RISK FACTORS
You should carefully consider the risks described below, together with all of the other information included in
this prospectus supplement, the accompanying prospectus and documents incorporated by reference herein, in considering our business and prospects. The risks and uncertainties described below contain
forward-looking statements, and our actual results may differ materially from those discussed here. Additional risks and uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations. Each of these risk factors could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an
investment in our common stock.
Management will have broad discretion as to the use of the proceeds from this offering, and we may not use the proceeds effectively.
We have not designated the amount of net proceeds from this offering that we will use for any particular purpose. Accordingly, our
management will have broad discretion as
to the application of the net proceeds and could use them for purposes other than those contemplated at the time of this offering. See the section entitled "Use of Proceeds," below. Our stockholders
may not agree with the manner in which our management chooses to allocate and spend the net proceeds. Moreover, our management may use the net proceeds for corporate purposes that may not increase our
profitability or market value.
Future sales or the possibility of future sales of a substantial amount of our common stock may depress our stock price.
In connection with this offering, we are restricted from issuing additional shares of common stock, subject to specified exceptions,
for a period of 60 days from the date of this prospectus supplement. Our directors and executive officers have agreed not to sell or otherwise dispose of any of their shares, subject to
specified exceptions, for a period of 60 days from the date of this prospectus supplement. Exceptions to these lock-up agreements are described under "Underwriting." Sales of
substantial amounts of our common stock after this offering, or the perception that we may issue substantial amounts of common stock, may adversely affect the price of our common stock and impair our
ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of our common stock, convertible notes or other equity-linked securities would
have on the market price of our common stock. The price of our common stock could be affected by possible sales of our common stock by investors who view our convertible notes or other equity-linked
securities as more attractive means of equity participation in our company than our common stock, and by hedging or arbitrage trading activity which we expect to occur involving our common stock. This
hedging or arbitrage could, in turn, affect the market price of our common stock.
Conversion of our convertible senior notes due 2016 will dilute the ownership interests of existing stockholders.
If and to the extent that we deliver shares of our common stock in settlement of our conversion obligation with respect to any of our
outstanding 4.0% convertible senior notes due 2016, or the 2016 notes, the ownership interests of our existing stockholders will be diluted. Any sales in the public market of our common stock issuable
upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the 2016 notes may encourage short-selling by holders of the 2016 notes engaged
in hedging or arbitrage, and by other market participants.
Nexavar® is currently our main source of commercial revenues. If Nexavar fails and we, independently or in collaboration with Bayer, are unable to successfully
commercialize other products, our business would fail.
Nexavar generated substantially all our commercial revenues for the quarter and nine months ended September 30, 2012, and we
rely on these revenues to fund our operations. Unless we can
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successfully
commercialize Kyprolis and other product candidates and/or unless Bayer successfully commercializes Stivarga, we will continue to rely on Nexavar to generate most of our revenues and fund
our operations. Kyprolis received FDA approval in July 2012 and is in the early stages of commercialization, while our other product candidates are still development-stage and/or subject to regulatory
review, and we may never obtain approval of or earn revenues from any of our product candidates. Similarly, Stivarga received FDA approval in September 2012 but we and Bayer may be unsuccessful in
commercializing it. Successful development and commercialization of these compounds and our other product candidates is highly uncertain and depends on a number of factors, many of which are beyond
our control.
We have never marketed a drug without a partner before, and we may not be able to commercialize Kyprolis successfully.
In order to successfully commercialize Kyprolis, we have expanded our U.S. sales force. If we obtain marketing approval outside the
United States, we may develop and maintain an international sales, marketing and distribution infrastructure, which may be difficult and time consuming, and may require substantial financial and other
resources. We have limited experience building and maintaining a commercialization infrastructure in the United States and no experience in building such an infrastructure internationally. Factors
that may hinder our efforts to maintain our expanded U.S. presence and develop an international sales, marketing, and distribution infrastructure
include:
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inability to recruit, retain and effectively manage adequate numbers of effective sales and marketing personnel;
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inability to establish or maintain relationships with wholesalers and distributors;
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inability of sales personnel to obtain access to or convince adequate numbers of physicians to prescribe our products;
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lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative
to companies with more extensive product lines; and
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unforeseen delays, costs and expenses associated with creating international capabilities, including an international
sales and marketing organization and international supply chain and reimbursement capabilities.
If
we are unable to sustain our sales force and marketing capability for Kyprolis, it will reduce our ability to generate product revenue, may generate increased expenses and Kyprolis
may never become profitable.
We
will need to continue to expend significant time and resources to train our Kyprolis sales force to be credible, persuasive and compliant in discussing Kyprolis with the specialists
treating the patients indicated under label. We will also need to continue to train our sales force to ensure that a consistent and appropriate message about Kyprolis is being delivered to our
potential customers. In addition, if we are unable to effectively train our sales force and equip them with effective materials, including medical and sales literature to help them inform and educate
potential customers about the benefits and risks of Kyprolis and its proper administration, our ability to successfully commercialize Kyprolis could be diminished, which could have a material adverse
effect on our financial condition, stock price and operations.
We
may also maintain high inventory levels to mitigate risks such as variability in product demand, long lead times for manufacturing, supply interruptions of raw materials and
production disruptions at our approved manufacturing sites due to contamination, equipment failure or other facility-related issues. The capital required to maintain our desired inventory levels may
impact our liquidity and cash flows, and may also heighten the risk of inventory obsolescence and write-offs.
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Our stock price is volatile, our operating results are unpredictable, we have a history of losses and we may be unable to achieve and sustain profitability.
Our stock price is volatile and is likely to continue to be volatile. A variety of factors may have a significant effect on our stock
price, including:
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fluctuations in our results of operations, including sales of Nexavar, Stivarga and Kyprolis;
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results from or speculation about clinical trials or the regulatory status of Nexavar, Kyprolis, Stivarga or other product
candidates;
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decisions or changes in policy by regulatory agencies, or changes in regulatory requirements;
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announcements by us regarding, or speculation about, our strategic transactions or business development activities;
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ability to accrue patients into clinical trials or submit or obtain approval of regulatory filings;
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developments in our relationship with Bayer, Ono Pharmaceutical Co., Ltd. and other commercialization
partners;
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developments in our relationship with, or other problems at, our contract manufacturing organizations, and problems in our
supply chain systems, including recalls, quality problems and stockouts and other similar problems;
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changes in healthcare reimbursement policies or other government regulations;
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changes in generally accepted accounting principles and changes in tax laws;
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announcements by us or our competitors of innovations, clinical data results, new products or new regulatory filings;
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sales by us of our common stock or debt securities; and
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foreign currency fluctuations, which would affect our share of collaboration profits or losses and net income and expense
related to international clinical and commercial operations.
In
the past, following our announcement of the accelerated approval of Kyprolis or Bayer's announcements regarding lower than anticipated Nexavar sales and Nexavar clinical trial
results, and following our announcements about various clinical and regulatory developments for Kyprolis, our stock price has fluctuated, in some cases significantly.
Our
operating results and sales of Nexavar, Kyprolis and Stivarga will likely fluctuate from quarter to quarter and from year to year, and are difficult to predict. Our operating
expenses are dependent in part on expenses incurred by Bayer and in certain regions are independent of Nexavar sales. We have to date incurred losses principally from costs incurred in our research
and development programs, from our general and administrative costs and the development of our commercialization infrastructure. We will incur operating losses in the future as we expand our
development and commercial activities for
Kyprolis and our product candidates. We expect to incur significant operating expenses associated with the development and commercialization of Kyprolis and additional products, including potentially
Stivarga, if we elect to conduct separate development of Stivarga in certain indications, at our own expense, as permitted under the regorafenib agreement.
As
a result of the acquisition of Proteolix, we may be required to pay up to an additional $365.0 million in three earn-out payments upon the receipt of certain
regulatory approvals within pre-specified timeframes. We recorded a liability for this contingent consideration for the three earn-out payments with a fair value of
$146.2 million at September 30, 2012 based upon a discounted cash flow model that uses significant estimates and assumptions. Any changes to these estimates and assumptions could
significantly impact the fair values recorded for this liability resulting in significant
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charges
to our Condensed Consolidated Statements of Operations. Moreover, we may, at our discretion, make any of the remaining earn-out payments in the form of cash, shares of Onyx common
stock or a combination thereof. If we elect to issue shares of our common stock in lieu of making an earn-out payment in cash, this would have a dilutive effect on our common stock and
could cause the trading price of our common stock to decline.
It
is difficult for us to accurately forecast profits or losses. It is possible that in some quarters our operating results could disappoint securities analysts or investors. Many
factors, including, but not limited to disappointing operating results and/or the other factors outlined above, could cause the trading price of our common stock to decline, perhaps substantially.
We face intense competition and many of our competitors have substantially greater experience and resources than we have.
We are engaged in a rapidly changing and highly competitive field. We are seeking to develop and market oncology products that face
significant competition from other products and therapies that currently exist or are being developed.
Nexavar
faces significant competition. There are many existing approaches used in the treatment of unresectable liver cancer including alcohol injection, radiofrequency ablation,
chemoembolization, cryoablation and radiation therapy. Several other therapies are in development. If Nexavar is unable to
compete or be combined successfully with existing approaches or if new therapies are developed for unresectable liver cancer, our business would be harmed.
Similarly,
there are several competing therapies approved for the treatment of advanced kidney cancer, including Sutent, a multiple kinase inhibitor marketed in the United States, the
European Union and other countries by Pfizer; Torisel, an mTOR inhibitor marketed in the United States, the European Union and other countries by Wyeth; Avastin, an angiogenesis inhibitor approved for
the treatment of advanced kidney cancer in the United States and the European Union and marketed by Genentech, a member of the Roche Group; Afinitor, an mTOR inhibitor marketed in the United States
and the European Union by Novartis; GlaxoSmithKline's Votrient, a multiple kinase inhibitor, and Pfizer's Inlyta, a kinase inhibitor recently approved by the FDA for the treatment of advanced kidney
cancer in the United States. Nexavar's market share in advanced kidney cancer has declined following the introduction of these products into the market. We expect competition to increase as generic
versions of competing products are introduced and/or additional new products are approved.
Beyond
unresectable liver cancer and advanced kidney cancer, competitors that target the same tumor types as our Nexavar program and that have commercial products or product candidates
at various stages of clinical development include Pfizer, Roche, Wyeth, Novartis International AG, Amgen, AstraZeneca PLC, Astellas Pharma Inc., GlaxoSmithKline, Eli Lilly and several
others. A number of companies have agents such as small molecules or antibodies targeting VEGF, VEGF receptors, Epidermal Growth Factor, or EGF, EGF receptors, and other enzymes. In addition, many
other pharmaceutical companies are developing novel cancer therapies that, if successful, would also provide competition for Nexavar.
A
demonstrated survival benefit is often an important element in determining standard of care in oncology. We did not demonstrate a statistically significant overall survival benefit for
patients treated with Nexavar in our Phase 3 kidney cancer trial, which we believe was due in part to the crossover of patients from placebo to Nexavar during the conduct of our pivotal
clinical trial. Competitors with statistically significant overall survival data could be preferred in the marketplace. The FDA approval of Nexavar permits Nexavar to be marketed as an initial, or
first-line, therapy and subsequent lines of therapy for the treatment of advanced kidney cancer, but approvals in some other regions do not. For example, the European Union approval
indicates Nexavar only for advanced kidney cancer patients that have failed prior cytokine therapy or whose physicians deem alternate therapies inappropriate. We may be unable to compete effectively
against products with broader or different marketing authorizations in one or more countries.
