EXHIBIT 99.1
FORWARD-LOOKING STATEMENTS
When used in this Form 10-KSB and in future filings by Alpha 1
Biomedicals, Inc. (the "Company") with the Securities and Exchange Commission,
in the Company's press releases or other public or shareholder communications,
and in oral statements made with the approval of an authorized executive
officer, the words or phrases "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are subject
to certain risks and uncertainties, that could cause actual results to differ
materially from historical results and those presently anticipated or projected.
The Company wishes to caution readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made. The Company
wishes to advise readers that the factors described below, in addition to other
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake--and specifically declines any
obligation--to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
Lack of Revenues and History of Losses
The Company has sustained operating losses since its inception in 1982.
It believes these losses will continue for the foreseeable future. For the year
ended December 31, 1999, the Company had no revenues from operations and as of
December 31, 1999, the Company had an accumulated deficit of $37,005,591. The
Company does not expect to have revenues from operations in fiscal 2000 or in
the foreseeable future. The Company anticipates substantial and increasing
operating losses over the next several years as it continues its research and
development efforts and seeks to obtain regulatory approval of its products. The
Company's only potentially significant source of income is its ability to sell
the shares of common stock of SciClone Pharmaceuticals, Inc. ("SciClone") that
it received from SciClone in connection with the sale of certain royalty rights
to SciClone. As of October 23, 2000, the Company held 62,673 shares of SciClone
common stock. The closing price per share of SciClone common stock on that date,
as reported by The Nasdaq Stock Market, was $8.563. The price of SciClone common
stock is subject to fluctuation and can increase or decrease at any time. While
sales of SciClone shares may, depending upon the market price at the time of
sale, allow the Company to earn a net profit in one or more quarterly or annual
periods, as the Company sells its SciClone shares, fewer shares will remain to
be sold and this potential source of income will diminish. Therefore, the
Company's ability to sustain profitability
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depends on its ability to cease operating losses and complete development of its
products, obtain regulatory approval for its products and market its products.
Uncertainties Related to Limited Capital Resources
Although no assurance can be given, the Company believes that its
current cash and investment balances will be sufficient to meet the Company's
operating needs through December 31, 2001. The cost of research and development
and clinical trials will likely require additional capital after that date and
could require additional capital before that date. The actual amount of funds
that the Company will need will be determined by many factors, some of which are
beyond the Company's control. These factors include the success of its research
and development efforts, the status of its pre-clinical and clinical testing,
the costs relating to securing approvals of the U.S. Food and Drug
Administration (the "FDA") and other regulatory authorities, the costs and
timing of obtaining new patent rights, regulatory changes, competition and
technological developments in the market.
Aside from its current balance of cash and cash equivalents, the
Company's only readily available source of funds for operations is its ability
to sell the remaining shares of SciClone common stock from its investment
balances. Potential sources of outside capital include entering strategic
business relationships, public or private sales of shares of the Company's
capital stock or debt or other similar arrangements. The Company does not have
any committed sources of outside capital at this time. It is uncertain whether
the Company will be able to obtain outside capital when it needs it or on terms
that would be acceptable. If the Company raises funds by selling additional
shares of its common stock or securities convertible into its common stock, the
ownership interest of its existing stockholders will be diluted. If the Company
is unable to obtain outside capital when needed, in the amount needed, its
business and future prospects would be materially adversely affected and it
could be forced to suspend or discontinue operations.
Product Development Risk
Although the Company was formed in 1982, it is still in the early
stages of the development of its pharmaceutical products. The Company's first
product, based on Thymosin alpha 1, was licensed and later sold to SciClone and
is currently on the market in twenty countries outside the U.S. Presently, the
Company does not have any products that have received regulatory approval, does
not expect to have any such products for several years and may never
successfully develop or commercialize any such products. The Company's proposed
products are subject to numerous risks associated with the development of
medical products. These risks include the possibilities that any of the
Company's products could be found to be ineffective or toxic, or could fail to
receive necessary regulatory approvals. In addition, the Company's products
could face obsolescence if third parties develop superior or equivalent but less
expensive products.
