You
should carefully consider the following risk factors in addition to the other information in this Annual Report on Form 10-K when evaluating our business because these risk factors may have a significant impact on our business, financial
condition, operating results or cash flows.
If any of the risks described below or in subsequent reports we file with the SEC actually occur,
they may materially harm our business, financial condition, operating results or cash flows. Additional risks and uncertainties that we have not yet identified or that we presently consider to be immaterial may also materially harm our business,
financial condition, operating results or cash flows. The discussion of these factors is incorporated by reference into and considered an integral part of Part II, Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results
of Operations.”
GOVERNMENT CONTRACTING RISKS
We
currently derive a substantial portion of our revenue from sales of BioThrax to our largest customer, the USG. If the USG’s demand for and/or funding for procurement of BioThrax is substantially reduced, our
business, financial condition, operating results and cash flows would be materially harmed.
We derive a substantial portion of our current and expected future revenues from sales of BioThrax,
our anthrax vaccine licensed by the FDA to the USG. In December 2016, we signed a follow-on procurement contract with the CDC for the delivery of approximately 29.4 million doses of BioThrax for placement into the SNS over a five-year period ending
in September 2021. The potential value of this contract is approximately $911 million if all procurement options are exercised.
The procurement of doses of BioThrax by the CDC is subject to the availability of funding. We have
no certainty that funding will be made available for the procurement of doses under the CDC contract. If the SNS priorities change, funding to procure doses of BioThrax may be limited or not available, and our business, financial condition and
operating results and cash flows would be materially harmed. The success of our business and our future operating results are significantly dependent on funding for the procurement of BioThrax and the terms of our BioThrax sales to the USG,
including the price per dose, the number of doses and the timing of deliveries.
Our submission of NuThrax for EUA pre-approval and eventual FDA licensure may
not be approved by the FDA in a timely manner or at all. Delays in our ability to achieve such pre-approval and licensure could prevent us from realizing the full potential value of our BARDA contract for the advanced development and procurement of
NuThrax.
In September 2016, we entered into a contract with HHS through BARDA for the advanced development
and procurement of NuThrax, our next generation anthrax vaccine candidate. The contract, as modified in March 2017, is valued at up to approximately $1.5 billion.
We recently submitted an application with the FDA for EUA pre-approval of NuThrax, and although
there can be no assurances, we currently anticipate that the FDA could authorize NuThrax for emergency use as early this year, triggering deliveries of NuThrax to the SNS for use in an emergency situation as early as this year. However, the FDA
does not have review deadlines with respect to such submissions and, therefore, the timing of any approval of our EUA pre-approval submission is uncertain. We cannot guarantee that the FDA will review our data in a timely manner, or that the FDA
will accept the data when reviewed. The FDA may decide that our data are insufficient for EUA pre-approval and require additional pre-clinical, clinical or other studies and refuse to approve our application. If we are unsuccessful in obtaining EUA
pre-approval for NuThrax and eventual FDA licensure in a timely manner or at all, we may not be able to realize the full potential value of the contract, which could have a material adverse effect on our future business, financial condition,
operating results and cash flows.
In addition, if priorities for the SNS change, funding to procure any future doses of NuThrax may be
limited or not available, and our future business, financial condition, operating results and cash flows could be materially harmed.
Our
USG procurement and development contracts require ongoing funding decisions by the
USG. Reduced or discontinued funding of
these contracts could cause our
business, financial condition, operating results and cash flows to suffer materially.
The USG is the principal customer for our PHT-focused MCMs and is the primary source of funds for
the development of our product candidates in our development pipeline, most notably our NuThrax product candidate. We anticipate that the USG will also be a principal customer for those MCMs that we successfully develop within our existing product
development pipeline, as well as those we acquire in the future. Additionally, a significant portion of our revenue comes from USG development contracts and grants. Over its lifetime, a USG procurement or development program may be implemented
through the award of many different individual contracts and subcontracts. The funding for such government programs is subject to Congressional appropriations, generally made on a fiscal year basis, even for programs designed to continue for
several years. For example, sales of BioThrax to be supplied under our procurement contract with the CDC are subject to the availability of funding, mostly from annual appropriations. These appropriations can be subject to political considerations
and stringent budgetary constraints.
Additionally, our government-funded development contracts typically give the USG the right,
exercisable in its sole discretion, to extend these contracts for successive option periods following a base period of performance. The value of the services to be performed during these option periods may constitute the majority of the total value
of the underlying contract. For example, the September 2016 contract award from BARDA for the development and delivery to the SNS of NuThrax for post-exposure prophylaxis of anthrax disease consists of a five-year base period of performance valued
at approximately $200 million. The contract award also includes options for the delivery of additional doses of NuThrax to the SNS and options for an additional clinical study and post-marketing commitments which if both were to be exercised in
full, would increase the total contract value to up to $1.5 billion. If levels of government expenditures and authorizations for public health countermeasure preparedness decrease or shift to programs in areas where we do not offer products or are
not developing product candidates, or if the USG otherwise declines to exercise its options under our existing contracts, our revenues would suffer, as well as our business, financial condition, operating results and cash flows.
There can be no assurance that we will be able to secure follow-on procurement
contracts with the USG upon the expiration of any of our current product procurement contracts.
The majority of our revenue is substantially dependent upon product procurement contracts with the
USG and foreign governments for our PHT products. Upon the expiration of a procurement contract, we may not be able to negotiate a follow-on procurement contract for the particular product for a similar product volume, period of performance,
pricing or other terms, or at all. The inability to secure a similar or increased procurement contract could materially affect our revenues and our business, financial condition, operating results and cash flows could be harmed. For example,
although there are remaining deliverables under the contract, the CDC procurement contract for ACAM2000 that we acquired in our acquisition of the ACAM2000 business from Sanofi expired on March 31, 2018. The BARDA procurement contract for
raxibacumab that we acquired in our acquisition of raxibacumab from Human Genome Sciences, Inc. and GlaxoSmithKline LLC, collectively referred to as GSK, will expire in November 2019. Our CDC procurement contract for BioThrax expires in 2021. We
intend to negotiate follow-on procurement contracts for each of our PHT products upon the expiration of a related procurement contract, including our procurement contract for ACAM2000, but there can be no assurance that we will be successful
obtaining any follow-on contracts. Even if we are successful in negotiating a follow-on procurement contract, it may be for a lower product volume, over a shorter period of performance or be on less favorable pricing or other terms. An inability to
secure follow-on procurement contracts for our products could materially and adversely affect our revenues, and our business, financial condition, operating results and cash flows could be harmed.
The government contracting process is typically a competitive bidding process
and involves unique risks and requirements.
Our business involves government contracts and grants, which may be awarded through competitive
bidding. Competitive bidding for government contracts presents many risks and requirements, including:
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the possibility that we may be ineligible to respond to a request for proposal issued by the government;
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the commitment of substantial time and attention of management and key employees to the preparation of bids and proposals for contracts that may not be
awarded to us;
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the need to accurately estimate the resources and cost structure that will be required to perform any contract that we might be awarded;
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the submission by third parties of protests to our responses to requests for proposal that could result in delays or withdrawals of those requests for
proposal; and
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in the event our competitors protest or challenge contract or grant awards made to us pursuant to competitive bidding, the potential that we may incur
expenses or delays, and that any such protest or challenge could result in the resubmission of bids based on modified specifications, or in the termination, reduction or modification of the awarded contract.
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The USG may choose not to award us future
contracts for either the development of our new product candidates or for the procurement of our existing products addressing PHTs and may instead award such contracts to our competitors. If we are unable to secure particular contracts, we may not
be able to operate in the market for products that are provided under those contracts. Additionally, if we are unable to consistently win new contract awards over an extended period, or if we fail to anticipate all of the costs or resources that we
will be required to secure and, if applicable, perform under such contract awards, our growth strategy and our business, financial condition and operating results and cash flows could be materially and adversely affected.
Laws and regulations affecting government contracts make it costlier and more
difficult for us to successfully conduct our business. Failure to comply with these laws could result in significant civil and criminal penalties and materially damage our reputation and relationship with the USG, which could have a material
adverse effect on our business, financial condition, operating results and cash flows.
As a manufacturer and supplier of MCMs to
the USG addressing PHTs, we must comply with numerous laws and regulations relating to the procurement, formation, administration and performance of government contracts. These laws and regulations govern how we transact business with our
government clients and, in some instances, impose additional costs and related obligations on our business operations. Among the most significant government contracting regulations that affect our business are:
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the FAR and agency-specific regulations supplemental to FAR, which comprehensively regulate the award, formation, administration and performance of government
contracts;
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the DFARs and agency-specific regulations supplemental to DFARs, which comprehensively regulate the award, formation, administration and performance of DoD
government contracts;
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the DOSAR, which regulates the relationship between a Department of State organization and a contractor or potential contractor;
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business ethics and public integrity obligations, which govern conflicts of interest and the hiring of former government employees, restrict the granting of
gratuities and funding of lobbying activities and incorporate other requirements such as the Anti-Kickback Act, the Procurement Integrity Act, the False Claims Act and the Foreign Corrupt Practices Act;
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export and import control laws and regulations, including but not limited to International Traffic in Arms Regulations; and
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laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of
certain products and technical data.
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USG agencies routinely audit and investigate government contractors for compliance with applicable
laws and standards. Even though we take significant precautions to identify, prevent and deter fraud, misconduct and non-compliance, we face the risk that our personnel or outside partners may engage in misconduct, fraud or improper activities. If
we are audited and such audit were to uncover improper or illegal activities, we could be subject to civil and criminal penalties, administrative sanctions, including suspension or debarment from government contracting, and suffer significant
reputational harm. Loss of our status as an eligible government contractor would have a material adverse effect on our business.