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Nexavar may face challenges and competition from generic products. Generic manufacturers may file Abbreviated New Drug Applications, or ANDAs, in the United
States seeking FDA authorization to manufacture and market generic versions of Nexavar, together with Paragraph IV certifications that challenge the scope, validity or enforceability of the
Nexavar patents. If Bayer and we are unsuccessful at challenging an ANDA the ANDA filer may be able to launch a generic version of Nexavar, which would harm our business. Bayer and we may also be
unable to successfully enforce and defend the Nexavar patents and we may face generic competition prior to expiration of the Nexavar patents in 2020.
Similarly,
outside the United States, generic drug manufacturers or other competitors may challenge the scope, validity or enforceability of the Nexavar patents, requiring Bayer and us
to engage in complex, lengthy and costly litigation or other proceedings. Bayer may be unsuccessful in defending or enforcing the Nexavar patents in one or more countries and could face generic
competition prior to expiration of the Nexavar patents, which would harm our business. Generic drug manufacturers may develop, seek approval for, and launch generic versions of Nexavar. For example, a
generic version of Nexavar has been launched in Peru and Cipla recently received approval to launch its version of Nexavar in India at a price that is significantly less than that charged for Nexavar
in India. Recently, India's controller general of patents, designs and trademarks has granted a compulsory license to the Indian generics drug maker, Natco, to make generic Nexavar. The license does
not grant Natco the right to sell Nexavar outside of India. Bayer has appealed the ruling.
Prior
to regulatory approval of Kyprolis, we had not marketed products for any hematological cancer, including multiple myeloma, and may be at a disadvantage to our competitors. Kyprolis
may face significant competition. Kyprolis competes with products marketed by Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Limited, Celgene
Corporation and potentially against agents currently in development for treatment of this disease by Merck & Co. Inc., Bristol-Myers Squibb, Keryx Biopharmaceuticals, Inc.,
Nereus Pharmaceuticals, Teva Pharmaceutical Industries Ltd., and other companies. Our competitors may develop and commercialize therapies that change the treatment paradigm for multiple
myeloma. For example, Millennium is developing a multiple myeloma therapy to be administered orally and Celgene filed its NDA for pomalidomide that has a PDUFA date of February 10, 2013.
Pomalidomide could be approved by the FDA with a similar label to Kyprolis in terms of eligible patient population. This could result in Kyprolis being used in later lines due to convenience of
pomalidomide oral administration, which could erode new patient share growth and negatively impact Kyprolis sales. Kyprolis, which is administered intravenously, may not compete effectively with
orally administered drugs, and we may not succeed in developing an orally administered therapy, which would harm our business.
Stivarga
may face significant competition. Bayer has presented positive Stivarga data in CRC third line plus and has reported positive GIST third line plus data. CRC is a competitive
marketplace with three approved targeted therapies, one targeted therapy in registration and multiple therapies in phase three development. There are currently no approved therapies in the third line
plus setting. GIST is a relatively infrequently occurring tumor for which there are currently two therapies approved in adjuvant, first and second line GIST, but none approved in the third line plus
setting.
Bayer
and Onyx have disclosed that Stivarga met the primary endpoint in the phase 3 third line plus GRID study in gastrointestinal stromal tumor, or GIST. There are currently two
agents approved in adjuvant, first and second line GIST, but none approved in the third line plus setting. Imatinib, marketed by Novartis, is a c-kit inhibitor approved in patients with
Kit (CD117) positive unresectable and/or metastatic malignant GIST as well as the adjuvant treatment of adult patients following resection of Kit (CD117) positive GIST. Sunitinib, marketed by Pfizer,
is a multi tyrosine kinase inhibitor approved in GIST after disease progression on or intolerance to imatinib. There are several therapies being developed in GIST, most notably phase 3 agents
mastinib, by AB Science, and nilotinib by Novartis, and phase 2 agents ganetespib, by Synta, and pazopanib by GlaxoSmithKline.
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Many
of our competitors, either alone or together with collaborators, have substantially greater financial resources and research and development staffs. In addition, many of these
competitors, either alone or together with their collaborators, have significantly greater experience and resources available than us to:
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discover and patent products;
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undertake preclinical testing and human clinical trials;
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seek and obtain FDA and other regulatory approvals;
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manufacture products; and
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market and obtain reimbursement for products.
Accordingly,
our competitors may be more successful than we in any or all of these areas. Developments by competitors may render our product candidates obsolete or noncompetitive. We
face and will continue to face intense competition from other companies for collaborations with pharmaceutical and biotechnology companies, for establishing relationships with academic and research
institutions, and for licenses to proprietary technology.
We are dependent on Bayer and third parties to manufacture and distribute Nexavar and Stivarga, and do not have the manufacturing expertise or capabilities to manufacture or
distribute any current or future products.
Under our collaboration agreement and regorafenib agreement with Bayer, Bayer has the manufacturing responsibility to supply Nexavar
and Stivarga for clinical trials and for commercialization. Should Bayer give up its right to co-develop Nexavar, we would have to manufacture Nexavar, or contract with another third party
to do so for us. In addition, we have manufacturing responsibility for Kyprolis and oprozomib, which we currently manufacture through third-party contract manufacturers, and have not yet established
back-up manufacturers for these compounds.
We
lack the resources, experience and capabilities to manufacture Nexavar, Stivarga, Kyprolis, oprozomib or any other product candidate on our own and would require substantial funds and
time to establish these capabilities. Consequently, we are, and expect to remain, dependent on third parties for manufacturing. These parties may encounter difficulties and delays in production
scale-up, production yields, control and quality assurance, validation, regulatory status or shortage of qualified personnel. They may not perform as agreed or may not continue to
manufacture our products for the time required to test or market our products. They may fail to deliver the required quantities of our products or product candidates on a timely basis and at
commercially reasonable prices. Any production shortfall on the part of our third party manufacturers that impairs the supply, quality or price of starting materials, drug substance or drug product
could have a material adverse effect on our business, financial condition and results of operations and future prospects.
We are dependent on single source suppliers and manufacturers for Kyprolis and have not developed backups. Disruptions to our Kyprolis supply chain could materially reduce
our future earnings and prospects.
We currently rely on single source suppliers and manufacturers for commercial production of Kyprolis. Significant time and effort is
required to develop backup vendors or to replace a vendor in the case of a stoppage. A loss or disruption with any one of our manufacturers or suppliers could disrupt supply of Kyprolis, possibly for
a significant time period, and we may not have sufficient inventories to maintain supply before the manufacturer or supplier could be replaced or the disruption is resolved. For example, our contract
manufacturer for Kyprolis drug product has experienced media fill failures on the line used to produce Kyprolis, and in January 2013 the line was shut down for scheduled upgrades. Future media fill
failures, or delays in restarting the line following scheduled
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upgrades,
could delay the production of clinical or commercial supplies of Kyprolis, in which case we may not have sufficient inventory of Kyprolis product to satisfy our clinical and commercial
requirements. In addition, marketed drugs and their contract manufacturing organizations are subject to continual review, including review and approval of their manufacturing facilities and the
manufacturing processes, which can result in delays in the regulatory approval process and/or commercialization. Certain of the raw materials and components used in the manufacture of Kyprolis are
provided by unaffiliated third-party suppliers and are specifically cited in the drug application, so that they must be obtained from that specific sole source and may not be obtained from another
supplier unless and until the regulatory agency approved such supplier. Introducing a replacement or backup manufacturer or supplier for Kyprolis requires a lengthy regulatory and commercial process
and there can be no guarantee that we could obtain necessary regulatory approvals in a timely fashion or at all. In addition, it is difficult to identify and select qualified suppliers and
manufacturers with the necessary technical capabilities, and establishing new supply and manufacturing sources involves a lengthy and technical engineering process. Although we are in the process of
developing secondary sources of manufacture and supply for Kyprolis, we have not yet done so and anticipate this process
will require significant additional time to complete and we can provide no assurances that we will be successful. If our supply of Kyprolis is disrupted this would have a negative impact on sales that
we anticipate would materially diminish our revenues and future prospects.
We rely on a network of specialty pharmacies and distributors.
A specialty pharmacy is a pharmacy that specializes in the dispensing of medications for complex or chronic conditions, which often
require a high level of patient education and ongoing management. The use of specialty pharmacies and distributors involves certain risks, including, but not limited to, risks that these specialty
pharmacies and distributors will:
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not provide us accurate or timely information regarding their inventories, the number of patients who are using our
products or complaints about our products;
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reduce their efforts or discontinue to sell or support or otherwise not effectively sell or support our products;
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not devote the resources necessary to sell our products in the volumes and within the time frames that we expect;
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be unable to satisfy financial obligations to us or others; or
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cease operations.
We may never obtain regulatory approval for any other product candidates besides Nexavar, Kyprolis and Stivarga, or approval may be limited. In addition, we may not obtain
additional regulatory approvals for Nexavar, Kyprolis and Stivarga.
We have limited experience managing regulatory filings and in negotiating product approval and licensure with regulatory authorities.
We and Bayer may not succeed in obtaining additional regulatory approval of Nexavar, Kyprolis and Stivarga or our other product candidates on anticipated timelines or at all. Failure or delay in
obtaining regulatory approvals would delay or prevent further commercialization of Kyprolis or commercialization of our other product candidates, in the United States and other countries. The review
process for a regulatory marketing authorization, including a New Drug Application, or NDA, in the United States and a Marketing Authorization Application, or MAA, in Europe, is extensive, lengthy,
expensive and uncertain. Regulatory agencies such as the FDA or the EMA have significant discretion during the review process and may determine to delay action on
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or
approval of a marketing approval application or limit or deny approval of a product candidate for many reasons. For example, the regulatory agencies
may:
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conclude the marketing approval application fails to satisfy the requirements for approval;
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determine the data resulting from the clinical trials is not satisfactory, or investigators in those clinical trials could
disagree with interpretation of the data;
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disagree with the number, design, size, conduct or implementation of clinical trials or conclude that the data fails to
meet statistical or clinical significance or that there is an unmet medical need;
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find the data from preclinical studies and clinical studies insufficient to demonstrate that the study drug's clinical and
other benefits outweighs its safety risks;
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disagree with the interpretation of data from preclinical studies or clinical trials;
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reject data generated at clinical trial sites and monitored by third party clinical research organizations, or CROs;
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determine that there was not proper oversight of third party CROs and clinical trials;
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reject stability data for commercial product;
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identify deficiencies in, or lack of control over, manufacturing processes, facilities or analytical methods or those of
third party contract manufacturers;
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change or adversely impact their position due to unexpected or unpredictable external circumstances; and
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change their approval policies, adopt new regulations or provide new guidance with significant requirements not currently
included or considered when seeking marketing approval.
Even
if the FDA, EMA and other regulatory agencies approve marketing of our or Bayer's products, the regulatory agency may impose requirements, conditions and restrictions that could
significantly increase costs or delay and limit our and Bayer's ability to successfully commercialize those products.
The regulatory agency may require additional pre-clinical, clinical or retrospective observational studies or trials. The FDA may require a risk evaluation and mitigation strategy, or
REMS, which could include a Medication Guide or a Conditions to Assure Safe Use requirement such as special patient monitoring/management to minimize risk of drug-related adverse events.
These studies or trials may involve continued testing of the study drug and development of data, including clinical data, about the study drug's effects in various populations and any side effects
associated with long-term use. The regulatory agency may require post-marketing studies or trials to investigate known serious risks or signals of serious risks or identify
unexpected serious risks and may require periodic status reports if new safety information develops. The regulatory agency may impose label restrictions to address safety concerns or limit the patient
population. Such label restrictions could include limited indications and usage, expanded contraindications and expanded warnings and precautions. Any REMS plan, post-marketing studies,
trials or commitments or label restrictions could significantly delay, limit, or prevent successful commercialization of a product or otherwise severely harm our business, financial condition and
future prospects. Failure to conduct post-marketing studies in a timely manner may also result in substantial civil fines and even future withdrawal of approval to commercialize.
