<PAGE> 1
Exhibit 99.1
RISK FACTORS
Certain statements made in this Annual Report on Form 10-Q are
forward-looking statements based on our current expectations, assumptions,
estimates and projections about our business and our industry. These
forward-looking statements involve risks and uncertainties. Our business,
financial condition and results of operations could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
as more fully described below and elsewhere in this Form 10-Q. You should
consider carefully the risks and uncertainties described below, which are not
the only ones facing our company. Additional risks and uncertainties also may
impair our business operations.
RISK RELATED TO OUR COMPANY
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, POTENTIAL INVESTORS IN OUR STOCK
MAY HAVE DIFFICULTY EVALUATING OUR PROSPECTS.
We recorded the first commercial sales of products using our
fast-dissolve technologies in early 1997. Accordingly, we have only a limited
operating history, which may make it difficult for you and other potential
investors to evaluate our prospects. The difficulty investors may have in
evaluating our prospects may cause volatile fluctuations, including decreases,
in the market price of our common stock as investors react to information about
our prospects. Since 1997, we have generated revenues from product development
fees, licensing arrangements, sales of products using our fast-dissolve
technologies and from royalties. We are currently making the transition from
research and product development operations with limited production to
commercial operations with expanding production capabilities in addition to
research and product development activities. Our business and prospects,
therefore, must be evaluated in light of the risks and uncertainties of a
company with a limited operating history and, in particular, one in the
pharmaceutical industry. We discuss many of these risks that are particularly
relevant to us in the subheadings below. However, we are also subject to general
business risks and uncertainties. You should evaluate any potential investment
in our common stock accordingly.
IF WE ARE NOT PROFITABLE IN THE FUTURE, THE VALUE OF YOUR INVESTMENT IN OUR
STOCK MAY FALL.
We have not been profitable for much of our past. If we are not
profitable in the future, the market price of our stock may fall. We have
accumulated aggregate net losses from inception through June 30, 2000 of
approximately $46 million. The costs for research and product development of our
drug delivery technologies and general and administrative expenses have been the
principal causes of our losses. Our ability to achieve sustained profitable
operations depends on a number of factors, many of which are beyond our direct
control. These factors include:
- the demand for our products;
- our ability to manufacture our products efficiently and with the
required quality;
- our ability to increase our manufacturing capacity;
- the level of product and price competition;
- our ability to develop additional commercial applications for our
products;
- our ability to control our costs; and
- general economic conditions.
WE MAY REQUIRE ADDITIONAL FINANCING, WHICH MAY NOT BE AVAILABLE ON FAVORABLE
TERMS OR AT ALL AND WHICH MAY RESULT IN DILUTION OF YOUR EQUITY INTEREST.
We may require additional financing to fund expected increases in
operating expenses and capital expenditures as we commercialize additional
applications of our drug delivery technologies and increase our production
capacity. If we cannot obtain financing when needed, or obtain it on favorable
terms, we may be required to curtail our development of new drug delivery
technologies or our expansion of manufacturing capacity. Further, if we issue
equity securities, our stockholders may experience dilution. We believe our cash
and cash equivalents, together with the net proceeds from our private placement
of common stock in March, 2000 and expected revenues from operations, will be
sufficient to meet our anticipated capital requirements for the foreseeable
future. However, we may elect to pursue additional financing at any time to more
aggressively pursue development of new drug delivery technologies and expand
manufacturing capacity beyond that currently planned.
<PAGE> 2
Exhibit 99.1
Other factors that will affect future capital requirements and may
require us to seek additional financing include:
- the level of expenditures necessary to develop new products or
technologies;
- the progress of our research and product development programs;
- the need to construct a larger than currently anticipated
manufacturing facility to meet demand for our products;
- results of our collaborative efforts with current and potential
pharmaceutical company partners; and
- the timing of, and amounts received from, future product sales,
product development fees and licensing revenue and royalties.
THE LOSS OF ONE OF OUR MAJOR CUSTOMERS COULD REDUCE OUR REVENUES SIGNIFICANTLY.