The
amount we are paid under our fixed price government procurement contracts is based on estimates we have made of the
time,
resources and expenses required for us to perform under those contracts. If our actual costs exceed our estimates, we may not be able to earn an adequate return or may incur a loss
under these contracts, which could harm our operating results and materially reduce our net income.
Our current procurement contracts with HHS and the DoD are fixed price contracts. We expect that
future procurement contracts we successfully secure with the USG would also be fixed price contracts. Under a fixed price contract, we are required to deliver our products at a fixed price regardless of the actual costs we incur. Estimating costs
that are related to performance in accordance with contract specifications is difficult, particularly where the period of performance is over several years. Our failure to anticipate technical problems, estimate costs accurately or control costs
during performance of a fixed price contract could reduce the profitability of such a contract or cause a loss, which could harm our operating results and materially reduce our net income.
Unfavorable
provisions in government contracts, some of which may be customary, may
subject our business to material limitations,
restrictions and uncertainties and may have a material adverse impact on our business, financial condition, operating results and cash flows.
Government contracts customarily contain provisions that give the USG substantial rights and
remedies, many of which are not typically found in commercial contracts, including provisions that allow the USG to:
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terminate existing contracts, in whole or in part, for any reason or no reason;
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unilaterally reduce or modify contracts or subcontracts, including by imposing equitable price adjustments;
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cancel multi-year contracts and related orders, if funds for contract performance for any subsequent year become unavailable;
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decline, in whole or in part, to exercise an option to purchase product under a procurement contract or to fund additional development under a development
contract;
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decline to renew a procurement contract;
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claim rights to facilities or to products, including intellectual property, developed under the contract;
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require repayment of contract funds spent on construction of facilities in the event of contract default;
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take actions that result in a longer development timeline than expected;
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direct the course of a development program in a manner not chosen by the government contractor;
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suspend or debar the contractor from doing business with the government or a specific government agency;
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pursue civil or criminal remedies under acts such as the False Claims Act and False Statements Act; and
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control or prohibit the export of products.
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Generally, government contracts contain provisions permitting unilateral termination or
modification, in whole or in part, at the USG’s convenience. Under general principles of government contracting law, if the USG terminates a contract for convenience, the government contractor may recover only its incurred or committed costs,
settlement expenses and profit on work completed prior to the termination. If the USG terminates a contract for default, the government contractor is entitled to recover costs incurred and associated profits on accepted items only and may be liable
for excess costs incurred by the government in procuring undelivered items from another source. All of our contracts, both development and procurement, with the USG, are terminable at the USG’s convenience with these potential consequences.
In addition, our USG contracts grant the USG the right to use technologies developed by us under the
government contract or the right to share data related to our technologies, for or on behalf of the USG. Under our USG contracts, we might not be able to prohibit third parties, including our competitors, from accessing such technology or data,
including intellectual property, in providing products and services to the USG.
The loss of any of our non-exclusive, sole-source or single source suppliers or
an increase in the price of inventory supplied to us could have an adverse effect on our business, financial condition and results of operations.
We purchase certain
supplies used in our manufacturing processes from non-exclusive, or single sources due to quality considerations, costs or constraints resulting from regulatory requirements, including key components for
NARCAN® Nasal Spray (
Naloxone API, along with the vial, stopper and device). Where a particular single-source supply relationship is terminated, we may not be able to establish additional or
replacement suppliers for certain components or materials quickly. This is largely due to the FDA approval system, which mandates validation of materials prior to use in our products, and the complex nature of manufacturing processes. In
addition, we may lose a sole-source supplier due to, among other things, the acquisition of such a supplier by a competitor (which may cause the supplier to stop selling its products to us) or the bankruptcy of such a supplier, which may cause
the supplier to cease operations. Any reduction or interruption by a sole-source supplier of the supply of materials or key components used in the manufacturing of our products or an increase in the price of those materials or components could
adversely affect our business, financial condition and results of operations.
Additionally, any
failure by us to forecast demand for, or our suppliers to maintain an adequate supply of, the raw material and finished product for producing
NARCAN® Nasal Spray
could result in an interruption in the supply of
NARCAN® Nasal Spray
and a decline in sales of the product.
REGULATORY AND COMPLIANCE RISKS
Our long-term success depends, in part, upon our ability to develop, receive
regulatory approval for and commercialize product candidates we develop or acquire and, if we are not successful, our business, financial condition, operating results and cash flows may suffer.
Our product candidates and the activities associated with their development, including testing,
manufacture, recordkeeping, storage and approval, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Except under limited circumstances related to
certain government sales, failure to obtain regulatory approval for a product candidate will prevent us from commercializing the product candidate.
In the United States, to obtain approval from the FDA to market any of our future biologic products,
we will be required to submit a BLA to the FDA. Ordinarily, the FDA requires a company to support a BLA with substantial evidence of the product candidate’s safety and efficacy in treating the targeted indication based on data derived from adequate
and well-controlled clinical trials, including Phase 3 safety and efficacy trials conducted in patients with the disease or condition being targeted.
However, NuThrax and many of our MCM product candidates, for example, are subject to a different
regulatory approval pathway under the FDA’s “Animal Rule.” The Animal Rule provides a regulatory pathway for drug and biologic products targeting indications for which human efficacy studies are not feasible or would be unethical. Instead,
efficacy must be demonstrated, in part, by utilizing animal models rather than testing in humans. We cannot guarantee that the FDA will permit us to proceed with licensure of NuThrax or any of our PHT MCM candidates under the Animal Rule. Even if
we are able to proceed pursuant to the Animal Rule, the FDA may decide that our data are insufficient to support approval and require additional preclinical, clinical or other studies, refuse to approve our products, or place restrictions on our
ability to commercialize those products. Furthermore, products approved under the Animal Rule are subject to certain additional post-marketing requirements. For example, to the extent feasible and ethical, manufacturers of products approved
pursuant to the Animal Rule must conduct post-marketing studies, such as field studies, to verify and describe the product candidate's clinical benefit and to assess its safety when used as indicated. We cannot guarantee that we will be able to
meet this regulatory requirement even if one or more of our product candidates are approved under the Animal Rule.
The process of obtaining these regulatory approvals is expensive, often takes many years if approval
is obtained at all, and can vary substantially based upon the type, complexity and novelty of the product candidate involved. Changes in the regulatory approval process during the development period, changes in or the enactment of additional
statutes or regulations, or changes in the regulatory review process may cause delays in the approval or rejection of an application.
The FDA has substantial discretion in the approval process and may refuse to accept any application
or may decide that our data are insufficient to support approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or
prevent regulatory approval of a product candidate.
We intend to transfer the manufacturing of raxibacumab, which we acquired from
GSK, to our bulk and fill finish facilities in Baltimore, Maryland, and this transfer of manufacturing operations requires FDA approval.
Under our arrangements with GSK for our acquisition of the raxibacumab product, we will continue to
purchase product from GSK to satisfy deliveries to the SNS under the current BARDA contract, which
expires in November 2019
. We intend to seek FDA approval to
transfer the manufacturing of raxibacumab to our Baltimore, Maryland bulk and fill finish manufacturing facilities and currently anticipate FDA approval of this technology transfer in 2020. Approval of this technology transfer may involve
complications or may not be secured on a timely basis or at all. Any delay in the approval of this anticipated technology transfer would delay our expected benefits and synergies from this product acquisition and could materially harm
our revenues and our business, financial condition, operating results and cash flows could be harmed
. Until approval of this technology transfer, we must rely on GSK to
supply product to us to satisfy deliveries to the SNS under the BARDA contract, and GSK may fail to meet delivery obligations, which could result in our inability to satisfy requirements under the BARDA contract.
Even after regulatory approval is received, if we fail to comply with regulatory
requirements, or if we experience unanticipated problems with our approved products, they could be subject to restrictions, penalties or withdrawal from the market.
Any vaccine, therapeutic product or medical device for which we obtain marketing approval, along
with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatory bodies. Our approved products
are subject to these requirements and ongoing review. These requirements include submissions of safety and other post-marketing information and reports, registration requirements, cGMP requirements relating to potency and stability, quality
control, quality assurance, restrictions on advertising and promotion, import and export restrictions and recordkeeping requirements. In addition, various state laws require that companies that manufacture and/or distribute drug products within the
state obtain and maintain a manufacturer or distributor license, as appropriate. Because of the breadth of these laws, it is possible that some of our business activities could be subject to challenge under one or more of such laws.
Our regulators enforce cGMP and other requirements through periodic unannounced inspections of
manufacturing facilities. The FDA is authorized to inspect domestic manufacturing facilities without prior notice at reasonable times and in a reasonable manner. Health Canada may conduct similar inspections of our facilities where Canadian
marketed products are produced, or related formulation and filling operations are conducted. The FDA, Health Canada, and other foreign regulatory agencies conduct periodic inspections of our facilities. Following several of these inspections,
regulatory authorities have issued inspectional observations, some of which were significant, but all of which are being, or have been, addressed through corrective actions. If, in connection with any future inspection, regulatory authorities find
that we are not in substantial compliance with all applicable requirements, or if they are not satisfied with the corrective actions we take, our regulators may undertake enforcement action against us, which may include:
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warning letters and other communications;
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product seizure or withdrawal of the product from the market;
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restrictions on the marketing or manufacturing of a product;
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suspension or withdrawal of regulatory approvals or refusal to approve pending applications or supplements to approved applications;
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fines or disgorgement of profits or revenue; and
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injunctions or the imposition of civil or criminal penalties.
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Similar action may be taken against us should we fail to comply with regulatory requirements, or
later discover previously unknown problems with our products or manufacturing processes. For instance, our products are tested regularly to determine if they satisfy potency and stability requirements for their required shelf lives. Even if
regulatory approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval. Regulatory approval may also contain requirements for costly
post-marketing testing and surveillance to monitor the safety or efficacy of the product. If we experience any of these post-approval events, our business, financial condition, operating results and cash flows could be materially and adversely
affected.
