BONE CARE INTERNATIONAL INC - 10-K Annual Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K


x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended June 30, 2004

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission file number 0-27854

Bone Care International, Inc.

(Exact Name of Registrant as Specified in its Charter)


Wisconsin (State or Other Jurisdiction of Incorporation or Organization)		39-1527471 (IRS Employer Identification No.)

1600 Aspen Commons Middleton, Wisconsin (Address of Principal Executive Offices)		53562 (Zip Code)

Registrant’s Telephone Number, Including Area Code: (608) 662-7800

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, without par value
Preferred Stock Purchase Rights

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No o

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $182,432,710 as of December 31, 2003, assuming solely for purposes of this calculation that all directors and executive officers of the registrant are “affiliates.” This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of September 1, 2004, there were 19,410,157 shares of the Registrant’s Common Stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Bone Care International, Inc., Proxy Statement for its 2004 Shareholders Meeting (Part III).

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K and the documents incorporated by reference into this Form 10-K contain forward-looking statements. Statements relating to future net sales, costs of sales, other expenses, profitability, financial resources, or products and production schedules, or statements that predict or indicate future events and trends and which do not relate solely to historical matters identify forward-looking statements. Forward-looking statements are made in reliance on the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are based on management’s current plans and expectations as well as assumptions made by and information currently available to management. Accordingly, our actual results may differ materially from those expressed or implied in such forward-looking statements due to known and unknown risks and uncertainties that exist in our operations and business environment, including, among other factors:

• general economic and market conditions in the U.S., Europe and the rest of the world;

• our expectations and estimates concerning future financial performance, financing plans and the impact of competition;

• the ability of us and each of our suppliers of doxercalciferol, Hectorol^® Injection and Hectorol^® Capsules to meet our anticipated production schedules;

• technical risks associated with the development of new products;

• regulatory policies in the U.S. and other countries;

• risks associated with our ability to avoid or minimize delays in/or interruption of the manufacture and supply of our products, including the approvals of regulatory authorities in connection therewith;

• reimbursement policies of public and private health care payors;

• introduction and acceptance of new drug therapies;

• competition from existing products and from new products or technologies;

• the failure by us to produce anticipated cost savings or improve productivity;

• the timing and magnitude of capital expenditures and acquisitions; and

• other risk factors set forth under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.

In addition, in this Annual Report, the words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions, as they relate to us, our business or our management, are intended to identify forward-looking statements.

Unless otherwise required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this annual report. However, we acknowledge our obligation to disclose material developments related to previously disclosed information. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in the filing may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements.

PART I

ITEM 1. BUSINESS

Overview

We are a specialty pharmaceutical company engaged in the discovery, development and commercialization of innovative therapeutic products to treat the unmet medical needs of patients with debilitating conditions and life-threatening diseases. Our current commercial and therapeutic focus is in nephrology utilizing Hectorol^®, our novel vitamin D hormone therapy, to treat secondary hyperparathyroidism in patients with moderate to severe chronic kidney disease and end-stage renal disease. Secondary hyperparathyroidism is a disease characterized by excessive secretion of parathyroid hormone which, if left untreated, can eventually result in cardiovascular disease, reduced immune system function, muscle weakness and bone disease, including mineral loss and fractures. Many patients with moderate to severe chronic kidney disease and most end-stage renal disease patients suffer from this disease. Hectorol^®, a safe and effective vitamin D pro-hormone therapy in the management of secondary hyperparathyroidism in moderate to severe chronic kidney disease and end-stage renal disease, reduces elevated levels of parathyroid hormone while maintaining consistent levels of vitamin D with a low incidence of adverse events. Vitamin D therapies are currently used to treat patients with a variety of diseases, including kidney disease, osteoporosis and psoriasis, and research has shown that they may be useful in treating certain cancers such as prostate, breast and colon. Our principal clinical development programs focus on chronic kidney disease and hyperproliferative disorders such as cancer and psoriasis.

We have two products approved by the U.S. Food and Drug Administration (FDA): Hectorol^® Injection and Hectorol^® Capsules. Hectorol^® Injection and Hectorol^® 2.5 mcg Capsules are approved for the treatment of secondary hyperparathyroidism in end-stage renal disease. Hectorol^® 0.5 mcg Capsules are approved for the treatment of secondary hyperparathyroidism in moderate to severe chronic kidney disease. We obtained FDA approval for Hectorol^® 2.5 mcg Capsules in June 1999, and we began selling this orally administered product in the U.S. in October 1999. We obtained FDA approval for Hectorol^® Injection in April 2000. We launched this intravenous product in the U.S. in August 2000 and we received a national Medicare reimbursement code for Hectorol^® Injection in January 2002. The National Kidney Foundation estimates that as of 2003 there were approximately 300,000 end-stage renal disease patients in the U.S. and projects that this population will double by 2010. In April 2004 we obtained FDA approval for Hectorol^® 0.5 mcg Capsules to treat secondary hyperparathyroidism in moderate to severe chronic kidney disease prior to end-stage renal disease, or pre-dialysis. We launched this product in the U.S. in July 2004. We are also developing Hectorol^® and other vitamin D hormones for expanded indications.

In 2002, the National Kidney Foundation issued clinical practice guidelines for evaluating and classifying chronic kidney disease. These guidelines classify kidney disease into five stages based on kidney function as measured by glomerular filtration rate, a widely accepted overall measure of kidney function. In October 2003, the National Kidney Foundation published the Kidney Disease Outcomes Quality Initiative Clinical Practice Guidelines for Bone Metabolism and Disease in Chronic Kidney Disease. These guidelines, referred to as the K/DOQI guidelines, include recommendations for the treatment of bone disease and disorders of calcium and phosphorus metabolism which may encourage a shift in clinical practice to begin earlier treatment of patients with Stages 3 and 4 (moderate to severe) chronic kidney disease, in addition to Stage 5 (end-stage renal disease) chronic kidney disease. The National Kidney Foundation estimates that as of 2003 there were approximately 7,600,000 Stage 3 patients, 400,000 Stage 4 patients and 300,000 Stage 5 patients. According to the United States Renal Data System, approximately 65% of Stage 5 patients are treated with vitamin D hormone therapy. We believe that this potential shift in practice, together with our recently approved expanded indication for Hectorol^® Capsules, could expand the potential use of Hectorol^® to a broader range of chronic kidney disease patients.

Business Strategy

Our strategy is to build a specialty pharmaceutical company with a strong distribution channel through research, development, commercialization and acquisition of key therapeutics. We plan to achieve these goals by:

• Expanding our sales and marketing infrastructure. We plan to continue to develop our internal sales and marketing capabilities to compete in the $400 million vitamin D hormone market in the U.S. for end-stage renal disease, in the market for the estimated 8 million patient population with moderate to severe chronic kidney disease and in related markets for vitamin D hormone therapies that we believe could be effectively addressed with a highly focused sales and marketing effort.

• Expanding the indications for Hectorol^®. We plan to pursue new indications, new formulations and product life cycle management strategies for Hectorol^®. The FDA recently approved the use of Hectorol^® 0.5 mcg Capsules to treat secondary hyperparathyroidism in pre-dialysis.

• Developing additional product offerings. We plan to leverage our vitamin D hormone platform and use our research and development, clinical and regulatory capabilities to seek to develop and improve products for targeted diseases such as secondary hyperparathyroidism, psoriasis and cancers.

• Licensing and acquiring compounds that fit into our strategic plans. We are evaluating marketed products and compounds in development that fit into our strategic plans. In-licensing and acquisition targets may include products in the traditional nephrology therapeutic area, products that treat co-morbid conditions commonly seen in chronic kidney disease patients related to metabolic syndrome or other targeted specialty pharmaceutical markets.

• Entering into strategic partnerships to globally commercialize our current products and assets or new products. We plan to establish mutually beneficial strategic partnerships, alliances and commercialization arrangements with partners who can penetrate geographic markets or compete in therapeutic areas where we have no current or planned sales presence. We also may seek to enter into strategic alliances to develop or commercialize new products.

Products for Secondary Hyperparathyroidism

Background

Vitamin D hormones are produced in the body from vitamin D precursors that are either ingested or activated in the skin from sunlight exposure. These hormones have essential roles in human health. Vitamin D hormones regulate (1) parathyroid hormone secretion by the parathyroid glands, (2) the absorption of calcium by the small intestine, (3) bone mineralization, (4) muscle function, and (5) the proliferation and maturation of several types of cells. Vitamin D hormone deficiency in chronic kidney disease occurs when the kidneys are unable to produce adequate active vitamin D hormones. Without sufficient active vitamin D hormone levels, parathyroid hormone secretion is increased and calcium absorption in the small intestine is reduced, leading to hypocalcemia, hyperparathyroidism, and eventually to bone disease.