Revenues from AstraZeneca, N.V. Organon and Novartis together
represented over 85% of our total revenues for the year ended December 31, 1999.
The loss of any one of these customers could cause our revenues to decrease
significantly, resulting in, or increasing, our losses from operations. If we
cannot broaden our customer base, we will continue to depend on a few customers
for the majority of our revenues. We may be unable to negotiate favorable
business terms with customers that represent a significant portion of our
revenues. If we cannot, our revenues and gross profits may be insufficient to
allow us to achieve sustained profitability.
IF WE DO NOT ENTER INTO ADDITIONAL COLLABORATIVE AGREEMENTS WITH PHARMACEUTICAL
COMPANIES, WE MAY NOT BE ABLE TO ACHIEVE SUSTAINED PROFITABILITY.
We depend upon collaborative agreements with pharmaceutical companies
to develop, test, obtain governmental approval for, and commercialize oral
dosage forms of, active pharmaceutical ingredients using our drug delivery
technologies. The number of products that we successfully develop under these
collaborative agreements will affect our revenues. If we do not enter into
additional agreements in the future, or if our current or future agreements do
not result in successful marketing of our products, our revenues and gross
profits may be insufficient to allow us to achieve sustained profitability. We
currently have collaborative agreements with American Home Products,
AstraZeneca, Bristol-Myers Squibb, N.V. Organon, Novartis and Schwartz Pharma.
Additional risks that we face related to our collaborative agreements
include:
- we may not be able to enter into collaborative agreements to
develop additional products using our drug delivery technologies;
- any existing or future collaborative agreements may not result in
additional commercial products;
- additional commercial products that we may develop may not be
successful;
- we may not be able to meet the milestones established in our
current or future collaborative agreements; and
- we may not be able to successfully develop new drug delivery
technologies that will be attractive to potential pharmaceutical
company partners.
<PAGE> 3
Exhibit 99.1
WE RELY ON THIRD PARTIES TO MARKET, DISTRIBUTE AND SELL THE PRODUCTS
INCORPORATING OUR DRUG DELIVERY TECHNOLOGIES AND THOSE THIRD PARTIES MAY NOT
PERFORM.
Our pharmaceutical company partners help us develop, manufacture and
sell our products. If one or more of our pharmaceutical company partners fails
to pursue the development or marketing of our products as planned, our revenues
and gross profits may not reach our expectations, or may decline. We sometimes
cannot control the timing and other aspects of the development of products
because our pharmaceutical company partners may have priorities that differ from
ours. Therefore, our commercialization of products under development may be
delayed unexpectedly. Further, we incorporate our drug delivery technologies
into the oral dosage forms of products marketed and sold by our pharmaceutical
company partners. We do not have a direct marketing channel to consumers for our
drug delivery technologies. Therefore, the success of the marketing
organizations of our pharmaceutical company partners, as well as the level of
priority assigned to the marketing of our products by these entities, which may
differ from our priorities, will determine the success of the products
incorporating our technologies.
IF WE CANNOT INCREASE OUR PRODUCTION CAPACITY, WE MAY BE UNABLE TO MEET EXPECTED
DEMAND FOR OUR PRODUCTS AND WE MAY LOSE REVENUES.
We must increase our production capacity to meet expected demand for
our products. We currently have one production line and a second line is being
developed. If we are unable to increase our production capacity as scheduled, we
may be unable to meet expected demand for our products, we may lose revenues and
we may not be able to maintain our relationships with our pharmaceutical company
partners on good terms. Production lines in the pharmaceutical industry
generally take 16 to 24 months to complete because of the long lead times
required for precision production equipment and the lengthy testing and approval
process. We expect our second production line to be operational in the second
half of 2001, although we may experience difficulties that could delay our
ability to increase our manufacturing capacity. We may not be able to increase
our production capacity quickly enough to meet the requirements of our
pharmaceutical company partners with whom we are developing our drug delivery
technologies.
WE HAVE A SINGLE MANUFACTURING FACILITY AND WE MAY LOSE REVENUES AND BE UNABLE
TO MAINTAIN OUR RELATIONSHIPS WITH OUR PHARMACEUTICAL COMPANY PARTNERS IF WE
LOSE ITS PRODUCTION CAPACITY.