Our clinical trials for Nexavar or Kyprolis, and Bayer's clinical trials of Stivarga, could take longer to complete than we project or may not be completed at all.
The timing of initiation and completion of clinical trials may be subject to significant delays resulting from various causes,
including actions by Bayer for Nexavar and/or Stivarga clinical trials,
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conflicts
regarding scheduling or competing clinical trials with participating clinicians and clinical institutions, difficulties in identifying and enrolling patients who meet trial eligibility
criteria, modification of clinical trial designs, and shortages of available drug supply, including supply of comparator drugs or combination drugs for clinical and commercial purposes. We may face
difficulties developing and sustaining relationships with Kyprolis development partners, including clinical research organizations, contract manufacturing organizations, key opinion leaders and
clinical investigators. We may not complete clinical trials involving Nexavar, Kyprolis or any of our other product candidates as projected or at all.
We
may not have the necessary capabilities to successfully manage the execution and completion of clinical trials in a way that leads to approval of Nexavar, Stivarga, Kyprolis or other
product candidates for their target indications. In addition, we rely on Bayer, academic institutions, cooperative oncology organizations and clinical research organizations to conduct, supervise or
monitor the majority of clinical trials involving Nexavar, Kyprolis and Stivarga. We have less control over the timing and other
aspects of these clinical trials than if we conducted them entirely on our own. The timing of review by regulatory authorities is uncertain.
Development
and commercialization of compounds that appear promising in research or development, including Phase 2 clinical trials, may be delayed or fail to reach later stages of
development or the market for a variety of reasons including:
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nonclinical tests may show the product to be toxic or lack efficacy in animal models;
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clinical trial results may show the product to be less effective than desired or to have harmful or problematic side
effects;
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regulatory approvals may not be received, or may be delayed due to factors such as slow enrollment in clinical studies,
extended length of time to achieve study endpoints, additional time requirements for data analysis or preparation of an Investigational New Drug, or IND, application, discussions with regulatory
authorities, requests from regulatory authorities for additional preclinical or clinical data, analyses or changes to study design, including possible changes in acceptable trial endpoints, or
unexpected safety, efficacy or manufacturing or quality issues, changes in policy or objectives at regulatory authorities, and regulatory filings submitted on competing drugs that could alter the
regulatory prospects of our drugs;
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difficulties formulating the product, scaling the manufacturing process or in validating or getting approval for
manufacturing;
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manufacturing costs, pricing or reimbursement issues, or other factors may make the product uneconomical;
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proprietary or contractual rights of others and their competing products and technologies may prevent our product from
being developed or commercialized or may increase the cost of doing so; and
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contractual rights of our collaborators or others may prevent our product from being developed or commercialized or may
increase the cost of doing so.
Failure
to continue to successfully develop Stivarga or Kyprolis could harm their commercialization, and failure to successfully launch or commercialize Kyprolis or Stivarga for these or
any other reasons would significantly harm our business and future prospects.
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Even though Kyprolis is approved by the FDA and even if Kyprolis is approved by other regulatory authorities, we may not obtain adequate coverage or reimbursement from
third-party payers, which would harm our business
In order to successfully commercialize Kyprolis, we must obtain coverage and reimbursement by private and public insurers. In addition
we must establish a mechanism to effectively distribute Kyprolis to physician offices. We have no prior experience in building or maintaining an access, reimbursement and distribution infrastructure,
which is difficult and time consuming, and requires substantial financial and other resources. Factors that may hinder our efforts include inability to recruit, retain and manage adequate numbers of
effective personnel, and an inability to establish or maintain relationships with government agencies, insurers and distributors.
Our
sales of Kyprolis are dependent on the availability and extent of coverage and reimbursement from third-party payers, including government healthcare programs and private insurance
plans. We rely on the reimbursement coverage by federal and state government programs such as Medicare and Medicaid in the United States and will rely on equivalent programs in other countries, once
we receive regulatory approval for those countries. We also rely on coverage and reimbursement from private pharmaceutical insurers in the United States. In the event we seek approvals to market
Kyprolis in foreign territories, we will need to work with the government-sponsored healthcare systems in Europe and other foreign jurisdictions that are the primary payers of healthcare costs in
those regions. Governments and private payers may regulate prices, reimbursement levels and/or access to Kyprolis in order to control costs or to affect levels of use of our products. We cannot
predict the availability or level of coverage and reimbursement for Kyprolis or our product candidates and a reduction in coverage and/or reimbursement for our products could have a material adverse
effect on our product sales and results of operations. In addition, our estimates of discounts and reserves against our gross sales of Kyprolis, also referred to as gross to net adjustments will
continue to be informed and evolve as we build a history of coverage and reimbursement for Kyprolis, which for some categories like Medicaid rebates and returns, may take up to a full year after
launch.
We
expect that many of the patients in the United States who seek treatment with Kyprolis will be eligible for Medicare benefits. Other patients may be covered by private health plans.
The Medicare program is administered by the Centers for Medicare & Medicaid Services, or CMS, and coverage and reimbursement for products and services under Medicare are determined pursuant to
statute, regulations promulgated by CMS, and CMS's subregulatory coverage and reimbursement determinations. It is difficult to predict exactly how CMS may apply those regulations and policy
determinations to Kyprolis, and those regulations and interpretive determinations are subject to change. Moreover, the procedures and criteria by which CMS makes coverage and reimbursement
determinations and the reimbursement amounts established by statute are subject to change, particularly because of budgetary pressures facing the Medicare program.
Medicare
Part B provides limited coverage of outpatient drugs that are furnished "incident to" a physician's services. Generally, "incident to" drugs are covered only if they
satisfy certain criteria, including that they are of the type that is not usually self-administered by the patient and they are reasonable and necessary for a medically accepted diagnosis
or treatment. To date Kyprolis is generally covered under Medicare Part B and the Medical benefit for private insurers. Medicare Part B generally pays for drugs provided in a hospital
outpatient setting and in physicians' offices under a payment methodology using average sales price, or ASP, information. The U.S. Department of Health and Human Services Inspector General may compare
the ASP for a drug or biological to the widely available market price and the Medicaid Average Manufacturer Price for that drug or biological, which could lead to future reductions in Medicare payment
rates. Congress has considered reducing Medicare Part B payment rates, and legislation such as that related to "sequestration," which refers to an automatic spending cut in the federal budget
effected by funds being "sequestered" by the U.S. Treasury, could be enacted in the future reducing reimbursement levels. We have no experience
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a Medicare Part B drug, or reporting ASP information, as is required by CMS. If we fail to collect and report information correctly and on a timely basis, our business could be
harmed. If we are found to have made a misrepresentation in the reporting of ASP, we may be subject to significant civil and criminal penalties, including exclusion from federal health care programs.
By
statute, new drugs administered in hospital outpatient departments that are granted "pass-through status" also are reimbursed at ASP plus six percent for two to three
years after they are granted pass-through status. Kyprolis has not yet been granted pass-through status and claims will initially be reimbursed by Medicare Part B at 95%
of the Average Wholesale Price, or AWP, until Kyprolis is assigned a product specific product code. CMS establishes the hospital outpatient payment rates by regulation for drugs that do not have
pass-through status. For 2012, these drugs were reimbursed at ASP plus four percent if they have an average cost per day exceeding $75; drugs with an average cost per day less than $75 are
not separately reimbursed, and CMS packages payment into the payment for the associated procedure
(an ambulatory payment classification group) as part of the overall cost of the outpatient service provided to Medicare beneficiaries. In future years, CMS could change both the payment rate and the
average cost threshold, and these changes could adversely affect payment for Kyprolis.
We
expect that Kyprolis will be made available to patients that are eligible for Medicaid benefits. A condition of federal funds being made available to cover our products under Medicaid
and Medicare Part B is our participation in the Medicaid drug rebate program. Under the Medicaid rebate program, we must pay a rebate to each state Medicaid program for each unit of our drug
paid for by those programs. The rebate amount for a drug varies by quarter, and is based on pricing data reported by us on a monthly and quarterly basis to CMS.
The
Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act, or collectively PPACA, is expected to impact the United States
pharmaceutical industry substantially, including with regard to how health care is financed by both governmental and private insurers. Among the provisions of PPACA of greatest importance to the
pharmaceutical industry are the following:
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an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic
agents, apportioned among these entities according to their market share in certain government healthcare programs, not including orphan drug sales;
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an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average
manufacturer price for branded and generic drugs, respectively;
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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%
point-of-sale discounts to negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer's
outpatient drugs to be covered under Medicare Part D;
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extension of manufacturers' Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in
Medicaid managed care organizations;
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expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage
to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the Federal Poverty Level beginning in 2014, thereby potentially
increasing manufacturers' Medicaid rebate liability;
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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
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new requirements to report certain financial arrangements with physicians and teaching hospitals, as defined in PPACA and
its implementing regulations, including reporting any payment or "transfer of value" made or distributed to teaching hospitals, prescribers and other healthcare providers, and reporting any ownership
and investment interests held by physicians and their immediate family members and applicable group purchasing organizations during the preceding calendar year, with data collection to be required no
earlier than January 1, 2013 and reporting to be required at a later date yet to be specified;
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expansion of health care fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute,
new government investigative powers, and enhanced penalties for noncompliance;
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a licensure framework for follow-on biologic products; and
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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical
effectiveness research, along with funding for such research.
On
June 28, 2012, the United States Supreme Court upheld the constitutionality of PPACA, excepting certain provisions, noted above, that would have required states to expand their
Medicaid programs or risk losing all of the state's Medicaid funding. At this time, it remains unclear whether there will be any further changes made to PPACA, whether in part or in its entirety.
Moreover, state and federal legislative and regulatory proposals aimed at reforming the healthcare system in the United States continue to be proposed, the effect of which, if enacted, could adversely
impact our product sales and results of operations.
U.S.
and foreign policymakers and payers continue to express significant interest in promoting reforms aimed at containing healthcare costs, improving quality and/or expanding access. In
many international markets, governments control the prices of prescription pharmaceuticals, including through the implementation of reference pricing, price cuts, rebates, revenue-related taxes and
profit control. The use of formal economic metrics has been increasing across Europe, as well as in several emerging markets throughout the world, to determine whether or not a new product will be
reimbursed and, increasingly, in setting the maximum price at which the product will be reimbursed. With increased budgetary constraints, payers in many countries employ a variety of measures to exert
downward price pressure such as international price referencing, therapeutic reference pricing (e.g., setting the reimbursement rate for a given class of agents at the lowest price within the
class), increasing mandates or incentives for generic substitution, and government-mandated discounts and price cuts.
In
the United States, reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on payments allowed for
lower-cost products that already are reimbursed, may be incorporated into existing payments for other products or services, and may reflect budgetary constraints and/or imperfections in
Medicare or Medicaid data used to calculate these rates. Net prices for products are reduced by mandatory discounts or rebates required by government health care programs and privately-negotiated
discounts. While we will implement policies in an effort to comply with mandated reimbursement rates, the United States government, state governments and private payers frequently pursue actions
against pharmaceutical and biotechnology companies alleging that the companies have overstated prices in order to inflate reimbursement rates. Any such action could adversely affect the pricing of and
the commercial success of our products and expose us to civil money penalties or other liability.