Additionally, companies may not promote drugs for “off-label” uses (
i.e.,
uses that are not described in the product’s labeling and that differ from those approved by the applicable regulatory agencies). A company that is found to have
improperly promoted off-label uses may be subject to significant liability, including civil and administrative remedies (such as entering into corporate integrity agreements with the USG), as well as criminal sanctions. If our employees or agents
engage in “off-label” marketing of any of our products, we could be subject to civil or criminal investigations, monetary and injunctive penalties, which could adversely impact our ability to conduct business in certain markets, negatively affect
our business, financial condition, operating results and cash flows, and damage our reputation.
One or more of our products could be subject to early generic competition.
One or more of our products is approved under the provisions of the FDCA, which renders it
susceptible to potential competition from generic manufacturers via the Hatch-Waxman Act and ANDA process. Generic manufacturers pursuing ANDA approval are not required to conduct costly and time-consuming clinical trials to establish the safety
and efficacy of their products; rather, they are permitted to rely on the innovator’s data regarding safety and efficacy. Additionally, generic drug companies generally do not expend significant sums on sales and marketing activities, instead
relying on physicians or payers to substitute the generic form of a drug for the branded form. Thus, generic manufacturers can sell their products at prices much lower than those charged by the innovative pharmaceutical or biotechnology companies
who have incurred substantial expenses associated with the research and development of the drug product and who must spend significant sums marketing a new drug.
The ANDA procedure includes provisions allowing generic manufacturers to challenge the innovator’s
patent protection by submitting “Paragraph IV” certifications to the FDA in which the generic manufacturer claims that the innovator’s patents are invalid, unenforceable, and/or will not be infringed by the manufacture, use, or sale of the generic
product. A patent owner who receives a Paragraph IV certification may choose to sue the generic applicant for patent infringement. If the patent owner files suit within 45 days of receiving notice from an ANDA filer, the patent owner is entitled
to receive a 30 month stay on the FDA’s ability to give final approval for the generic product that is the subject of the ANDA.
In recent years, generic manufacturers have used Paragraph IV certifications extensively to
challenge the applicability of patents listed in the FDA’s Approved Drug Products List with Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book, on a wide array of innovative therapeutic products. We expect this trend to
continue and to affect drug products with even relatively modest revenues.
Although we intend to vigorously enforce our intellectual property rights, there can be no assurance
that we will prevail in our enforcement or defense of our patent rights. Our existing patents could be invalidated, found unenforceable, or found not to cover a generic form of our product.
Failure
to obtain or maintain regulatory approval in international jurisdictions could prevent us
from marketing our products
abroad and could limit the growth of our business.
We intend to sell certain of our products, outside the United States and recently received market
authorization under the mutual recognition procedure to sell BioThrax, in France, Italy, the Netherlands, Poland, and the U.K. To market our products in foreign jurisdictions under normal circumstances, we may need to obtain separate regulatory
approvals and comply with numerous and varying requirements or use alternative “emergency use” or other exemptions from general approval and import requirements. Approval by the FDA in the United States or the mutual recognition procedure in the
European member states does not ensure approval by all foreign regulatory authorities. The approval procedures in foreign jurisdictions can vary widely and can involve additional clinical trials and data review beyond that required by the FDA or
under the mutual recognition procedure. We and our collaborators may not be able to obtain foreign regulatory approvals on a timely basis, if at all, and we may be unable to successfully commercialize our products internationally if no alternate
procurement pathway is identified for authorized government customers in a particular jurisdiction. We have limited experience in preparing, filing and prosecuting the applications necessary to gain foreign regulatory approvals and expect to rely
on third-party contract research organizations and consultants to assist us in this process.
Our international operations increase
our risk of exposure to potential claims of bribery and corruption.
As we continue to expand our commercialization activities
outside of the United States, we are subject to an increased risk of inadvertently conducting activities in a manner that violates the U.S. Foreign Corrupt Practices Act (the “FCPA”), the U.K. Bribery Act, Canada's Corruption of Foreign Public
Officials Act, or other similar foreign laws, which prohibit 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. 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 and 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 or similar foreign laws. If our business practices are found to be in violation of the FCPA or similar foreign laws despite our training and compliance efforts, we and our senior
management may be subject to significant civil and criminal penalties, potential debarment from public procurement and reputational damage, which could have a material adverse effect on our business, financial condition, operating results, cash
flows and growth prospects.
The expansion of our international operations increases our risk of exposure to
credit losses.
As we continue to expand our business activities with foreign governments in certain countries that
have experienced deterioration in credit and economic conditions or otherwise, our exposure to uncollectible accounts will rise. Global economic conditions and liquidity issues in certain countries have resulted and may continue to result in delays
in the collection of accounts receivables and may result in credit losses. Future governmental actions and customer specific actions may require us to re-evaluate the collectability of our accounts receivable and we may potentially incur credit
losses that may materially impact our operating results.
MANUFACTURING RISKS
Disruption at, damage to or destruction of our manufacturing facilities could
impede our ability to manufacture BioThrax or our other products, as well as deliver our contract development and manufacturing services, which would harm our business, financial condition, operating results and cash flows.
An interruption in our manufacturing operations could result in our inability to produce our PHT
countermeasures for delivery to satisfy the product demands of our customers in a timely manner, which would reduce our revenues and materially harm our business, financial condition, operating results and cash flows. A number of factors could
cause interruptions, including:
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equipment malfunctions or failures;
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technology malfunctions;
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work stoppages or slow-downs;
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protests, including by animal rights activists;
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damage to or destruction of the facility; and
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product contamination or tampering.
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Providers of PHT countermeasures could be subject to an increased risk of terrorist activities. The
USG has designated both our Lansing, Michigan and our Bayview bulk manufacturing facility in Baltimore, Maryland as facilities requiring additional security. Although we continually evaluate and update security measures, there can be no assurance
that any additional security measures would protect these facilities from terrorist efforts determined to disrupt our manufacturing activities.
The factors listed above could also cause disruptions at our other facilities, including our
manufacturing facilities in Winnipeg, Manitoba, Canada; other Baltimore, Maryland facilities in Camden; facilities in Canton, Massachusetts; Rockville, Maryland; and Hattiesburg, Mississippi. We do not have any redundant manufacturing facilities
for any of our marketed products. Accordingly, any disruption, damage, or destruction of these facilities could impede our ability to manufacture our marketed products, our product candidates and our ability to produce products for external
customers, result in losses and delays, including delay in the performance of our contractual obligations or delay in our clinical trials, any of which could be costly to us and materially harm our business, financial condition, operating results
and cash flows.
We may not be able to utilize the full manufacturing capacity of our
manufacturing facilities, which could impact our future revenues and materially harm our business, financial condition, operating results and cash flows.
Despite our ongoing efforts to optimize the utilization of our manufacturing infrastructure
(including bulk, fill/finish, support, aseptic filling, lyophilization, final packaging), we may not be able to realize full utilization, which could adversely affect our future revenues, financial condition, operating results and cash flows.
Problems may arise during the production of our marketed products and product
candidates due to the complexity of the processes involved in their manufacturing and shipment. Significant delays in product manufacturing or development could cause delays in revenues,
which would harm
our business, financial condition, operating results and cash flows.
BioThrax, raxibacumab, ACAM2000, Anthrasil, BAT, VIGIV, Vivotif, Vaxchora, and many of our current
product candidates, including NuThrax, are biologics. Manufacturing biologic products, especially in large quantities, is complex. The products must be made consistently and in compliance with a clearly defined manufacturing process. Problems
during manufacturing may arise for a variety of reasons, including problems with raw materials, equipment malfunction and failure to follow specific protocols and procedures. In addition, slight deviations anywhere in the manufacturing process,
including obtaining materials, maintaining master seed or cell banks and preventing genetic drift, seed or cell growth, fermentation, contamination including from particulates among other things, filtration, filling, labeling, packaging, storage
and shipping, potency and stability issues and other quality control testing, may result in lot failures or manufacturing shut-downs, delays in the release of lots, product recalls, spoilage or regulatory action. Such deviations may require us to
revise manufacturing processes or change manufacturers. Additionally, as our equipment ages, it will need to be replaced. Replacement of equipment has the potential to introduce variations in the manufacturing process that may result in lot
failures or manufacturing shut-downs, delay in the release of lots, product recalls, spoilage or regulatory action. Success rates can also vary dramatically at different stages of the manufacturing process, which can reduce yields and increase
costs. From time to time, we may experience deviations in the manufacturing process that may take significant time and resources to resolve and, if unresolved, may affect manufacturing output and could cause us to fail to satisfy customer orders or
contractual commitments, lead to a termination of one or more of our contracts, lead to delays in our clinical trials, result in litigation or regulatory action against us, including warning letters and other restrictions on the marketing or
manufacturing of a product, or cause the FDA to cease releasing product until the deviations are explained and corrected, any of which could be costly to us, damage our reputation and negatively impact our business.
We are contractually required to ship our biologic products at a prescribed temperature range and
variations from that temperature range could result in loss of product and could significantly and adversely impact our revenues, which would harm our business, financial condition, operating results and cash flows.
Manufacturing delays, lot failures, shipping deviations, spoilage or other loss during shipping
could cause us to fail to satisfy customer orders or contractual commitments, lead to a termination of one or more of our contracts, lead to delays in potential clinical trials or result in litigation or regulatory action against us, any of which
could be costly to us and otherwise harm our business.
We are required to obtain FDA approval prior to the release of each lot of
BioThrax and ACAM2000, which may not be obtained on a timely basis or at all.