Hyperparathyroidism is a disease characterized by excessive secretion of parathyroid hormone by the parathyroid glands. The medical community classifies hyperparathyroidism as either “primary” or “secondary,” depending on the underlying cause. Primary hyperparathyroidism is less common and is caused by a disorder in one or more of the parathyroid glands, usually a tumor. Surgical removal of the affected parathyroid glands is the only effective treatment. Secondary hyperparathyroidism is the more common type of hyperparathyroidism and is caused by diseases unrelated to the parathyroid glands, but which stimulates increased production of parathyroid hormone by the parathyroid glands. It is seen in varying severity in the majority of patients with moderate to severe chronic kidney disease (Stages 3 and 4) and in most end-stage renal disease patients (Stage 5), in whom normal kidney function is lost and dialysis is required for survival. Secondary hyperparathyroidism in renal disease generally continues to worsen unless treated with vitamin D hormone therapy.

The goals of vitamin D hormone therapy in this setting are to decrease blood parathyroid hormone levels and to normalize blood calcium, thereby treating or preventing bone disease, and other adverse effects of elevated parathyroid hormone. The challenge in administering vitamin D hormone therapy is to deliver a sufficient dose to be effective without causing adverse effects including:

• Excessive phosphorus and/or calcium in the blood, which increases the risk that mineral deposits will develop in soft tissues, such as in the heart and arteries, contributing to cardiac disease, or in the kidneys, accelerating kidney failure in chronic kidney disease patients.

• Excessive phosphorus in the blood, which stimulates secretion of parathyroid hormone by the parathyroid glands and exacerbates secondary hyperparathyroidism.

• Excessive calcium in the urine, which increases the risk that calcium-rich deposits will develop in the kidneys and accelerate kidney failure in chronic kidney disease patients.

Due to the risks of these side effects, vitamin D hormones are customarily administered at low dosages. Starting dosages are increased cautiously, to minimize the chance of these adverse side effects and optimize therapeutic response. The pharmacokinetic profiles of intravenous calcitriol and paricalcitol, two key competing FDA approved vitamin D hormone products, typically demonstrate supraphysiological spikes occurring rapidly after administration, followed by trough levels at concentrations below the physiologic range of activated vitamin D prior to the next dose in hemodialysis patients. This is in contrast to the relatively constant blood levels of vitamin D hormones that are maintained in individuals with normal kidney function, yielding consistent, efficient regulation of parathyroid hormone secretion.

Products and Product Candidates

We have two FDA approved products, Hectorol^® Injection and Hectorol^® Capsules, and two products in development, LR-103 and BCI-202, for the treatment of secondary hyperparathyroidism.

Hectorol^® offers:

• Safe and Effective Treatment. Data obtained from our clinical trials have demonstrated that Hectorol^® is a safe and effective therapy for treating secondary hyperparathyroidism in moderate to severe chronic kidney disease and in end-stage renal disease. In these trials, Hectorol^® reduced blood levels of parathyroid hormone in more than 90% of the treated patients with minimal side effects. Based on these and other trials, we believe that Hectorol^® compares favorably to competitive vitamin D hormones, including calcitriol and paricalcitol; however, we have not performed prospective comparative trials to demonstrate these conclusions.

• Oral Delivery that Expands Market Opportunities. Hectorol^® Capsules provide a safe, convenient and effective oral vitamin D therapy for the management of parathyroid hormone levels in patients with moderate to severe chronic kidney disease and end-stage renal disease. Intravenous vitamin D hormone products are generally used in hemodialysis patients and only under medical supervision. Competitive vitamin D hormones may be less well suited for oral delivery because they are fully active on delivery, which may cause certain cells lining the small intestine to absorb too much calcium and phosphorus, leading to side effects. Hectorol^®, on the other hand, is an inactive pro-hormone that, after oral delivery, should not be immediately available to these intestinal cells.

• A Pro-Hormone that Provides Consistent Levels of Natural Vitamin D Hormones. Hectorol^® is a vitamin D pro-hormone, an inactive vitamin D analog that is metabolized by the liver into two active and naturally occurring vitamin D hormones. Activated Hectorol^® is released into the bloodstream at a rate which appears to mimic the normal physiologic production of active vitamin D hormones by normal kidneys. Normal physiologic blood levels of vitamin D hormones allow efficient regulation of parathyroid hormone secretion by the parathyroid glands with few side effects.

• A Potentially Wider Therapeutic Window. We believe that there is indirect evidence through animal studies that Hectorol^® has a wider range, or therapeutic window, between a minimum effective dose and a dose with significant side effects, as compared to other vitamin D hormone therapies. Animal studies have demonstrated that Hectorol^® has fewer side effects than calcitriol or alfacalcidol when delivered at doses of equivalent potency. No clinical trials have been conducted directly comparing Hectorol^® to any other vitamin D hormone therapy in patients with moderate to severe chronic kidney disease or end-stage renal disease. We have not conducted any comparative trials of vitamin D hormones in any human subjects. A wider therapeutic window would improve safety and facilitate improved patient management.

Hectorol^® Injection

End-Stage Renal Disease. Hectorol^® Injection is approved for use in the approximately 300,000 end-stage renal disease patients in the U.S. We obtained FDA approval for Hectorol^® Injection in April 2000. We began selling the product in August 2000. We received a national Medicare reimbursement code for Hectorol^® Injection in January 2002, which has facilitated Medicare reimbursement.

Our FDA submission included data from two Phase III trials, which included a total of 70 patients and consisted of an eight-week monitoring period in which no vitamin D hormone therapies were given, followed by a 12-week period in which patients received open-label treatment with Hectorol^® Injection at hemodialysis. The study endpoint for effectiveness was the observed reduction in blood parathyroid hormone levels, and the endpoints for safety were the observed rates of hypercalcemia and hyperphosphatemia. In both trials, after 12 weeks of open-label treatment, mean blood parathyroid hormone levels were reduced approximately 45%. These reductions were statistically significant (p<0.01). In both studies, blood parathyroid hormone reached a predetermined optimal range in more than 70% of treated patients. Hectorol^® Injection maintained normal blood calcium with only infrequent episodes of hypercalcemia and hyperphosphatemia.

We believe that U.S. physicians and dialysis providers favor intravenous products because of several factors: (1) healthcare professionals can assure patient compliance with drug administration at the time of dialysis; (2) repeated oral delivery of active vitamin D hormones promotes their breakdown in the intestine, thereby increasing intestinal absorption of calcium and reducing the desired amount delivered to the parathyroid glands; and (3) Medicare reimbursement is only available for intravenous products.

Hectorol^® Capsules

End-Stage Renal Disease. Hectorol^® 2.5 mcg Capsules are approved for use in the approximately 300,000 end-stage renal disease patients in the U.S. The FDA approved Hectorol^® 2.5 mcg Capsules for end-stage renal disease in June 1999 based on the results of two Phase III trials analyzing a total of 99 subjects, all of which were dosed with Hectorol^® 2.5 mcg Capsules during the 16-week open-label period. Each trial consisted of an eight-week monitoring period in which no vitamin D hormone therapies were given, followed by a 16-week period in which patients received open-label treatment with Hectorol^® 2.5 mcg Capsules at hemodialysis, and an eight-week period in which patients received, in a double-blinded randomized fashion, continuing treatment with either Hectorol^® 2.5 mcg Capsules or a matching placebo. The study endpoint for effectiveness was the observed reduction in blood parathyroid hormone levels, and the endpoints for safety were the observed rates of hypercalcemia and hyperphosphatemia. In both trials, after 16 weeks of open-label treatment, mean blood parathyroid hormone levels were reduced more than 50%. These reductions were statistically significant (p<0.001). In addition, blood parathyroid hormone reached a pre-determined optimal range in 73% of the treated patients. At the end of the eight additional weeks of blinded treatment, mean blood parathyroid hormone levels increased toward baseline in patients receiving placebo; however, in patients receiving Hectorol^®2.5 mcg Capsules parathyroid hormone levels remained approximately 50% below those receiving a matching placebo – a clinically and statistically significant difference. Hectorol^® 2.5 mcg Capsules maintained normal blood calcium levels with only infrequent episodes of hypercalcemia and hyperphosphatemia.

Chronic Kidney Disease or Pre-Dialysis. Secondary hyperparathyroidism begins to develop in patients with modest reductions in kidney function and becomes more severe as chronic kidney disease progresses. Evidence from published clinical research suggests that early intervention with vitamin D hormone replacement therapy can slow the progression and enhance the treatment of secondary hyperparathyroidism in chronic kidney disease patients not yet on maintenance dialysis therapy. Calcitriol is approved in the U.S., and we believe oral alfacalcidol, which is not FDA approved, is used in certain foreign markets to treat chronic kidney disease patients. As with their use in dialysis patients, however, these competitive oral products may cause side effects.