The
availability of federal funds under Medicaid and Medicare Part B to pay for Kyprolis and any other products that are approved for marketing also is conditioned on our
participation in the Public Health Service 340B drug pricing program. The 340B drug pricing program requires participating manufacturers to agree to charge statutorily-defined covered entities no more
than the 340B "ceiling price" for the manufacturer's covered outpatient drugs. These covered entities include hospitals that
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a disproportionate share of poor Medicare beneficiaries, as well as a variety of community health clinics and other recipients of health services grant funding. PPACA expanded the 340B program
to include additional entity types: certain free standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals, each as defined by the Act. The 340B ceiling
price for a drug is calculated using a statutory formula that is based on the AMP and Medicaid rebate amount for the drug. To the extent PPACA, as discussed above, changes the statutory and regulatory
definitions of AMP and the Medicaid rebate amount, these changes will also affect our 340B ceiling price for Kyprolis or any other of our products that are approved for marketing. Any revisions to
previously reported Medicaid pricing data also may require revisions to the 340B ceiling prices that were based on those data and could require the issuance of refunds.
If Nexavar does not continue to be broadly adopted for the treatment of unresectable liver cancer, our business would be harmed. If our ongoing and planned clinical trials
fail to demonstrate that Nexavar is safe and effective for additional indications or we are unable to obtain necessary approvals for other uses, we will be unable to expand the commercial market for
Nexavar and our business may be harmed or fail.
The market size for Nexavar in treating unresectable liver cancer depends on several factors, including educating treating physicians
on the appropriate use of Nexavar and the management of patients who are receiving Nexavar. Achieving these goals may be difficult as liver cancer patients typically have underlying liver disease and
other comorbidities and can be treated by a variety of medical specialists. In addition, screening, diagnostic and treatment practices can vary significantly by region. Further, liver cancer is common
in many regions in the developing world where the healthcare systems are limited and reimbursement for Nexavar is limited or unavailable, which will likely limit or slow adoption. While we have
established Nexavar as part of the treatment paradigm for liver cancer, we may not be able to successfully achieve its full market potential for this indication. In addition, certain countries require
pricing to be established before reimbursement for this indication may be obtained and in some Asian Pacific countries where most of the current market is private pay, these approvals require
prolonged negotiations with the governments, potentially including multiple government agencies. In addition, we may not receive or maintain pricing approvals at favorable levels or at all, which
could harm our ability to broadly market Nexavar.
Nexavar
has not been approved in any indications other than unresectable liver cancer and advanced kidney cancer. We and Bayer are currently conducting a number of clinical trials of
Nexavar; however, our clinical trials may fail to demonstrate that Nexavar is safe and effective in other indications, and Nexavar may not gain additional regulatory approval, which would limit the
potential market for the product and harm our future prospects. If we are not able to obtain approval for label expansion or alternative delivery mechanisms, we will have incurred significant clinical
trial costs without corresponding benefits, our future prospects may suffer and our business and financial condition could be materially and adversely affected. Success in one or even several cancer
types does not indicate that Nexavar would be approved or have successful clinical trials in other cancer types. Regulatory requirements change over time, including acceptable clinical endpoints. We
may be unable to satisfy
new requirements or expectations of regulatory authorities and hence, Nexavar may never be approved in additional indications.
Even if our products receive regulatory approval, guidelines and recommendations published by various organizations may affect the uptake, adoption and/or use of those
products.
Government agencies issue regulations and guidelines directly applicable to us and to our products and to Bayer's products. In
addition, professional societies, practice management groups, private health/science foundations and organizations involved in various diseases from time to time publish guidelines or recommendations
to the medical and patient communities. These various sorts of recommendations may relate to such matters as product usage, dosage, route of administration and use of related or
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therapies. Such recommendations or changes to such recommendations or other changes or other guidelines advocating alternative therapies could result in decreased use of Nexavar, Kyprolis
and Stivarga, which may adversely affect our results of operations.
We are dependent upon our collaborative relationship with Bayer to further develop, manufacture and commercialize Nexavar and Stivarga.
Our success for developing, manufacturing and commercializing Nexavar and Stivarga depends in large part upon our relationship with
Bayer. If we are unable to maintain our collaborative relationship with Bayer, we may be unable to continue development, manufacturing and marketing activities at our own expense. If we were able to
do so on our own, this would significantly increase our capital and infrastructure requirements, would necessarily impose delays on development programs, may limit the indications we are able to
pursue and could prevent us from effectively developing and commercializing Nexavar and Stivarga. Disputes with Bayer may delay or prevent us from further developing, manufacturing or commercializing
or increasing the sales of Nexavar, and could lead to additional disputes with Bayer, which could be time consuming and expensive. As permitted under our amended collaboration agreement and
regorafenib agreement with Bayer, we may develop Nexavar and/or Stivarga in certain indications at our own expense. If we were to do so, this would increase our research and development costs, could
impose delays on other development programs, and/or could limit the indications we are able to pursue.
We
are subject to a number of risks associated with our dependence on our collaborative relationship with Bayer, including:
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unfavorable decisions by Bayer regarding the amount and timing of resource expenditures for the development and
commercialization of Nexavar and Stivarga;
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possible disagreements as to development plans, clinical trials, regulatory marketing or sales;
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our inability to co-promote Nexavar or Stivarga in any country outside the United States, which makes us
solely dependent on Bayer to promote Nexavar and Stivarga in foreign countries;
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Bayer's right to terminate the collaboration agreement on limited notice in certain circumstances involving our insolvency
or material breach of the agreement;
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loss of significant rights if we fail to meet our obligations under the collaboration agreement;
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adverse regulatory or legal action against Bayer resulting from failure to meet healthcare industry compliance
requirements in the promotion and sale of Nexavar and/or Stivarga, including federal and state reporting requirements;
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changes in key management personnel at Bayer, including Bayer's representatives on the collaboration's executive team; and
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disagreements with Bayer regarding interpretation or enforcement of the collaboration agreement and/or the regorafenib
agreement.
We
have limited ability to direct Bayer in its promotion of Nexavar and Stivarga and we may be unable to obtain any remedy against Bayer. Bayer may not have sufficient expertise to
promote or obtain reimbursement for oncology products in foreign countries and may fail to devote appropriate resources to this task. In addition, Bayer may establish a sales and marketing
infrastructure for Nexavar outside the United States that is too large and expensive in view of the magnitude of the Nexavar sales opportunity. We are at risk with respect to the success or failure of
Bayer's commercial decisions related to Nexavar and Stivarga as well as the extent to which Bayer succeeds in the execution of its strategy.
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Bayer's
development of other products, including Stivarga, may provide Bayer incentives to develop and commercialize Nexavar that are different from our own. In preparation for approval
and commercialization of Stivarga in the treatment of metastatic colon cancer and GIST we have elected to increase the number of sales representatives necessary to promote Nexavar and Stivarga. This
may result in disrupting many current relationships with physicians. The new representatives and current representatives may not be able to have access to or will have a delay in access to the
physicians. This could result in lower sales of Nexavar and Stivarga for the time period until access is established or lower sales permanently if access is not fully re-established. In
addition, selling two products is more complex than selling a single product, and some representatives may be slow to or unable to make this transition, resulting in lower sales in their territory.
Under
the terms of the collaboration agreement, we and Bayer must agree on the development plan for Nexavar. If we and Bayer cannot agree, clinical trial progress could be significantly
delayed or halted. Bayer has the right, upon 60 days' notice, to cease co-funding of the development of Nexavar. If Bayer ceases co-funding Nexavar development, further
development of Nexavar could be delayed and we may be unable to fund the development costs on our own and may be unable to find a new collaborator. If we or Bayer cease funding development of Nexavar
under the collaboration agreement, then the party which ceases funding will be entitled to receive a royalty, but not to share in profits.
In
addition, Bayer has the right, which it is not currently exercising, to nominate a member to our board of directors as long as we continue to collaborate on the development of a
compound. Because of these rights, ownership and voting arrangements, our stockholders may not be able to effectively control the election of all members of the board of directors and our ability to
independently determine all corporate actions could be diminished.
Moreover,
we are highly dependent on Bayer for timely and accurate information regarding any revenues realized from sales of Nexavar and Stivarga and the costs incurred in developing and
selling Nexavar, in order to accurately report our results of operations. If we do not receive timely and accurate information or incorrectly estimate activity levels associated with the
co-promotion and development of Nexavar and Stivarga, we could be required to record adjustments in future periods and may be required to restate our results for prior periods. Such
inaccuracies or restatements could cause a loss of investor confidence in our financial reporting or lead to claims against us, harming our operations and future prospects.
Our
collaboration agreement with Bayer will terminate when patents expire that were issued in connection with product candidates discovered under that agreement, or at the time when
neither we nor Bayer are entitled to profit sharing under that agreement, whichever is later. Our right to royalties on the sale of Stivarga will terminate with expiration of Stivarga patents. The
worldwide patents and patent applications covering Nexavar and Stivarga are owned by Bayer and certain patents are licensed to us through our collaboration agreement and regorafenib agreement. We have
limited control over the filing, strategy, or prosecution of the Nexavar and Stivarga patent applications and no control of enforcement or defense of the patents outside the United States.
We may need additional funds, our future access to capital is uncertain, and unstable market and economic conditions may have serious adverse consequences on our business.
We may need additional funds to conduct the costly and time-consuming activities related to the development and
commercialization of Nexavar and Kyprolis and our other product candidates, including manufacturing, clinical trials and regulatory approval. Also, we may need funds to develop our early stage product
candidates, to acquire rights to additional product candidates, or acquire new or complementary businesses. Our future capital requirements will depend upon a number of factors,
including:
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revenue from our product sales;
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global product development and commercialization activities;
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the cost involved in enforcing patents against third parties and defending claims by third parties;
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the costs associated with acquisitions or licenses of additional products;
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the cost of acquiring new or complementary businesses;
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competing technological and market developments; and
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future fee and milestone payments
We
may not be able to raise additional capital on favorable terms, or at all. If we are unable to obtain additional funds, we may not be able to fund our share of commercialization
expenses and clinical trials. We may also have to curtail operations or obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights or potential
markets or grant licenses on terms that are unfavorable to us.
If
we change our development plans, acquire rights to or license additional products, or seek to acquire new or complementary businesses, we may need additional funds sooner than we
expect. In addition, we anticipate that our expenses related to Kyprolis will increase over the next several years. While these costs are unknown at the current time, we may need to raise additional
capital and may be unable to do so.
Our
general business may be adversely affected by global economic difficulties, a volatile business environment and continued unpredictable and unstable market conditions. If the equity
and credit markets do not sustain improvement or begin to deteriorate again, it may make any necessary future debt or equity financing more difficult, more costly and more dilutive, and may result in
adverse changes to product reimbursement and pricing and sales levels, which would harm our operating results. Failure to secure any necessary financing in a timely manner and on favorable terms could
have a material adverse effect on our growth strategy, financial performance and future prospects and could require us to delay or abandon clinical development plans or plans to acquire additional
technology. There is also a possibility that our stock price may decline, due in part to the volatility of the stock market and the general economic downturn, such that we would lose our status as a
Well-Known Seasoned Issuer, which allows us to more rapidly and more cost-effectively seek to raise funds in the public markets.
Additionally,
other challenges resulting from the current economic environment include fluctuations in foreign currency exchange rates, global pricing pressures, increases in national
unemployment impacting patients' ability to access drugs, increases in uninsured or underinsured patients affecting their ability to afford pharmaceutical products and increased U.S. free goods to
patients. There is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult economic times, which would directly affect our ability to
attain our operating goals on schedule and on budget. Further dislocations in the credit market may adversely impact the value and/or liquidity of marketable securities owned by us.
Our operating results could be adversely affected by product sales occurring outside the United States and fluctuations in the value of the United States dollar against
foreign currencies or unintended consequences from our currency contracts.