FDA approval is required for the release of each lot of BioThrax and ACAM2000. We are not able to
sell any lots that fail to satisfy the release testing specifications. For example, we must provide the FDA with the results of certain tests, including potency tests, before lots are released for sale. Potency testing of each lot of BioThrax and
each lot of ACAM2000 is performed against qualified control lots that we maintain. We continually monitor the status of our reference lots and periodically produce and qualify a new reference lot to replace the existing reference lot. If we are not
able to produce and qualify a new reference lot or otherwise satisfy the FDA's requirements for release of BioThrax or ACAM2000, our ability to sell BioThrax or ACAM2000 would be impaired until such time as we become able to meet the FDA's
requirements, which would materially harm our business, financial condition, operating results and cash flows.
If
we are unable to obtain supplies for the manufacture of our products and product candidates in sufficient
quantities, at an
acceptable cost and in acceptable quality, our ability to manufacture or to develop and commercialize our products and product candidates
could be impaired, which could materially harm our revenues, lead to a termination of one or more of our contracts, lead to delays in clinical trials or otherwise materially harm our business.
We depend on certain single-source suppliers for key materials and services necessary for the
manufacture of BioThrax and our other products and product candidates. For example, we rely on a single-source supplier to provide us with Alhydrogel in sufficient quantities to meet our needs to manufacture BioThrax and NuThrax, and currently rely
on a single-source supplier to manufacture raxibacumab. We also rely on single-source suppliers for the sponge applicator device and the active ingredient used to make RSDL as well as the specialty plasma in our hyperimmune specialty plasma
products and certain ingredients for ACAM2000. A disruption in the availability of such materials or services from these suppliers or in the quality of the material provided by such suppliers could require us to qualify and validate alternative
suppliers. If we are unable to locate or establish alternative suppliers, our ability to manufacture our products and product candidates could be adversely affected and could harm our revenues, cause us to fail to satisfy contractual commitments,
lead to a termination of one or more of our contracts or lead to delays in our clinical trials, any of which could be costly to us and otherwise materially harm our business, financial condition, operating results and cash flows.
Our
operations, including our use of hazardous materials, chemicals, bacteria and viruses, require us to comply
with regulatory
requirements and expose us to significant potential liabilities.
Our operations involve the use of hazardous materials, including chemicals, bacteria and viruses,
and may produce dangerous waste products. Accordingly, we, along with the third parties that conduct clinical trials and manufacture our products and product candidates on our behalf, are subject to federal, state, local and foreign laws and
regulations that govern the use, manufacture, distribution, storage, handling, exposure, disposal and recordkeeping with respect to these materials. Under the Federal Select Agent Program, pursuant to the Public Health Security and Bioterrorism
Preparedness and Response Act, we are required to register with and be inspected by the CDC and the Animal and Plant Health Inspection Service if we have in our possession, or if we use or transfer, select biological agents or toxins that could
pose a threat to public health and safety, to animal or plant health or to animal or plant products. This legislation requires stringent safeguards and security measures for these select agents and toxins, including controlled access and the
screening of entities and personnel and establishes a comprehensive national database of registered entities. We are also subject to a variety of environmental and occupational health and safety laws. Compliance with current or future laws and
regulations can require significant costs and we could be subject to substantial fines and penalties in the event of noncompliance. In addition, the risk of contamination or injury from these materials cannot be completely eliminated. In such
event, we could be held liable for substantial civil damages or costs associated with the cleanup of hazardous materials. From time to time, we have been involved in remediation activities and may be so involved in the future. Any related cost or
liability might not be fully covered by insurance, could exceed our resources and could have a material adverse effect on our business, financial condition, operating results and cash flows. In addition to complying with environmental and
occupational health and safety laws, we must comply with special regulations relating to biosafety administered by the CDC, HHS, U.S. Department of Agriculture and the DoD, as well as regulatory authorities in Canada.
RISKS RELATED TO STRATEGIC ACQUISITIONS AND COLLABORATIONS
Our strategy of generating growth through acquisitions may not be successful.
Our business strategy includes growing our business through acquisition and in-licensing
transactions. We may not be successful in identifying, effectively evaluating, structuring, acquiring or in-licensing, and developing and commercializing additional products on favorable terms, or at all. Competition for attractive product
opportunities is intense and may require us to devote substantial resources, both managerial and financial, to an acquisition opportunity. A number of more established companies are also pursuing strategies to acquire or in-license products in the
biopharmaceutical field. These companies may have a competitive advantage over us due to their size, cash resources, cost of capital, effective tax rate and greater clinical development and commercialization capabilities.
Acquisition efforts can consume significant management attention and require substantial
expenditures, which could detract from our other programs. In addition, we may devote significant resources to potential acquisitions that are never completed. Even if we are successful in acquiring a company or product, it may not result in a
successfully developed or commercialized product or, even if an acquired product is commercialized, competing products or technologies could render a product noncompetitive, uneconomical or obsolete. Moreover, the cost of acquiring other companies
or in-licensing products could be substantial, and in order to acquire companies or new products, we may need to incur substantial debt or issue dilutive securities.
If we are unsuccessful in our efforts to acquire other companies or in-license and develop
additional products, or if we acquire or in-license unproductive assets, it could have a material adverse effect on the growth of our business, and we could be compelled to record significant impairment charges to write-down the carrying value of
our acquired intangible assets, which could materially harm our, business, financial condition, operating results and cash flows.
Our failure to successfully integrate acquired businesses and/or assets into our
operations could adversely affect our ability to realize the benefits of such acquisitions and, therefore, to grow our business.
We may not be able to integrate any acquired business successfully or operate any acquired business
profitably, including our recent acquisitions of Adapt and PaxVax. In addition, cost synergies, if achieved at all, may be less than we expect, or may take greater time to achieve than we anticipate.
Issues that could delay or prevent successful integration or cost synergies of an acquired business
or products include, among others:
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retaining existing customers and attracting new customers;
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retaining key employees;
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diversion of management attention and resources;
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conforming internal controls, policies and procedures, business cultures and compensation programs;
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consolidating corporate and administrative infrastructures;
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successfully executing technology transfers and obtaining required regulatory approvals;
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consolidating sales and marketing operations;
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identifying and eliminating redundant and underperforming operations and assets;
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assumption of known and unknown liabilities;
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coordinating geographically dispersed organizations; and
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managing tax costs or inefficiencies associated with integrating operations.
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If we are unable to successfully integrate pending and future acquisitions with our existing
businesses, or operate any acquired business profitably, we may not obtain the advantages that the acquisitions were intended to create, which may materially adversely affect the growth of our business, financial condition, operating results and
cash flows.
COMPETITIVE AND POLITICAL RISKS
We
face substantial competition, which may result in others developing or
commercializing products before or more successfully
than we do.
The development and commercialization of new biopharmaceutical and medical technology products is
highly competitive and subject to rapid technological advances. We may face future competition from other companies and governments, universities and other non-profit research organizations in respect to our products, any products that we acquire,
our current product candidates and any products we may seek to develop or commercialize in the future. Our competitors may develop products that are safer, more effective, more convenient or less costly than any products that we may develop or
market. Our competitors may have greater resources to devote to marketing or selling their products, adapt more quickly to new technologies, scientific advances or patient preferences and needs, initiate or withstand substantial price competition
more successfully than we can, or more effectively negotiate third-party licensing and collaborative arrangements.
There are a number of companies with products or product candidates addressing PHT preparedness that
are competing with us for both USG procurement and development resources. Many of our competitors have greater financial, technical and marketing resources than we do. Our competitors may receive patent protection that dominates, blocks or
adversely affects our products or product candidates.
Any reduction in demand for our products or reduction or loss of development funding for our
products or product candidates in favor of a competing product could lead to a loss of market share for our products and cause reduced revenues, margins and levels of profitability for us, which could adversely affect our business, financial
condition, operating results and cash flows.
Our Biologic Products may face risks of competition from biosimilar
manufacturers.
Competition for BioThrax, raxibacumab, ACAM2000, Anthrasil, BAT, VIGIV, Vivotif and Vaxchora
otherwise referred to as our “Biologic Products,” may be affected by follow-on biologics, or “biosimilars,” in the United States and other jurisdictions. Regulatory and legislative activity in the United States and other countries may make it
easier for generic drug manufacturers to manufacture and sell biological drugs similar or identical to our Biologic Products, which might affect the profitability or commercial viability of our Biologic Products. Under the Biologics Price
Competition and Innovation Act of 2010, the FDA cannot approve a biosimilar application until the 12-year exclusivity period for the innovator biologic has expired. Regulators in the European Union and in other foreign jurisdictions have already
approved biosimilars. The specific regulatory framework for this biosimilar approval path and the extent to which an approved biosimilar would be substituted for the innovator biologic are not yet clear and will depend on many factors. If a
biosimilar version of one of our Biologic Products were approved, it could have a material adverse effect on the sales and gross profits of the affected Biologic Product and could adversely affect our business, financial condition, operating
results and cash flows.
We expect our recently acquired NARCAN® Nasal Spray marketed product to face
future competition from other treatments.
Our marketed product
NARCAN®
Nasal Spray
faces substantial competition from other treatments, including injectable naloxone, auto-injectors and improvised nasal kits. In addition, other entrants may
seek approval to market generic versions of
NARCAN® Nasal Spray
before the underlying patents expire. For example, in 2016 Teva filed, and in 2018 Perrigo filed,
ANDAs which seek regulatory approval to market generic versions of
NARCAN® Nasal Spray
before the expiration of certain underlying patents.
Additionally,
in January 2019, the FDA released new proposed template Drug Facts Labels to assist sponsors of investigation naloxone nasal sprays and auto-injectors seeking approval from the FDA for over-the-counter naloxone products.
