<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 0-28494
MILLENNIUM PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3177038
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
238 MAIN STREET, CAMBRIDGE, MA 02142
(Address of principal executive offices, including zip code)
617-679-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock, $.001 par value per share, outstanding as of
May 6, 1998 was 29,501,671.
<PAGE> 2
MILLENNIUM PHARMACEUTICALS, INC.
REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
TABLE OF CONTENTS
-----------------
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
Condensed Consolidated Balance Sheets 3
March 31, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations
and Comprehensive Loss for the three months
ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II - OTHER INFORMATION 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 10
EXHIBIT INDEX 11
2
<PAGE> 3
Millennium Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(in thousands, except par value and shares) 1998 1997
--------- -----------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 50,295 $ 69,236
Marketable securities 35,965 27,321
Due from strategic partners 4,146 778
Prepaid expenses and other current assets 4,988 4,595
------------------------
Total current assets 95,394 101,930
Property and equipment, net 31,488 29,030
Restricted cash and other assets 7,536 5,140
Intangible assets, net 7,737 8,413
------------------------
Total assets $ 142,155 $144,513
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,073 $ 3,165
Accrued expenses 3,966 4,294
Deferred revenue 3,171 3,053
Current portion of capital lease obligations 6,899 5,847
------------------------
Total current liabilities 20,109 16,359
Capital lease obligations, net of current portion 19,175 19,809
Minority interest 13,845 16,590
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.001 par value; 5,000,000
shares authorized; none issued -- --
Common Stock, $0.001 par value: 100,000,000
shares authorized; 29,477,685 shares in 1998 and
29,169,398 shares in 1997 issued and outstanding 29 29
Additional paid-in capital 194,749 193,254
Deferred compensation (1,771) (1,992)
Notes receivable from officers (147) (166)
Unrealized loss on marketable securities (42) (4)
Accumulated deficit (103,792) (99,366)
------------------------
Total stockholders' equity 89,026 91,755
------------------------
Total liabilities and stockholders' equity $ 142,155 $144,513
========================
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
3
<PAGE> 4
Millennium Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 1997
(in thousands, except per share and share data)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Revenue under strategic alliances $ 21,043 $ 10,956
Costs and expenses:
Research and development 22,429 11,600
General and administrative 5,911 3,350
Acquired in-process research and development -- 83,800
Amortization of intangible assets 675 370
-----------------------------
29,015 99,120
-----------------------------
Loss from operations (7,972) (88,164)
Interest income 1,447 1,078
Interest expense (645) (333)
Minority interest 2,744 --
-----------------------------
Net loss $ (4,426) $ (87,419)
Unrealized loss on marketable securities (38) (88)
-----------------------------
Comprehensive loss $ (4,464) $ (87,507)
=============================
Basic and diluted net loss per share $ (0.15) $ (3.29)
Shares used in computing basic and diluted
net loss per share 29,262,189 26,605,287
=============================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
Millennium Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 1997
(in thousands)
- -----------------------------------------------------------------------------------
<S> <C> <C>
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $ (6,748) $ 1,616
INVESTING ACTIVITIES
Purchase of property and equipment (3,512) (4,536)
Sale of marketable securities 15,395 19,367
Purchase of marketable securities (24,039) (19,518)
-----------------------
Net cash used in investing activities (12,156) (4,687)
FINANCING ACTIVITIES
Acquisition of ChemGenics, net of cash acquired -- 7,087
Proceeds from sale of Common Stock 1,498 51
Repurchase of Common Stock (3) (1)
Payments on long-term debt -- (400)
Payments on capital lease obligations (1,532) (696)
-----------------------
Net cash (used in) provided by financing activities (37) 6,041
-----------------------
(Decrease) increase in cash and cash equivalents (18,941) 2,970
Cash and cash equivalents at beginning of period 69,236 10,088
-----------------------
Cash and cash equivalents at end of period $ 50,295 $ 13,058
=======================
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital leases $ 1,949 --
=======================
Issuance of common stock for acquisition of ChemGenics -- $102,849
=======================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
MILLENNIUM PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(unaudited)
1 - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Interim results for the three-month period ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on 10-K
for the fiscal year ended December 31, 1997 which was filed with the Securities
Exchange Commission on March 26, 1998.
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net loss or shareholders' equity.
Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders' equity to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of Statement 130.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," "intends,"
and similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated by such forward-looking
statements. These factors are set forth under the caption "Factors That May
Affect Results" in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, which "Factors That May Affect Results" discussion is
expressly incorporated by reference herein.
OVERVIEW
Millennium Pharmaceuticals, Inc. ("Millennium" or the "Company"), was
incorporated in January 1993 and is applying a comprehensive platform of
genomics and related technologies to pursue multiple opportunities in the
discovery and development of life-science-based products and services. Most of
the Company's activities currently are directed at the field of human
healthcare. As used herein, the terms "the Company" and '"Millennium" include
the Company's subsidiaries where appropriate in the context.
RESULTS OF OPERATIONS
QUARTERS ENDED MARCH 31, 1998 AND MARCH 31, 1997
Revenue under strategic alliances increased to $21.0 million for the
three months ended March 31, 1998 (the "1998 Quarterly Period") from $11.0
million for the three months ended March 31, 1997 (the "1997 Quarterly Period").
The increase in the 1998 Quarterly Period is attributable primarily to the fact
that Millennium had two alliances in the 1998 Quarterly Period, the Monsanto
Alliance and the Eli Lilly and Company ("Lilly") Alliance with Millennium
Biotherapeutics ("MBio"), that were not in place during the 1997 Quarterly
Period.