A majority of Nexavar sales are generated outside of the United States, and a significant percentage of Nexavar commercial and
development expenses are incurred outside of the United States. Under our collaboration agreement, when these sales and expenses are translated into U.S. dollars by Bayer in determining amounts
payable to us or payable by us, we are exposed to fluctuations in foreign currency exchange rates. We also incur a significant percentage of research and development expenses for Kyprolis and our
earlier-stage development products in currencies other than the U.S.
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dollar.
We enter into transactions to manage our exposure to fluctuations in foreign currency exchange rates. Such transactions may expose us to the risk of financial loss in certain circumstances,
including instances in which there is a change in the expected differential between the underlying exchange rate in the contracts and actual exchange rate.
The
primary foreign currencies in which we have exchange rate fluctuation exposure are the Euro and the British Pound. As we expand our business geographically, we could be exposed to
exchange rate fluctuation in other currencies. Exchange rates between these currencies and the U.S. dollar have fluctuated significantly in recent years and may do so in the future. Hedging foreign
currencies can be difficult, especially if the currency is not freely traded. We cannot predict the impact of future exchange rate fluctuations on our operating results.
If serious adverse side effects are associated with Nexavar, Stivarga or Kyprolis, our business could be harmed.
The FDA-approved package inserts for Nexavar, Kyprolis and Stivarga includes several warnings relating to observed adverse
reactions. For example, severe and sometimes fatal hepatotoxicity has been observed in clinical studies of Stivarga. These adverse reactions are highlighted as a boxed warning in the labeling for
Stivarga, which could increase regulatory scrutiny for adequately addressing risk information in promotional messaging. With commercial use and additional clinical trials of these products, we and
Bayer have updated and expect to continue to update adverse reactions listed in the package insert to reflect current information. If additional adverse reactions emerge, or a pattern of severe or
persistent previously observed side effects is observed in the relevant patient populations, the FDA or other regulatory agencies could modify or
revoke marketing approval of any product or we may choose to withdraw one or more products from the market. If this were to occur, we may be unable to obtain marketing approval in additional
indications. In addition, if patients receiving Nexavar, Kyprolis or Stivarga were to suffer harm as a result of their use of these products, these patients or their representatives may bring claims
against us. These claims, or the mere threat of these claims, could have a material adverse effect on our business and results of operations.
We
expect to seek additional regulatory approvals of Kyprolis in the United States and other countries. We have observed and reported safety and adverse events in Kyprolis clinical
trials, which may increase the risk that FDA, or other regulatory agencies, could reject future application(s) for marketing approval. Similarly Bayer is seeking additional regulatory approval for
Stivarga, and has reported safety and adverse events in Stivarga trials, which may increase the risk that regulatory agencies could reject additional marketing approval for Stivarga. Even if Bayer
succeeds in obtaining multiple regulatory approvals for Stivarga, we expect that their package inserts, if approved, will include information related to safety and adverse events, which could limit
the market potential or reimbursability of either or both products
If
previously unforeseen and unacceptable side effects are observed in Nexavar, Kyprolis, or Stivarga, we may be unable to proceed with further clinical trials, to seek or obtain
regulatory approval in one or more indications, or to realize full commercial benefits of our products. In clinical trials, patients may be treated with Nexavar, Kyprolis, or Stivarga as a single
agent or in combination with other therapies. During the course of treatment, these patients may die or suffer adverse medical effects for reasons unrelated to our products, including adverse effects
related to the products that are administered in combination with our products. These adverse effects may impact the interpretation of clinical trial results, which could lead to adverse conclusions
regarding the toxicity or efficacy of Nexavar, Kyprolis, or Stivarga.
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We are subject to extensive government regulation, which can be costly, time consuming and subject us to unanticipated delays. We may incur significant liability if it is
determined that we are in violation of federal and state regulations related to the promotion of drugs in the United States or elsewhere.
If we have disagreements with Bayer regarding ownership of clinical trial results or regulatory approvals for Nexavar, and the FDA
refuses to recognize Onyx as holding, or having access to, the regulatory approvals necessary to commercialize Nexavar, we may experience delays in or be precluded from marketing Nexavar.
For
Kyprolis, we are responsible for managing communications with regulatory agencies, including filing investigational new drug applications, filing new drug applications, submission of
promotional materials and generally directing the regulatory processes. We have limited experience directing such activities and may not be successful with our planned development strategies, on the
planned timelines, or at all. If we fail to conduct any required post-approval studies or if the studies fail to verify that any of our product candidates are safe and effective, our FDA
approval could be revoked.
If
we or Bayer fail to comply with applicable regulatory requirements we could be subject to penalties, including fines, suspensions of regulatory approval, product recall, seizure of
products and criminal prosecution.
To
date, the FDA has approved Nexavar only for the treatment of advanced kidney cancer and unresectable liver cancer. Physicians are not prohibited from prescribing Nexavar for the
treatment of diseases other than advanced kidney cancer or unresectable liver cancer, however, we and Bayer are prohibited from promoting Nexavar for any non-approved indication, often
called "off label" promotion. Likewise, to date, the FDA has approved Kyprolis only for the treatment of patients with multiple myeloma who have received at least two prior therapies, including
bortezomib and an immunomodulatory agent, and have demonstrated disease progression on or within 60 days of completion of the last therapy; and Stivarga only for the treatment of patients with
metastatic colorectal cancer, or mCRC, who have been previously treated with currently available therapies. Although physicians are not prohibited from prescribing Kyprolis or Stivarga for the
treatment of diseases other than the FDA-approved indication, we are prohibited from promoting Kyprolis or Stivarga for any other indications. The FDA and other regulatory agencies
actively enforce regulations prohibiting off label promotion and the promotion of products for which marketing authorization has not been obtained. A company that is found to have improperly promoted
an off label use may be subject to significant liability, including civil and administrative remedies, as well as criminal sanctions.
We
engage in the support of medical education activities and engage investigators and potential investigators interested in our clinical trials. Although we believe that all of our
communications regarding Nexavar and Kyprolis are in compliance with the relevant regulatory requirements, the FDA or another regulatory authority may disagree, and we may be subject to significant
liability, including civil and administrative remedies as well as criminal sanctions.
Certain
federal and state healthcare laws and regulations pertaining to fraud and abuse are and will be applicable to our business. For example, in the United States, there are federal
and state anti-kickback laws that prohibit the payment or receipt of kickbacks, bribes or other remuneration intended to induce the purchase or recommendation of healthcare products and
services or reward past purchases or recommendations. Violations of these laws can lead to civil and criminal penalties, including fines, imprisonment and exclusion from participation in federal
healthcare programs. A number of states have enacted laws that require pharmaceutical companies to track and report payments, gifts and other benefits provided to physicians and other health care
professionals and entities. Similarly, Section 6002 of PPACA requires pharmaceutical companies to report to the federal government certain payments and transfers of value to physicians and
teaching hospitals and certain
ownership and investment interests held by physicians or their immediate family members in applicable manufacturers. Other state laws require pharmaceutical companies to adopt and or disclose specific
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compliance
policies to regulate the company's interactions with healthcare professionals. Some states, such as Massachusetts, Minnesota, and Vermont, impose an outright ban on certain gifts to
physicians. Violations of some of these laws may result in substantial fines. These laws affect our promotional activities by limiting the kinds of interactions we may have with hospitals, physicians
or other potential purchasers or users of our products. Both the disclosure laws and gift bans impose additional administrative and compliance burdens on us. These laws are broadly written, and it is
often difficult to determine precisely how a law will be applied in specific circumstances. If an employee were to offer an inappropriate gift to a customer, we could be subject to a claim under an
applicable federal and state law. Similarly if we fail to comply with a reporting requirement, we could be subject to penalties under applicable federal or state laws.
Numerous
federal and state laws, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the
collection, use and disclosure of personal information. Other countries also have, or are developing, laws governing the collection, use and transmission of personal information. In addition, most
healthcare providers who are expected to prescribe our products and from whom we obtain patient health information are subject to privacy and security requirements under the Health Insurance
Portability and Accountability Act of 1996, or HIPAA. We could be subject to criminal penalties if we knowingly obtain individually identifiable health information from a HIPAA-covered entity in a
manner that is not authorized or permitted by HIPAA. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on
privacy and data protection issues with the potential to affect our business, including recently enacted laws in a majority of states requiring security breach notification. These laws could create
liability for us or increase our cost of doing business. International laws, such as the EU Data Privacy Directive (95/46/EC) and Swiss Data Privacy Act, regulate the processing of personal data
within Europe and between European countries and the United States. Failure to provide adequate privacy protections and maintain compliance with Safe Harbor mechanisms could jeopardize business
transactions across borders and result in significant penalties.
As we expand our development and commercialization activities outside of the United States, we will be subject to an increased risk of inadvertently conducting activities in
a manner that violates the U.S. Foreign Corrupt Practices Act and similar laws. If that occurs, we may be subject to civil or criminal penalties which could have a material adverse effect on our
business, financial condition, results of operations and growth prospects.
We are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, which prohibits corporations and individuals from paying, offering
to pay, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business
or to otherwise influence a person working in an official capacity. We are also subject to the UK Anti-Bribery Act, which prohibits both domestic and international bribery, as well as
bribery across both public and private sectors.
In
the course of establishing and expanding our commercial operations and seeking regulatory approvals outside of the United States, we will need to establish and expand business
relationships with various third parties, such as independent contractors, vendors, advocacy groups and physicians, and we will interact more frequently with foreign officials, including regulatory
authorities and physicians employed by state-run healthcare institutions who may be deemed to be foreign officials under the FCPA, UK Anti-Bribery Act or similar laws of other
countries that may govern our activities. Any interactions with any such parties or individuals where compensation is provided that are found to be in violation of such laws could result in
substantial fines and penalties and could materially harm our business. Furthermore, any finding of a violation under one country's laws may increase the likelihood that we will be prosecuted and be
found to have violated another country's laws. If our business practices outside the United States are found to be in violation of the FCPA, UK Anti-Bribery Act or
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other
similar law, we may be subject to significant civil and criminal penalties which could have a material adverse effect on our business, financial condition, results of operations, liquidity and
growth prospects.
The market may not accept our products and we may be subject to pharmaceutical pricing and third-party reimbursement pressures.
Nexavar, Kyprolis, Stivarga, or our other product candidates that may be approved may not gain market acceptance among physicians,
patients, healthcare payers and/or the
medical community or the market may not be as large as forecasted. Third-party payers and governments are increasingly challenging the pricing of medical products and services, especially in global
markets, and their reimbursement practices may affect the price levels for Nexavar, Kyprolis or Stivarga, if approved, or any other future product. Governments outside of the United States may
increase their use of risk-sharing programs, which will only pay for a drug after it demonstrates efficacy in a given patient. In addition, governments may increasingly rely on Health
Technology Assessments to determine payment policy for cancer drugs. Health Technology Assessments are used by governments to assess if health services are safe and cost-effective. In
addition, the market for our products may be limited by third-party payers who establish lists of approved products and do not provide reimbursement for products not listed. If our products are not on
the approved lists in one or more countries, our sales may suffer. Non-government organizations can influence the use of our products and reimbursement decisions for our products in the
United States and elsewhere. For example, the National Comprehensive Cancer Network, or NCCN, a not-for-profit alliance of cancer centers, has issued guidelines for the use of
Nexavar in the treatment of advanced kidney cancer and unresectable liver cancer. These guidelines may affect treating physicians' use of Nexavar.
