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regulatory approvals in order to market our products and receive product
revenues or royalties. No regulatory agency has approved the full commercial
sale of any of our products. We cannot assure you that the drug will ultimately
be demonstrated to be safe or efficacious. In addition, while Ampligen is
authorized for use in clinical trials in the United States and other countries,
we cannot assure you that additional clinical trials approvals will be
authorized in the United States or in other countries, in a timely fashion or at
all, or that we will complete these clinical trials. Further, we cannot assure
you that Ampligen will be commercially successful in any country that may
approve its use. If Ampligen or one of our other products does not receive
regulatory approval in the U.S. or elsewhere, our operations will be
significantly affected.
3. We may not be profitable unless we can protect our patents and/or
receive approval for additional pending patents.
We need to acquire enforceable patents covering the use of Ampligen for
a particular disease in order to obtain exclusive rights for the commercial sale
of Ampligen. Our success depends, in large part, on our ability to obtain patent
protection for our products and to obtain and preserve our trade secrets and
knowhow. We have been issued certain patents on the use of Ampligen alone and
Ampligen in combination with certain other drugs for the treatment of HIV. We
have also been issued patents on the use of Ampligen alone and in combination
with certain other drugs for the treatment of chronic hepatitis B virus, chronic
hepatitis C virus, and a patent which affords protection on the use of Ampligen
in patients with chronic fatigue syndrome. To date, we have not been issued any
patents in the U.S. for the use of Ampligen as a sole treatment for any of the
cancers which we have sought to target. Our applications for U.S. patents for
the use of Ampligen in the treatment of renal cell carcinoma and lung cancer are
currently pending. We cannot assure you that any of these applications will be
approved or that our competitors will not seek and obtain patents regarding the
use of Ampligen in combination with various other agents, including AZT, for a
particular target indication prior to us. If we cannot protect our patents
covering the use of Ampligen for a particular disease, or obtain additional
pending patents, we may not be able to successfully market Ampligen.
4. We may not be profitable unless we can produce Ampligen in commercial
quantities at costs acceptable to us.
We have never produced Ampligen or any other products in large
commercial quantities. Ampligen is currently produced only for use in clinical
trials. We must manufacture our products in compliance with regulatory
requirements at commercial quantities and at acceptable costs in order for us to
be profitable. We intend to utilize third-party manufacturers and/or facilities
if and when the need arises or, if we are unable to do so, to build or acquire
commercial-scale manufacturing facilities. We have entered into an agreement
with Bioclones, Ltd., a biopharmaceutical company which is associated with South
African
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Breweries, Ltd. The Bioclones agreement provides for the construction of a new
commercial manufacturing facility by Ribotech, Ltd., a company of which we own
24.9%. We have not commenced constructing this facility. A pilot facility in
South Africa is being expanded to provide an increased supply of Ampligen raw
material. The construction of the commercial facility is dependent upon the
regulatory status of Ampligen, or other products covered by our patents in
various global markets, and we cannot give assurances with respect to when, and
if, construction will be initiated or completed. If we cannot manufacture
commercial quantities of Ampligen or enter into third party agreements for its
manufacture at costs acceptable to us, our operations will be significantly
affected.
5. If our distributors do not market our product successfully, we may not
generate significant revenues or become profitable.
We have limited marketing and sales capability. We need to enter into
marketing agreements and third party distribution agreements for our products in
order to generate significant revenues and become profitable. To the extent that
we enter into co-marketing or other licensing arrangements, any revenues
received by us will be dependent on the efforts of third parties, and there is
no assurance that these efforts will be successful. Our agreement with Olsten
Health Services offers the potential to provide significant marketing and
distribution capacity in the United States while Bioclones, Ltd. will be
responsible for fielding an adequate sales force in South America, Africa,
United Kingdom, Australia and New Zealand. Olsten Health Services is able to
deliver treatment and services to chronic disease patients including infusion
services, home nursing and other medical services through a national network of
more than 500 locations. Nevertheless, we cannot assure you that Olsten Health
Services or Bioclones will be able to successfully distribute our products, or
that we will be able to establish future marketing or third party distribution
agreements on terms acceptable to us, or that the cost of establishing these
arrangements will not exceed any product revenues. If we cannot enter into
future marketing and distribution agreements at terms acceptable to us, or if
these distributors cannot effectively market and distribute our products, our
operations will be negatively affected.
6. We may be subject to product liability claims from the use of Ampligen
or other of our products which could negatively affect our future
operations.
We face an inherent business risk of exposure to product liability
claims in the event that the use of Ampligen or other of our products results in
adverse effects. This liability might result from claims made directly by
patients, hospitals, clinics or other consumers, or by pharmaceutical companies
or others manufacturing these products on our behalf. Our future operations may
be negatively effected from the litigation costs, settlement expenses and lost
product sales inherent to these claims. While we will continue to attempt to
take appropriate precautions, we cannot assure you that we will avoid
significant product liability exposure.
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Although we currently maintain worldwide product liability insurance coverage in
the amount of $1,000,000, there can be no assurance that this insurance will
provide adequate coverage against product liability claims. While no product
liability claims are pending or threatened against us to date, a successful
product liability claim against us in excess of our insurance coverage could
have a negative effect on our business and financial condition.
7. Members of our Scientific Advisory Board have conflicting interests and
may disclose data and technical knowhow to our competitors.
All of our Scientific Advisory Board members are employed by other
entities, which may include our competitors. Although we require each of our
Scientific Advisory Board members to sign a non-disclosure and non-competition
agreement with respect to the data and information that he or she receives from
us, we cannot assure you that members will abide by them. If a member were to
reveal this information to outside sources, accidentally or otherwise, our
operations could be negatively effected. Since our business depends in large
part on our ability to keep our knowhow confidential, any revelation of this
information to a competitor or other source could have an adverse effect on our
operations.
8. The loss of Dr. Carter's services could hurt our chances for success.
Our success is dependent on the continued efforts of Dr. William A.
Carter. The loss of Dr. Carter's services could have a material adverse effect
on our operations. While we have an employment agreement with Dr. William A.
Carter, and have secured key man life insurance in the amount of $2 million on
the life of Dr. Carter, the loss of Dr. Carter or other key personnel, such as
Dr. David Strayer or Dr. Carol Smith, or the failure to recruit additional
personnel as needed could have a materially adverse effect on our ability to
achieve our objectives.
9. Restricted shares eligible for sale may depress the market price of our
common stock.
A significant number of our outstanding shares of common stock are
"restricted," as that term is defined under Rule 144 of the Securities Act. In
addition, we have issued warrants to purchase 2,080,000 shares of common stock
in reliance upon the provisions of Rule 701 of the Securities Act. All of these
Rule 701 shares are currently eligible for sale, although the holder of
1,400,000 of these rule 701 shares, Dr. William Carter, our president, has
agreed to not sell any of these shares in 1999. Under Rule 144, in general, a
person may sell stock if the stock has been owned for at least one year. Rule
144 sales must be made under certain conditions, including, limitations as to
the amount of shares that may be sold in any three-month period. Rule 144 also
permits a sale, without any quantity limitation, by a person who is not an
affiliate of the issuer and who has satisfied a two-year holding period. We
cannot predict the effect that sales made under Rule 144 or Rule 701, sales made
in reliance on other
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