Research and development expenses increased to $22.4 million for the
1998 Quarterly Period from $11.6 million for the 1997 Quarterly Period. The
increase was attributable primarily to increased personnel expenses as the
Company hired additional research and development personnel, increased purchases
of laboratory supplies, and increased equipment depreciation and facilities
expenses in connection with the expansion of the Company's research efforts.
General and administrative expenses increased to $5.9 million for the
1998 Quarterly Period from $3.4 million for the 1997 Quarterly Period. The
increase was attributable primarily to increased personnel expenses as the
Company hired additional management, business development and administrative
personnel, and to professional fees in connection with the further expansion of
the Company's operations.
7
<PAGE> 8
The Company's total operating expenses decreased to $29.0 million for
the 1998 Quarterly Period from $99.1 million for the 1997 Quarterly Period. The
decrease was primarily attributable to the one time charge of $83.8 million
relating to acquired in-process research and development associated with the
ChemGenics acquisition in the 1997 Quarterly Period.
Interest income increased to $1.4 million for the 1998 Quarterly Period
from $1.0 million for the 1997 Quarterly Period. The increase was attributable
primarily to an increase in the average balance of cash, cash equivalents and
marketable securities for the two periods. Interest expense increased to $.6
million for the 1998 Quarterly Period from $.3 million for the 1997 Quarterly
Period due to increased capital lease obligations.
Minority interest represents the minority shareholder's (Lilly)
interest in the net loss for the 1998 Quarterly Period of the Company's majority
owned subsidiary, MBio.
LIQUIDITY AND CAPITAL RESOURCES
Through March 31, 1998, the Company recognized approximately $173.0
million of revenue under strategic alliances. As of March 31, 1998, the Company
had approximately $86.3 million in cash, cash equivalents and marketable
securities.
During the first three months of 1998, the Company used $6.7 million of
cash in its operations, purchased $3.5 million of property and equipment and
used cash of $1.5 million to pay capital lease obligations. In addition, during
the first three months of 1998, the Company acquired equipment under capital
leases of $1.9 million.
The Company believes that existing cash and marketable securities and
anticipated cash payments from its strategic alliances will be sufficient to
support the Company's operations until at least the end of 1999.
IMPACT OF YEAR 2000
Based on a recent assessment, the Company determined that it will not
be required to modify or replace significant portions of its software so that
its computer systems will function properly with respect to dates in the year
2000 and thereafter. The Company's systems are based upon technology acquired in
the last few years. Therefore, the Company presently believes that no
significant modifications to existing software are needed based on presently
available information.
8
<PAGE> 9
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits listed in the Exhibit Index are included in this
report.
(b) Reports on Form 8-K
Amendment No. 1 to Current
Report on Form 8-K filed with the Securities and Exchange
Commission on January 30, 1998.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MILLENNIUM PHARMACEUTICALS, INC.
(Registrant)
Date: May 12, 1998 By: /s/ Steven H. Holtzman
-----------------------------------
Steven H. Holtzman
Chief Business Officer
Date: May 12, 1998 By: /s/ Janet C. Bush
-----------------------------------
Janet C. Bush
Vice President, Finance
(Principal Financial Officer)
Date: May 12, 1998 By: /s/ William J. Curry
-----------------------------------
William J. Curry
Controller
(Principal Accounting Officer)
10
<PAGE> 11
EXHIBIT INDEX
-------------
The following exhibits are filed as part of this Quarterly Report on Form
10-Q:
Exhibit
No. Description
- ------- -----------
27.1 Financial Data Schedule for the quarter ended March 31, 1998
27.2 Restated Financial Data Schedule for the quarter ended
March 31, 1997
99.1 Pages 44 through 58 of the
Company's Annual Report of Form
10-K for the year ended December
31, 1997, as filed with the
Securities Exchange Commission
(which are deemed filed except to
the extent that portions are not
expressly incorporated by reference
herein).
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 50,295
<SECURITIES> 35,965
<RECEIVABLES> 4,146
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 95,394
<PP&E> 46,645
<DEPRECIATION> 15,157
<TOTAL-ASSETS> 142,155
<CURRENT-LIABILITIES> 20,109
<BONDS> 0
0
0
<COMMON> 29
<OTHER-SE> 88,997
<TOTAL-LIABILITY-AND-EQUITY> 142,155
<SALES> 0
<TOTAL-REVENUES> 21,043
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 29,015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 645
<INCOME-PRETAX> (4,426)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,426)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,426)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 13,059
<SECURITIES> 55,320
<RECEIVABLES> 2,680
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 73,247
<PP&E> 30,299
<DEPRECIATION> 9,798
<TOTAL-ASSETS> 104,981
<CURRENT-LIABILITIES> 13,453
<BONDS> 0
0
0
<COMMON> 29
<OTHER-SE> 82,385
<TOTAL-LIABILITY-AND-EQUITY> 104,981
<SALES> 0
<TOTAL-REVENUES> 10,956
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 99,120
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 333
<INCOME-PRETAX> (87,419)
<INCOME-TAX> 0
<INCOME-CONTINUING> (87,419)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (87,419)
<EPS-PRIMARY> (3.29)
<EPS-DILUTED> (3.29)
</TABLE>
<PAGE> 1
Exhibit 99.1
As of March 1, 1998, the Company and its subsidiaries had approximately
520 full-time employees, of whom approximately 145 hold Ph.D. or M.D. degrees
and approximately 120 hold other advanced degrees, approximately 390 are engaged
in research and development activities and approximately 130 are engaged in
business development, finance, operations support and administration. The
Company and its subsidiaries currently plan to hire up to approximately 200
additional employees by the end of 1998.