In April 2004 the FDA approved Hectorol^® 0.5 mcg Capsules for moderate to severe chronic kidney disease (Stages 3 and 4). The FDA approval was based on the results of two randomized, double-blind, placebo-controlled Phase III trials for Hectorol^® 0.5 mcg Capsules to treat secondary hyperparathyroidism in patients with moderate to severe chronic kidney disease (Stages 3 and 4). The trials consisted of an eight-week monitoring period in which no vitamin D hormone therapies were given, followed by a 24-week period in which patients were treated with either Hectorol^® 0.5 mcg Capsules or a matching placebo. The study endpoint for effectiveness was the observed reduction in blood parathyroid hormone levels, and the endpoints for safety were the observed rates of hypercalcemia, hyperphosphatemia and hypercalciuria, and significant decreases in kidney function. In both studies, Hectorol^® significantly reduced blood parathyroid hormone levels by 46% at 24 weeks, a statistically significant result relative to a matching placebo (p<0.01). There were no significant differences in side effects or safety profiles. In two clinical studies, the incidences of hypercalcemia and hyperphosphatemia during therapy with 0.5 mcg Hectorol^® Capsules were similar to placebo therapy, and no episodes of hypercalciuria were observed.

LR-103 and BCI-202

We have two product candidates, LR-103 and BCI-202, in development for the treatment of secondary hyperparathyroidism. We have synthesized and evaluated a series of compounds with chemical structures related to Hectorol^®. From our research, we have determined that our current compound, Hectorol^®, is activated in part to an active metabolite unlike the competing compounds calcitriol, paricalcitol and alfacalcidol which cannot be so activated. We have labeled this active metabolite as LR-103. We believe that LR-103 is as potent as calcitriol in vitro, but may be 30 times less likely than calcitriol to cause toxic side effects. We continue to study the pharmacological properties of LR-103 in biological models. In a mouse model for secondary hyperparathyroidism, LR-103 reduced parathyroid hormone levels without producing hypercalcemia. LR-103 is readily absorbed after oral delivery and circulates through the bloodstream to tissues which respond to vitamin D hormones. BCI-202 is a novel pro-hormone vitamin D analog in early pre-clinical development.

Product Candidates for Hyperproliferative Diseases

In addition to having a role in parathyroid function and calcium and phosphorus metabolism, vitamin D hormones may have an important role in regulating the growth and differentiation of skin, prostate, breast and colon cells. We are investigating the use of Hectorol^® Capsules and other development stage vitamin D hormone therapies in diseases associated with hyperproliferative or neoplastic cell growth such as in cancers of the prostate and colon. Data from preclinical models indicate that vitamin D analogs inhibit the growth of cancer cells expressing the vitamin D receptor.

Prostate, Breast and Colon Cancers

We are evaluating Hectorol^® and LR-103 in the treatment of cancers which have the potential to respond to vitamin D therapy, such as prostate, breast and colon cancers. We also intend to evaluate BCI-202 in this disease state as well. Pre-clinical models have demonstrated that vitamin D analogs inhibit the growth of prostate, breast and colon tumor cells. Oncologists consider vitamin D hormones to be a potentially promising treatment for cancers expressing the vitamin D receptor. Our vitamin D compounds, with their safety profile, have the potential to benefit the treatment of cancer. Currently, no vitamin D hormone has received marketing approval for cancer anywhere in the world.

Prostate cancer has become the most commonly diagnosed tumor in American men. The American Cancer Society estimates that in the year 2003, approximately 221,000 men would have been diagnosed with, and approximately 29,000 men would have died from, prostate cancer. Breast cancer is the second leading cause of death among women in the U.S. The American Cancer Society estimates that in the year 2003, approximately 211,000 women would have been diagnosed with, and about 40,000 women would have died from, breast cancer. Colon cancer is also a common cancer in American men and women. The American Cancer Society estimates that in the year 2003, approximately 105,000 men and women would have been diagnosed with colon cancer.

Hectorol^®. We have completed a Phase I dose escalation trial of daily, Hectorol^® Capsules in patients with hormone refractory prostate cancer. A total of 25 patients were enrolled in this study. Oral doses of Hectorol^® ranging from 5 to 15 mcg/day were administered. Patients were closely followed for side effects in order to determine the maximum tolerated dose of daily, Hectorol^® Capsules. Patients were monitored for response by objective imaging techniques. Two patients had radiographically confirmed partial responses while five other patients maintained stable disease for at least 6 months. The most common toxicity observed during this trial was reversible hypercalcemia. Based on the results of this study, a maximum daily dose of 12.5 mcg was recommended for further evaluation in Phase II clinical trials in cancer patients. The results of a Phase II Hectorol^® monotherapy trial in patients with hormone refractory prostate cancer are being evaluated. A Phase II study of Hectorol^® Capsules in combination with the chemotherapeutic agent Taxotere in the treatment of hormone refractory prostate cancer has also been initiated under an investigator sponsored investigational new drug application. We are collaborating with the University of Wisconsin and other institutions to further explore the use of Hectorol^® in prostate cancer and other oncology settings.

LR-103. We initiated a Phase I study of LR-103 in cancer patients in February 2004 to assess safety and pharmacokinetic parameters. We have used LR-103, in animal models for cancer. LR-103 slowed tumor growth of breast cancer xenografts in mice without producing any apparent adverse effects on serum calcium. We have also observed that LR-103 inhibits growth of cancer cells in vitro. LR-103 has been shown in vitro to act synergistically with known chemotherapeutic agents to inhibit the proliferation of cultured breast and prostate cancer cell lines.

Psoriasis

We may seek to develop Hectorol^®, LR-103 and BCI-202 as oral vitamin D hormone therapies for psoriasis. Preclinical data indicates that LR-103 is readily absorbed after oral delivery and circulates through the blood stream to tissues which respond to vitamin D hormones. We have observed that LR-103 inhibits growth of skin cells in vitro.

According to the National Psoriasis Foundation, psoriasis affects approximately 4.5 million individuals in the U.S. of which a physician is treating approximately 1.5 million. A similar prevalence rate is observed in Europe. Psoriasis affects people of all ages, with most exhibiting mild or moderate lesions. Psoriatic lesions are characterized by an abnormal thickening or growth of the skin, usually on the scalp, elbows, knees and shins. Microscopic examination of these lesions reveals an increased rate of skin cell division, together with a decrease in the time required for these cells to migrate to the skin surface, resulting in thickening or growth of the skin. No cure for psoriasis exists. Dovonex^® (topical calcipotriol marketed by Bristol-Myers Squibb Company) is a synthetic vitamin D hormone analog of calcitriol and is approved to treat psoriasis in the U.S. Dovonex and tacalcitol, another vitamin D hormone analog, are approved to topically treat psoriasis in many countries outside of the U.S. Currently, no oral vitamin D hormones are approved to treat psoriasis in the U.S.

Research and Development

Research and development activities are essential to maintaining and enhancing our business. As of June 30, 2004, our research and development group consisted of 27 employees, including a Vice President/ Medical Director and 9 clinical support specialists. Our research and development expenses were approximately $9.1 million, $6.7 million and $6.8 million in the years ended June 30, 2004, 2003, and 2002, respectively. We intend to continue to focus our research and development activities on developing and evaluating the clinical utility of Hectorol^®, LR-103 and BCI-202 in secondary hyperparathyroidism and hyperproliferative diseases, as well as developing additional products and product candidates.

Sales and Marketing

We commercially introduced Hectorol^® 2.5 mcg Capsules in October 1999 and Hectorol^®Injection in August 2000. Both products are currently marketed for end-stage renal disease patients in the U.S. by our direct sales force. In addition, we have commercially introduced the Hectorol^® 0.5 mcg Capsules through a co-promotion partnership in July 2004 for patients in the U.S. with moderate to severe chronic kidney disease. We believe that the chronic kidney and end-stage renal disease markets in the U.S. are well defined, and are therefore suitable for a highly focused, direct sales and marketing effort. In addition, we believe that the clinical benefits of our products combined with competitive pricing allow us to offer a strong value proposition to patients and physicians.

We are directing our marketing efforts to the following key decision makers:

• Nephrologists. We estimate that in the U.S. there are approximately 4,800 office-based nephrologists. The nephrologist is the physician responsible for the care of patients diagnosed with chronic kidney and end-stage renal disease. This care includes delivering vitamin D hormone replacement therapy, which may be administered based on protocols developed in conjunction with the dialysis clinics.

• Dialysis Clinics. The nephrologist is generally associated with a clinic that performs dialysis procedures. In the U.S., a limited number of large corporations control the majority of these clinics with the largest five corporations controlling approximately 46% of in-center dialysis facilities. Generally these clinics bill for services provided to end-stage renal disease patients, including vitamin D hormone therapy.

• Third-Party Payors. Dialysis clinics that administer intravenous vitamin D hormones seek reimbursement from third-party payors who generally are either insurance companies or governmental agencies, including Medicare and Medicaid. These payors set reimbursement levels for products and services which the clinics provide to dialysis patients. Because dialysis patients all suffer from end-stage renal disease which qualifies all such patients for Medicare, dialysis clinics generally derive a high percentage of their revenues from the Medicare program. Pre-dialysis patients primarily seek reimbursement from third-party payors who generally are either insurance companies or governmental agencies, such as Medicaid.