We manufacture all of the products that we produce on our existing
production line in our Eden Prairie facility. If our existing production line or
facility becomes incapable of manufacturing products for any reason, we may be
unable to meet production requirements, we may lose revenues and we may not be
able to maintain our relationships with our pharmaceutical company partners.
Without our existing production line, we would have no other means of
manufacturing products incorporating our drug delivery technologies until we
were able to restore the manufacturing capability at our facility or develop an
alternative manufacturing facility. Although we carry business interruption
insurance to cover lost revenues and profits in an amount we consider adequate,
this insurance does not cover all possible situations. In addition, our business
interruption insurance would not compensate us for the loss of opportunity and
potential adverse impact on relations with our existing pharmaceutical company
partners resulting from our inability to produce products for them.
WE RELY ON A SINGLE SOURCE FOR SOME OF OUR RAW MATERIALS, WE MAY LOSE REVENUES
AND WE MAY NOT BE ABLE TO MAINTAIN OUR RELATIONSHIP WITH OUR PHARMACEUTICAL
COMPANY PARTNERS IF THOSE MATERIALS WERE NOT AVAILABLE FROM THEIR CURRENT
SOURCE.
We rely on single suppliers for some of our raw materials and packaging
supplies. If these raw materials or packaging supplies were no longer available
we may be unable to meet production requirements, we may lose revenues and we
may not be able to maintain our relationships with our pharmaceutical company
partners. Without adequate supplies of raw materials or packaging supplies, our
manufacturing operations may be interrupted until another supplier could be
identified, its products validated and trading terms with it negotiated. We may
not be able to identify an alternative supplier in a timely manner, or at all.
Furthermore, we may not be able to negotiate favorable terms with an alternative
supplier. Any disruptions in our manufacturing operations from the loss of a
supplier could potentially damage our relations with our pharmaceutical company
partners.
<PAGE> 4
Exhibit 99.1
IF WE CANNOT DEVELOP ADDITIONAL PRODUCTS, OUR ABILITY TO INCREASE OUR REVENUES
WOULD BE LIMITED.
We intend to continue to enhance our current technologies and pursue
additional proprietary drug delivery technologies. If we are unable to do so, we
may be unable to achieve our objectives of revenue growth and sustained
profitability. Even if enhanced or additional technologies appear promising
during various stages of development, we may not be able to develop commercial
applications for them because:
- the potential technologies may fail clinical studies;
- we may not find a pharmaceutical company to adopt the technologies;
- it may be difficult to apply the technologies on a commercial
scale; or
- the technologies may be uneconomical to market.
IF PATIENTS AND PHYSICIANS DO NOT ACCEPT OUR DRUG DELIVERY TECHNOLOGIES, WE MAY
BE UNABLE TO GENERATE SIGNIFICANT REVENUES.
Our revenues depend on ultimate patient and physician acceptance of our
drug delivery technologies as an alternative to conventional drug delivery
systems. If our drug delivery technologies are not accepted in the marketplace,
our pharmaceutical company partners may be unable to successfully market and
sell our products, which would limit our ability to generate revenues and to
achieve sustained profitability. The degree of acceptance of any drug delivery
system depends on a number of factors. These factors include:
- demonstrated clinical efficacy and safety;
- cost-effectiveness;
- convenience and ease of administration;
- advantages over alternative drug delivery systems; and
- marketing and distribution support.
In addition, we expect that our pharmaceutical company partners will
price products incorporating our drug delivery technologies slightly higher than
conventional swallowable or chewable tablets, which may impair their acceptance.
Because only a limited number of products incorporating our drug delivery
technologies are commercially available, we cannot yet assess the level of
market acceptance of our drug delivery technologies.
DEMAND FOR SOME OF OUR PRODUCTS IS SEASONAL, AND OUR SALES AND PROFITS MAY
SUFFER DURING PERIODS WHEN DEMAND IS LIGHT.