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Regulation
Products which may be developed by the Company will require regulatory
approvals prior to sale. In particular, therapeutic agents and diagnostic
products are subject to approval, prior to commercial marketing, by the FDA in
the United States and by comparable agencies in most foreign countries. The
process of obtaining FDA and corresponding foreign approvals is costly and time
consuming and there can be no assurance that such approvals will be granted. Any
failure to obtain or any delay in obtaining such approvals could adversely
affect the ability of the Company to successfully market any products developed.
Also, the extent of adverse government regulation which might arise from future
legislative or administrative action cannot be predicted. The Company has not
yet received FDA approval for conducting clinical trials for Thymosin beta 4
("T(beta)4") or any other products and there can be no assurance that it will
ever receive such approvals.
Development of a Single Product
As noted above, the Company's current primary business focus is the
development of T(beta)4 for the treatment of non-healing wounds and similar
conditions. While the Company has in the past explored and may in the future
explore the use of T(beta)4 and other compounds for the treatment of other
medical conditions, such as cystic fibrosis and septic shock, it presently has
no immediate plans to develop products for such purposes. This lack of product
diversification would have a material adverse affect on the Company if it is
unsuccessful in its efforts to commercialize T(beta)4 as a wound-healing
treatment.
Dependence on Collaborative Relationships
Prior to submitting a new drug application to the FDA, Phase I, II and
III clinical trials must be conducted. Because of its limited resources, the
Company may need to enter into collaborative relationships with larger partners
to conduct these trials, whether involving T(beta)4 or other substances. The
Company also plans to contract with other companies to manufacture and market
its products. The Company may be unable to enter into such partnerships which
could impede its ability to bring products to market. No assurance can be given
that any partnerships, if entered into, will be on favorable terms or will
result in the successful development or marketing of the Company's products. If
the Company is unsuccessful in establishing advantageous clinical testing,
manufacturing and marketing relationships, the Company would face materially
adverse conditions and would likely not generate revenues sufficient to sustain
profitability.
Sources of Supply of Raw Materials
The Company depends on outside vendors for the supply of T(beta)4. The
Company's ability to obtain T(beta)4 at an affordable cost is affected by
various factors outside the Company's control, including the number of available
suppliers and general market demand for the material. The Company has an
agreement with one vendor pursuant to which the Company has agreed to purchase
an initial quantity of T(beta)4 and has an option to purchase an additional
quantity at a specified price.
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While the Company believes that the amount of T(beta)4 available to it under
this agreement is sufficient to cover its present needs at an affordable cost,
no assurance can be given in this regard. Furthermore, once the Company has
purchased and used all amounts available to it under the agreement, it will
likely need to obtain additional T(beta)4. The Company's inability to negotiate
the purchase of its required amounts of T(beta)4 on acceptable terms would have
a material adverse effect on the Company.
Management has Limited Operating Experience
The Company's management has limited experience in manufacturing or
selling pharmaceutical products. While the Company's President and Chief
Executive Officer, Dr. Allan Goldstein, co-founded the Company and has
maintained an affiliation with the Company since its formation, the Company has
never reached the manufacturing or marketing phase of the commercialization of
its proposed products. The Company and its management also have only limited
experience in negotiating and maintaining strategic relationships, and in
conducting clinical trials and other later-stage phases of the regulatory
approval process. There can be no assurance that the Company will successfully
conduct any of these activities.
Reliance Upon Dr. Goldstein and Other Key Personnel
The Company's success will depend to a large extent on the abilities
and continued service of Dr. Goldstein. The loss of Dr. Goldstein could prevent
or significantly delay the achievement of the Company's goals. The Company does
not have an employment agreement with Dr. Goldstein and does not maintain a key
man life insurance policy with respect to Dr. Goldstein. As the Company
continues it grow, it will need to add additional management and other
personnel. Competition for qualified personnel in the Company's industry is
intense, and the Company's success as it continues to grow will depend on its
ability to attract and retain highly skilled personnel. There can be no
assurance that the Company's efforts to obtain or retain such personnel will be
successful.
