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permanently stopped for a variety of reasons, principally for safety concerns. In addition, the failure to
comply with applicable regulatory requirements in the U.S., including Good Clinical Practices, or GCP,
and in other countries in which we conduct development activities could result in failure to obtain
approval, as well as a variety of fines and sanctions, such as warning letters, product recalls, product
seizures, suspension of operations, fines and civil penalties or criminal prosecution.
Biopharmaceutical companies must submit the results of product development, preclinical studies and
clinical trials to the FDA as part of a new drug application, or NDA. NDAs must also contain extensive
information relating to the product's pharmacology, chemistry, manufacture, controls and proposed
labeling, among other things. The approval process is time-consuming and expensive and there are no
assurances that approval will be granted on a timely basis, or at all. Even if regulatory approvals are
granted, a marketed product is subject to comprehensive requirements under federal, state and foreign
laws and regulations. Post-marketing requirements include reporting adverse events, recordkeeping and
compliance with cGMP and marketing requirements. Adverse events reported after marketing of a drug
can result in additional restrictions being placed on the use of a drug and, possibly, in withdrawal of the
drug from the market. The FDA or similar agencies in other countries may also require labeling changes
to products at any time based on new safety information.
If drug candidates we develop are approved for commercial marketing under a New Drug Application, or
NDA, by the FDA, they would be subject to the provisions of the Drug Price Competition and Patent Term
Restoration Act of 1984, known as the ``Hatch-Waxman Act.'' The Hatch-Waxman Act provides
companies with marketing exclusivity for new chemical entities and allows companies to apply to extend
patent protection for up to five additional years. It also provides a means for approving generic versions of
a drug product once the marketing exclusivity period has ended and all relevant patents have expired (or
have been successfully challenged and defeated). The period of exclusive marketing may be shortened,
however, by a successful patent challenge. The laws of other key markets likewise create both
opportunities for exclusivity periods and patent protections and the possibility of generic competition once
such periods or protections either have reached expiry or have been successfully challenged by generic
entrants.
All facilities and manufacturing processes used in the production of Active Pharmaceutical Ingredients for
clinical use in the U.S. must be operated in conformity with cGMP as established by the FDA. Our
production takes place at a manufacturing facility that complies with cGMP, which allows us to produce
cGMP compliant compounds. In our facility, we have the capacity to produce Active Pharmaceutical
Ingredients for early clinical testing. We have validated this capability for compliance with FDA regulations
and began our first cGMP manufacturing campaign in 2002. Our cGMP facility is subject to periodic
regulatory inspections to ensure compliance with cGMP requirements. We could also be required to
comply with specific requirements or specifications of other countries or of our collaborators, which may
be more stringent than FDA regulatory requirements and which can delay timely progress in our clinical
development programs. If we fail to comply with applicable regulations, the FDA could require us to cease
ongoing research or disqualify the data submitted to regulatory authorities. Other countries have similar
regulatory powers. A finding that we had materially violated cGMP requirements could result in additional
regulatory sanctions and, in severe cases, could result in a mandated closing of our cGMP facility, which
would materially and adversely affect our business, financial condition and results of operations.
In the course of our business, we handle, store and dispose of chemicals and biological samples. We are
subject to various federal, state and local laws and regulations relating to the use, manufacture, storage,
handling and disposal of hazardous materials and waste products. These environmental laws generally
impose liability regardless of the negligence or fault of a party and may expose us to liability for the
conduct of, or conditions caused by, others.
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Most health care providers, including research institutions from whom we or our collaborators obtain
patient information, are subject to privacy and security rules under the Health Insurance Portability and
Accountability Act of 1996, or HIPAA and the recent amendments to HIPAA under the Health Information
Technology for Economic and Clinical Health Act, or HITECH. Additionally, strict personal privacy laws in
other countries affect pharmaceutical companies' activities in other countries. Such laws include the EU
Directive 95/46-EC on the protection of individuals with regard to the processing of personal data as well
as individual EU Member States, implementing laws and additional laws. Although our clinical
development efforts are not barred by these privacy regulations, we could face substantial criminal
penalties if we knowingly receive individually identifiable health information from a health care provider
that has not satisfied HIPAA's or the EU's disclosure standards. Failure by EU clinical trial partners to
obey requirements of national laws on private personal data, including laws implementing the EU Data
Protection Directive, might result in liability and/or adverse publicity. In addition, certain privacy laws and
genetic testing laws may apply directly to our operations and/or those of our collaborators and may
impose restrictions on the use and dissemination of individuals' health information.
Our clinical development activities involve the production and use of intermediate and bulk active
pharmaceutical ingredients, or API. We frequently contract with third-party manufacturers to produce
larger quantities of API for us. Some of these manufacturers are located outside the U.S. and may obtain
ingredients from suppliers in other foreign countries before shipping the bulk API to Array in the U.S.
Cross-border shipments of pharmaceutical ingredients and products are subject to regulation in the U.S.
by the FDA and in foreign jurisdictions, including, in the EU, under laws adopted by the EU Member
States implementing the Community Code on Medicinal Products Directive 2001/83, as amended. These
regulations generally impose various requirements on us and/or our third-party manufacturers. In some
cases, for example in the EU, there are cGMP requirements that exceed the requirements of the FDA. In
other cases, we must provide confirmation that we are registered with the FDA and have either a Notice of
Claimed Investigational Exemption for a New Drug or Investigational New Drug Application (IND)
application, an approved New Drug Application or an approved Biologics License Application. Third party
manufacturers may lack capacity to meet our needs go out of business or fail to perform. In addition,
supplies of raw materials needed for manufacturing or formulation of clinical supplies may not be
available or in shorty supply.
We are subject to other regulations, including regulations under the Occupational Safety and Health Act,
regulations promulgated by the U.S. Department of Agriculture, or USDA, and regulations under other
federal, state and local laws. Violations of any of these requirements could result in penalties being
assessed against us.
Intellectual Property
Our success depends in part on our ability to protect our potential drug candidates, other intellectual
property rights and our proprietary software technologies. To establish and protect our proprietary
technologies and products, we rely on a combination of patent, copyright, trademark and trade secret
laws, as well as confidentiality provisions in our contracts with collaborators.
We attempt to protect our trade secrets by entering into confidentiality agreements with our employees,
third parties and consultants. Our employees also sign agreements requiring that they assign to us their
interests in inventions, original expressions and any corresponding patents and copyrights arising from
their work for us. However, it is possible that these agreements may be breached, invalidated or rendered
unenforceable and if so, we may not have an adequate remedy available. Despite the measures we have
taken to protect our intellectual property, parties to our agreements may breach the confidentiality
provisions or infringe or misappropriate our patents, copyrights, trademarks, trade secrets and other
proprietary rights. In addition, third parties may independently discover or invent competing technologies
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