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.