FACTORS THAT MAY AFFECT RESULTS
This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects,"
"intends," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by such
forward-looking statements. Those factors include, without limitation, those set
forth below and elsewhere in this Annual Report on Form 10-K.
UNCERTAINTIES RELATING TO TECHNOLOGICAL APPROACHES; RISKS RELATED TO
PRODUCT DEVELOPMENT. To date, the Company has not developed or commercialized
any products or services based on its genomics and related technologies. The
Company's lead programs and development focus have been primarily directed to
complex polygenic and multifactorial diseases in the field of human healthcare.
There is limited scientific understanding generally relating to the role of
genes in these diseases and relatively few products and services based on gene
discoveries have been developed and commercialized. There can be no assurance
that the Company's technological approach to gene identification and target
validation will consistently enable the Company to successfully identify and
characterize genes that predispose individuals to diseases.
Any therapeutic and diagnostic products and services based on the
Company's gene discoveries which may in the future be developed by the Company
or any of its current and future strategic partners will require significant
research, development, testing and regulatory approvals prior to
commercialization. The development of these products and services will be
subject to the risks of failure inherent in the development of products and
services based on new technologies. These risks include the possibilities that
any products or services based on these technologies will be found to be
ineffective, unreliable or unsafe, or otherwise fail to receive necessary
regulatory approvals; that products or services, if safe and effective, will be
difficult to manufacture on a large scale or will be uneconomical to market;
that proprietary rights of third parties will preclude the Company or its
strategic partners from
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<PAGE> 2
marketing products or services; and that third parties will market superior or
equivalent products or services.
Accordingly, even if the Company is successful in identifying genes
associated with specific diseases, there can be no assurance that its gene
discoveries will lead to the development of therapeutic and diagnostic products
and services capable of addressing these diseases. The failure to successfully
commercialize products based on Company-discovered genes would have a material
adverse effect on the Company's business, financial condition and operating
results.
HISTORY OF OPERATING LOSSES; ANTICIPATION OF FUTURE LOSSES; UNCERTAINTY OF
ADDITIONAL FUNDING. To date, substantially all of the Company's revenues have
resulted from payments from strategic partners. The Company has not yet
generated any therapeutic or diagnostic products or services which have entered
preclinical studies or generated any revenue from therapeutic or diagnostic
product or service sales. The Company anticipates that it will be a number of
years, if ever, before it will recognize revenue from therapeutic or diagnostic
product or service sales or royalties.
As of December 31, 1997, the Company had an accumulated deficit of
approximately $99,366,000 (including a non-recurring charge of $83,800,000 for
acquired in-process research and development related to the acquisition of
ChemGenics). Even if the Company succeeds in developing a therapeutic or
diagnostic product or service, the Company expects to incur losses for at least
the next several years and that such losses are likely to increase as the
Company expands its infrastructure and its research and development activities.
To achieve profitability, the Company, alone or with others, must successfully
develop therapeutic or diagnostic products or services, conduct clinical trials,
obtain required regulatory approvals and successfully manufacture, market and
sell such therapeutic or diagnostic products or services. The time required to
reach commercial revenue and profitability is highly uncertain and there can be
no assurance that the Company will be able to achieve any such revenue and
profitability on a sustained basis, if at all.
The Company's approach of applying a comprehensive platform of genomics
and related technologies in the discovery of life-science based products and
services has required that Millennium establish a substantial scientific
infrastructure. The Company has consumed substantial amounts of cash to date and
expects capital and operating expenditures to increase over the next several
years as it expands its infrastructure and its research and development
activities.
The Company believes that existing cash and investment securities and
anticipated cash flow from existing strategic alliances will be sufficient to
support the Company's operations through at least 1999. The Company's actual
future capital requirements, however, will depend on many factors, including
progress of its
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<PAGE> 3
development and discovery programs, the number and breadth of these programs,
achievement of milestones under strategic alliance arrangements, the ability of
the Company to establish and maintain additional strategic alliance and
licensing arrangements, and the progress of the development efforts of the
Company's strategic partners. Other factors that may affect the Company's future
capital requirements include the level of the Company's activities relating to
commercialization rights it has retained in its strategic alliance arrangements,
competing technological and market developments, costs associated with acquiring
rights to technologies developed outside the Company, costs associated with
facility expansion, costs associated with collection of patient information and
DNA samples, costs involved in enforcing patent claims and other intellectual
property rights and the costs and timing of regulatory approvals.
The Company expects that it will require significant additional financing
in the future, which it may seek to raise through public or private equity
offerings, debt financings or additional strategic alliance and licensing
arrangements. Such additional financing may not be available when needed, or may
not be available on terms favorable to the Company or its stockholders. To the
extent the Company raises additional capital by issuing equity securities,
ownership dilution to stockholders will result. To the extent that the Company
raises additional funds through strategic alliance and licensing arrangements,
the Company may be required to relinquish rights to certain of its technologies
or product candidates, or to grant licenses on terms that are not favorable to
the Company, either of which could have a material adverse effect on the
Company's business, financial condition and results of operations. In the event
that adequate funds are not available, the Company's business would be adversely
affected.
RELIANCE ON STRATEGIC PARTNERS. The Company's strategy for development and
commercialization of therapeutic and diagnostic products and services based upon
its gene discoveries depends upon the formation of various strategic alliances,
such as the Company's strategic alliances with Roche, Lilly, Astra, AHP, Pfizer
and Monsanto. There can be no assurance that the Company will be able to
establish additional strategic alliance or licensing arrangements necessary to
develop and commercialize products and services based upon the Company's
discovery and development programs, that any such arrangements or licenses will
be on terms favorable to the Company or that the current or any future strategic
alliances or licensing arrangements ultimately will be successful.
