 34.5% of our outstanding capital stock as
of September 30, 2012, assuming the exercise in full of the outstanding warrants to purchase common stock held by these stockholders as of such date. Accordingly, these stockholders, acting as a group, could have significant influence over the
outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction. The significant
concentration of stock ownership may adversely affect the trading price of our common stock due to investors perception that conflicts of interest may exist or arise.
We have never paid dividends on our capital stock and we do not anticipate paying any cash dividends in the foreseeable future.
We have never declared or paid cash dividends on our capital stock. We do not anticipate paying any cash dividends on our capital stock in the foreseeable future. In addition, under the terms of our Loan
Agreement with the Lenders, we are precluded from paying cash dividends without the prior written consent of the Lenders. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business.
As a result, capital appreciation, if any, of our common stock will be our stockholders sole source of gain for the foreseeable future.
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We are at risk of securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This
risk is especially relevant for us because biotechnology companies have experienced greater than average stock price volatility in recent years. These broad market fluctuations may adversely affect the trading price or liquidity of our common stock.
In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could
incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business.