Nexavar's
success in Europe and other regions, particularly in Asia Pacific, could also depend on obtaining and maintaining government reimbursement. For example, in Europe and in many
other international markets, patient access is limited for medicines that are not reimbursed by the government. Negotiating prices with governmental authorities can delay commercialization by up to
twelve months or more. Even if reimbursement is available, reimbursement policies may adversely affect sales and profitability of Nexavar. In addition, in Europe and in many international markets,
governments control the prices of prescription pharmaceuticals and expect prices of prescription pharmaceuticals to decline over the life of the product or as volumes increase. In the
Asia-Pacific region, excluding Japan, China leads in Nexavar sales, however, reimbursement typically requires multiple steps. Also, in December 2009, health authorities in China published
a new National Reimbursement Drug List, or NRDL, which lists medicines that are expected to be sold at government-controlled prices. There were no targeted oncology drugs, including Nexavar, on the
NRDL, however, the Ministry of Human Resource and Social Security, the group responsible for developing the NDRL, could establish a mechanism and framework for reimbursement of high-value
innovative products, such as targeted oncology drugs. Reimbursement policies are subject to change due to economic, political or competitive factors. We believe that this will continue into the
foreseeable future as governments struggle with escalating health care spending.
In
the European Union, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national healthcare systems that fund a
large part of the cost of such products to consumers. The approach taken varies from member state to member state. Some jurisdictions operate positive and/or negative list systems under which products
may be marketed only once a reimbursement price has been agreed. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward
pressure on healthcare costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products, as
exemplified by the role of the National Institute for Health and Clinical Excellence in the United Kingdom, which evaluates the
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supporting new medicines and passes reimbursement recommendations to the government. In addition, in some countries cross-border imports from low-priced markets (parallel imports)
exert commercial pressure on pricing within a country.
Forecasting sales of Kyprolis may be difficult and revenue recognition may be deferred. If our revenue projections are inaccurate or revenue is deferred and our business
forecasting and planning decisions are not reflected in our actual results, our business may be harmed and our future prospects may be adversely affected.
Kyprolis may not be adopted rapidly, or at all, by physicians. Factors that can affect the rate of adoption and that can increase the
difficulty of forecasting sales include the following:
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physician and patient unfamiliarity with Kyprolis;
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cautionary prescribing behavior due to concerns regarding the safety and risk-benefit of Kyprolis
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cautionary prescribing behavior due to lack of reimbursement history for Kyprolis;
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confusion and questions relating to the label;
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difficulty in identifying appropriate patients for treatment with Kyprolis;
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the cost of the product, which is purchased by the prescriber on a buy and bill basis;
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other aspects of physician education;
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treatment guidelines issued by government and non-government agencies;
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types of cancer for which the product is approved;
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timing of market entry relative to competitive products;
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availability of alternative therapies;
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price of our product relative to alternative therapies, including generic versions of our products, or generic versions of
innovative products that compete with our products;
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patients' reliance on patient assistance programs, under which we provide free drug;
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rates of returns and rebates;
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uncertainty of launch trajectory;
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our ability to manufacture and deliver Kyprolis in commercially sufficient quantities;
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extent of marketing efforts by us and third-party distributors or agents retained by us; and
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side effects or unfavorable publicity concerning our products or similar products.
The
extent to which any of these or other factors individually or in the aggregate may impact future sales of Kyprolis is uncertain and difficult to predict. Our management must make
forecasting decisions regarding future revenue in the course of business planning despite this uncertainty, and actual results of operations may deviate materially from projected results. This may
lead to inefficiencies and increased difficulties in operational planning. If our revenues from Kyprolis sales are lower than we anticipate or revenue is deferred, we will incur costs in the short
term that will result in losses that are unavoidable. A shortfall in our revenue would have a direct impact on our cash flow and on our business generally. In addition, fluctuations in our quarterly
results can adversely and significantly affect the market price of our common stock.
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Our financial results depend on management's selection of accounting methods and certain assumptions and estimates
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our
management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with generally
accepted accounting principles and reflect management's judgment of the most appropriate manner to report our financial condition and results. In some cases, management must select the accounting
policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in our reporting materially different results than would have been
reported under a different alternative.
Certain
accounting policies are critical to presenting our financial condition and results. The preparation of our financial statements require us to make significant estimates,
assumptions and judgments that affect the amounts of assets, liabilities, revenues and expenses and related disclosures. Significant estimates made by us include assumptions used in the determination
of revenue recognition and the calculation of reserves, the fair value of marketable securities, revenue from the Bayer collaboration agreement, multiple element arrangements, the effect of business
combinations, fair value measurement of tangible and intangible assets and liabilities, goodwill and other intangible assets, fair value of convertible senior notes, research and development expenses,
stock-based compensation and the provision for income taxes. For example, our management exercised judgment in determining the appropriate revenue recognition policy for product sales of Kyprolis.
Although we base our estimates and judgments on historical experience, our interpretation of existing accounting literature and on various other assumptions that we believe to be reasonable under the
circumstances, if our interpretation or application of existing accounting literature is deemed to be materially incorrect, actual results may differ materially from these estimates.
The integration of acquired businesses may present significant challenges to us.
In 2009 we acquired Proteolix, and in the future we may enter into other acquisitions of, or investments in, businesses, in order to
complement or expand our current business or enter into a new product area. Achieving the anticipated benefits of any future acquisition, depends upon the successful integration of the acquired
business' operations and personnel in a timely and efficient manner. The difficulties of integration include, among others:
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consolidating research and development operations;
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retaining key employees;
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consolidating corporate and administrative infrastructures, including integrating and managing information technology and
other support systems and processes;
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preserving relationships with third parties, such as regulatory agencies, clinical investigators, key opinion leaders,
clinical research organizations, contract manufacturing organizations, licensors and suppliers;
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appropriately identifying and managing the liabilities of the combined company;
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utilizing potential tax assets of the acquired business; and
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managing risks associated with acquired facilities, including environmental risks and compliance with laws regulating
laboratories.
We
cannot assure stockholders that we will receive any benefits of any future merger or acquisition, or that any of the difficulties described above will not adversely affect us. In
addition, integration efforts would place a significant burden on our management and internal resources, which
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could
result in delays in clinical trial and product development programs and otherwise harm our business, financial condition and operating results.
Negotiations
associated with an acquisition or strategic investment could divert management's attention and other company resources. Any of the following risks associated with future
acquisitions or investments could impair our ability to grow our business, develop new products, or sell Nexavar, Stivarga or Kyprolis, and ultimately could have a negative impact on our growth or our
financial results for many reasons, including:
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difficulty in operating in a new or multiple new locations;
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difficulty in realizing the potential financial or strategic benefits of the transaction;
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difficulty in maintaining uniform standards, controls, procedures and policies;
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disruption of or delays in ongoing research, clinical trials and development efforts;
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diversion of capital and other resources;
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assumption of liabilities and unanticipated expenses resulting from litigation arising from potential or actual business
acquisitions or investments; and
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difficulties in entering into new markets in which we have limited or no experience and where competitors in such markets
have stronger positions.
In
addition, the consideration for any future acquisition could be paid in cash, shares of our common stock, the issuance of convertible debt securities or a combination of cash,
convertible debt and common stock. If we make an investment in cash or use cash to pay for all or a portion of an acquisition, our cash and investment balances would be reduced which could negatively
impact our liquidity, the growth of our business or our ability to develop new products. However, if we pay the consideration with shares of common stock, or convertible debentures, the holdings of
our existing stockholders could be diluted. We cannot forecast the number, timing or size of future strategic investments or acquisitions, or the effect that any such investments or acquisitions might
have on our operations or financial results.
If we lose our key employees or are unable to attract or retain qualified personnel, our business could suffer.
The loss of the services of key employees may have an adverse impact on our business unless or until we hire a suitably qualified
replacement. Any of our key personnel could terminate their employment with us at any time and without notice. We depend on our continued ability to attract, retain and motivate highly qualified
personnel. We face competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities and other research institutions. In order to succeed in our research and
development efforts, we will need to continue to hire individuals with the appropriate scientific skills.
We
may need to further expand our sales, market access, managerial, operational, administrative and other functions in order to commercialize Kyprolis and/or Stivarga, manage and fund
our operations and continue our development activities. To support this growth, we have hired and intend to continue hiring additional employees. Our management, personnel, systems and facilities
currently in place may not be adequate to support this future growth. Our need to effectively manage our operations, growth and various projects requires that
we:
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Increase our activities related to commercialization, and effectively hire, train and manage a sales force, who will have
limited or no prior experience with our company or our products, and establish appropriate systems, policies and infrastructure to support our commercial organization; and
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continue to improve our operational, financial and management controls, reporting systems and procedures.
We
may be unable to successfully implement these tasks on a larger scale and, accordingly, may not achieve our development and commercialization goals.
Risks associated with operating in foreign countries could materially adversely affect our business.
We have expanded our operations into Europe and, if approved in that region, we expect to import, market, sell and distribute our
products in European countries. We currently maintain and expect to expand our presence in Europe. Our clinical and commercial supply chain activities could occur outside the United States.
Consequently, we are, and will continue to be, subject to risks related to operating in foreign countries. Risks associated with conducting operations in foreign countries
include:
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differing regulatory requirements for drug approvals and regulation of approved drugs in foreign countries;
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unexpected changes in tariffs, trade barriers and regulatory requirements;
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economic weakness, including inflation, or political instability in particular foreign economies and markets;
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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
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foreign taxes, including withholding of payroll taxes;
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foreign currency fluctuations, which could result in increased operating expenses or reduced revenues, and other
obligations incident to doing business or operating in another country;
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workforce uncertainty in countries where labor unrest is more common than in the United States;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business interruptions resulting from geo-political actions, including war and terrorism.
These
and other risks described elsewhere in these risk factors associated with our international operations could materially adversely affect our business.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at educational
institutions or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims
that these employees or we 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. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
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We incurred significant indebtedness through the sale of our 4.0% convertible senior notes due 2016, and we may incur additional indebtedness in the future. The indebtedness
created by the sale of the notes and any future indebtedness we incur exposes us to risks that could adversely affect our business, financial condition and results of operations.
We incurred senior indebtedness in August 2009 when we sold $230 million aggregate principal amount of 4.0% convertible senior
notes due 2016, or the 2016 Notes. We may also incur additional long-term indebtedness or obtain working capital lines of credit to meet future financing needs. Our indebtedness could have
significant negative consequences for our business, results of operations and financial condition, including:
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increasing our vulnerability to adverse economic and industry conditions;
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limiting our ability to obtain additional financing;
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requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, thereby
reducing the amount of our cash flow available for other purposes;
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limiting our flexibility in planning for, or reacting to, changes in our business; and
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placing us at a possible competitive disadvantage with less leveraged competitors and competitors that may have better
access to capital resources.
We
cannot assure stockholders that we will continue to maintain sufficient cash reserves or that our business will continue to generate cash flow from operations at levels sufficient to
permit us to pay principal, premium, if any, and interest on our indebtedness, or that our cash needs will not increase. If we are unable to generate sufficient cash flow or otherwise obtain funds
necessary to make required payments, or if we fail to comply with the various requirements of the 2016 Notes, or any indebtedness which we may incur in the future, we would be in default, which would
permit the holders of the 2016 Notes and such other indebtedness to accelerate the maturity of the notes and such other indebtedness and could cause defaults under the 2016 Notes and such other
indebtedness. Any default under the notes or any indebtedness which we may incur in the future could have a material adverse effect on our business, results of operations and financial condition.
The
conditional conversion features of the 2016 Notes were triggered on October 1, 2012 and again on January 1, 2013. The holders of the 2016 Notes are entitled to convert
the 2016 Notes through March 31, 2013, at their option. If one or more holders elect to convert their 2016 Notes, unless we elect to satisfy our conversion obligation by delivering solely
shares of our common stock, we would be required to make cash payments to satisfy all or a portion of our conversion obligation based on the applicable conversion rate, which could adversely affect
our liquidity. In addition, even if holders do not elect to convert their 2016 Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal
of the 2016 Notes as a current rather than long-term liability, which could result in a material reduction of our net working capital.