Certain non-prescription products that we manufacture for our
pharmaceutical company partners to treat seasonal ailments such as colds and the
flu. Our pharmaceutical company partners may choose to not market those products
in off-seasons and our sales and profits may decline in those periods as a
result. In 1999, revenues from Novartis, which included revenues related to
Triaminic, a cold and flu product, represented 42% of our total revenues. We may
not be successful in developing a mix of non-prescription and prescription
products to reduce these seasonal variations.
IF WE CANNOT ADEQUATELY PROTECT OUR TECHNOLOGY AND PROPRIETARY INFORMATION, WE
MAY BE UNABLE TO SUSTAIN A COMPETITIVE ADVANTAGE.
Our success depends, in part, on our ability to obtain and enforce
patents for our products, processes and technologies and to preserve our trade
secrets and other proprietary information. If we cannot do so, our competitors
may exploit our innovations and deprive us of the ability to realize revenues
and profits from our developments. We have been granted seven patents on our
drug delivery systems in the U.S., which will expire beginning in 2010.
Any patent applications we may have made or may make relating to our
potential products, processes and technologies may not result in patents being
issued. Our current patents may not be valid or enforceable. They may not
protect us against competitors that challenge our patents, obtain patents that
may have an adverse effect on our ability to conduct business or are able to
circumvent our patents. Further, we may not have the necessary financial
resources to enforce our patents.
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Exhibit 99.1
To protect our trade secrets and proprietary technologies and
processes, we rely, in part, on confidentiality agreements with our employees,
consultants and advisors. These agreements may not provide adequate protection
for our trade secrets and other proprietary information in the event of any
unauthorized use or disclosure, or if others lawfully develop the information.
THIRD PARTIES MAY CLAIM THAT OUR TECHNOLOGIES, OR THE PRODUCTS IN WHICH THEY ARE
USED, INFRINGE ON THEIR PROPRIETARY RIGHTS AND WE MAY INCUR SIGNIFICANT COSTS
RESOLVING THESE CLAIMS.
Third parties may claim that the manufacture, use or sale of our drug
delivery technologies infringe their patent rights. If such claims are asserted,
we may have to seek licenses, defend infringement actions or challenge the
validity of those patents in court. If we could not obtain required licenses,
are found liable for infringement or are not able to have these patents declared
invalid, we may be liable for significant monetary damages, encounter
significant delays in bringing products to market or be precluded from
participating in the manufacture, use or sale of products or methods of drug
delivery covered by the patents of others. We may not have identified, or be
able to identify in the future, U.S. and foreign patents that pose a risk of
potential infringement claims.
We enter into collaborative agreements with pharmaceutical companies to
apply our drug delivery technologies to drugs developed by others. Ultimately,
we receive license revenues and product development fees, as well as revenues
from the sale of products incorporating our technology and royalties. The drugs
to which our drug delivery technologies are applied are generally the property
of the pharmaceutical companies. Those drugs may be the subject of patents or
patent applications and other forms of protection owned by the pharmaceutical
companies or third parties. If those patents or other forms of protection
expire, become ineffective or are subject to the control of third parties, sales
of the drugs by the collaborating pharmaceutical company may be restricted or
may cease. Our revenues, in that event, may decline.
WE MAY INCUR SIGNIFICANT COSTS SEEKING APPROVAL FOR OUR PRODUCTS AND IF WE ARE
NOT SUCCESSFUL, WE MAY BE UNABLE TO ACHIEVE OUR ANTICIPATED REVENUES AND
PROFITS.
The federal government, principally the U.S. Food and Drug
Administration, and state and local government agencies regulate all new
pharmaceutical products, including our existing products and those under
development. We may incur significant costs attempting to obtain regulatory
approval for our products. If we are not successful, our revenues and
profitability may decline.
Applicants for FDA approval often must submit extensive clinical data
and supporting information to the FDA. Varying interpretations of the data
obtained from pre-clinical and clinical testing could delay, limit or prevent
regulatory approval of a drug product. Changes in FDA approval policy during the
development period, or changes in regulatory review for each submitted new drug
application also may cause delays or rejection of an approval. Even if the FDA
approves a product, the approval may limit the uses or "indications" for which a
product may be marketed, or may require further studies. The FDA also can
withdraw product clearances and approvals for failure to comply with regulatory
requirements or if unforeseen problems follow initial marketing.