Ability to Obtain and Protect Intellectual Property Rights
The Company's success also will depend in substantial part on its
ability to obtain, defend and enforce patents, maintain trade secrets and
operate without infringing upon the proprietary rights of others, both in the
United States and abroad. Pursuant to a research agreement with The George
Washington University ("GWU"), the Company has rights to two U.S. patents
relating to the treatment of septic shock. Under the research agreement, the
Company is obligated to pay GWU a royalty of 4% of the net sales, if any, of
specified products covered by these patents. No sales have occurred and as a
result, no royalty payments have been incurred or paid to GWU pursuant to the
research agreement.
There can be no assurance that any patent applications filed by the
Company, or by others under which the Company has rights, will result in patents
being issued in the United States or
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foreign countries. In addition, the Company cannot guarantee that patents which
have been or will be issued will afford meaningful protection for the Company's
products. Competitors may develop products similar to the Company's which do not
conflict with the Company's patents. Others may challenge the Company's patents
and, as a result, the Company's patents could be narrowed or invalidated. There
can be no assurance that the Company will be able to afford the legal costs
associated with defending or enforcing any of its patents.
Pursuant to the MTA-CRADA with the NIH, a patent application was filed
by the NIH for the use of T(beta)4 in the treatment of non-healing wounds. Dr.
Goldstein, who was named as a co- inventor on the patent application, assigned
his interest in the application to the Company for nominal consideration. As a
result, the Company now has non-exclusive rights under the patent application
filed by the NIH. The Company is presently negotiating with the NIH to secure
the NIH's rights under the proposed patent in order to create an exclusive
proprietary position with respect to T(beta)4 for wound healing, should the
patent be issued. There can be no assurance that the Company will be able to
negotiate an exclusive position on terms acceptable to it, or at all. If the
Company is unable to successfully negotiate with the NIH for an exclusive
proprietary position, the commercial value of T(beta)4 for wound healing would
be significantly reduced. Even if the Company is able to negotiate an exclusive
position on acceptable terms, there can be no assurance as to whether or when
the patent will be issued or as to the scope of the patent issued. If no patent
issues from the NIH's application, the Company's ability to commercialize
T(beta)4 as a wound-healing treatment would be substantially limited.
Competition
The biotechnology industry is highly competitive. The Company competes
with companies in the United States and abroad that are engaged in the
development of product similar or competitive with those of the Company. These
competitors include: biotechnology, pharmaceutical, chemical and other
companies, academic and scientific institutions, government agencies and public
and private research organizations. Most of these competitors have much greater
financial and technical resources and production and marketing capabilities than
the Company and have extensive experience in conducting research and development
activities and clinical testing and in obtaining the regulatory approvals
necessary to market pharmaceutical products. The Company's competitors might
successfully develop and market superior or less expensive products that render
the Company's products less valuable or unmarketable. The Company is aware of
research and development activities for the development of drugs to treat
patients with cystic fibrosis, septic shock and non-healing wounds by private
and public institutions and by major pharmaceutical and biotechnology companies
located in the United States and a number of foreign countries.
Product Liability Insurance
The Company's ability to proceed with human clinical trials for
T(beta)4 is dependent on its ability to obtain sufficient product liability
insurance or to collaborate with corporate partners which have adequate
insurance. In addition, the use of the Company's products, when and if developed
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and sold, will expose the Company to the risk of product liability claims.
Although the Company intends to obtain product liability insurance coverage, it
cannot guarantee that product liability insurance will continue to be available
to it on acceptable terms, or at all, or that its coverage will be sufficient to
cover all claims against it. A product liability claim, even one without merit
or for which the Company has substantial coverage, could result in significant
legal defense costs, thereby exposing the Company to expenses significantly in
excess of its revenues.