In certain of its strategic alliances, the Company is dependent on its
strategic partners for the preclinical study, clinical development, regulatory
approval, manufacturing, marketing and sale of therapeutic and diagnostic
products and services based on the results of these collaborative programs. The
agreements with these strategic partners allow them significant discretion in
electing whether to pursue any of these activities. The Company cannot control
the amount and timing of resources its strategic partners devote to the
Company's discovery and
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<PAGE> 4
development programs or to the potential products or services which may result
from these programs. If any of the Company's strategic partners were to breach
or terminate its agreement with the Company or otherwise fail to conduct its
collaborative activities successfully in a timely manner, the Company's
discovery and development programs, including the preclinical or clinical
development or commercialization of products or services, would be delayed or
terminated. Any such delay or termination could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company relies on its strategic partners for significant funding in
support of the Company's discovery and development programs. See " --
Significant Customers." The Company could be required to devote additional
internal resources to its product and service development, or scale back or
terminate certain development programs or seek alternative collaborative
partners, if funding from one or more of its collaborative programs were reduced
or terminated.
Disputes may arise in the future with respect to the ownership of rights
to any technology developed with strategic partners. These and other possible
disagreements between strategic partners and the Company could lead to delays in
the collaborative research, development or commercialization of certain products
and services, or could require or result in litigation or arbitration, which
could be time-consuming and expensive, in which case it would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Recently there have been a significant number of consolidations among
pharmaceutical companies. Any such consolidation involving a company with which
the Company is collaborating could result in the diminution or termination of,
or delays in, the development or commercialization of products or research
programs under one or more of the Company's strategic alliances.
In each of its strategic alliances, the Company generally agrees not to
conduct certain research and development, independently or with any commercial
third party, that is in the same field as the research and development conducted
under the alliance agreement. Consequently, these arrangements may have the
effect of limiting the areas of research and development the Company may pursue,
either alone or with others. The Company's strategic partners, however, may
develop, either alone or with others, products and services that are similar to
or competitive with the products and services that are the subject of the
Company's collaborations with such partners. Competing products and services,
either developed by a strategic partner or to which the strategic partner has
rights, may result in the partner withdrawing financial and related support for
the Company's product and service candidates, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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<PAGE> 5
All of the Company's strategic alliance agreements are subject to
termination under various circumstances. Each strategic partner has the right to
terminate its agreement with the Company (while maintaining rights and licenses
to certain Company discoveries) should the Company fail to meet certain
performance criteria specified in the relevant strategic alliance agreement.
Certain of the Company's strategic alliance agreements provide that, upon
expiration of a specified period after commencement of the agreement, its
strategic partner has the right to terminate the agreement on short notice
without cause. Certain of the Company's strategic alliance agreements have
initial terms that expire in the next 12 months, including its strategic
alliance agreements with Astra (expiring in December 1998), Pfizer (expiring in
December 1998), Roche (expiring in March 1999) and Lilly in the area of oncology
(expiring in April 1999). There can be no assurance that the Company will be
able to successfully negotiate a continuation of such agreements, if it seeks to
do so. The termination or non-renewal of any strategic alliance could have a
material adverse effect on the Company's business, financial condition and
results of operations.
RISKS ASSOCIATED WITH ESTABLISHMENT OF DIVISIONS AND SUBSIDIARIES.
Millennium has adopted a strategy of establishing business divisions and
subsidiaries in order to pursue multiple business opportunities and increase its
capabilities and involvement in the later stages of drug discovery and
development. In 1997, the Company organized MPharma, its pharmaceutical
division, and three subsidiaries, MBio, MPMx and MInfo. The Company does not
hold all of the equity in one of these subsidiaries and anticipates that there
will be minority stockholders in other subsidiaries in the future.
Millennium has sought to develop both informal and formal relationships
between and among subsidiaries and divisions to provide each unit within the
overall group with access to the assets and capabilities of the overall group
that are relevant to the business of the particular unit. However, conflicts
could arise in the future between or among Millennium and its divisions and
subsidiaries with respect to, among other things, future business opportunities
and the sharing of technologies, facilities, administrative services or other
resources.
Certain officers and directors of the Company, including Mark Levin, Chief
Executive Officer and Chairman of the Board of Directors of the Company, and
Steven Holtzman, Chief Business Officer of the Company, currently serve as
directors of each of the subsidiaries. Mr. Levin also serves as the President of
MBio. The Company's present executive officers and managers may assume other
positions within Millennium's current or future subsidiaries, causing them to be
unavailable to serve the Company or to reduce the amount of time they devote to
the affairs of the Company. Furthermore, members of the Board of Directors of
Millennium and the officers of Millennium who are also affiliated with one or
more of the subsidiaries will be required to consider not only the short-term
and long-term impact of operating decisions on the Company, but also the impact
of such decisions on the subsidiaries. In some cases, the impact of such
decisions could be disadvantageous
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to the Company or to any or all of the subsidiaries. Conflicts which may arise
among the Company and such divisions or subsidiaries could have a material
adverse effect on the Company's business, financial condition or results of
operations.
EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH. The Company recently has
significantly increased the scale of its operations to support the expansion of
its disease research programs and its strategic alliances, including expansion
due to the acquisition of ChemGenics in February 1997, the organization during
1997 of three new subsidiaries, MBio, MPMx and MInfo, and the initiation of a
major strategic alliance with Monsanto in October 1997. This expansion has
included the hiring of a significant number of additional personnel. As of March
1, 1998, the Company and its subsidiaries had approximately 520 full-time
employees, an increase of 160 employees since March 1, 1997. The Company plans
to hire up to approximately 200 new employees by the end of 1998. In addition to
hiring new employees, the Company's growth has and will require the acquisition
of significant amounts of additional equipment, including software and
informatics resources, and the leasing of additional facilities.
The Company's growth has resulted in an increase in responsibilities
placed upon the Company's management and has placed added pressures on the
Company's operational and financial systems. The Company's ability to manage
such growth effectively will depend upon its ability to broaden its management
team and to attract, hire and retain skilled employees. The Company's success
will also depend on the ability of its officers and key employees to continue to
implement and improve its operational, management information and financial
control systems and to expand, train and manage its employee base. Inability to
manage growth effectively could have a material adverse effect on the Company's
business, financial condition and operating results.
INTENSE SCIENTIFIC AND COMMERCIAL COMPETITION. The field of genomics is
highly competitive. Competitors of the Company in the genomics area include,
among others, public companies, private biotechnology and diagnostic companies
and major pharmaceutical companies. Universities and other research
institutions, including those receiving funding from the federally funded Human
Genome Project, also compete with Millennium. A number of entities are
attempting to rapidly identify and patent randomly sequenced genes and gene
fragments, typically without specific knowledge of the function of such genes or
gene fragments. In addition, certain other entities are pursing a gene
identification, characterization and product development strategy based on
positional cloning and other genomics technologies.
Many of the organizations competing against the Company have greater
capital resources, research and development staffs and facilities, and greater
experience in drug discovery and development, obtaining regulatory approvals and
product manufacturing and greater marketing capabilities than the Company. The
Company's competitors may discover, characterize or develop therapeutic or
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diagnostic products or services for important genes in advance of Millennium or
may make discoveries which render non-competitive or obsolete the products or
services that the Company or its strategic alliance partners may seek to
develop, any of which could have a material adverse effect on any related
Millennium disease research program. The Company expects competition to
intensify in genomics research as technical advances in the field are made and
become more widely known.
Generally, the Company's strategic alliance agreements do not restrict the
strategic partner from pursuing competing development efforts. Any product
candidate of the Company, therefore, may be subject to competition with a
potential product under development by a strategic partner.
PATENTS AND PROPRIETARY RIGHTS; THIRD PARTY RIGHTS. The Company's
commercial success will depend in part on obtaining patent protection on gene
discoveries and on products, methods and services based on such discoveries. As
of March 1, 1998, Millennium and its subsidiaries had more than 200 pending
United States and foreign patent applications and seven issued United States
patents. The patent positions of pharmaceutical, biopharmaceutical and
biotechnology companies, including Millennium, are generally uncertain and
involve complex legal and factual questions. There can be no assurance that any
of the Company's pending patent applications will result in issued patents, that
the Company will develop additional proprietary technologies that are
patentable, that any patents issued to the Company or its strategic partners
will provide a basis for commercially viable products or will provide the
Company with any competitive advantages or will not be challenged by third
parties, or that the patents of others will not have an adverse effect on the
ability of the Company to do business. In addition, patent law relating to the
scope of claims in the technology fields in which the Company operates is still
evolving. The degree of future protection for the Company's proprietary rights,
therefore, is uncertain. Furthermore, there can be no assurance that others will
not independently develop similar or alternative technologies, duplicate any of
the Company's technologies, or design around the patented technologies developed
by the Company. In addition, the Company could incur substantial costs in
litigation if it is required to defend itself in patent suits brought by third
parties or if it initiates such suits.
The Company has applied for patent protection for novel genes, partial
gene sequences ("ESTs") of novel genes and novel uses for known genes identified
through its research programs. There is substantial uncertainty regarding the
patentability of ESTs or full-length genes absent biological data demonstrating
functional relevance. Based on recent technological advances in gene sequencing
technology, a number of groups other than the Company are attempting to rapidly
identify ESTs and full-length genes, the functions of which have not been
characterized. Washington University, for example, is currently identifying ESTs
through partial sequencing pursuant to funding provided by Merck & Co., Inc.,
and depositing the ESTs identified in a public database. The public availability
of EST information prior to the time the Company applies for patent protection
on a
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corresponding full-length gene could adversely affect the Company's ability to
obtain patent protection with respect to such gene. To the extent any patents
issue to other parties on such partial or full-length genes, the risk increases
that the potential products and processes of the Company or its strategic
partners may give rise to claims of patent infringement.
Others may have filed and in the future are likely to file patent
applications covering genes or gene products that are similar or identical to
those of the Company. No assurance can be given that any such patent application
will not have priority over patent applications filed by the Company. Any legal
action against the Company or its strategic partners claiming damages and
seeking to enjoin commercial activities relating to the affected products and
processes could, in addition to subjecting the Company to potential liability
for damages, require the Company or its strategic partner to obtain a license in
order to continue to manufacture or market the affected products and processes.
There can be no assurance that the Company or its strategic partners would
prevail in any such action or that any license required under any such patent
would be made available on commercially acceptable terms, if at all. The Company
believes that there may be significant litigation in the industry regarding
patent and other intellectual property rights. If the Company becomes involved
in such litigation, it could consume a substantial portion of the Company's
managerial and financial resources.