Manufacturers of drugs also must comply with applicable good
manufacturing practices requirements. If we cannot comply with applicable good
manufacturing practices we may be required to suspend the production and sale of
our products, which would reduce our revenues and gross profits. We may not be
able to comply with the applicable good manufacturing practices and other FDA
regulatory requirements for manufacturing as we expand our manufacturing
operations.
If our products are marketed in foreign jurisdictions, we, and the
pharmaceutical companies with whom we are developing our technologies, must
obtain required regulatory approvals from foreign regulatory agencies and comply
with extensive regulations regarding safety and quality. If approvals to market
our products are delayed, if we fail to receive these approvals, or if we lose
previously received approvals, our revenues would be reduced. We may not be able
to obtain all necessary foreign regulatory approvals. We may be required to
incur significant costs in obtaining or maintaining foreign regulatory
approvals.
WE MAY BE SUBJECT TO SANCTIONS IF WE FAIL TO COMPLY WITH REGULATORY
REQUIREMENTS.
<PAGE> 6
Exhibit 99.1
If we, or pharmaceutical companies with whom we are developing our
technologies, fail to comply with applicable FDA and other regulatory
requirements, we, and they, may be subject to sanctions, including:
- warning letters;
- fines;
- product seizures or recalls;
- injunctions;
- refusals to permit products to be imported into or exported out of
the U.S.;
- total or partial suspension of production;
- withdrawals of previously approved marketing applications; and
- criminal prosecutions.
IF THE MARKETING CLAIMS ASSERTED ABOUT OUR PRODUCTS ARE NOT APPROVED, OUR
REVENUES MAY BE LIMITED.
Once a drug product is approved by the FDA, the Division of Drug
Marketing, Advertising and Communication, the FDA's marketing surveillance
department within the Center for Drugs, must approve marketing claims asserted
by our pharmaceutical company partners. If our pharmaceutical company partners
fail to obtain from the Division of Drug Marketing acceptable marketing claims
for a product incorporating our drug technology, our revenues from that product
may be limited. Marketing claims are the basis for a product's labeling,
advertising and promotion. The claims our pharmaceutical company partners are
asserting about our drug delivery technology, or the drug product itself, may
not be approved by the Division of Drug Marketing.
IF WE DO NOT PROPERLY MANAGE OUR GROWTH, WE MAY BE UNABLE TO SUSTAIN THE LEVEL
OF REVENUES WE HAVE ATTAINED OR EFFECTIVELY PURSUE ADDITIONAL BUSINESS
OPPORTUNITIES.
Our revenues increased 76% from the year ended December 31, 1998 to the
year ended December 31, 1999, placing significant stress on our management,
administrative and operational resources. If we do not properly manage the
growth we have recently experienced and expect in the future, our revenues may
decline or we may be unable to pursue sources of additional revenues. To
properly manage our growth, we must, among other things, implement additional
and improve existing administrative, financial and operational systems,
procedures and controls on a timely basis. We will also need to expand our
finance, administrative and operations staff. We may not be able to complete the
improvements to our systems, procedures and controls necessary to support our
future operations in a timely manner. We may not be able to hire, train,
integrate, retain, motivate and manage required personnel and may not be able to
successfully identify, manage and exploit existing and potential market
opportunities. Improving our systems and increasing our staff will increase our
operating expenses. If we fail to generate additional revenue in excess of
increased operating expenses in any fiscal period we may incur losses, or our
losses may increase in that period.
IF WE CANNOT ATTRACT AND RETAIN KEY PERSONNEL, ON WHICH WE DEPEND, WE MAY NOT BE
ABLE TO EXECUTE OUR BUSINESS PLAN AS ANTICIPATED.
During our operating history, we have assigned many key
responsibilities within our company to a relatively small number of individuals.