Any reduction in demand for
NARCAN® Nasal Spray
in favor of a competing product, or unsuccessful efforts to
defend underlying patents from infringement by generic entrants, could lead to a loss of market share and cause reduced revenues, margins and levels of profitability for us, which could adversely affect our business, financial condition,
operating results and cash flows.
Political or social factors may delay or impair our ability to market our
products and may require us to spend significant management time and financial resources to address these issues.
Products developed to counter the potential impact of PHTs, whether CBRNE or EID, are subject to
changing political and social environments. The political responses and social awareness of the risks of these threats on military personnel or civilians may vary over time. If the threat of terrorism were to decline, then the public perception of
the risk on public health and safety may be reduced. This perception, as well as political or social pressures, could delay or cause resistance to bringing our products in development to market or limit pricing or purchases of our products, any of
which could negatively affect our revenues and our business, financial condition, operating results and cash flows.
In addition, substantial delays or cancellations of purchases could result from protests or
challenges from third parties. Lawsuits brought against us by third parties or activists, even if not successful, could require us to spend significant management time and financial resources defending the related litigation and could potentially
damage the public's perception of us and our products. Any publicity campaigns or other negative publicity may adversely affect the degree of market acceptance of our PHT countermeasures and thereby limit the demand for our products, which would
adversely affect our business, financial condition, operating results and cash flows.
PRODUCT DEVELOPMENT AND COMMERCIALIZATION RISKS
Our
growth depends on our success in developing and commercializing our product candidates. If we are unable to
commercialize
these product candidates, or experience significant delays or unanticipated costs in
doing so, our business would be
materially and adversely affected.
We have invested significant effort and financial resources in the development of our vaccines,
therapeutics and medical device product candidates and the acquisition of additional product candidates. In addition to our product sales, our ability to generate revenue is dependent on a number of factors, including the success of our development
programs, the USG's interest in providing development funding for or procuring certain of our product candidates, and the commercial viability of our acquired or developed product candidates. The commercial success of our product candidates will
depend on many factors, including accomplishing the following in an economical manner:
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successful development, formulation and cGMP scale-up of manufacturing that meets FDA or other foreign regulatory requirements;
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successful program partnering;
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successful completion of clinical or non-clinical development, including toxicology studies and studies in approved animal models;
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receipt of marketing approvals from the FDA and equivalent foreign regulatory authorities;
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establishment of commercial manufacturing processes and product supply arrangements;
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training of a commercial sales force for the product, whether alone or in collaboration with others;
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successful registration and maintenance of relevant patent and/or other proprietary protection; and
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acceptance of the product by potential government and other customers.
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Under certain circumstances, we might sell unapproved MCMs to government
entities. While this is permissible in some cases, the extent to which we may be able to lawfully market and sell unapproved products in many jurisdictions may be unclear or ambiguous. Such sales could subject us to regulatory enforcement action,
product liability and reputational risk.
Under certain circumstances, MCMs may be procured by government entities prior to approval by the
FDA or other regulatory authorities. In the United States, Project BioShield permits the Secretary of HHS to contract to purchase MCMs for the SNS prior to FDA approval of the countermeasure in specified circumstances. Project BioShield and the
Pandemic and All-Hazards Preparedness Reauthorization Act of 2013 also allow the FDA Commissioner to authorize the emergency use of medical products that have not yet been approved by the FDA under an EUA pre-approval. Absent an applicable
exception, our MCM product candidates generally will have to be approved by the FDA or other regulatory authorities through traditional pathways before we can sell those products to governments. Additionally, the laws in certain jurisdictions
regarding the ability of government entities to purchase unapproved product candidates are ambiguous, and the permissibility of exporting unapproved products from the United States and importing them to foreign countries may be unclear.
Nevertheless, government bodies, such as U.S. federal entities other than HHS, state and local governments within the United States, and foreign governments, may seek to procure our MCM product candidates that are not yet approved. If so, we would
expect to assess the permissibility and liability implications of marketing our product candidates to such entities on a case-by-case basis, which presents certain challenges, both in the case of U.S. and foreign governments, and particularly under
emergency conditions. In addition, agencies or branches of one country’s government may take different positions regarding the permissibility of such sales than another country’s government or even other agencies or branches of the same government.
If we determine that we believe such activities are permissible, local enforcement authorities could disagree with our conclusion and take enforcement action against us.
In addition, the sale of unapproved products also could give rise to product liability claims for
which we may not be able to obtain indemnification or insurance coverage. For example, liability protections applicable to claims arising under U.S. law and resulting from the use of certain unlicensed products, such as a declaration issued under
the PREP Act may not cover claims arising under non-U.S. law.
Regardless of the permissibility and liability risks, in the event a user of one or more of our
products suffers an adverse event, we may be subject to additional reputational risk if the product has not been approved by the FDA or the corresponding regulatory authority of another country particularly because we will not have approved
labeling regarding the safety or efficacy of those products. In addition, legislatures and other governmental bodies that have oversight responsibility for procuring agencies may raise concerns after the fact even if procurement was permissible at
the time, which could result in negative publicity, reputational risk and harm to our business prospects.
Clinical trials of product candidates are expensive and time-consuming, and
their outcome is uncertain. We must invest substantial amounts of time and financial resources in these trials, which may not yield viable products. Failure to obtain regulatory approval for product candidates, particularly in the United States,
could materially and adversely affect our financial resources, which would adversely affect our business, financial condition, operating results and cash flows.
Before obtaining regulatory approval for the marketing of our product candidates, we and our
collaborative partners, where applicable, must conduct preclinical studies and clinical trials to establish proof of concept and demonstrate the safety and efficacy of our product candidates. Preclinical and clinical testing is expensive, difficult
to design and implement, can take many years to complete and is uncertain as to outcome. Success in preclinical testing and early clinical trials does not ensure that later clinical trials or animal efficacy studies will be successful, and interim
results of a clinical trial or animal efficacy study do not necessarily predict final results. An unexpected result in one or more of our clinical trials can occur at any stage of testing.
For certain of our product candidates addressing CBRNE threats, we expect to rely on the Animal Rule
to obtain regulatory approval. The Animal Rule permits, in certain limited circumstances, the use of animal efficacy studies, together with human clinical safety and immunogenicity trials, to support an application for marketing approval. For a
product approved under the Animal Rule, certain additional post-marketing requirements apply. For example, to the extent feasible and ethical, applicants must conduct post-marketing studies, such as field studies, to verify and describe the drug's
clinical benefit and to assess its safety when used as indicated. We have limited experience in the application of these rules to the product candidates that we are developing. It is possible that results from these animal efficacy studies may not
be predictive of the actual efficacy of our product candidates in humans.
Under Project BioShield, the Secretary of HHS can contract to purchase MCMs for the SNS prior to FDA
approval of the countermeasure in specified circumstances. Project BioShield also allows the FDA commissioner to authorize the emergency use of medical products that have not yet been approved by the FDA under an Emergency Use Authorization. If our
product candidates are not selected under this Project BioShield authority, they generally will have to be approved by the FDA through traditional regulatory mechanisms for distribution in the United States.
We may experience unforeseen events or issues during, or as a result of, preclinical testing,
clinical trials or animal efficacy studies. These issues and events, which could delay or prevent our ability to receive regulatory approval for a product candidate, include, among others:
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our inability to manufacture sufficient quantities of materials for use in trials;
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the unavailability or variability in the number and types of subjects for each study;
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safety issues or inconclusive or incomplete testing, trial or study results;
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lack of efficacy of product candidates during the trials;
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government or regulatory restrictions or delays; and
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greater than anticipated costs of trials.
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We
depend on third parties to conduct our clinical and non-clinical trials. If these third parties do not perform as contractually
required or as we expect, we may not be able to obtain regulatory approval for or
commercialize our product
candidates and, as a result, our business, financial condition, operating results and cash flows may suffer.
We do not have the ability to independently conduct the clinical and non-clinical trials required to
obtain regulatory approval for our product candidates. We depend on third parties, such as independent clinical investigators, contract research organizations and other third-party service providers to conduct the clinical and non-clinical trials
of our product candidates and expect to continue to do so. We rely heavily on these third parties for successful execution of our clinical and non-clinical trials, but do not exercise day-to-day control over their activities. Our reliance on these
service providers does not relieve us of our regulatory responsibilities, including ensuring that our trials are conducted in accordance with good clinical practice regulations and the plan and protocols contained in the relevant regulatory
application. In addition, these organizations may not complete these activities on our anticipated or desired timeframe. We also may experience unexpected cost increases that are beyond our control. Problems with the timeliness or quality of the
work of a contract research organization may lead us to seek to terminate the relationship and use an alternative service provider, which may prove difficult, costly and result in a delay of our trials. Any delay in or inability to complete our
trials could delay or prevent the development, approval and commercialization of our product candidates.
In certain cases, government entities and non-government organizations conduct studies of our
product candidates, and we may seek to rely on these studies in applying for marketing approval for certain of our product candidates. These government entities and non-government organizations have no obligation or commitment to us to conduct or
complete any of these studies or clinical trials and may choose to discontinue these development efforts at any time. Furthermore, government entities depend on annual Congressional appropriations to fund their development efforts, which may not be
approved.
If we are unable to obtain any necessary third-party services on acceptable terms or if these
service providers do not successfully carry out their contractual duties or meet expected deadlines, our efforts to obtain regulatory approvals for our product candidates may be delayed or prevented.
We may fail to select or capitalize on the most scientifically, clinically or
commercially promising or profitable product candidates.
We continue to evaluate our product development strategy and, as a result, may modify our strategy
in the future. In this regard, we may, from time to time, focus our product development efforts on different product candidates or may delay or halt the development of various product candidates. We may change or refocus our existing product
development, commercialization and manufacturing activities based on government funding decisions. This could require changes in our facilities and our personnel. Any product development changes that we implement may not be successful. In
particular, we may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable product candidates or choose candidates for which government development funds are not available. Our decisions to
allocate our research and development, management and financial resources toward particular product candidates or therapeutic areas may not lead to the development of viable commercial products and may divert resources from better business
opportunities. Similarly, our decisions to delay or terminate product development programs may also prove to be incorrect and could cause us to miss valuable opportunities.