As of June 30, 2004, our sales and marketing department consisted of 73 people, including a direct sales force of 62 people, of which four focus on national accounts and third-party payors including Medicare and Medicaid. Additionally, we may seek to establish mutually beneficial alliances or marketing agreements with partners who can access geographic markets and therapeutic areas where we have no current or planned sales presence.

Hectorol^® is distributed to patients and dialysis centers through both direct and traditional wholesale and retail channels. A third party provides select administrative and distribution services for our wholesale and retail customers in the continental U.S., Hawaii and Puerto Rico.

Copromotion of Hectorol^® 0.5 mcg Capsules

On June 14, 2004, we entered into a multi-year co-promotion agreement for the launch and commercialization of Hectorol^® 0.5 mcg Capsules with nephrologists in pre-dialysis Stages 3 and 4 chronic kidney disease. Under the terms of the agreement, Cardinal Health PTS, LLC will provide contract sales force and medical communication services to support a specified level of promotion. We will sell Hectorol^® 0.5 mcg Capsules through its distribution network and support the promotional effort through its nephrology focused sales force with an additional specified level of investment. For its efforts, Cardinal Health will receive a variable co-promotion fee based on the performance of Hectorol^® 0.5 mcg Capsule sales. The fee as a percentage of Hectorol^® 0.5 mcg Capsules declines gradually over the term of the agreement.

Intellectual Property

Our success will depend in part on our ability to continue to develop patentable products and technologies and obtain patent protection for our products and technologies both in the U.S. and other countries. We currently have over 150 issued patents and over 100 pending applications worldwide. We have several U.S. patents covering the use of Hectorol^® for the prevention and treatment of hyperparathyroidism and metabolic bone disease, including renal osteodystrophy. Patents covering the treatment of hyperparathyroidism secondary to end stage renal disease with Hectorol^® begin to expire in 2014. Patents covering treatment of hyperparathyroidism secondary to pre-dialysis chronic kidney disease begin to expire in 2008. We have filed a patent application directed toward the treatment of hyperparathyroidism associated with chronic kidney disease (Stages 1 through 4). Should the application issue as a U.S. patent, it would expire in 2015. Patents covering metabolic bone disease begin to expire in 2009.

Corresponding patents for the use of Hectorol^® to prevent and manage secondary hyperparathyroidism in kidney dialysis patients have been issued in Europe, Australia, Canada, Japan and Korea. All of these patents expire or would expire in 2016. A corresponding patent for the use of Hectorol^® to prevent and treat metabolic bone disease has been issued by the European Patent Office and expires in 2009.

We also own U.S. patents for the use of Hectorol^® for treating prostate cancer that expire in 2013. We have filed counterpart patent applications in Europe and other geographic markets, including Japan, that would expire in 2017. We own U.S. and European patents for delayed sustained release formulations of Hectorol^®, which expire in 2013. Foreign counterpart applications are also pending in Japan and other major markets.

The issued composition-of-matter patent covering Hectorol^® has expired. We have filed applications directed toward a stabilized form of doxercalciferol (Hectorol^®). Our issued patents relating to Hectorol^® are method-of-use patents. A method-of-use patent encompasses the use of a compound or composition to treat a specified condition but does not encompass the compound itself, the active ingredient used in the composition or composition itself, or the method of making the composition or the compound used in the composition. Method-of-use patents provide less protection than composition-of-matter patents because of the possibility of the composition being used in ways that fall outside the scope of the claimed method-of-use and difficulties in detecting acts of infringement in particular due to “off-label” prescriptions if other companies market or make the composition for other uses.

We own issued patents and have pending patent applications in the U.S. and other countries relating to other vitamin D hormones. Our patents and pending applications include claims to compounds, compositions, methods of synthesizing the compounds and compositions, methods of use and methods of delivery of active vitamin D hormone and vitamin D hormone analogs.

In addition to patent protection, we also rely on proprietary information and trade secrets. We require our employees, consultants and advisors to execute confidentiality and invention assignment agreements upon commencement of an employment or a consulting relationship with us.

Licensing Agreements

We have a license from the Wisconsin Alumni Research Foundation to practice several of their process patents for the synthesis of Hectorol^®. Under this license, which extends at least through July 2, 2013 and terminates upon the expiration of the last licensed patent, the Wisconsin Alumni Research Foundation has agreed not to license to other parties its patents to manufacture Hectorol^® for use or sale anywhere in the world as long as the license agreement is in effect and we pay royalties based on Hectorol^® sales.

We had initially granted Draxis Health Inc. a license to use and sell Hectorol^® in Canada for secondary hyperparathyroidism, osteoporosis and other metabolic bone diseases. We also granted Draxis a license in Canada to all know-how developed by or on behalf of us relating to the use of Hectorol^® for those indications. Draxis received marketing approval for Hectorol^® 2.5 mcg Capsules in Canada in May 2001. Draxis sold its Canadian pharmaceutical business to Shire Pharmaceuticals Group in July 2003. In conjunction with that sale, we entered into a new manufacturing and supply agreement and patent and trademark license agreement with Shire that replaced and superceded all previous agreements with Draxis. The patent and trademark agreement transfers to Shire the exclusive right to use and sell Hectorol^® previously granted to Draxis and requires a royalty for use of the Hectorol^® trademark. The manufacturing and supply agreement provides for the sale of Hectorol^® from us to Shire for distribution in Canada only.

We and the U.S. Department of Agriculture jointly own rights to LR-103 under issued patents and pending patent applications. The U.S. Department of Agriculture has granted to us an exclusive worldwide license to make, use and sell products covered under their rights. This agreement calls for us to commercialize LR-103 by December 31, 2006, or the U.S. Department of Agriculture may modify or terminate the license. In any circumstance, however, because of our joint ownership of the licensed patents, we would retain non-exclusive marketing rights under these patents. The U.S. Department of Agriculture license terminates upon the expiration of the last licensed patent.

Manufacturing

We currently have no internal manufacturing capabilities. We rely on third-party contractors to produce our active pharmaceutical ingredient and for the subsequent manufacturing and packaging of finished drug products.

We purchase our active pharmaceutical ingredient for Hectorol^® from a sole supplier, although we are currently in the process of obtaining regulatory approval for an additional supplier. In addition, we rely on one manufacturer for Hectorol^® Injection, one supplier to formulate Hectorol^® Capsules and another supplier to package Hectorol^® Capsules.

Although we believe that other manufacturers, suppliers, formulators and vendors may be available to provide these goods and services to us, any change in suppliers could cause an increase in costs, a delay in manufacturing and a possible loss of sales, any of which would affect operating results adversely.

All of our suppliers have FDA-inspected facilities that are required to operate under current Good Manufacturing Practices regulations established by the FDA. These regulations govern all stages of the drug manufacturing process and are intended to assure that drugs produced will have the identity, strength, quality and purity represented in their labeling for all intended uses. If we were to establish our own manufacturing facility, we would need substantial additional funds and would have to hire and train additional personnel and comply with the extensive regulations applicable to the facility. We believe our relationships with our suppliers are good.

Competition

We operate in a field in which new discoveries occur at a rapid pace. Competitors may succeed in developing technologies or products that are more effective than ours or in obtaining regulatory approvals for their drugs more rapidly than us, which could render our products obsolete or noncompetitive. Competition is significant and is expected to increase. Many competitors, including biotechnology and pharmaceutical companies, are actively engaged in the research and development of products in similar areas, including the fields of hyperparathyroidism, osteoporosis, psoriasis, and cancers of the prostate, breast and colon. Dialysis providers typically select which therapy a patient receives based on safety, efficacy, and cost. Abbott Laboratories, Inc. markets intravenous calcitriol (brand name Calcijex^®) and intravenous paricalcitol (brand name Zemplar^®) for end-stage renal disease patients and is developing oral paricalcitol for pre-dialysis and dialysis patients. Current intravenous versions of these drugs are approved to manage secondary hyperparathyroidism in end-stage renal disease patients in the U.S. and in European countries. A number of companies have launched or are planning to launch generic intravenous calcitriol in the U.S.

In March 2004, Amgen, Inc. received FDA approval for a new oral calcimimetic agent for the treatment of secondary hyperparathyroidism in patients with chronic kidney disease on dialysis. The majority of patients studied on this calcimimentic agent were also taking vitamin D hormone to treat secondary hyperparathyroidism.

Roche Pharmaceuticals markets oral calcitriol (brand name Rocaltrol^®) and TEVA Pharmaceuticals markets generic oral calcitriol in the U.S. to manage secondary hyperparathyroidism in chronic kidney disease patients. These two competitive products are approved in the U.S. for the treatment of elevated parathyroid hormone in both end-stage renal disease and chronic kidney disease, pre-dialysis.