We face product liability risks and may not be able to obtain adequate insurance.
The sales of Nexavar, Stivarga and Kyprolis, and the use of Nexavar, Kyprolis, Stivarga and/or other products and product candidates in
clinical trials expose us to product liability claims. In the United States, FDA approval of a drug may not offer protection from liability claims under state law (i.e., federal preemption
defense), the tort duties for which may vary state to state. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit
commercialization of Nexavar, Kyprolis, Stivarga and/or future products.
We
may not be able to maintain product liability insurance coverage at a reasonable cost. We may not be able to obtain additional insurance coverage that will be adequate to cover
product liability risks that may arise should a future product candidate receive marketing approval. Whether or not we are
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insured,
a product liability claim or product recall may result in significant losses. Regardless of merit or eventual outcome, product liability claims may result
in:
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decreased demand for a product;
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injury to our reputation;
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distraction of management;
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withdrawal of clinical trial volunteers; and
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loss of revenues.
We or Bayer may not be able to protect or enforce our or their intellectual property rights and we may not be able to operate our business without infringing the
intellectual property rights of others.
We can protect our technology from unauthorized use by others only to the extent that our technology is covered by valid and
enforceable patents, effectively maintained as trade secrets, or otherwise protected as confidential information or know-how. We depend in part on our ability
to:
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obtain patents;
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license technology rights from others;
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protect trade secrets;
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operate without infringing upon the proprietary rights of others; and
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prevent others from infringing on our proprietary rights, particularly generic drug manufacturers.
Patents
and patent applications covering Nexavar and Stivarga are owned by Bayer. Those Nexavar patents that arose out of our collaboration agreement with Bayer are licensed to us,
including two United States patents covering Nexavar and pharmaceutical compositions of Nexavar. Both patents will expire January 12, 2020. These two patents are listed in the FDA's Approved
Drug Product List (Orange
Book). Based on publicly available information, Bayer also has patents in several European countries covering Nexavar, which will expire in 2020. Bayer has other patents and patent applications
pending worldwide that cover Nexavar alone or in combination with other drugs for treating cancer. Certain of these patents may be subject to possible patent-term extension, the
entitlement to and the term of which cannot presently be calculated, in part because Bayer does not share with us information related to its Nexavar patent portfolio. We cannot be certain that Bayer's
issued patents and future patents if they issue will provide adequate protection for Nexavar or Stivarga or will not be challenged by third parties in connection with the filing of an ANDA, or
otherwise. Similarly, we cannot be certain that the patents and patent applications owned by us, acquired in the Proteolix acquisition, or licensed to us by any licensor, will provide adequate
protection for Kyprolis or any other product, or will not be challenged by third parties in connection with the filing of an ANDA, or otherwise. The patents related to Kyprolis and oprozomib will
begin to expire in 2025 and 2027, respectively. Third parties may claim to have rights in the assets that we acquired with Proteolix, including Kyprolis, or to have intellectual property rights that
will be infringed by our commercialization of our assets, including those that we acquired with Proteolix. If third parties were to succeed in such claims, our business and company could be harmed.
The
patent positions of biotechnology and pharmaceutical companies are highly uncertain and involve complex legal and factual questions. Our patents, or patents that we license from
others, may not provide us with proprietary protection or competitive advantages against competitors with similar technologies. Competitors may challenge or circumvent our patents or patent
applications. Courts may find our patents invalid. Due to the extensive time required for development, testing and regulatory
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review
of our potential products, our patents may expire or remain in existence for only a short period following commercialization, which would reduce or eliminate any advantage the patents may give
us.
We
may not have been the first to make the inventions covered by each of our issued or pending patent applications, or we may not have been the first to file patent applications for
these inventions. Third party patents may cover the materials, methods of treatment or dosage related to our product, or compounds to be used in combination with our products; those third parties may
make allegations of infringement. We cannot provide assurances that our products or activities, or those of our licensors or licensees, will not infringe patents or other intellectual property owned
by third parties. Competitors may have independently developed technologies similar or complementary to ours, including compounds to be used in combination with our products. We may need to license
the right to use third-party patents and intellectual property to develop and market our product candidates. We may be unable to acquire required licenses on acceptable terms, if at all. If we do not
obtain these required licenses, we may need to design around other parties' patents, or we may not be able to proceed with the development, manufacture or, if approved, sale of our product candidates.
We may face litigation to defend against claims of infringement or other violations of intellectual property rights, assert claims of infringement, enforce our patents, protect our trade secrets or
know-how, or determine the scope and validity of others' proprietary rights. In addition, we may require interference or similar proceedings in the United States Patent and Trademark
Office or its foreign counterparts to establish
priority of invention. These activities are uncertain, making any outcome difficult to predict and costly and may be a substantial distraction for our management team.
Bayer
may have rights to publish data and information in which we have rights. In addition, we sometimes engage individuals, entities or consultants, including clinical investigators, to
conduct research that may be relevant to our business. The ability of these third parties to publish or otherwise publicly disclose information generated during the course of their research is subject
to certain contractual limitations; however, these contracts may be breached and we may not have adequate remedies for any such breach. If we do not apply for patent protection prior to publication or
if we cannot otherwise maintain the confidentiality of our confidential information, then our ability to receive patent protection or protect our proprietary information will be harmed.
In
addition, on September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes
to United States patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The United States Patent Office is currently
developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act have not yet become
effective. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act, in particular the
first-to-file provision, and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense
of our issued patents, all of which could have a material adverse effect on our business and financial condition.
Limited foreign intellectual property protection and compulsory licensing could limit our revenue opportunities.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. The
requirements for patentability may differ in certain countries, particularly developing countries. In 2009, we became aware that a third-party had filed an opposition proceeding with the Chinese
patent office to invalidate the patent that covers Nexavar. Unlike other countries, China has a heightened requirement for patentability, and specifically requires a detailed description of medical
uses of a claimed drug, such as Nexavar. The third party filed an appeal to the
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Beijing
No. 1 Court to which Bayer responded and the Court found in Bayer's favor. The appeal period for this decision has recently expired, and thus the Nexavar Chinese patent has been upheld.
Generic
drug manufacturers or other competitors may challenge the scope, validity or enforceability of the Nexavar patents, requiring Bayer and us to engage in complex, lengthy and
costly litigation or other proceedings. Generic drug manufacturers may develop, seek approval for, and launch generic versions of Nexavar. For example, Bayer has a patent in India that covers Nexavar.
Cipla Limited, an Indian generic drug manufacturer, applied to the Drug Controller General of India, or DCGI, for market approval for Nexavar, which Bayer sought to block based on its patent. Bayer
sued the DCGI and Cipla Limited in the Delhi High Court requesting an injunction to bar the DCGI from granting Cipla Limited market authorization. The Court ruled against Bayer, stating that in India,
unlike the U.S., there is no link between regulatory approval of a drug and its patent status. Bayer unsuccessfully appealed. Consequently, Bayer has appealed to the Indian Supreme Court, and has
filed a patent infringement suit against Cipla that is currently pending before the Delhi high court, Cipla, however, is now selling a generic version of Nexavar in India. Also, recently, India's
controller general of patents, designs and trademarks has granted a compulsory license to the Indian generic drug manufacturer, Natco, to make a generic version of Nexavar, and Natco has commenced
production of a generic version of Nexavar. Bayer has appealed this ruling, and has also sued Natco for patent infringement. The compulsory license granted to Natco does not give Natco the right to
sell Nexavar outside of India. Two other Indian companies, MDL ChemPharm and BDR Pharmaceuticals Inc., have filed for a compulsory license to sell generic Nexavar. Bayer has sued both these
parties for patent infringement.
In
addition to India, certain countries in Europe and developing countries, including China, have compulsory licensing laws under which a patent owner may be compelled to grant licenses
to third parties. In those countries, Bayer, the owner of the Nexavar patent estate, may have limited remedies if the Nexavar patents are infringed or if Bayer is compelled to grant a license for
Nexavar to a third party, which could materially diminish the value of those patents that cover Nexavar. This could limit our potential revenue opportunities.
If we use hazardous or potentially hazardous materials in a manner that causes injury or violates applicable law, we may be liable for damages.
Our research and development activities involve the controlled use of hazardous or potentially hazardous materials, including chemical,
biological and radioactive materials. In addition, our operations produce hazardous waste products. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and
disposal of hazardous materials. We may incur significant additional costs to comply with these and other applicable laws in the future. Also, even if we are in compliance with applicable laws, we
cannot completely eliminate the risk of contamination or injury resulting from hazardous materials and we may incur liability as a result of any such contamination or injury. In the event of an
accident, we could be held liable for damages or penalized with fines, and the liability could significantly deplete or even exhaust our resources. We do not have any insurance for liabilities arising
from hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and
manufacturing efforts, which could harm our business. We are subject to various laws and regulations governing laboratory practices and the experimental use of animals. We are also subject to
regulation by the Occupational Safety and Health Administration, or OSHA, and the Environmental Protection Agency, or the EPA, and to regulation under the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other regulatory statutes,
and may in the future be subject to other federal, state or local regulations. OSHA and/or the EPA may promulgate regulations that may affect our research and development programs.
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A portion of our investment portfolio is invested in auction rate securities, and if auctions continue to fail for amounts we have invested, our investment will not be
liquid. If the issuer of an auction rate security that we hold is unable to successfully close future auctions and their credit rating deteriorates, we may be required to adjust the carrying value of
our investment through an impairment charge to earnings.
Less than 5% of our investment portfolio is invested in auction rate securities at September 30, 2012. The underlying assets of
these securities are student loans substantially backed by the federal government. Due to adverse developments in the credit markets, beginning in February 2008, these securities have experienced
failures in the auction process. When an auction fails for amounts we have invested, the security becomes illiquid. In the event of an auction failure, we are not able to access these funds until a
future auction on these securities is successful. We have classified these securities as non-current marketable securities, and if the issuer is unable to successfully close future
auctions and their credit rating deteriorates, we may be required to adjust the carrying value of the marketable securities through an impairment charge to earnings.
Provisions in the indenture for the 2016 Notes may deter or prevent a business combination.
If a fundamental change occurs prior to the maturity date of the 2016 Notes, holders of the notes will have the right, at their option,
to require us to repurchase all or a portion of their notes. In addition, if a fundamental change occurs prior to the maturity date of 2016 Notes, we will in some cases be required to increase the
conversion rate for a holder that elects to convert its notes in connection with such fundamental change. A fundamental change is defined in the indenture governing the 2016 Notes and includes certain
transactions resulting in a change of control of our common stock, the approval of a plan for our liquidation or dissolution or the delisting of our common stock from the NASDAQ or other national
securities exchanges. In addition, the indenture for the notes prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations
under the 2016 Notes. These and other provisions could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to our stockholders.
Our business may be affected by other legal proceedings.
We have been in the past, and may become in the future, involved in legal proceedings, such as our lawsuit against Bayer regarding
Stivarga and Nexavar. Civil and criminal litigation is inherently unpredictable and outcomes can result in significant fines, penalties and/or injunctive relief that could affect how we operate our
business. Monitoring and defending against legal actions, whether or not meritorious, is time-consuming for our management and detracts from our ability to fully focus our internal
resources on our business activities. In addition, legal fees and costs incurred in connection with such activities may be significant. We cannot predict with certainty the outcome of any legal
proceedings in which we become involved and it is difficult to estimate the possible costs to us stemming from these matters. Settlements and decisions adverse to our interests in legal actions could
result in the payment of substantial amounts and could have a material adverse effect on our cash flow, results of operations and financial position.
