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or royalty payments under existing collaboration agreements and to enter into new partnering
arrangements that generate additional revenue through up-front fees and milestone or royalty payments
is subject to a number of risks, many of which are beyond our control. If we are unable to generate enough
revenue from our existing or new collaborations when needed or secure additional sources of funding, we
may be forced to reduce our current rate of research and development spending or to curtail our
operations significantly. These events may result in an inability to maintain a level of liquidity necessary to
continue operating our business and the loss of all or a part of the investment of our stockholders in our
common stock. In addition, if we are unable to maintain certain levels of cash and marketable securities,
our obligations under our credit facilities with Deerfield and our loan agreement with Comerica Bank may
be accelerated.
We have a history of operating losses and may not achieve or sustain profitability.
We have incurred significant operating and net losses and negative cash flows from operations since our
inception. As of June 30, 2012, we had an accumulated deficit of $570.7 million. We had net losses of
$23.6 million, $56.3 million, and $77.6 million for the fiscal years ended June 30, 2012, 2011 and 2010,
respectively. We expect to incur additional losses and negative cash flows in the future, and these losses
may continue or increase in part due to anticipated levels of expenses for research and development,
particularly clinical development and expansion of our clinical and scientific capabilities to support
ongoing development of our programs. As a result, we may not be able to achieve or maintain profitability.
We may not receive royalty or milestone revenue under our collaboration agreements for several
years, or at all.
Much of our current revenue is non-recurring in nature and unpredictable as to timing and amount.
Several of our out-license and collaboration agreements provide for royalties on product sales. However,
because none of our drug candidates have been approved for commercial sale, our drug candidates are
at early stages of development and drug development entails a high risk of failure, we do not expect to
receive any royalty revenue for several years, if at all. For the same reasons, we may never realize much
of the milestone revenue provided for in our out-license and collaboration agreements. Similarly, drugs
we select to commercialize ourselves or partner for later-stage co-development and commercialization
may not generate revenue for several years, or at all.
We may not be successful in entering into additional out-license agreements on favorable terms,
which may adversely affect our liquidity or require us to change our spending priorities on our
proprietary programs.
We are committing significant resources to create our own proprietary drug candidates and to build a
commercial-stage biopharmaceutical company. We have built our clinical and discovery programs
through spending $520.8 million from our inception through June 30, 2012. In fiscal 2012, we spent
$56.7 million in research and development for proprietary programs, compared to $63.5 million and
$72.5 million for fiscal years 2011 and 2010, respectively. Our proprietary drug discovery programs are in
their early stage of development and are unproven. Our ability to continue to fund our planned spending
on our proprietary drug programs and in building our commercial capabilities depends to a large degree
on up-front fees, milestone payments and other revenue we receive as a result of our partnered
programs. To date, we have entered into nine out-licensing agreements for the development and
commercialization of our drug candidates, and we plan to continue initiatives during fiscal 2013 to partner
select clinical candidates to obtain additional capital.
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We may not be successful, however, in entering into additional out-licensing agreements with favorable
terms, including up-front, milestone, royalty and/or license payments and the retention of certain valuable
commercialization or co-promote rights, as a result of factors, many of which are outside of our control.
These factors include:
our ability to create valuable proprietary drugs targeting large market opportunities;
research and spending priorities of potential licensing partners;
willingness of and the resources available to pharmaceutical and biotechnology companies to
in-license drug candidates to fill their clinical pipelines;
the success or failure, and timing, of pre-clinical and clinical trials for our proprietary programs we
intend to out-license; or
our ability or inability to generate proof-of-concept data and to agree with a potential partner on the
value of proprietary drug candidates we are seeking to out-license, or on the related terms.
If we are unable to enter into out-licensing agreements and realize milestone, license and/or up-front fees
when anticipated, it may adversely affect our liquidity and we may be forced to curtail or delay
development of all or some of our proprietary programs, which in turn may harm our business and the
value of our stock. In addition, insufficient funds may require us to relinquish greater rights to product
candidates at an earlier stage of development or on less favorable terms to us or our stockholders than
we would otherwise choose to obtain funding for our operations.
We may not out-license our proprietary programs at the most appropriate time to maximize the
total value or return of these programs to us.
A critical aspect of our business strategy is to out-license drug candidates for further development,
co-development and/or commercialization to obtain the highest possible value while also evaluating
earlier out-licensing opportunities to maximize our risk-adjusted return on our investment in proprietary
research. Because the costs and risk of failure of bringing a drug to market are high, the value of
out-licensing a drug candidate generally increases as it successfully progresses through clinical trials.
We may choose or be forced to out-license a drug candidate or program on terms that require us to
relinquish commercial or market rights or at a point in the research and development process that does
not provide as great a value or return than what might have been obtained if we had further developed the
candidate or program internally. Likewise, we may decline, or be unable to obtain favorable, early
out-licensing opportunities in programs that do not result in a commercially viable drug, which could leave
the resulting program with little or no value even though significant resources were invested in its
development. Our inability to successfully out-license our programs on favorable terms could materially
adversely affect our results of operations and cash flows.
Our drug candidates are at early stages of development and we may not successfully develop a
drug candidate that becomes a commercially viable drug.
The drug discovery and development process is highly uncertain and we have not developed, and may
never develop, a drug candidate that ultimately leads to a commercially viable drug. All of our most
advanced drug candidates are in the early stages of development, in either Phase 1 or Phase 2, and we
do not have any drugs approved for commercial sale. Before a drug product is approved by the FDA, for
commercial marketing, it is tested for safety and effectiveness in clinical trials that can take up to six years
or longer. Promising results in preclinical development or early clinical trials may not be predictive of
results obtained in later clinical trials. A number of pharmaceutical companies have experienced
significant setbacks in advanced clinical trials, even after obtaining promising results in earlier preclinical
and clinical trials. At any time, we, the FDA or an Institutional Review Board may place a clinical trial on
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