A number of companies, including Leo Pharmaceutical Products A/S, TEVA Pharmaceuticals and Chugai Pharmaceutical Company Co., Ltd., market oral or intravenous alfacalcidol, a synthetic analog of calcitriol, in Europe and Asia under various trade names for both secondary hyperparathyroidism and osteoporosis. Several companies, including Leo Pharmaceutical Products A/S, ILEX Oncology, Inc. and Chugai Pharmaceutical Co. LTD, are developing vitamin D hormone therapies to treat cancers. Leo Pharmaceutical Products A/S, Bristol-Myers Squibb Company and other companies are marketing a topical vitamin D hormone (brand name Dovonex^®) in major markets of the world to treat psoriasis. Teijin Limited is marketing topical tacalcitol to treat psoriasis outside the U.S.

Government Regulation

Pharmaceutical products are subject to extensive regulation under the Federal Food, Drug and Cosmetic Act by the FDA in the U.S. and similar health authorities in foreign countries. This rigorous regulation governs, among other things, testing for safety and effectiveness, manufacturing, labeling, storage, record keeping, import, export, advertising, marketing and distribution of pharmaceutical products. Any new drug candidate must undergo lengthy, rigorous and costly pre-clinical testing, clinical trials and other procedures mandated by the FDA and foreign regulatory authorities prior to approval for sale. Before testing agents with potential therapeutic value in healthy human test subjects, stringent government requirements for pre-clinical data must be satisfied. The data, obtained from studies in several animal species, as well as from laboratory studies, are submitted in an investigational new drug application to the FDA or its equivalent in countries outside the U.S. where clinical studies are to be conducted. Pre-clinical data must provide an adequate basis for evaluating both the safety and the scientific rationale for the initiation of clinical trials.

Clinical trials are typically conducted in three sequential phases, although these phases may overlap. Phase I frequently begins with initial introduction of the compound into healthy human subjects. Prior to patient introduction, the product is tested for safety, adverse affects, dosage, tolerance, absorption, metabolism, excretion and preclinical

pharmacology. Phase II typically involves studies in a small sample of the intended patient population to assess the efficacy of the compound for a specific indication to determine dose tolerance and the optimal dose range as well as to gather additional information relating to safety and potential adverse effects. Phase III trials are undertaken to further evaluate clinical safety and efficacy in an expanded patient population which suffers from the targeted illness at geographically dispersed study sites to determine the overall risk-benefit ratio of the compound and to provide an adequate basis for product labeling. Each trial is conducted in accordance with certain standards under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as part of the investigational new drug application.

Data from pre-clinical and clinical trials are submitted to the FDA as a new drug application for marketing approval and to other health authorities as a marketing authorization application. The process of completing clinical trials for a new drug is likely to take a number of years and requires the expenditure of substantial resources. Preparing a new drug application or marketing authorization application involves considerable data collection, verification, analysis and expense. The approval process is affected by a number of factors, primarily the risks and benefits demonstrated in clinical trials as well as the severity of the disease and the availability of alternative treatments. The FDA or other health authorities may deny a new drug application or marketing authorization application if the authority’s regulatory criteria are not satisfied or may require additional testing or information.

Even after initial FDA or other health authority approval has been obtained, further studies, including Phase IV post-marketing studies, may be required to provide additional data on safety. Additional studies will be required to gain approval for the use of a product as a treatment for clinical indications other than those for which the product was initially tested and will be required if we seek additional indications for Hectorol^® Injection and Hectorol^® Capsules. Also, the FDA or other regulatory authorities require post-marketing reporting to monitor the side effects of the drug. Results of post-marketing programs may limit or expand marketing of the products. Further, if there are any modifications to the drug, including changes in indication, manufacturing process or labeling or a change in manufacturing facility, an application seeking approval of such changes will be required to be submitted to the FDA or other regulatory authority.

The manufacture and marketing of Hectorol^® is subject to ongoing regulation, including compliance with the FDA’s current Good Manufacturing Practices, adverse event reporting requirements and the FDA’s general prohibitions against promoting products for “off-label” uses, or uses not listed on the FDA-approved labeling. We and our manufacturers also are subject to inspection and market surveillance by the FDA for compliance with these and other requirements. Any enforcement action resulting from failure to comply with these requirements could affect the manufacture and marketing of Hectorol^®. In addition, the FDA could withdraw a previously approved product from the market upon receipt of new information.

We participate in the Medicaid Rebate Program established by the Omnibus Budget Reconciliation Act of 1990. The Medicaid Rebate Program requires us to report certain pricing information, including but not limited to average manufacturer price and best price, to the Centers for Medicare and Medicaid Services on a periodic basis. We are also required to pay a periodic rebate for each unit of our product reimbursed by Medicaid to each state participating in the Medicaid program that is based on the pricing submissions we make to the Centers for Medicare and Medicaid Services. If we learn that pricing information reported to the Centers for Medicare and Medicaid Services in previous periods were incorrect, we are required to correct that pricing information. Such corrections could increase our rebate liability and interest for past periods. In addition, if we were found to have knowingly submitted false or inaccurate pricing information to the government, we could be subject to penalties under the False Claims Act, monetary penalties of $100,000 per item of false information under the federal Medicaid statute, penalties under the Civil Monetary Penalties Law, and potentially other civil and criminal penalties under federal and/or state law.

In addition, some states have initiated supplemental rebate programs under which pharmaceutical companies are required to agree to supplemental rebates to avoid pre-authorization requirements. Companies that do not agree to supplemental rebates may lose sales as their drugs are subject to pre-authorization screening before the drug is covered for individual patients. As more states adopt such supplemental programs, pharmaceutical company revenues are likely to decline.

As a condition of having our products covered by Medicaid, we signed an agreement with the Department of Health & Human Services that requires us to offer substantial discounts to Public Health Service Act covered entities. Under a formula set out in the Veterans Health Care Act of 1992, Public Health Service discounts are based on calculations from the Medicaid Rebate Program. Because Public Health Service pricing is derived from pricing

information associated with the Medicaid Rebate Program, any errors in reporting Medicaid information would likely result in inaccurate Public Health Service prices. If we were found to have knowingly calculated false or inaccurate Public Health Service pricing, we could be subject to penalties under the False Claims Act, monetary penalties under the Civil Monetary Penalties Law, and potentially other civil and criminal penalties under federal law.

We also makes our products available to authorized federal government users under the Federal Supply Schedule of the General Services Administration. The Veterans Health Care Act of 1992 requires that prices for products purchased by certain federal entities (such as the Department of Veterans’ Affairs, the Department of Defense and the Public Health Service, including the Indian Health Service) be discounted under a formula set forth in the Act. As with pricing information reported under the Medicaid Rebate Program and the Public Health Service pricing program, we could face penalties under the False Claims Act, the Civil Monetary Penalties Act, and other civil and criminal statutes if we knowingly report inaccurate pricing information to these federal entities.

Our products are also reimbursed by Medicare. On December 8, 2003, the President signed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 referred to as MMA. The MMA adds a prescription drug benefit to the Medicare program and replaces the existing Medicare + Choice managed care option with a new managed care option, called Medicare Advantage. The prescription drug benefit, which begins in 2006, is voluntary and beneficiaries would pay a monthly premium after enrolling. Until that time, beneficiaries will have access to a drug discount card to obtain discounts on their drug purchases. The MMA also contains extensive changes to other aspects of the Medicare program, including payments for currently covered outpatient drugs and end-stage renal disease services. During 2004, the MMA reduces Medicare reimbursement for many covered outpatient drugs furnished in 2004 from 95% to 85% (or in some cases as low as 80%) of the average wholesale price that was in effect on April 1, 2003. Beginning in 2005, payment will be made on the basis of an average sales price methodology or a new competitive acquisition program. Drug products furnished in connection with renal dialysis services, such as Hectorol^® Injection, will continue to be reimbursed at 95% of average wholesale price during 2004. Starting in 2005, Medicare’s payment will be based on manufacturer’s average selling price, and beginning in 2006, the Secretary of Heath and Human Services, referred to as the Secretary, has the authority to adopt a new payment methodology, which may include the average sales price methodology or acquisition costs. The Secretary is also required by the MMA to conduct a 2-year demonstration where payment is made for drugs and biologicals prescribed as replacements for existing drugs furnished as “incident to” a physician’s services under Part B of Medicare. The demonstration is required to provide for cost-sharing in the same manner as applies under the new prescription drug benefits of Part D of Medicare. The demonstration is required to begin within 90 days of enactment and is limited to 50,000 Medicare beneficiaries in sites selected by the Secretary.

