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include their ability to hire and retain qualified scientists, the resources available for entering into drug
discovery collaborations and the spending priorities among various types of research activities. In
addition, our ability to convince these companies to use our drug discovery capabilities, rather than
develop them internally, depends on many factors, including our ability to:
develop and implement drug discovery technologies that will result in the identification of higher-
quality drug candidates;
attract and retain experienced, high caliber scientists;
achieve timely, high-quality results at an acceptable cost; and
design, create and manufacture our chemical compounds in quantities, at purity levels and at costs
that are acceptable to our collaborators.
The importance of these factors varies depend on the company and type of discovery program and we
may be unable to meet any or all of them in the future. Even if we are able to address these factors, these
companies may still decide to perform these activities internally or retain other companies that provide
drug research and development expertise similar to ours.
Our research and development capabilities may not produce viable drug candidates.
We have entered into several research and development collaborations under which we provide drug
discovery and development services to identify drug candidates for our collaborators. We also seek to
identify and develop drug candidates for our proprietary programs. It is uncertain whether we will be able
to provide drug discovery more efficiently or create high quality drug candidates that are suitable for our or
our collaborators' purposes, which may result in delayed or lost revenue, loss of collaborators or failure to
expand our existing relationships. Our ability to create viable drug candidates for ourselves and our
collaborators depends on many factors, including the implementation of appropriate technologies, the
development of effective new research tools, the complexity of the chemistry and biology, the lack of
predictability in the scientific process and the performance and decision-making capabilities of our
scientists. Our information-driven technology platform, which we believe allows our scientists to make
better decisions, may not enable our scientists to make correct decisions or develop viable drug
candidates.
Risks Related To Our Industry
The concentration of the pharmaceutical and biotechnology industry and any further
consolidation could reduce the number of our potential collaborators.
There are a limited number of pharmaceutical and biotechnology companies and these companies
represent a significant portion of the market for our capabilities. The number of our potential collaborators
could decline even further through consolidation among these companies. If the number of our potential
collaborators declines even further, they may be able to negotiate greater rights to the intellectual
property they license from us, price discounts or other terms that are unfavorable to us.
Capital market conditions may reduce our biotechnology collaborators' ability to fund research
and development.
Traditionally, many unprofitable biotechnology companies have funded their research and development
expenditures through raising capital in the equity markets. Declines and uncertainties in these markets
have severely restricted their ability to raise new capital and to continue to expand or fund existing
research and development efforts. If our current or future biotechnology collaborators are unable to raise
sufficient capital to fund research and development expenditures, we may not be able to expand or
maintain current revenue.
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Health care reform, including those based on recently enacted legislation and cost control
initiatives by third-party payors, could reduce the prices that can be charged for drugs, which
could limit the commercial success of our drug candidates.
In March 2010, the President signed the Patient Protection and Affordable Care Act and the Health Care
and Education Reconciliation Act of 2010, together the ``Healthcare Reform Act.'' These laws
substantially change the way health care is financed by both governmental and private insurers and
significantly impacts the pharmaceutical industry. The Healthcare Reform Act contains a number of
provisions that will be expected to impact our business and operations, in some cases in ways we cannot
currently predict. Changes that may affect our business include those governing enrollment in federal
healthcare programs, mandatory discounts on pharmaceuticals under federal health care programs,
reimbursement changes and fraud and abuse enforcement. These changes will impact existing
government healthcare programs and will result in the development of new programs, including Medicare
payment for performance initiatives and improvements to the physician quality reporting system and
feedback program.
Additional provisions of the Healthcare Reform Act, some of which became effective in 2011, may
negatively affect any associated product revenues and prospects for continued profitability in the future.
For example, the Healthcare Reform Act imposes a non-deductible annual fee on pharmaceutical
manufacturers or importers that sell branded prescription drugs to U.S. government programs that may
impact any associated product revenue and therefore revenue we are entitled to receive from royalties on
product sales. In addition, as part of the Healthcare Reform Act's provisions closing a funding gap that
currently exists in the Medicare Part D prescription drug program (commonly known as the ``donut hole''),
manufacturers of branded prescription drugs will be required to provide a 50% discount on drugs
dispensed to beneficiaries within this donut hole. Earlier this year, the Supreme Court of the United States
heard challenges to the constitutionality of the individual mandate and the viability of certain provisions of
the Healthcare Reform Act. The Supreme Court's decision in
Nat'l Federation of Independent Business v.
Sebelius upheld most of the Healthcare Reform Act and determined that requiring individuals to maintain
``minimum essential'' health insurance coverage or pay a penalty to the Internal Revenue Service was
within Congress's constitutional taxing authority. However, the Supreme Court struck down a provision in
the Healthcare Reform Act that penalized states which chose not to expand their Medicaid programs
through an increase in the Medicaid eligibility income limit from a state's current eligibility levels to 133%
of the federal poverty limit. As a result of the Supreme Court's ruling, it is unclear whether states will
expand their Medicaid programs by raising the income limit to 133% of the federal poverty level and
whether there will be more uninsured patients in 2014 than anticipated when Congress passed the
Healthcare Reform Act. An increase in the proportion of uninsured patients who are prescribed products
resulting from our proprietary or partnered programs could impact our business. We expect that the
Healthcare Reform Act and other healthcare reform measures that may be adopted in the future could
have a material adverse effect on our industry generally and on the ability of Array or our collaborators to
successfully commercialize product candidates or could limit or eliminate our future spending on
development projects.
In addition to the Healthcare Reform Act, there will continue to be proposals by legislators at both the
federal and state levels, regulators and third-party payors to keep healthcare costs down while expanding
individual healthcare benefits. Certain of these changes could limit the prices that can be charged for
drugs we develop or the amounts of reimbursement available for these products from governmental
agencies or third-party payors, or may increase the tax obligations on pharmaceutical companies,
increase our rebate liability and discount obligations and so may limit our commercial opportunity and
reduce any associated revenue and profits. For example, federal laws require drug manufacturers to pay
specified rebates to each state Medicaid program for medicines reimbursed by Medicaid and to provide
discounts for out-patient medicines purchased by certain safety net providers and ``disproportionate
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