As of June 30, 2003, we had
$14,599,000 of cash and cash equivalents and
investment securities. We believe that our
existing cash and cash equivalents and
investment securities, together with
investment income and funds primarily from
existing government contracts and grants,
will enable us to meet our forecasted
expenditures through the first quarter of
2004, but our existing capital resources will
not be sufficient to commercialize AIDSVAX.
In addition, we have based this estimate on
assumptions that may prove to be wrong. In
addition, our independent accountants have
expressed doubt about our ability to continue
as a going concern. Even if we are
technically able to successfully develop
AIDSVAX in light of our recent clinical
trials, we expect additional development
efforts and clinical trials will add several
years to the development timeline and result
in substantial additional expense. We are
unable to fund these efforts with our current
financial resources. In addition, unless we
receive the next government contract to
advance development of our anthrax vaccine,
we will need to obtain additional funding to
support our vaccine candidates as well as to
continue operations past the first quarter of
2004. We do not know if additional financing
will be available, at all or on acceptable
terms. Any additional equity financing will
be dilutive to existing stockholders, and
debt financing, if available, may involve
restrictive covenants. Collaborative
arrangements will require us to relinquish
our rights to certain technologies drug
candidates or marketing territories. If we
fail to raise sufficient funds, we would have
to curtail or cease operations.
We depend on the award of
government contracts, which involve the
coordination of several government agencies,
for the development of our anthrax vaccine.
The process of procuring government contracts
is lengthy and uncertain. If we fail to
obtain future contracts to pursue advanced
development of our anthrax vaccine, or
provide an emergency stockpile, we may not be
able to commercialize the product and we may
be unable to raise additional funds to
continue operations.
We have entered into a contract
with the NIH to develop an anthrax vaccine.
The contract requires us to provide a plan
for how we could manufacture an emergency
stockpile of at least 25 million doses.
However, the contracts for advanced
development and the emergency stockpile are
each subject to separate awards, which we
must compete for. The process of obtaining
government contracts is lengthy and
uncertain, and we cannot be certain that we
would be awarded these contracts. Our current
business plan is highly dependent on
obtaining these additional contracts. If we
fail to win these awards, we may be unable to
raise additional funds to continue our
operations beyond the first quarter of 2004.
In addition, the federal
government has undertaken multiple
commitments to help secure improved
countermeasures against bio-terrorism,
including those, which might arise from the
illegal use of smallpox and anthrax. The
determination of when and whether a product
is ready for use and large scale purchase
will be made by a combination of
authoritative organizations, including the
FDA, the NIH, the CDC, and the Department of
Homeland Security. In addition, President
Bush has proposed and Congress is actively
considering measures to speed up the review
of countermeasure products by the NIH, the
review process by the FDA and the final
government procurement contracting authority.
Although project BioShield was passed by the
House of Representatives in July 2003 by a
vote of 421 to 2, we cannot predict the
timing of enactment of pending legislation
nor can we predict the decisions that will be
made in the future by various government
agencies.
Clinical development is a long,
expensive and uncertain process, and delay or
failure can occur at any stage of our
clinical trials. We may not succeed in our
efforts to develop AIDSVAX based on our
preliminary results and not meeting the
primary endpoint of the Phase III clinical
trial. We must provide the FDA and foreign
regulatory authorities with clinical data
that demonstrate the safety and statistically
significant efficacy of our product
candidates before they can be approved for
commercial sale. Clinical development is a
long, expensive and uncertain process, and
delay or failure can occur at any stage of
our clinical trials. AIDSVAX is our most
advanced product candidate. Earlier this year
we announced data from the first of two Phase
III clinical trials for AIDSVAX, in which we
failed to meet the primary endpoint of the
trial, but did observe some evidence of
efficacy in certain racial subgroups. We will
need to modify the vaccine in order to
continue developing it for use in a broad
population. In addition, we believe that we
will have to conduct additional clinical
trials of AIDSVAX in order to obtain approval
from the FDA either in a broad patient
population or in any particular subgroups.
These development efforts and subsequent
clinical trials are lengthy and expensive,
and the outcome is uncertain. Even with
modifications, we may discover that AIDSVAX
fails to protect individuals from contracting
HIV. If we are unable to successfully develop
AIDSVAX, we will be unable to generate
revenue from this product opportunity, and
our stock price is likely to decline. We have
limited experience in developing other types
of vaccines and products, such as smallpox
and anthrax vaccines, and may be unable to
develop other vaccines and products, which
could adversely affect our ability to execute
our business strategy, our business and our
financial condition.
Part of our business strategy is
to develop biologic products for the
prevention and treatment of human infectious
diseases. In September 2002, we were awarded
a contract from NIAID to develop a new
anthrax vaccine and to create a feasibility
plan to manufacture an emergency stockpile of
25 million doses. In December 2002, we
entered into agreements with Kaketsuken to
initiate development of Kaketsuken's
attenuated smallpox vaccine for use in the
United States. We have only limited
experience in developing other types of
vaccines and products, so we may not be able
to develop either an effective anthrax
vaccine or a smallpox vaccine for use in the
United States or receive the appropriate
regulatory approvals to distribute either
vaccine candidate in the U.S. If these
development efforts fail, it could adversely
affect our ability to execute our business
strategy, our business and our financial
condition. Delay in completing our clinical
trials could jeopardize our ability to obtain
regulatory approval or market our vaccine
candidates on a timely basis.