The MMA directs the Secretary to establish a new prospective payment system for renal dialysis services. Currently, Medicare pays a composite rate for each dialysis treatment. The composite rate includes dialysis services, but excludes separately billable injectable drugs, such as Hectorol^® Injection, which are separately reimbursable at 95% average wholesale price to end-stage renal disease dialysis facilities. The MMA requires the Secretary to: (1) establish a “basic” case-mix adjusted prospective payment system for dialysis services beginning in 2005; (2) report to the Congress on the design and features of a “bundled,” fully case-mix adjusted prospective payment system for dialysis services; (3) conduct a demonstration study of a bundled payment system; and (4) make other changes, including increasing the composite rate by 1.6 percent in 2005 and restoring the exemption to the composite rate for pediatric facilities. By January 1, 2005, the Secretary is required to implement a basic case-mix adjusted payment system for dialysis services. The basic system will include two components: payment for those services currently under the composite rate and payment for the base line difference, or spread, between the Medicare payment amount to end-stage renal disease facilities for separately billed drugs and the facilities’ acquisition costs for the drugs. Under the basic system, Medicare will continue to pay providers separately for certain injectable drugs that are excluded from the current composite rate. By October 1, 2005, the Secretary is required to propose to Congress a fully case-mix adjusted, bundled prospective payment system for services furnished by end-stage renal disease facilities, including to the extent feasible, drugs and other items that currently are separately billed by end-stage renal disease facilities. The Secretary also is required to establish a 3-year demonstration project of the fully case-mix adjusted payment system for end-stage renal disease services, beginning January 1, 2006.

Beginning in 2006, the Secretary will increase the case-mix adjusted payments to end-stage renal disease dialysis facilities to reflect the estimated growth in expenditures for certain injectable drugs. Beginning in January 1, 2007, the Secretary is required to adjust the spread component for new injectable drugs in the case-mix adjusted payment. The Secretary will determine these adjustments based on information about the acquisition cost of injectable drugs and the rate of growth in expenditures for these items from studies which will be conducted by the Office of Inspector General.

Further, the MMA requires that the case-mix adjusted payment system result in the same aggregate amount of expenditures for such services as would have been made in 2005, 2006, and 2007 if payments were not case mix adjusted.

Medicare has sought to limit or reduce reimbursement paid to dialysis centers. Under the composite rate reimbursement paid to dialysis centers, each center has a financial incentive to reduce the costs that it incurs in providing treatment to patients. Dialysis centers generally seek substantial discounts from suppliers and shift to other suppliers of therapeutically similar services that are less expensive. These pressures are expected to increase and put pressure on our ability to increase our prices or recoup price increases.

Medicare currently bases its reimbursement on a discount off of average wholesale price. Average wholesale price is usually determined on the basis of prices we report to national reporting services, such as RedBook and First DataBank. We could face liability under false claims or anti-kickback laws if the federal government determined that we reported prices with the intent to set an artificially high average wholesale price to increase the profit for customers who are reimbursed by Medicare. In addition, under the MMA, we are required to report average sales price to the Centers for Medicare and Medicaid Services beginning in the first quarter of 2004. As with all prices reported to the federal government, we could be subject to penalties under the False Claims Act, Civil Monetary Penalties Law, and other criminal and civil statutes for knowingly reporting inaccurate prices.

Before our products can be marketed outside of the U.S., they are subject to regulatory approval similar to FDA requirements in the U.S., although the requirements governing the conduct of clinical trials and other premarket approval requirements vary widely from country to country, and the time spent in gaining approval varies from that required for FDA approval. FDA approval does not assure approval by other regulatory authorities, and we cannot predict whether foreign regulatory approvals will be granted. In some countries, the sales price of a drug product must also be approved. The pricing review period often begins after market approval is granted. Even if a foreign regulatory authority approves any of our products, we cannot predict whether satisfactory prices for our products will be approved.

We and our manufacturers must also comply with numerous federal, state and local laws, regulations and recommendations relating to safe working conditions, current Good Laboratory Practices, current Good Manufacturing Practices and the experimental use of animals. We cannot predict the extent of governmental regulation or the impact of new governmental regulations which might have an adverse effect on the discovery, development, production and marketing of our products and require us to incur significant costs to comply with the regulations.

Our research and development processes involve the controlled use of hazardous materials, chemicals and radioactive materials and produce waste products. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and waste products. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by such laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated completely. In the event of such an accident, we could be held liable for any damages that result, and any such liability could exceed our financial resources. We believe we comply in all material respects with applicable environmental laws and regulations.

We are also subject to various federal and state laws pertaining to health care fraud and abuse, including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. Due to the breadth of the statutory provisions and the absence of guidance in the form of regulations or court decisions addressing some of our practices, it is possible that our practices might be challenged under anti-kickback or similar laws. False claims laws prohibit anyone from knowingly presenting, or causing to be presented, for payment to either government payors (such as Medicare, Medicaid, and programs of the Departments of Defense and Veterans’ Affairs) or non-governmental third-party payors, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws are punishable by criminal and/or civil sanctions, including fines and civil monetary penalties, as well as the possibility of exclusion from federal health care programs (such as Medicare, Medicaid, and programs of the Departments of Defense and Veterans’ Affairs). If the government were to allege that we violated these laws or if we were convicted of violating these laws, there could be a material adverse effect on us. Our activities could be subject to challenge for the reasons discussed above as a result of the broad scope of these laws and the increased focus on pharmaceutical practices by state and federal law enforcement authorities.

Federal law enforcement agencies and many state attorneys general have ongoing civil and criminal investigations against pharmaceutical companies alleging violations of Medicaid Rebate statutes, federal and state anti-kickback statutes, and false claims laws related to drug pricing. These enforcement actions arise from allegations that the companies fraudulently billed, reported, manipulated, or inflated prices for their pharmaceutical products that resulted in millions of dollars in overcharges to states. Many cases have been filed under seal under federal and state anti-kickback and false claims statutes and therefore are unknown to the pharmaceutical companies who may be the targets.

Employees

As of June 30, 2004, we had 140 full-time employees, including 27 in research and development, 22 in compliance, quality and regulatory affairs, 73 in sales and marketing and 18 in administration. Four of our employees have Ph.D. degrees and one is an MD. None of our employees are represented by a union, and we consider our employee relations to be good.

Customers

Our customers primarily consist of wholesale distributors of pharmaceutical products. We utilize these wholesale distributors as the principal means of distributing our products to clinics and hospitals. Five individual wholesaler distributors comprise 97% of the net accounts receivable balance as of June 30, 2004. These same five wholesaler distributors represented 95% of our product sales for the year ended June 30, 2004, with the largest of the five wholesaler distributors representing 39% of product sales. Metro Medical, Amerisource/Bergen, and American Medical Distributors each comprise greater than 10% of product sales.

Available Information

We make available free of charge on our website at www.bonecare.com our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after electronically filing or furnishing such material to the Securities and Exchange Commission. Information on our website is not part of this filing.

RISK FACTORS

Investors and prospective investors in Bone Care should consider carefully the risks described below, in addition to other information in this filing. The risks and uncertainties described below are not the only ones facing our company. If any of the following risks actually occur, our business, financial condition or results of operations would likely suffer. In that event, the trading price of our common stock could decline and investors may lose all or part of their investment.

RISKS RELATED TO OUR BUSINESS

Our business is at an early stage of development and we do not have a significant history for you to evaluate us on.

Our business is at an early stage of commercialization and product development, and historically has not had significant revenues or positive cash flow. Even if we are able to achieve positive cash flow from operations, we will face many challenges as we strive to maintain profitability. Hectorol^® Injection is approved for one indication and Hectorol^® Capsules are approved for two indications. Our product candidates and any expansion of indications for our current products will require extensive research and development and clinical testing before we can submit a new drug application to the FDA. In addition, we have not commercialized Hectorol^® in foreign markets. The successful commercialization of Hectorol^® or any of our other product candidates will require significant further research, testing, development and regulatory approvals and additional investment. There can be no assurance that we will be successful in any of our commercialization efforts. Our experience with, and history in, conducting these activities has been limited. Any predictions you make about our future success or viability may not be as accurate as they would be if we had a longer operating history.

We have a history of losses and our losses may continue.

We have incurred losses since we began operating. As of June 30, 2004, our accumulated deficit was approximately $54.7 million. To date, we have primarily spent our funds on product development and more recently on sales, marketing and manufacturing expenses incurred to commercialize Hectorol^® Injection and Hectorol^®Capsules. In fiscal year 2004 and subsequent fiscal years, we plan to make large expenditures to manufacture, market and sell Hectorol^® and to develop other products, which may result in losses in future periods. These expenditures include costs associated with continuing our research and development, performing clinical trials for new products, expanding our patent portfolio and seeking U.S. and foreign regulatory approvals for Hectorol^®, and business development activities. The amount of these expenditures is difficult to forecast accurately. It is possible, depending on the rate at which our revenues increase and our marketing, research and development, and other business development activities expand, that our losses will continue. Our ability to generate revenues in the near future will depend primarily on our ability to continue to obtain products manufactured by third parties and on our success in marketing and selling Hectorol^® Injection and Hectorol^® Capsules. We do not know whether we will achieve profitability or, if we do, whether we will be able to sustain profitability.