There is substantial uncertainty concerning whether human clinical data
will be required for issuance of patents for human therapeutics. If such data is
required, the Company's ability to obtain patent protection could be delayed or
otherwise adversely affected. Although the United States Patent and Trademark
Office ("USPTO") issued new utility guidelines in July 1995 that address the
requirements for demonstrating utility for biotechnology inventions,
particularly for inventions relating to human therapeutics, utility will be
determined on a case-by-case basis. Moreover, there can be no assurance that the
USPTO's position will not change with respect to what is required to establish
utility for gene sequences and products and methods based on such sequences.
Furthermore, the enactment of the legislation implementing the General Agreement
on Trade and Tariffs has resulted in certain changes to United States patent
laws that became effective on June 8, 1995. Most notably, the term of patent
protection for patent applications filed on or after June 8, 1995 is no longer a
period of seventeen years from the date of grant. The new term of United States
patents will commence on the date of issuance and terminate twenty years from
the earliest effective filing date of the application. Because the time from
filing to issuance of biotechnology patent applications is often more than three
years, a twenty-year term from the effective date of filing may result in a
substantially shortened term of patent protection, which may adversely impact
the Company's patent position. If this change results in a shorter period of
patent coverage, the Company's business could be adversely affected to the
extent that the duration and level of the royalties it is entitled to receive
from its strategic partners is based on the existence of a valid patent.
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The Company relies upon trade secret protection for its confidential and
proprietary information. The Company believes that it has developed proprietary
technology for use in gene discovery and characterization, including proprietary
genetic marker sets, proprietary software (including proprietary software for
the capture, storage and analysis of DNA and protein sequence data) and an
integrated informatics system. The Company has not sought patent protection for
these technologies. In addition, the Company has developed databases of
proprietary gene sequences and biological information which are updated on an
ongoing basis. The Company has taken security measures to protect its data and
continues to explore ways to further enhance the security for its data. There
can be no assurance, however, that such measures will provide adequate
protection for the Company's trade secrets or other proprietary information.
While the Company requires employees, academic collaborators and consultants to
enter into confidentiality agreements, there can be no assurance that
proprietary information will not be disclosed, that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets or disclose
such technology, or that the Company can meaningfully protect its trade secrets.
The Company's academic collaborators have certain rights to publish data
and information in which the Company has rights. While the Company believes that
the limitations on publication of data developed by its collaborators pursuant
to its collaboration agreements will be sufficient to permit the Company to
apply for patent protection, there is considerable pressure on academic
institutions to publish discoveries in the genetics and genomics fields. There
can be no assurance that such publication would not affect the Company's ability
to obtain patent protection for some inventions in which it may have an
interest.
The Company is party to various license agreements which give it rights to
use certain technologies in its research and development processes. There can be
no assurance that the Company will be able to continue to license such
technology on commercially reasonable terms, if at all. Failure by the Company
to maintain rights to such technology could have a material adverse effect on
the Company's business, financial condition and results of operations.
UNCERTAINTY OF GOVERNMENT REGULATORY APPROVALS. The FDA and comparable
agencies in foreign countries impose substantial requirements upon the
manufacturing and marketing of human therapeutic, diagnostic and vaccine
products and services such as those proposed to be developed by the Company or
its strategic alliance partners. The process of obtaining FDA and other required
regulatory approvals is lengthy and expensive. The time required for FDA and
other approvals is uncertain and typically takes a number of years, depending on
the complexity and novelty of the product. The Company and/or its strategic
alliance partners may encounter significant delays or excessive costs in their
efforts to secure necessary approvals or licenses.
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Because certain of the products likely to result from the Company's
research and development programs involve the application of new technologies
and may be based on a new therapeutic approach, such products may be subject to
substantial additional review by various governmental regulatory authorities
and, as a result, regulatory approvals may be obtained more slowly than for
products using more conventional technologies. For example, proposals to conduct
clinical research involving gene therapy at institutions supported by the
National Institutes of Health ("NIH") must be approved by the Recombinant DNA
Advisory Committee ("RAC") and the NIH. In addition, the U.S. Government has
recently established a working group to assess whether additional regulations in
the area of genetic testing may be appropriate, which could result in further
regulation.
There can be no assurance that FDA or other approvals will be obtained in
a timely manner, if at all. Any delay in obtaining, or the failure to obtain,
such approvals could materially adversely affect the Company's ability to
generate product or service or royalty revenues. Even if FDA or other approvals
are obtained, the marketing and manufacturing of diagnostic and therapeutic
products are subject to continuing FDA and other regulatory review. Later
discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on the product or manufacturer, including
withdrawal of the product from the market. Additional governmental regulations
may be promulgated which could delay regulatory approval of the Company's or a
strategic partner's potential products. The Company cannot predict the impact of
adverse governmental regulations which might arise from future legislative or
administrative action.
The Company's research and development activities involve the controlled
use of hazardous materials, chemicals and various radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by federal,
state and local laws and regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for any damages that result
and any liability could exceed the resources of the Company.
UNCERTAINTY ASSOCIATED WITH PRECLINICAL AND CLINICAL TESTING. The grant of
regulatory approval for the commercial sale of any of the Company's potential
products will depend in part on the Company and/or its strategic alliance
partner successfully conducting extensive preclinical and clinical testing to
demonstrate the product's safety and efficacy in humans. The Company has limited
experience in conducting preclinical and clinical development activities.
Neither the Company nor any strategic alliance partner has submitted an IND to
the FDA for any product candidate under development by the Company.
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The results of preclinical studies by the Company and/or its strategic
alliance partners may be inconclusive and may not be indicative of results that
will be obtained in human clinical trials. In addition, results attained in
early human clinical trials relating to the products under development by the
Company may not be indicative of results that will be obtained in later clinical
trials. As results of particular preclinical studies and clinical trials are
received, the Company and/or its strategic alliance partners may abandon
projects which they might otherwise have believed to be promising.