Product Reimbursement by Third Parties
In addition to obtaining regulatory approval, the successful
commercialization of the Company's products will depend on its ability to obtain
reimbursement for the cost of the product and treatment. Government authorities,
private health insurers and other organizations, such as health maintenance
organizations, are increasingly challenging the prices charged for medical
products and services. Also, the trend toward managed health care in the United
States, the growth of healthcare organizations such as HMOs, and legislative
proposals to reform healthcare and government insurance programs could
significantly influence the purchase of healthcare services and products,
resulting in lower prices and reducing demand for the Company's products, if and
when developed. The cost containment measures that healthcare providers are
instituting and any healthcare reform could affect the Company's ability to sell
its products and may have a material adverse effect on its operations. There can
be no assurance that reimbursement in the United States or foreign countries
will be available for any of the Company's products, that any reimbursement
granted will be maintained, or that limits on reimbursement available from
third-party payors will not reduce the demand for, or the price of, the
Company's products. The lack or inadequacy of third-party reimbursements for the
Company's products would likely have a material adverse affect on the Company's
operations. The Company cannot forecast what additional legislation or
regulation relating to the healthcare industry or third-party coverage and
reimbursement may be enacted in the future, or what effect the legislation or
regulation would have on the Company's business.
Obligations Under Prior Laboratory Lease Agreement
The Company is the lessor under an operating lease for a production
facility space in Sunnyvale, California that will expire in January 2002. This
lease was assigned by the Company to a third party in March 1995 for the
remaining term of the lease agreement. While the third party assignee is
obligated to the Company under the assignment to make the required rent payments
to the landlord, the Company remains obligated to the landlord to make these
payments if the assignee does not. As of December 31, 1999, there remained to be
paid through the end of the lease term an aggregate of $803,562 in rent
payments. If the Company were required to make any of these remaining payments,
then depending on the amount paid by the Company, there could be a material
adverse effect on the Company's business, financial condition and results of
operations.
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Price and Volume Volatility of the Company's Stock
The price of the Company's stock can be volatile, which makes it
difficult for stockholders to predict the value of their shares or buy or sell
shares at any given time. A variety of factors may affect the market price of
the Company's common stock including, but not limited to, results of testing and
clinical trials; corporate partnerships; technological innovations by the
Company or competitors; changes in laws and government regulations; developments
concerning proprietary rights, including patents and litigation matters; public
perception relating to the commercial value or safety of any of the Company's
products; and general stock market conditions.
The Company's common stock is currently traded in the over-the-counter
market in the "pink sheets." Trading in the Company's common stock is sporadic,
and days or weeks may from time to time pass without any reported trades. If
limited trading in the Company's common stock continues, it may remain difficult
for stockholders to sell their shares in the public market. This limited trading
also may adversely affect the Company's ability to raise additional funds
through issuances of its securities.
No Payment of Dividends
Since its inception in 1982, the Company has not paid cash dividends on
its common stock and does not intend to pay cash dividends in the foreseeable
future due to the Company's limited funds for operations.
Control by Management and Certain Stockholders
As of October 23, 2000, the Company's executive officers, directors and
5% or greater stockholders together controlled approximately 47.7% of the
outstanding shares of the Company's common stock, the Company's sole class of
outstanding voting securities. These stockholders, acting together, are in a
position to influence and possibly control most matters submitted for approval
by the Company's stockholders, including the election of directors and the
consideration of mergers or other proposed transactions in which stockholders
might otherwise receive a premium for their shares over then current market
prices.
Potential Future Dilution to Existing Stockholders
Currently, the Company is authorized to issue up to 20,000,000 shares
of its common stock, and as of October 23, 2000, there were issued and
outstanding 19,477,429 shares of the Company's common stock. Assuming, however,
that at the annual meeting of stockholders to be held on December 15, 2000,
stockholders approve the proposed amendment to the Company's certificate of
incorporation to increase the number of authorized shares, the Company will be
authorized to issue up to 100,000,000 shares of common stock. These additional
shares may be issued by the Company in such transactions and at such times as
its Board of Directors considers appropriate, whether in public or private
offerings, as stock splits or dividends or in connection with mergers and
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acquisitions or otherwise. Any such issuance that is not made solely to
then-existing stockholders proportionate to their interests (as in a stock
dividend or stock split) will result in dilution to each stockholder by reducing
his or her percentage ownership of the total outstanding shares.
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