We currently derive all of our revenue from Hectorol^®, and expect to do so for the foreseeable future. If sales of Hectorol^® decrease, our results of operations will be significantly adversely affected.

We currently derive all of our revenue from the sale of Hectorol^®. In June 1999, we received FDA approval to market Hectorol^® 2.5 mcg Capsules in the U.S. to manage secondary hyperparathyroidism in kidney dialysis patients and began selling Hectorol^® 2.5 mcg Capsules in October 1999. In April 2000, we received FDA approval to market Hectorol^® Injection to manage secondary hyperparathyroidism in dialysis patients and began selling Hectorol^® Injection in the U.S. in August 2000. In April 2004 we obtained FDA approval for Hectorol^® 0.5 mcg Capsules to manage secondary hyperparathyroidism in pre-dialysis patients with moderate to severe chronic kidney disease and we began selling this product in the U.S. in July 2004. We believe that sales of Hectorol^® Capsules and Hectorol^® Injection will continue to constitute a significant portion of our total revenues for the foreseeable future. Accordingly, any factor adversely affecting sales of Hectorol^®, such as the introduction by other companies of generic equivalents of Hectorol^® or alternatives to Hectorol^® or any delay in marketing for pre-dialysis, may have a material adverse effect on our results of operations. There can be no assurance that the vitamin D hormone market will not decline in the future.

We may not be able to commercialize our existing or new products if we do not enter into successful strategic alliances or other marketing arrangements.

As part of our business strategy, we plan to establish strategic partnerships, alliances and commercialization arrangements with partners who can penetrate geographic markets and compete in therapeutic areas where we have no current or planned sales presence. In addition, we may seek to enter into strategic alliances or collaborations in connection with the development or commercialization of new products. We have been in discussions with several potential collaborators but have not entered into any agreements other than with Cardinal Health for the promotion of Hectorol^® 0.5 mcg Capsules to nephrologists. We may not be able to negotiate collaborative arrangements on acceptable terms, if at all. If we are not able to establish collaborative arrangements, we will have to either delay further development of some of our programs or increase our expenditures and undertake the development activities at our own expense. We may encounter significant delays in commercializing our products or find that the development, manufacture or sale of our products is hindered due to the absence of collaborative agreements.

We have limited experience establishing and maintaining collaborative agreements. Our agreement with Cardinal Health, and any other collaborative agreements we may enter into in the future, may pose additional risks, including the following:

• the terms of our contracts with our collaborators may not be favorable to us in the future;

• a collaborator with marketing and distribution rights to one or more of our products may not commit enough resources to the marketing and distribution of such products;

• disputes with our collaborators may arise, leading to delays in or termination of the development or commercialization of our products, or resulting in significant litigation or arbitration;

• contracts with our collaborators may fail to provide significant remedies if one or more of them fail to perform;

• our contracts with collaborators may be terminated and we may not be able to replace our collaborators;

• in some circumstances, if a collaborator terminates an agreement, or if we are found to be in breach of our obligations, we may be unable to secure all of the necessary intellectual property rights and regulatory approval to continue developing the same compound or product; and

• our collaborators could independently develop, or develop with third parties, products that compete with ours.

If we make any acquisitions, we will incur a variety of costs and may never realize the anticipated benefits.

If appropriate opportunities become available, we may attempt to acquire licenses, technologies, products or companies that we believe fit strategically with our business. We currently have no understandings, commitments or arrangements with respect to any such acquisitions. If we do undertake any transaction of this sort, the process of integrating an acquired license, technology, product or company may result in operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for our ongoing business development plans. Moreover, we may never realize the anticipated benefits of any acquisition. Future acquisitions could result in in-process research and development expenses, potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or impairment of goodwill and amortization or impairment of other intangible assets, which could adversely affect our business, financial condition and results of operations.

We have limited experience commercializing our products and may not be able to successfully do so.

To date, our experience in commercializing our products has been primarily limited to marketing Hectorol^® to treat patients with end-stage renal disease. In order to successfully commercialize Hectorol^® or any other products, we will need to have adequate sales, marketing and distribution capabilities in place. Our sales force has been limited in number, current product experience and training. We have only recently begun to expand our sales force and marketing capabilities, and our efforts to expand may not be successful. We may not be able to attract skilled sales/marketing personnel in a timely manner or at all. In addition, we may not be able to maintain a commercial infrastructure with the technical expertise to support manufacturing oversight, product release and distribution capabilities. If we are unsuccessful in our commercialization efforts, our growth prospects will be diminished.

We lack sufficient long-term data regarding the safety and efficacy of Hectorol^® and we could find that our long-term data do not support our current clinical findings which may limit our efforts to commercialize Hectorol^®.

Hectorol^® is supported by only five or less years of patient follow-up, and therefore, we could discover that our current clinical results cannot be supported by actual long-term clinical experience. If longer-term patient studies or clinical experience indicate that treatments with our products do not provide patients with sustained benefits, our sales could significantly decline. If longer-term patient studies or clinical experience indicate that our procedures cause tissue or muscle damage, motor impairment or other negative effects, we could be subject to significant liability. We are not certain how long it may take for patients to show significant increases in side effects. Further, because some of our data have been produced in studies that are not randomized and involved small patient groups, our data may not be reproduced in wider patient populations.

We have not conducted prospective clinical trials comparing Hectorol^® and competitive vitamin D hormone therapies in end-stage renal disease. We, and others not affiliated with us, have compared the toxicity and efficacy of Hectorol^® to some other vitamin D hormone therapies (1-a-calcidol and calcitriol) in rats and mice. We cannot be sure, however, that the results of additional clinical trials will prove that our assumptions, based on animal studies, are correct as applied to humans. Hectorol^® may not compare favorably to existing or new vitamin D hormone therapies. If Hectorol^® or our future products do not prove to be superior to competing products, we may face severe difficulties and may incur greater marketing expenses. If additional clinical trials prove that Hectorol^® is inferior to competitive vitamin D hormone therapies, we may be forced to suspend our efforts to commercialize Hectorol^® and to delay or suspend our planned efforts to develop Hectorol^® for additional indications.

If the medical community does not accept our products, our business will suffer.

The success of our products depends on acceptance of those products by the medical community, which is based on a number of factors including:

• perceptions about the safety and efficacy of our products;

• cost-effectiveness of our products relative to competing products;

• availability of reimbursement for our products from government or third-party payors; and

• effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any.

If doctors and patients do not use our products, we may not become profitable. We cannot predict how quickly, if at all, the medical community will accept our products or the extent to which these products will be used. If we encounter difficulties introducing our products into our targeted markets, our operating results and business may be substantially impaired.

Failure to raise additional funds in the future may delay or eliminate some or all of our efforts to develop, manufacture and sell Hectorol^® and any of our future products.

In recent years we have significantly increased our sales and marketing expenditures and we continue to spend significant amounts on research and development. We cannot be sure that our estimates of capital expenditures for Hectorol^® and the development of our other new products will be accurate. We could have significant cost overruns that could reduce our ability to commercialize new products.

Reimbursement for Hectorol^® or any future products could be reduced or modified.

Sales of our products will depend, in part, on the extent to which the costs of our products will be paid by health maintenance, managed care, pharmacy benefit and similar health care management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. These health care management organizations and third-party payors are increasingly challenging the prices charged for medical products and services and frequently require predetermined discounts from list prices. Additionally, the containment of health care costs has become a priority of federal and state governments, and the prices of drugs have been targeted in this effort. Our current and potential products may not be considered cost effective, and reimbursement to the consumer

may not be available or sufficient to allow us to sell our products on a competitive basis. Legislation and regulations affecting reimbursement for our products have recently changed and may change at any time, including in ways that are adverse to us. Currently, only Hectorol^® Injection is eligible to be reimbursed under Medicare but there is no guarantee as to the level of this reimbursement or whether it will continue at all. Any reduction in Medicare or other third-party payor reimbursements could have a negative effect on our operating results.

We currently have no manufacturing capabilities so we must rely exclusively on suppliers who are outside of our control to manufacture our products, including Hectorol^®.

The manufacture of pharmaceutical products requires significant expertise, oversight, and capital investment. We do not have the internal capability to manufacture pharmaceutical products, and we currently use others to formulate, manufacture and package Hectorol^® and other drug candidates and manufacture our active pharmaceutical ingredient. Our manufacturers are required to adhere to current Good Manufacturing Practices regulations enforced by the FDA. Our dependence upon others to manufacture our active pharmaceutical ingredient and products may adversely affect our profit margins and our ability to develop and commercialize products on a timely and competitive basis. Delays or difficulties with contract manufacturers in manufacturing active pharmaceutical ingredient and producing, packaging or distributing our products would adversely affect the results of operations of Hectorol^® or introduction of other products. If we were to need to seek alternative sources of supply, we may be unable to enter into alternative supply arrangements on commercially acceptable terms, if at all. Any disruption of these activities could impede our ability to sell our products, which would significantly reduce our results of operations.