If we lose the services of John Siebert, our Chief Executive Officer, or John
Hontz, our Chief Operating Officer, we may have difficulty executing our
business plan in the manner we currently anticipate. The competition for
qualified personnel is intense, and the loss of services of key personnel could
adversely affect our business. We have an employment agreement through December
31, 2000 with Dr. Siebert. We do not maintain key person insurance for any of
our key personnel.
We rely on our consultants to assist us in formulating our research and
development strategy. All of our consultants are otherwise employed and each of
these consultants may have commitments to other entities that may limit their
availability to us or other interests that may conflict with our interests.
<PAGE> 7
Exhibit 99.1
WE MAY FACE PRODUCT LIABILITY CLAIMS RELATED TO PARTICIPATION IN CLINICAL TRIALS
OR THE USE OR MISUSE OF OUR PRODUCTS.
The testing, manufacturing and marketing of products utilizing our drug
delivery technologies may expose us to potential product liability and other
claims resulting from their use. If any such claims against us are successful,
we may be required to make significant compensation payments. Any
indemnification that we have obtained, or may obtain, from contract research
organizations or pharmaceutical companies conducting human clinical trials on
our behalf may not protect us from product liability claims or from the costs of
related litigation. Similarly, any indemnification we have obtained, or may
obtain, from pharmaceutical companies with whom we are developing our drug
delivery technologies may not protect us from product liability claims from the
consumers of those products or from the costs of related litigation. If we are
subject to a product liability claim, our product liability insurance, which has
an aggregate policy limit of $5 million, may not reimburse us, or be sufficient
to reimburse us, for any expenses or losses we may suffer. A successful product
liability claim against us, if not covered by, or if in excess of, our product
liability insurance, may require us to make significant compensation payments,
which would be reflected as expenses on our statement of operations.
RISKS RELATED TO OUR INDUSTRY
IF WE CANNOT KEEP PACE WITH THE RAPID TECHNOLOGICAL CHANGE AND MEET THE INTENSE
COMPETITION IN OUR INDUSTRY, WE MAY LOSE BUSINESS.
Our success depends, in part, upon maintaining a competitive position
in the development of products and technologies in a rapidly evolving field. If
we cannot maintain competitive products and technologies, our current and
potential pharmaceutical company partners may choose to adopt the drug delivery
technologies of our competitors. Fast-dissolve tablet technologies that compete
with our OraSolv and DuraSolv technologies include the Zydis technology
developed by R.P. Scherer Corporation, the WOWTab technology developed by
Yamanouchi Shaklee Pharmaceuticals, the Flashtab technology developed by
Laboratories Prographarm, and FlashDose technology developed by Fuizz
Technologies Ltd. We also compete generally with other drug delivery,
biotechnology and pharmaceutical companies, engaged in the development of
alternative drug delivery technologies or new drug research and testing. Many of
these competitors have substantially greater financial, technological,
manufacturing, marketing, managerial and research and development resources and
experience than we do, and, therefore, represent significant competition for us.
Our competitors may succeed in developing competing technologies or
obtaining governmental approval for products before we do. The products of our
competitors may gain market acceptance more rapidly than our products.
Developments by competitors may render our products, or potential products,
noncompetitive or obsolete.
OUR COMMERCIAL PRODUCTS ARE SUBJECT TO CONTINUING REGULATION AND WE MAY BE
SUBJECT TO ADVERSE CONSEQUENCES IF WE FAIL TO COMPLY WITH APPLICABLE
REGULATIONS.
Even if our products receive regulatory approval, either in the U.S. or
internationally, we will continue to be subject to extensive regulatory
requirements. These regulations are wide-ranging and govern, among other things:
- adverse drug experience reporting regulations;
- product promotion;
- product manufacturing, including good manufacturing practice
requirements; and
- product changes or modifications.
If we fail to comply or maintain compliance with these laws and
regulations, we may be fined or barred from selling our products. If the FDA
believes that we are not complying with the law, it can:
- seize our products;
- mandate a recall;
- stop future sales through injunctive procedures; and/or
- assess civil and criminal penalties against us.