INTELLECTUAL PROPERTY RISKS
If we are unable to protect our proprietary rights, our business, financial
condition, operating results, and cash flows could be materially harmed.
Our success will depend, in large part, on our ability to obtain and maintain protection in the
United States and other countries for the intellectual property incorporated into or covering our technology, products, and product candidates. Obtaining and maintaining protection of our intellectual property is very costly. The patentability of
technology in the biopharmaceutical field generally is highly uncertain and involves complex legal and scientific questions.
We may not be able to obtain additional issued patents relating to our technology or products. Even
if issued, patents may inadvertently lapse or be challenged, narrowed, invalidated, or circumvented, and such happenings could limit our ability to stop competitors from marketing similar products or limit the duration of patent protection we may
have for our products. In the past, we have abandoned the prosecution and/or maintenance of patent applications related to patent families in the ordinary course of business. In the future we may choose to abandon such prosecution and/or
maintenance in a similar fashion. If these patent rights are later determined to be valuable or necessary to our business, our competitive position may be adversely affected. Changes in patent laws or administrative patent office rules or changes
in interpretations of patent laws in the United States and in other countries may diminish the value of our intellectual property, narrow the scope of our patent protection, or result in costly defensive measures. In addition, some countries do not
grant patent claims directed to methods of treating humans and, in these countries, patent protection may not be available at all to protect our products or product candidates.
The cost of litigation to uphold the validity of patents to prevent or stop infringement or to
otherwise protect or enforce our proprietary rights could be substantial and, from time to time, our patents may be subjected to opposition proceedings or validity challenges. Some of our competitors may choose to or be better able to sustain the
costs of complex patent litigation. Intellectual property lawsuits are expensive and unpredictable and consume management's time and attention and other resources, even if the outcome is successful. In addition, there is a risk that a court could
decide that our patents are not valid, are unenforceable, or are not infringed by a competitor product. There is also a risk that, even if the validity of a patent is upheld, a court could refuse to stop the other party from using the invention(s),
including on the grounds that its activities do not infringe the patent. If any of these events occur, our business, financial condition, operating results and cash flows could be materially and adversely affected.
Our collaborators and licensors may not adequately protect our intellectual property rights. These
third parties may have the first right to maintain or defend intellectual property rights that we have an interest and, although we may have the right to assume the maintenance and defense of such intellectual property rights if these third parties
do not do so, our ability to maintain and defend such intellectual property rights may be compromised by the acts or omissions of these third parties. For example, we license from:
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Pfizer, Inc. an oligonucleotide adjuvant, CPG 7909, for use in our
NuThrax™ (anthrax vaccine adsorbed with CPG 7909 adjuvant) anthrax
vaccine product candidate.
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Opiant Pharmaceuticals, Inc. formulations of naloxone, for use in our
NARCAN®
Nasal Spray.
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Pharma Consult GmbH autoinjectors, including the autoinjector used for our Trobigard® (atropine sulfate,
obidoxime chloride) autoinjector.*
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*Trobigard® is not currently approved or cleared by the FDA or any similar
regulatory body and is only distributed to authorized government buyers for use outside the US. This product is not distributed in the US.
We also will rely on current and future trademarks to establish and maintain recognized brands. If we fail to acquire
and protect such trademarks, our ability to market and sell our products, and therefore our business, financial condition, operating results, and cash flows could be materially and adversely affected.
Third parties may choose to file patent infringement claims against us;
defending ourselves from such allegations could be costly, time-consuming, distracting to management, and could materially and adversely affect our business, financial condition, operating results, and cash flows.
Our development and commercialization activities, as well as any product candidates or products
resulting from these activities, may infringe or be claimed to infringe patents and other intellectual property rights of third parties for which we do not hold sufficient licenses or other rights. Additionally, third parties may be successful in
obtaining patent protection for technologies that cover development and commercialization activities in which we are already engaged. Third parties may own or control these patents and intellectual property rights in the United States and abroad.
These third parties could bring claims against us that could cause us to incur substantial expenses to defend against these claims and, if successful against us, could cause us to pay substantial damages. Further, if a patent infringement or other
similar suit is brought against us, we could be forced to stop or delay development, manufacturing, or sales of the product or product candidate that is the subject of the suit. Intellectual property litigation in the biopharmaceutical industry is
common, and we expect this trend to continue.
As a result of patent infringement or other similar claims, or to avoid potential claims, we may
choose or be required to seek a license from a third party and be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain a license, the rights may be
non-exclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations. If, as a result
of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms, if at all, or if an injunction is granted against us, these could materially harm our business, financial condition, operating results,
and cash flows.
If we fail to comply with our obligations in our intellectual property licenses
with third parties, we could lose license rights that are important to our business.
We are a party to a number of license agreements and expect to enter into additional license
agreements in the future. Our existing licenses impose, and we expect future licenses will impose, various diligence, milestone payment, royalty, insurance, and other obligations on us. If we fail to comply with these obligations, the licensor may
have the right to terminate the license and/or sue us for breach, which could cause us to not be able to market any product that is covered by the license and subject us to damages, which may be material.
If we are unable to protect the confidentiality of our proprietary information
and know-how, the value of our technology and products could be adversely affected.
We also rely upon unpatented proprietary technology, processes, and know-how, particularly as to our
proprietary manufacturing processes. Because we do not have patent protection for all of our current products, our only other intellectual property protection for products, other than trademarks, is confidentiality regarding our manufacturing
capability and specialty know-how, such as techniques, processes, and unique starting materials. However, these types of confidential information and trade secrets can be difficult to protect. We seek to protect this confidential information, in
part, through agreements with our employees, consultants, and third parties, as well as confidentiality policies and audits, although these may not be successful in protecting our trade secrets and confidential information.
These agreements may be breached, and we may not have adequate remedies for any such breach. In
addition, our trade secrets may otherwise become known, including through a potential cyber security breach, or may be independently developed by competitors. If we are unable to protect the confidentiality of our proprietary information and
know-how, or if others independently develop our proprietary information or processes, competitors may be able to use this information to develop products that compete with our products, which could materially and adversely impact our business.
FINANCIAL RISKS
Servicing our debt requires a significant amount of cash, and we may not have
sufficient cash flow from our operations to pay our substantial debt.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our
indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. We may also seek additional debt financing to support our ongoing activities or to provide additional
financial flexibility. Debt financing could have significant adverse consequences for our business, including:
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requiring us to dedicate a substantial portion of any cash flow from operations to payment on our debt, which would reduce the amounts available to fund other
corporate initiatives;
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increasing the amount of interest that we have to pay on debt with variable interest rates, if market rates of interest increase;
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subjecting us, as under our senior secured credit facilities, to restrictive covenants that may reduce our ability to take certain corporate actions, acquire
companies, products or technology, or obtain further debt financing;
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requiring us to pledge our assets as collateral, which could limit our ability to obtain additional debt financing;
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limiting our flexibility in planning for, or reacting to, general adverse economic and industry conditions; and
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placing us at a competitive disadvantage compared to our competitors that have less debt, better debt servicing options or stronger debt servicing capacity.
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We may not have sufficient funds or be able to obtain additional financing to pay the amounts due
under our indebtedness. In addition, failure to comply with the covenants under our debt instruments could result in an event of default under those instruments. An event of default could result in the acceleration of amounts due under a particular
debt instrument and a cross default and acceleration under other debt instruments, and we may not have sufficient funds or be able to obtain additional financing to make any accelerated payments. Under these circumstances, our lenders could seek to
enforce security interests in our assets securing our indebtedness.
Our
current indebtedness and any additional debt financing may restrict the operation of our business and limit the cash available for investment in our
business operations.
In connection with the acquisition of Adapt, we entered into an amendment and restatement of our
2017 credit agreement to provide for new five-year syndicated senior secured credit facilities that replaced our existing facility. The senior secured credit facilities include a $450 million Term Loan and the ability to borrow up to a $600
million revolver, of which we have drawn down $450 million and $318 million, respectively. We may also seek additional debt financing to support our ongoing activities or to provide additional financial flexibility. Debt financing could have
significant adverse consequences for our business, including:
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the level, timing and cost of product sales and contract manufacturing services;
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the extent to which we acquire or invest in and integrate companies, businesses, products or technologies;
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the acquisition of new facilities and capital improvements to new or existing facilities;
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the payment obligations under our indebtedness;
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the scope, progress, results and costs of our development activities;
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our ability to obtain funding from collaborative partners, government entities and non-governmental organizations for our development programs;
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the extent to which we repurchase additional common stock under our authorized share repurchase program; and
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the costs of commercialization activities, including product marketing, sales and distribution.
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We may not have sufficient funds or be able to obtain additional financing to pay the amounts due
under our indebtedness. In addition, failure to comply with the covenants under our debt instruments could result in an event of default under those instruments. An event of default could result in the acceleration of amounts due under a particular
debt instrument and a cross default and acceleration under other debt instruments, and we may not have sufficient funds or be able to obtain additional financing to make any accelerated payments. Under these circumstances, our lenders could seek to
enforce security interests in our assets securing our indebtedness.
We may require significant additional funding and may be unable to raise capital
when needed or on acceptable terms, which would harm our ability to grow our business, and our results of operations and financial condition.