A breakdown or breach of our information technology systems could subject us to liability or interrupt the operation of our business.
We rely upon our information technology systems and infrastructure for our business. The size and complexity of our computer systems
make them potentially vulnerable to breakdown, malicious intrusion and random attack. Likewise, data privacy breaches by employees and others who access our systems may pose a risk that sensitive data
may be exposed to unauthorized persons or to the public. There can be no assurance that our management or diligence efforts will prevent breakdowns or breaches in our systems that could adversely
affect our business.
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Provisions in Delaware law, our charter and executive change of control agreements we have entered into may prevent or delay a change of control.
Certain provisions of our certificate of incorporation and bylaws, as well as provisions of the Delaware General Corporation Law, may
have the effect of delaying, deferring or preventing a change in control of us, including transactions in which our stockholders might otherwise have received a substantial premium for their shares
over then current market prices. For examples, these provisions:
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give authority to our board of directors to issue preferred stock and to determine the price, rights, preferences,
privileges and restrictions of those shares without any stockholder vote;
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-
provide for a board of directors consisting of three classes, each of which serves for a different three-year
term and do not provide for cumulative voting in the election of directors;
-
-
provide that stockholders may only act at a duly called meeting of stockholders and not by written consent;
-
-
allow special meetings of the stockholders to be called only by the chairman of the board, the chief executive officer,
the board or 10% or more of the stockholders entitled to vote at the meeting;
-
-
require stockholders to give advance notice prior to submitting proposals for consideration at stockholders' meetings or
to nominate persons for election as directors; and
-
-
restrict certain business combinations between us and any person who beneficially owns 15% or more of our outstanding
voting stock.
We
have entered into change in control severance agreements with each of our executive officers. These agreements provide for the payment of severance benefits and the acceleration of
stock option vesting if the executive officer's employment is terminated within 24 months of a change in control. The change in control severance agreements may have the effect of preventing a
change in control.
In the future, the failure of one or more of our customers could have a significant impact on our business.
Following the commercial launch of Kyprolis, we a portion of our sales and trade accounts receivable arise from its sales in the United
States and are primarily with a limited number of drug wholesalers and specialty distributors. As a result, we are highly dependent on these customers. This concentration of credit risk could increase
the risk of financial loss, should one or more of these companies fail. Although we will monitor the financial performance and creditworthiness of our customers and will monitor economic conditions
along with associated impacts on the financial markets and its business, there can be no assurance that our efforts will prevent credit losses that could adversely affect our business.
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UNDERWRITING
Onyx
and the underwriters for the offering named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each
underwriter has severally agreed to purchase the number of shares indicated in the following table.
|
|
|
|
|
Underwriters
|
|
Number of Shares
|
|
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
|
|
|
2,200,000
|
|
Barclays Capital Inc.
|
|
|
2,200,000
|
|
|
|
|
|
Total
|
|
|
4,400,000
|
|
|
|
|
|
The
underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this
option is exercised.
If
the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional 660,000 shares from the company
to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The
following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by the company. Such amounts are shown assuming both no exercise
and full exercise of the underwriters' option to purchase 660,000 additional shares.
|
|
|
|
|
|
|
|
|
|
No Exercise
|
|
Full Exercise
|
|
Per Share
|
|
$
|
1.41
|
|
$
|
1.41
|
|
Total
|
|
$
|
6,204,000
|
|
$
|
7,134,600
|
|
Shares
sold by the underwriters to the public will initially be offered at the public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to
securities dealers may be sold at a discount of up to $0.40 per share from the public offering price. If all the shares are not sold at the public offering price, the representatives may change the
offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters' right to reject any order in whole or
in part.
We
and our directors and executive officers have agreed that, during the period beginning on the date hereof and continuing until the date 60 days after the date of this
prospectus supplement, and subject to limited exceptions, neither we nor they will, without the prior consent of the underwriters, offer, pledge, sell or otherwise dispose of (or enter into any
agreement to offer, pledge, sell or otherwise dispose of), directly or indirectly, any shares of common stock, any securities substantially similar to the common stock or any securities convertible
into or exchangeable for, shares of common stock or substantially similar securities, or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the common stock or substantially similar securities.
With
respect to us, the foregoing paragraph shall not apply to (i) issuances of shares of common stock pursuant to employee stock option plans existing on, or upon the conversion
or exchange of convertible or exchangeable securities outstanding as of, the date hereof, (ii) the sale and issuance of the common stock in this offering, (iii) the issuance of common
stock upon the conversion of the 2016 Notes and (iv) any agreement providing for the contingent future issuance of shares of common upon
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achievement
of specified technical or financial milestones,
provided
that no shares of common stock shall be issuable pursuant to any such agreement
until at least 60 days after the date hereof.
With
respect to our directors and executive officers, the foregoing paragraph shall not apply to (i) transfers of common stock as a bona fide gift or gifts or by will or
intestacy, provided that each donee, transferee or distributee thereof agrees to be bound in writing by the restrictions, (ii) transfers of common stock to any trust for the direct or indirect
benefit of such individual or the immediate family of such individual, provided that the trustee of the trust agrees to be bound in writing by the restrictions, and provided further that any such
transfer shall not involve a disposition for value, (iii) shares of common stock sold or tendered to us or withheld by us for tax withholding purposes in connection with the vesting of equity
awards that are subject to a taxable event upon vesting, (iv) shares of common stock sold pursuant to a written contract, instruction or plan complying with Rule 10b5-1 under
the Exchange Act, provided that such plan has been entered into prior to the date hereof and is not amended or modified during the 60-day restricted period or (v) transfers of
common stock with the prior written consent of the underwriters on behalf of the underwriters.
The
company and the selling stockholders have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933.
The
company estimates that its share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $500,000.
In
connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions
and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. "Covered"
short sales are sales made in an amount not greater than the underwriters' option to purchase additional shares from the company in the offering. The underwriters may close out any covered short
position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the
underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the
option granted to them. "Naked" short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short
position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely
affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of
the offering.
The
underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the
representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Purchases
to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a
decline in the market price of the company's stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result,
the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions
may be effected on the NASDAQ Global Select Market, in the over-the-counter market or otherwise.
Certain
of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services
for the company,
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for
which they received or will receive customary fees and expenses. The underwriters may, from time to time in the future, engage in transactions with and perform services for us in the ordinary
course of their business.
In
the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and
equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities
activities may involve securities and/or instruments of the issuer. For instance, Barclays Capital Inc. or its affiliates hold positions in our outstanding convertible senior notes due 2016,
and may receive a portion of the net proceeds from the sale of the notes through the conversion of such notes. The underwriters and their respective affiliates may also make investment recommendations
and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in
such securities and instruments.
William.
R. Ringo, an independent director on our board, is a senior advisor, on matters unrelated to this offering, to Barclays Capital Inc. We do not believe that his interest
as an advisor to Barclays Capital Inc. will conflict with your interest as purchasers of the common stock.
Selling Restrictions
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a "Relevant Member
State"), an offer to the public of any shares which are the subject of the offering contemplated by this prospectus supplement (the "Shares") may not be made in that Relevant Member State, except that
an offer to the public in that Relevant Member State of any Shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant
Member State:
a) to
any legal entity which is a qualified investor as defined in the Prospectus Directive;
b) to
fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than
qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representative for any such offer; or
c) in
any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Shares shall result in a requirement for the
publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.
For
the purposes of this provision, the expression an "offer to the public" in relation to any Shares in any Relevant Member State means the communication in any form and by any means of
sufficient information on the terms of the offer and any Shares to be offered so as to enable an investor to decide to purchase any Shares, as the same may be varied in that Member State by any
measure implementing the Prospectus Directive in that Member State, the expression "Prospectus Directive" means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive,
to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State, and the expression "2010 PD Amending Directive" means Directive
2010/73/EU.
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United Kingdom
Each underwriter has represented and agreed that:
a) it
has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the Financial Services and Market Act (the "FSMA")) received by it in connection with the issue or sale of the shares in circumstances in which
Section 21(1) of the FSMA does not apply to us; and
b) it
has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving
the United Kingdom.
Australia
This prospectus supplement has not been lodged with the Australian Securities & Investments Commission and does not constitute
an offer except to the following categories of exempt persons:
a) "sophisticated
investors" under section 708(8)(a) or (b) of the Corporations Act 2001 (Cth) of Australia ("Corporations Act");
b) "sophisticated
investors" under section 708(8)(c) or (d) of the Corporations Act who have provided an accountant's certificate to us which complies with the
requirements of section 708(8)(c)(i) or (ii) of the Corporations Act and related regulations before any offer has been made; and
c) "professional
investors" within the meaning of section 708(11)(a) or (b) of the Corporations Act.
By
purchasing shares, you warrant and agree that:
a) you
are an exempt investor under one of the above categories; and
b) you
will not offer any shares issued or sold to you pursuant to this document for sale in Australia within 12 months of those shares being issued or sold unless
any such sale offer is exempt from the requirement to issue a disclosure document under sections 708 or 708A of the Corporations Act.
Hong Kong
The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer
to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), (ii) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap.571,
Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies Ordinance (Cap.32,
Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong
Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than
with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance
(Cap. 571, Laws of Hong Kong) and any rules made thereunder.
India
This prospectus supplement has not been and will not be registered as a prospectus with the Registrar of Companies in India or with the
Securities and Exchange Board of India. This prospectus supplement or any other material relating to these securities is for information purposes only and may
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not
be circulated or distributed, directly or indirectly, to the public or any members of the public in India and in any event to not more than 50 persons in India. Further, persons into whose
possession this prospectus supplement comes are required to inform themselves about and to observe any such restrictions. Each prospective investor is advised to consult its advisors about the
particular consequences to it of an investment in these securities. Each prospective investor is also advised that any investment in these securities by it is subject to the regulations prescribed by
the Reserve Bank of India and the Foreign Exchange Management Act and any regulations framed thereunder.
Japan
The shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the "Financial
Instruments and Exchange Law") and each underwriter has agreed that it will not offer or sell any shares, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which
term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or
indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and
any other applicable laws, regulations and ministerial guidelines of Japan.
Korea
The shares may not be offered, sold and delivered directly or indirectly, or offered or sold to any person for reoffering or resale,
directly or indirectly, in Korea or to any resident of Korea except pursuant to the applicable laws and regulations of Korea, including the Korea Securities and Exchange Act and the Foreign Exchange
Transaction Law and the decrees and regulations thereunder. The shares have not been registered with the Financial Services Commission of Korea for public offering in Korea. Furthermore, the shares
may not be resold to Korean residents unless the purchaser of the shares complies with all applicable regulatory requirements (including but not limited to government approval requirements under the
Foreign Exchange Transaction Law and its subordinate decrees and regulations) in connection with the purchase of the shares.
Singapore
This prospectus supplement has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this
prospectus supplement and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may
the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional
investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA"), (ii) to a relevant person, or any person pursuant to Section 275(1A),
and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the
SFA.
Where
the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of
which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an
accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the
beneficiaries' rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except:
(1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified
in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
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Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange ("SIX") or on any other stock
exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss
Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in
Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither
this document nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory
authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of
shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes ("CISA"). The investor protection afforded to acquirers of interests in collective
investment schemes under the CISA does not extend to acquirers of shares.
Dubai International Financial Centre
This prospectus supplement relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services
Authority ("DFSA"). This prospectus supplement is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on
by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus supplement nor taken steps to
verify the information set forth herein and has no responsibility for the prospectus supplement. The shares to which this prospectus supplement relates may be illiquid and/or subject to restrictions
on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus supplement you should
consult an authorized financial advisor.
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