<PAGE> 8
Exhibit 99.1
RISKS RELATED TO OUR COMMON STOCK
ANTI-TAKEOVER PROVISIONS OF OUR CORPORATE CHARTER DOCUMENTS, DELAWARE LAW AND
OUR STOCKHOLDERS' RIGHTS PLAN MAY AFFECT THE PRICE OF OUR COMMON STOCK.
Our corporate charter documents, Delaware law and our stockholders'
rights plan include provisions that may discourage or prevent parties from
attempting to acquire us. These provisions may have the effect of depriving our
stockholders of the opportunity to sell their stock at a price in excess of
prevailing market prices in an acquisition of us by another company. Our board
of directors has the authority to issue up to 5,000,000 shares of preferred
stock and to determine the rights, preferences and privileges of those shares
without any further vote or action by our stockholders. The rights of holders of
our common stock may be adversely affected by the rights of the holders of any
preferred stock that may be issued in the future. Additional provisions of our
certificate of incorporation and bylaws could have the effect of making it more
difficult for a third party to acquire a majority of our outstanding voting
common stock. These include provisions that limit the ability of stockholders to
call special meetings or remove a director for cause.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, which prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" 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. For purposes of Section 203, a "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an "interested stockholder" is a
person who, either alone or together with affiliates and associates, owns (or
within the past three years, did own) 15% or more of the corporation's voting
stock.
We also have a stockholders' rights plan, commonly referred to as a
poison pill, which makes it difficult, if not impossible, for a person to
acquire control of us without the consent of our board of directors.
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
The trading price of our common stock has been, and is likely to
continue to be highly volatile. The market value of your investment in our
common stock may fall sharply at any time due to this volatility. In the year
ended December 31, 1999, the trading price of our common stock ranged from $2.53
to $13.50. In the year ended December 31, 1998, the trading price for our common
stock ranged from $2.09 to $4.97. The market prices for securities of drug
delivery, biotechnology and pharmaceutical companies historically have been
highly volatile. Factors that could adversely affect our stock price include:
- fluctuations in our operating results;
- announcements of technological collaborations, innovations or new
products by us or our competitors;
- governmental regulations; - developments in patent or other
proprietary rights;
- public concern as to the safety of drugs developed by us or others;
- the results of pre-clinical testing and clinical studies or trials
by us or our competitors;
- litigation; and
- general market conditions.
OUR OPERATING RESULTS MAY FLUCTUATE, CAUSING OUR STOCK PRICE TO FALL.
Fluctuations in our operating results may lead to fluctuations,
including declines, in our stock price. Our operating results may fluctuate from
quarter to quarter and from year to year depending on:
- demand by patients for the products we produce;
- new product introductions;
- the seasonal nature of the products we produce to treat seasonal
ailments;
- pharmaceutical company ordering patterns;
- the number of new collaborative agreements that we enter into;
<PAGE> 9
Exhibit 99.1
- our achievement of product development milestones under
collaborative agreements; and
- our level of activity conducted on behalf and at the direction of
pharmaceutical companies.
FUTURE SALES OF COMMON STOCK, OR THE PROSPECT OF FUTURE SALES, MAY DEPRESS OUR
STOCK PRICE.
Sales of a substantial number of shares of common stock, or the
perception that sales may occur, could adversely affect the market price of our
common stock. On March 17, 2000, we issued and sold 1,100,000 shares of our
common stock to a limited number of investors in a private placement, exempt
from registration under the Securities Act of 1933. Under the stock purchase
agreement with the investors, we were required to file a registration statement
with the Securities and Exchange Commission within thirty days after March 17,
2000 for the resale by the investors of the shares of common stock issued in the
private placement. We also are required to use our reasonable efforts to have
the registration statement declared effective by the Securities and Exchange
Commission and maintain its effectiveness until the earlier of March 17, 2002,
the time at which all shares acquired in the private placement have been sold
under the registration statement, or the date on which each investor may sell
all of the shares of common stock acquired by the investor in the private
placement without registration or without regard to any volume limitations.
Significant resales of the common stock issued in the private placement could
adversely affect the market price of our common stock ders may experience
dilution.