If our capital resources are insufficient to meet our future capital requirements, we will need to
finance our cash needs through public or private equity or debt offerings, bank loans or collaboration and licensing arrangements. In August 2018, we filed an automatic shelf registration statement, which immediately became effective under SEC
rules. For so long as we continue to satisfy the requirements to be deemed a “well-known seasoned issuer” under SEC rules (which include, among other things, the timely filing of our reports under the Exchange Act and maintenance of at least $700
million of public float or issuing an aggregate amount of $1 billion of non-convertible securities, other than common stock, in registered offerings for cash during the past three years), this shelf registration statement, effective until August 8,
2021, allows us to issue an unrestricted amount of equity, debt and certain other types of securities through one or more future primary or secondary offerings. If we do not file a new shelf registration statement prior to August 8, 2021, the
existing shelf registration statement will expire, and we will not be able to publicly raise capital or issue debt until a new registration statement is filed and becomes effective. There can be no assurance that we will be eligible to file an
automatically effective shelf registration statement at a future date when we may need to raise funds publicly.
If we raise funds by issuing equity securities, our stockholders may experience dilution. Public or
bank debt financing, if available, may involve agreements that include covenants, like those contained in our senior secured credit facilities, limiting or restricting our ability to take specific actions, such as incurring additional debt, making
capital expenditures, pursuing acquisition opportunities or declaring dividends. If we raise funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies or product
candidates or grant licenses on terms that may not be favorable to us. We are not restricted under the terms of the indenture governing our 2.875% Convertible Senior Notes due 2021 (“Senior Convertible Notes”) from incurring additional debt,
securing existing or future debt, recapitalizing our debt or taking a number of other actions that could have the effect of diminishing our ability to make payments on our indebtedness. However, our senior secured credit facilities restrict our
ability to incur additional indebtedness, including secured indebtedness.
Economic conditions may make it difficult to obtain financing on attractive terms, or at all. If
financing is unavailable or lost, our business, operating results, financial condition and cash flows would be adversely affected, and we could be forced to delay, reduce the scope of or eliminate many of our planned activities.
We may not maintain profitability in future periods or on a consistent basis.
Although we have been profitable for each of the last five fiscal years, we have not been profitable
for every quarter during that time. For example, we incurred a net loss in the second quarter of 2016 and in each of the first quarters of 2018, 2015, 2014 and 2013. Our profitability has been substantially dependent on BioThrax product sales,
which historically have fluctuated significantly from quarter to quarter, and we expect that they will continue to fluctuate significantly based primarily on the timing of our fulfillment of orders from the USG. We may not be able to achieve
consistent profitability on a quarterly basis or sustain or increase profitability on an annual basis.
THE SPIN-OFF OF OUR BIOSCIENCES BUSINESS
If the spin-off distribution on August 1, 2016 of all of the outstanding shares
of Aptevo Therapeutics Inc. common stock to our stockholders does not qualify as a tax-free transaction for U.S. federal income tax purposes, we and our stockholders could be subject to significant tax liabilities.
It was our intention that our distribution on August 1, 2016 of all of the outstanding shares of
Aptevo common stock to our stockholders (the “Distribution”), together with certain related transactions, qualify as a tax-free transaction described under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “Code”).
In anticipation of the Distribution, we received a favorable private letter ruling from the Internal Revenue Service (the “IRS”), regarding certain U.S. federal income tax matters relating to the Distribution and certain related transactions and an
opinion of counsel substantially to the effect that, for U.S. federal income tax purposes, the Distribution, together with certain related transactions, will qualify as a transaction described under Sections 355 and 368(a)(1)(D) of the Code. A
“private letter ruling,” is a written statement issued to a taxpayer by an Associate Chief Counsel Office of the Office of Chief Counsel that interprets and applies the tax laws to a specific set of facts. Our private letter ruling is based on
certain facts and representations submitted by us to the IRS and the opinion of counsel was based upon and relied on, among other things, the IRS private letter ruling and certain facts and assumptions, as well as certain representations and
covenants of us and Aptevo contained in a tax matters agreement and certain representations contained in representation letters provided by us, Aptevo and certain stockholders to such counsel, including representations and covenants relating to the
past and future conduct of us, Aptevo and such stockholders. If any of these facts, assumptions, representations, or covenants are, or become, inaccurate or incomplete, the IRS private letter ruling and/or the opinion of counsel may be invalid and
the conclusions reached therein could be jeopardized and, as a result, the Distribution, together with certain related transactions, could fail to qualify as a tax-free transaction described under Sections 355 and 368(a)(1)(D) of the Code for U.S.
federal income tax purposes.
In addition, the IRS private letter ruling only addresses certain limited matters relevant to
determining whether the Distribution, together with certain related transactions, qualifies as a transaction described under Sections 355 and 368(a)(1)(D) of the Code, and the opinion of counsel only represents the judgment of such counsel, which
is not binding on the IRS or any court. Accordingly, notwithstanding the IRS private letter ruling and the opinion of counsel, there can be no assurance that the IRS will not assert that the Distribution, together with certain related transactions,
should be treated as a taxable transaction for U.S. federal income tax purposes or that a court would not sustain such a challenge.
If the Distribution, together with certain related transactions, fails to qualify as a tax-free
transaction described under Sections 355 and 368(a)(1)(D) of the Code, for U.S. federal income tax purposes, in general, (i) we would recognize taxable gain on the Distribution equal to the amount by which the fair market value of the Aptevo shares
distributed to our stockholders exceeded our tax basis in the Aptevo shares and (ii) each of our stockholders who received Aptevo shares in the Distribution would be treated as receiving a taxable distribution equal to the fair market value of the
Aptevo shares received by such stockholder.
Under the tax matters agreement that we entered into with Aptevo in connection with the spin-off,
Aptevo may be required to indemnify us against any tax liabilities and related expenses resulting from the failure of the Distribution, together with certain related transactions, to qualify as a transaction described under Sections 355 and
368(a)(1)(D) of the Code to the extent that the failure to so qualify is attributable to actions, events or transactions relating to Aptevo’s stock, assets or business, or a breach of the relevant representations or covenants made by Aptevo in the
tax matters agreement or the IRS private letter ruling or in the representation letters provided to our counsel for purposes of their opinion. Any such indemnity obligations could be material, and there can be no assurance that Aptevo will be able
to pay any such indemnification.
To preserve the tax-free treatment of the Distribution, together with certain related transactions,
and in addition to Aptevo's indemnity obligation, the tax matters agreement, which expired on August 2, 2018, restricted Aptevo from taking any action that prevents such transactions from being tax-free for U.S. federal income tax purposes. In
particular, for the two-year period following the Distribution, Aptevo was restricted from taking certain actions (including restrictions on share issuances, business combinations, sales of assets, amendments to organizational documents and similar
transactions) that could cause the Distribution, together with certain related transactions, to fail to qualify as a tax-free transaction for U.S. federal income tax purposes. There can be no assurance that Aptevo adequately complied with these
restrictions. If a finding is made by the IRS through a tax audit that Aptevo failed to satisfy its obligations, this could have a substantial impact on our tax obligations, consolidated financial condition and cash flows.
In connection with Aptevo’s separation from us, Aptevo agreed to indemnify us
for certain matters. This indemnity may not be sufficient to hold us harmless from the full amount of losses that we may incur in connection with these matters, and Aptevo may not be able to satisfy its indemnification obligations to us.
Pursuant to the agreements that we entered into with Aptevo at the time of Aptevo’s separation from
us, Aptevo agreed to indemnify us for certain matters, including liabilities related to Aptevo’s business or for which Aptevo otherwise agreed to be responsible in the separation. This indemnity from Aptevo may not be sufficient to protect us
against the full amount of losses that we may incur in connection with these matters, including if third parties assert claims against us for liabilities that were allocated to Aptevo in the separation. Moreover, Aptevo may dispute its
indemnification obligation to us or have insufficient resources to satisfy its indemnification obligations to us. Even if we ultimately succeed in recovering from Aptevo the amount of any losses that we incur in connection with these matters, the
recovery could take a substantial amount of time and we may be required to bear these losses ourselves while we seek recovery. Each of these risks could negatively affect our business, operating results, financial condition and cash flows.
OTHER BUSINESS RISKS
We
face product liability exposure, which could cause us to incur substantial liabilities and
negatively affect our business,
financial condition and results of operations.
We face an inherent risk of product liability exposure related to the sale of our products, any
other products that we successfully acquire or develop and the testing of our product candidates in clinical trials.
One measure of protection against such lawsuits is coverage under the PREP Act, which was signed
into law in December 2005. The PREP Act creates liability protection for manufacturers of biodefense countermeasures when the Secretary of HHS issues a declaration for their manufacture, administration or use. A PREP Act declaration is meant to
provide liability protection from all claims under federal or state law for loss arising out of the administration or use of a covered countermeasure under a government contract. The Secretary of HHS has issued PREP Act declarations identifying
certain of our products, namely BioThrax, ACAM2000, raxibacumab, Anthrasil, BAT and VIGIV, as covered countermeasures. These declarations expire in 2022. Manufacturers are not entitled to protection under the PREP Act in cases of willful
misconduct. We cannot predict whether the Secretary of HHS will renew the declarations when they expire, whether Congress will fund the relevant PREP Act compensation programs, or whether the necessary prerequisites for immunity would be triggered
with respect to our products or product candidates.
Additionally, certain of our products, namely BioThrax and RSDL, are certified anti-terrorism
products covered under the protections of the SAFETY Act. The SAFETY Act creates product liability limitations for qualifying anti-terrorism technologies for claims arising from or related to an act of terrorism. Although we are entitled to the
benefits of the SAFETY Act for BioThrax and RSDL, the SAFETY Act may not provide adequate protection from claims made against us.