There can be no assurance that the Company will be permitted to undertake
and complete human clinical trials of any of the Company's potential products,
either in the U.S. or elsewhere. If such trials are permitted, there can be no
assurance that the products under development will not have undesirable side
effect or other characteristics that may prevent them from being approved or
limit their commercial use if approved. Clinical testing is very expensive, and
the Company and/or its strategic alliance partners will have to devote
substantial resources for the payment of clinical trial expenses.
In certain circumstances the Company may rely, in part, on its strategic
alliance partners, academic institutions and on clinical research organizations
to conduct and monitor certain clinical trials. There can be no assurance that
such entities will conduct the clinical trials successfully. Furthermore, the
Company will have less control over such trials than if the Company were the
sole sponsor thereof. As a result, there can be no assurance that these trials
will commence or be completed as planned. Failure to commence or complete any of
its planned clinical trials could have a material adverse effect on the
Company's business, financial condition or results of operations.
ABSENCE OF SALES AND MARKETING EXPERIENCE; LIMITED MANUFACTURING
CAPABILITY. Although Millennium plans to rely significantly on strategic
alliance partners for the marketing and distribution of its products and
services, the Company may market and sell certain of its products and services
directly and may engage in certain other marketing activities in collaboration
with its strategic alliance partners. The Company has no experience in sales,
marketing or distribution. The Company does not expect to establish a direct
sales capability until such time as it has one or more products or services in
development which are approaching marketing approval.
To the extent the Company enters into marketing or distribution
arrangements with strategic alliance partners, any revenues the Company receives
will depend upon the efforts of third parties. There can be no assurance that
any third party would market the Company's products and services successfully or
that any third-party collaboration would be on terms favorable to the Company.
If any marketing partner did not market a product or service successfully, the
Company's business would be materially adversely affected. If Millennium's plan
to rely on
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strategic alliance partners for significant aspects of marketing and selling the
Company's products were unsuccessful for any reason, Millennium would need to
recruit and train a marketing and sales force which would entail the incurrence
of significant additional costs.
There can be no assurance that the Company would be able to attract and
build a sufficient marketing staff or sales force, that the cost of establishing
such a marketing staff or sales force would be justifiable in light of any
product or service revenues or that the Company's direct sales and marketing
efforts would be successful. In addition, if the Company succeeds in bringing
one or more products or services to market, it may compete with other companies
that currently have extensive and well-funded marketing and sales operations.
There can be no assurance that the Company's marketing and sales efforts would
enable it to compete successfully against such other companies.
The Company lacks commercial-scale facilities to manufacture any products
under development in accordance with current Good Manufacturing Practices
("GMP") requirements prescribed by the FDA. The Company expects to be dependent
on third party manufacturers or collaborative partners for all of its clinical
trials and commercial production of products. In the event that the Company were
unable to obtain contract manufacturing, it may not be able to commercialize its
products. Where third-party arrangements are established, the Company will
depend upon such third parties to perform their obligations in a timely manner.
There can be no assurance that third parties depended upon by the Company would
perform and any failures by third parties could delay clinical trial development
or the submission of products for regulatory approval, impair the Company's
ability to commercialize its products as planned and deliver products on a
timely basis, or otherwise impair the Company's competitive position, which
could have a material adverse effect on the Company' business, financial
condition or result or operation.
If the Company determined to develop its own manufacturing capabilities,
it would need to recruit qualified personnel and build or lease the requisite
facilities and equipment because it has no experience in manufacturing on a
commercial scale and no facilities or equipment therefor. There can be no
assurance that Millennium would be able to successfully develop its own
manufacturing capabilities in a cost-effective or timely manner. In addition,
the manufacture of any products by the Company is subject to regulation by the
FDA and comparable agencies in foreign countries. Delay in complying or failure
to comply with such manufacturing requirements could materially adversely affect
the marketing of the Company's products and the Company's business, financial
condition and results of operations.
AVAILABILITY OF, AND COMPETITION FOR, FAMILY RESOURCES. The Company's gene
identification strategy includes genetic studies of families and populations
prone to particular diseases. These studies are based upon statistical analyses
of disease inheritance patterns and require the collection of large numbers of
DNA samples
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from affected individuals, their families and other suitable populations. The
Company is dependent upon collaborations with a number of academic centers for
the identification of donor populations and the collection and supply of the DNA
samples used in its human disease gene research programs. The availability of
DNA samples from large, family-based or other suitable populations is therefore
critical to the Company's ability to discover the genes responsible for human
diseases through human genetic approaches. The competition for these resources
is intense and certain of the Company's competitors have obtained rights to
significantly more family resources than the Company. There can be no assurance
that the Company will be able to obtain access to DNA samples necessary to
support its human gene discovery programs and any material lack of availability
of such DNA samples would have an adverse effect on the Company's business.
ATTRACTION AND RETENTION OF KEY EMPLOYEES AND CONSULTANTS. The Company is
highly dependent on the principal members of its management and scientific
staff, none of whom is bound by a long-term employment agreement with the
Company. The loss of services of any of these personnel could impede
significantly the achievement of the Company's development objectives and could
have a material adverse effect on the Company's business, financial condition
and operating results. Furthermore, recruiting and retaining qualified
scientific personnel to perform research and development work in the future will
also be critical to the Company's success. There is intense competition among
pharmaceutical and health care companies, universities and nonprofit research
institutions for experienced scientists, and there can be no assurance that the
Company will be able to attract and retain personnel on acceptable terms.
In addition, the Company relies on its scientific advisors to assist the
Company in formulating its discovery and developing strategy. All of the
scientific advisors are employed by employers other than the Company and have
commitments to other entities that may limit their availability to the Company.
Some of the Company's scientific advisors also consult for companies that may be
competitors of the Company.
DEPENDENCE ON RESEARCH COLLABORATORS AND SCIENTIFIC ADVISORS. The Company
has relationships with collaborators at academic and other institutions who
conduct research at the Company's request. Such collaborators are not employees
of the Company. All of Millennium's consultants are employed by employers other
than the Company and may have commitments to, or consulting or advisory
contracts with, other entities that may limit their availability to the Company.
As a result, the Company has limited control over their activities and, except
as otherwise required by its collaboration and consulting agreements, can expect
only limited amounts of their time to be dedicated to the Company's activities.
The Company's ability to discover genes involved in human disease and
commercialize products based on those discoveries may depend in part on
continued collaborations with researchers at academic and other institutions.
There can be no assurance that the Company will be
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able to negotiate additional acceptable collaborations with collaborators at
academic and other institutions or that its existing collaborations will be
successful.
The Company's research collaborators and scientific advisors sign
agreements which provide for confidentiality of the Company's proprietary
information and results of studies. There can be no assurance, however, that the
Company will be able to maintain the confidentiality of its technology and other
confidential information in connection with every collaboration, and any
unauthorized dissemination of the Company's confidential information could have
an adverse effect on the Company's business.
UNCERTAINTY OF THERAPEUTIC AND DIAGNOSTIC PRICING, REIMBURSEMENT AND
RELATED MATTERS. The Company's business, financial condition and results of
operations may be materially adversely affected by the continuing efforts of
government and third party payors to contain or reduce the costs of health care
through various means. For example, in certain foreign markets pricing and
profitability of prescription pharmaceuticals are subject to government control.
In the United States, the Company expects that there will continue to be a
number of federal and state proposals to implement similar government control.
In addition, increasing emphasis on managed care in the United States will
continue to put pressure on the pricing of therapeutic and diagnostic products
and services. Cost control initiatives could decrease the price that the Company
or any of its strategic partners receives for any therapeutic and diagnostic
products or services in the future and have a material adverse effect on the
Company's business, financial condition and results of operations. Further, to
the extent that cost control initiatives have a material adverse effect on the
Company's strategic partners, the Company's ability to commercialize its
products and to realize royalties may be adversely affected.
The ability of the Company and any strategic partner to commercialize
therapeutic and diagnostic products and services may depend in part on the
extent to which reimbursement for the products and services will be available
from government and health administration authorities, private health insurers
and other third party payors. Significant uncertainty exists as to the
reimbursement status of newly approved health care products and services. Third
party payors, including Medicare, increasingly are challenging the prices
charged for medical products and services. Government and other third party
payors are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new therapeutic and diagnostic
products and services and by refusing in some cases to provide coverage for uses
of approved products for disease indications for which the FDA has not granted
labeling approval. There can be no assurance that any third party insurance
coverage will be available to patients for any products and services discovered
and developed by the Company or its strategic partners. If adequate coverage and
reimbursement levels are not provided by government and other third party payors
for the Company's products and services, the market acceptance of these products
and services may be reduced, which may have a
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material adverse effect on the Company's business, financial condition and
results of operations.
PRODUCT LIABILITY EXPOSURE. Clinical trials, manufacturing, marketing and
sale of any of the Company's or its strategic partners' potential therapeutic
products may expose the Company to liability claims from the use of such
therapeutic products. The Company currently does not carry product liability
insurance. There can be no assurance that the Company or its strategic partners
will be able to obtain such insurance or, if obtained, that sufficient coverage
can be acquired at a reasonable cost. An inability to obtain sufficient
insurance coverage at an acceptable cost or otherwise to protect against
potential product liability claims could prevent or inhibit the
commercialization of therapeutic products developed by the Company or its
strategic partners. A product liability claim or recall could have a material
adverse effect on the business or financial condition of the Company. While
under certain circumstances the Company is entitled to be indemnified against
losses by its strategic partners, there can be no assurance that this
indemnification would be available or adequate should any such claim arise.
RISKS ASSOCIATED WITH ACQUISITIONS. As part of its business strategy, the
Company may from time to time acquire assets and businesses principally relating
to or complementary to its operations, including for the purpose of acquiring
specific technology. Any acquisitions by the Company will be accompanied by the
risks commonly encountered in acquisitions of companies. Such risks include,
among other things, potential exposure to unknown liabilities of acquired
companies or to acquisition costs and expenses exceeding amounts anticipated for
such purposes, the difficulty and expense of assimilating the operations,
acquired technology and personnel of the acquired businesses, the potential
disruption of the Company's ongoing business and diversion of management time
and attention, and the potential failure to achieve anticipated financial,
operating and strategic benefits from such acquisitions.
In order to finance any such acquisition, it may be necessary for the
Company to raise additional funds through public or private financing. Such
financing, if available at all, may be on terms which are not favorable in the
Company, and, in the case of equity financings, may result in dilution to the
Company's stockholders.
There can be no assurance that the Company would be successful in
overcoming these risks or any other problems encountered in connection with any
such acquisitions. If the Company is unsuccessful in doing so, its business,
financial condition and results of operations could be materially and adversely
affected.
ITEM 2. PROPERTIES
The Company's facilities currently consist of an aggregate of
approximately 242,000 square feet of office, research and laboratory space and
an animal facility in
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