If we cannot successfully defend ourselves against future claims that our products or product
candidates caused injuries and if we are not entitled to indemnity by the USG does not honor its obligations to us under the PREP Act or SAFETY Act, or if the indemnification under the PREP Act and SAFETY Act is not adequate to cover all claims, we
may incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:
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decreased demand or withdrawal of a product;
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injury to our reputation;
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withdrawal of clinical trial participants;
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costs to defend the related litigation;
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substantial monetary awards to trial participants or patients;
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an inability to commercialize products that we may develop.
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The amount of insurance
that we currently hold may not be adequate to cover all liabilities that may occur. Further product liability insurance may be difficult and expensive to obtain. We may not be able to maintain insurance coverage at a reasonable cost and we may
not be able to obtain insurance coverage that will be adequate to satisfy all potential liabilities. For example, we may not have sufficient insurance against potential liabilities associated with a possible large-scale deployment of BioThrax as
a countermeasure to a bioterrorism threat. We rely on PREP Act protection for BioThrax, raxibacumab, ACAM2000, Anthrasil, BAT and VIGIV, and SAFETY Act protection for BioThrax and RSDL in addition to our insurance coverage to help mitigate our
product liability exposure for these products. Additionally, potential product liability claims related to our commercial products, including
NARCAN® Nasal Spray
,
Vivotif and Vaxchora, may be made by patients, health care providers or others who sell or consume these products. Such claims may be made even with respect to those products that possess regulatory approval for commercial sale. Claims or losses
in excess of our product liability insurance coverage could have a material adverse effect on our business, financial condition, operating results and cash flows.
The accuracy of our financial reporting depends on the effectiveness of our
internal control over financial reporting. A material weakness in our internal control over financial reporting could have an adverse effect on our business and financial results and our ability to meet our reporting obligations could be negatively
affected, each of which could negatively affect the trading price of our common stock.
Internal control over financial reporting can provide only reasonable assurance with respect to the
preparation and fair presentation of financial statements and may not prevent or detect misstatements. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Failure to maintain effective internal control over financial reporting, or lapses in disclosure
controls and procedures, could impact our financial information and disclosures, require significant resources to remediate, and expose us to legal or regulatory proceedings.
We regularly review and update our internal controls and disclosure controls and procedures. In
addition, we are required under the Sarbanes-Oxley Act of 2002 to report annually on our internal control over financial reporting. Our system of internal controls, however well-designed, can provide only reasonable, not absolute, assurances that
the objectives of the system are met. If we, or our independent registered public accounting firm, determine that our internal controls over financial reporting, or the internal controls of other companies we may acquire, are not effective, or we
discover areas that need improvement in the future, these shortcomings could have an adverse effect on our business and financial reporting, and the trading price of our common stock could be negatively affected.
We rely significantly on information technology systems and any failure,
inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm our ability to operate our business effectively or result in data leakage of proprietary and confidential business and employee
information.
Our business is increasingly dependent on critical, complex and interdependent information
technology systems, including Internet-based systems, to support business processes as well as internal and external communications. The size and complexity of our computer systems make them potentially vulnerable to interruption, invasion,
computer viruses, destruction, malicious intrusion and additional related disruptions, which may result in the impairment of production and key business processes.
In addition, our systems are potentially vulnerable to data security breaches—whether by employee
error, malfeasance or other disruption—which may expose sensitive data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property or could lead to the public exposure of personal
information, including sensitive personal information, of our employees, clinical trial patients, customers and others.
A significant business disruption or a breach in security resulting in misappropriation, theft or
sabotage with respect to our proprietary and confidential business and employee information could result in financial, legal, business or reputational harm to us, any of which could materially and adversely affect our business, financial condition
and operating results.
Our
success is dependent on our continued ability to attract, motivate and retain key personnel, and any failure to attract or retain key personnel may
negatively affect our business.
Because of the specialized scientific nature of our business, our ability to develop products and to
compete with our current and future competitors largely depends upon our ability to attract, retain and motivate highly qualified managerial and key scientific and technical personnel. If we are unable to retain the services of one or more of the
principal members of senior management or other key employees, our ability to implement our business strategy could be materially harmed. We face intense competition for qualified employees from biopharmaceutical companies, research organizations
and academic institutions. Attracting, retaining or replacing these personnel on acceptable terms may be difficult and time-consuming given the high demand in our industry for similar personnel. We believe part of being able to attract, motivate
and retain personnel is our ability to offer a competitive compensation package, including equity incentive awards. If we cannot offer a competitive compensation package to attract and retain the qualified personnel necessary for the continued
development of our business, we may not be able to maintain our operations or grow our business.
RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK
Fuad
El-Hibri, executive chairman of our Board of Directors, has
significant influence over us through his substantial
beneficial ownership of our common stock, including an ability to influence the election of
the members of our Board of
Directors, or delay or prevent a change of
control of us.
Mr. El-Hibri has the ability to significantly influence the election of the members of our Board of
Directors due to his substantial beneficial ownership of our common stock. As of February 15, 2019, Mr. El-Hibri was the beneficial owner of approximately 11% of our outstanding common stock. As a result, Mr. El-Hibri could exercise substantial
influence over all corporate actions requiring board or stockholder approval, including a change of control, or any amendment of our certificate of incorporation or by-laws. The control by Mr. El-Hibri may prevent other stockholders from
influencing significant corporate decisions. In addition, Mr. El-Hibri's significant beneficial ownership of our shares could present the potential for a conflict of interest.
Provisions in our certificate of incorporation and by-laws and under Delaware
law may discourage acquisition proposals, delay a change in control or prevent transactions that stockholders may consider favorable.
Provisions in our certificate of incorporation and by-laws may discourage, delay or prevent a
merger, acquisition or other changes in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions may also prevent or frustrate attempts by
our stockholders to replace or remove our management.
These provisions include:
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the classification of our directors;
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limitations on changing the number of directors then in office;
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limitations on the removal of directors;
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limitations on filling vacancies on the board;
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advance notice requirements for stockholder nominations of candidates for election to the Board of Directors and other proposals;
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the inability of stockholders to act by written consent;
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the inability of stockholders to call special meetings; and
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the ability of our Board of Directors to designate the terms of and issue a new series of preferred stock without stockholder approval.
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The affirmative vote of holders of our capital stock representing at least 75% of the voting power
of all outstanding stock entitled to vote is required to amend or repeal the above provisions of our certificate of incorporation. The affirmative vote of either a majority of the directors present at a meeting of our Board of Directors or holders
of our capital stock representing at least 75% of the voting power of all outstanding stock entitled to vote is required to amend or repeal our by-laws.
In addition, we are subject to Section 203 of the Delaware General Corporation Law (“Section 203”).
In general and subject to certain exceptions, Section 203 prohibits a publicly-held corporation from engaging in a business combination with an interested stockholder, generally a person which, together with its affiliates, owns or within the last
three years has owned 15% or more of the corporation's voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed
manner. Accordingly, Section 203 may discourage, delay or prevent a change in control of us.
Our
Board of Directors may implement a new stockholder rights plan without stockholder approval, which could prevent a change in control of us in instances in
which some stockholders may believe a change in control is in their best interests.
Our Board of Directors may implement a stockholder rights plan without stockholder approval. We
previously implemented a stockholder rights plan, which expired on November 14, 2016. Under our prior stockholder rights plan, we issued to each of our stockholders one preferred stock purchase right for each outstanding share of our common stock.
Each right, when exercisable, would have entitled its holder to purchase from us a unit consisting of one one-thousandth of a share of series A junior participating preferred stock at a purchase price of $150 in cash, subject to adjustments. Our
stockholder rights plan was intended to protect stockholders in the event of an unfair or coercive offer to acquire us and to provide our Board of Directors with adequate time to evaluate unsolicited offers.
Our Board of Directors may implement a new stockholder rights plan, which may have anti-takeover
effects, potentially preventing a change in control of us in instances in which some stockholders may believe a change in control is in their best interests. This could cause substantial dilution to a person or group that attempts to acquire us on
terms that our Board of Directors does not believe are in our best interests or those of our stockholders and may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, including transactions in which
stockholders might otherwise receive a premium for their shares.
Our
stock price is volatile and purchasers of our common stock could incur
substantial losses.
Our stock price has been, and is likely to continue to be, volatile. The market price of our common
stock could fluctuate significantly for many reasons, including in response to the risks described in this “Risk Factors” section, or for reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or negative
announcements by our customers, competitors or suppliers regarding their own performance, as well as industry conditions and general financial, economic and political instability. From November 15, 2006, when our common stock first began trading on
the New York Stock Exchange, through February 15, 2019, our common stock has traded as high as $73.89 per share and as low as $4.40 per share. The stock market in general as well as the market for biopharmaceutical companies in particular has
experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price of our common stock may be influenced by many factors, including, among others:
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contracts, decisions and procurement policies by the USG affecting BioThrax and our other products and product candidates;
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the success of competitive products or technologies;
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results of clinical and non-clinical trials of our product candidates;
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announcements of acquisitions, financings or other transactions by us;
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litigation or legal proceedings;
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public concern as to the safety of our products;
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termination or delay of a development program;
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the recruitment or departure of key personnel;
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variations in our product revenue and profitability; and
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the other factors described in this “Risk Factors” section.
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Because we currently do not pay dividends, investors will benefit from an
investment in our common stock only if it appreciates in value.
We currently do not pay dividends on our common stock. Our senior secured credit facilities limit
and any future debt agreements that we enter into may limit our ability to pay dividends. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for our stockholders for the foreseeable future.
A
significant portion of our shares may be sold into the market at any time. This could cause the market price of our common stock to drop
significantly.
Sales of a substantial number of shares of our common stock in the public market could occur at any
time. These sales or the perception in the market that the holders of a large number of shares intend to sell shares could reduce the market price of our common stock. Moreover, holders of an aggregate of approximately 6 million shares of our
common stock outstanding as of February 15, 2019, have the right to require us to register these shares of common stock under specified circumstances.