All of our suppliers have FDA inspected facilities that are required to operate under current Good Manfacturing Practices regulations established by the FDA. In December 2001, Akorn, Inc. (previously the sole manufacturer of Hectorol^® Injection) halted production of Hectorol^® Injection until such time as certain general deviations from the FDA’s current Good Manufacturing Practices could be remediated. The FDA’s site inspection, which concluded in February 2003, resulted in additional inspectional observations that preclude submission of a supplement with respect to the manufacture and process improvements at Akorn. Accordingly, supply of Hectorol^® Injection was constrained from December 2002 to March 2003. We entered into a manufacturing agreement with Draxis Pharma Inc., a subsidiary of Draxis Health Inc., to serve as a manufacturer of Hectorol^®Injection and began commercial distribution in March 2003. There is no assurance that Draxis will have sufficient production capacity to meet future demand or that Draxis will perform its contractual obligations.

We purchase our active pharmaceutical ingredient for Hectorol^® from a sole supplier, although we are currently in the process of obtaining regulatory approval for an additional supplier. We rely on one supplier to formulate Hectorol^®Capsules and another supplier to package Hec


		Page
Part I
Item 1	Business		4
Item 2	Properties		27
Item 3	Legal Proceedings		27
Item 4	Submission of Matters to a Vote of Security Holders		27
Part II
Item 5	Market for Registrant’s Common Equity and Related Stockholder Matters		27
Item 6	Selected Financial Data		28
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 7A	Quantitative and Qualitative Disclosures about Market Risk		36
Item 8	Financial Statements and Supplementary Data		37
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		55
Item 9A	Controls and Procedures		55
Item 9B	Other Information		55
Part III
Item 10	Directors and Executive Officers of the Registrant		55
Item 11	Executive Compensation		55
Item 12	Security Ownership of Certain Beneficial Owners and Management and related stockholder matters		55
Item 13	Certain Relationships and Related Transactions		55
Item 14	Principal Accountant Fees and Services		55
Part IV
Item 15	Exhibits and Financial Statement Schedules		56
	Signatures		57
	Index to Exhibits		58
CO-PROMOTION AGREEMENT BETWEEN CARDINAL HEALTH AND REGISTRANT
SEVERANCE AGREEMENT BETWEEN REGISTRANT AND PAUL L. BERNS
SEVERANCE AGREEMENT BETWEEN REGISTRANT AND JAMES V. CARUSO
SEVERANCE AGREEMENT BETWEEN REGISTRANT AND BRIAN J. HAYDEN
SEVERANCE AGREEMENT BETWEEN REGISTRANT AND JEFFREY J. FREITAG
SEVERANCE AGREEMENT BETWEEN REGISTRANT AND CARMINE J. DURHAM
SEVERANCE AGREEMENT BETWEEN REGISTRANT AND R. ANDREW MORGAN
SEVERANCE AGREEMENT BETWEEN REGISTRANT AND C. BASIL MUNDY
CONSENT OF DELOITTE & TOUCHE
RULE 13A-14(A) CERTIFCATION OF CEO
RULE 13A-14(A) CERTIFCATION OF CFO
CEO CERTIFICATION PURSUANT TO SECTION 1350
CFO CERTIFICATION PURSUANT TO SECTION 1350

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	•		general economic and market conditions in the U.S., Europe and the rest of the world;

	•		our expectations and estimates concerning future financial performance, financing plans and the impact of competition;

	•		the ability of us and each of our suppliers of doxercalciferol, Hectorol^® Injection and Hectorol^® Capsules to meet our anticipated production schedules;

	•		technical risks associated with the development of new products;

	•		regulatory policies in the U.S. and other countries;

	•		risks associated with our ability to avoid or minimize delays in/or interruption of the manufacture and supply of our products, including the approvals of regulatory authorities in connection therewith;

	•		reimbursement policies of public and private health care payors;

	•		introduction and acceptance of new drug therapies;

	•		competition from existing products and from new products or technologies;

	•		the failure by us to produce anticipated cost savings or improve productivity;

	•		the timing and magnitude of capital expenditures and acquisitions; and

	•		other risk factors set forth under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.

	•		Expanding our sales and marketing infrastructure. We plan to continue to develop our internal sales and marketing capabilities to compete in the $400 million vitamin D hormone market in the U.S. for end-stage renal disease, in the market for the estimated 8 million patient population with moderate to severe chronic kidney disease and in related markets for vitamin D hormone therapies that we believe could be effectively addressed with a highly focused sales and marketing effort.

	•		Expanding the indications for Hectorol^®. We plan to pursue new indications, new formulations and product life cycle management strategies for Hectorol^®. The FDA recently approved the use of Hectorol^® 0.5 mcg Capsules to treat secondary hyperparathyroidism in pre-dialysis.

	•		Developing additional product offerings. We plan to leverage our vitamin D hormone platform and use our research and development, clinical and regulatory capabilities to seek to develop and improve products for targeted diseases such as secondary hyperparathyroidism, psoriasis and cancers.

	•		Licensing and acquiring compounds that fit into our strategic plans. We are evaluating marketed products and compounds in development that fit into our strategic plans. In-licensing and acquisition targets may include products in the traditional nephrology therapeutic area, products that treat co-morbid conditions commonly seen in chronic kidney disease patients related to metabolic syndrome or other targeted specialty pharmaceutical markets.

	•		Entering into strategic partnerships to globally commercialize our current products and assets or new products. We plan to establish mutually beneficial strategic partnerships, alliances and commercialization arrangements with partners who can penetrate geographic markets or compete in therapeutic areas where we have no current or planned sales presence. We also may seek to enter into strategic alliances to develop or commercialize new products.

	•		Excessive phosphorus and/or calcium in the blood, which increases the risk that mineral deposits will develop in soft tissues, such as in the heart and arteries, contributing to cardiac disease, or in the kidneys, accelerating kidney failure in chronic kidney disease patients.

	•		Excessive phosphorus in the blood, which stimulates secretion of parathyroid hormone by the parathyroid glands and exacerbates secondary hyperparathyroidism.

	•		Excessive calcium in the urine, which increases the risk that calcium-rich deposits will develop in the kidneys and accelerate kidney failure in chronic kidney disease patients.

	•		Safe and Effective Treatment. Data obtained from our clinical trials have demonstrated that Hectorol^® is a safe and effective therapy for treating secondary hyperparathyroidism in moderate to severe chronic kidney disease and in end-stage renal disease. In these trials, Hectorol^® reduced blood levels of parathyroid hormone in more than 90% of the treated patients with minimal side effects. Based on these and other trials, we believe that Hectorol^® compares favorably to competitive vitamin D hormones, including calcitriol and paricalcitol; however, we have not performed prospective comparative trials to demonstrate these conclusions.

	•		Oral Delivery that Expands Market Opportunities. Hectorol^® Capsules provide a safe, convenient and effective oral vitamin D therapy for the management of parathyroid hormone levels in patients with moderate to severe chronic kidney disease and end-stage renal disease. Intravenous vitamin D hormone products are generally used in hemodialysis patients and only under medical supervision. Competitive vitamin D hormones may be less well suited for oral delivery because they are fully active on delivery, which may cause certain cells lining the small intestine to absorb too much calcium and phosphorus, leading to side effects. Hectorol^®, on the other hand, is an inactive pro-hormone that, after oral delivery, should not be immediately available to these intestinal cells.

	•		A Pro-Hormone that Provides Consistent Levels of Natural Vitamin D Hormones. Hectorol^® is a vitamin D pro-hormone, an inactive vitamin D analog that is metabolized by the liver into two active and naturally occurring vitamin D hormones. Activated Hectorol^® is released into the bloodstream at a rate which appears to mimic the normal physiologic production of active vitamin D hormones by normal kidneys. Normal physiologic blood levels of vitamin D hormones allow efficient regulation of parathyroid hormone secretion by the parathyroid glands with few side effects.

	•		Nephrologists. We estimate that in the U.S. there are approximately 4,800 office-based nephrologists. The nephrologist is the physician responsible for the care of patients diagnosed with chronic kidney and end-stage renal disease. This care includes delivering vitamin D hormone replacement therapy, which may be administered based on protocols developed in conjunction with the dialysis clinics.

	•		Dialysis Clinics. The nephrologist is generally associated with a clinic that performs dialysis procedures. In the U.S., a limited number of large corporations control the majority of these clinics with the largest five corporations controlling approximately 46% of in-center dialysis facilities. Generally these clinics bill for services provided to end-stage renal disease patients, including vitamin D hormone therapy.

	•		Third-Party Payors. Dialysis clinics that administer intravenous vitamin D hormones seek reimbursement from third-party payors who generally are either insurance companies or governmental agencies, including Medicare and Medicaid. These payors set reimbursement levels for products and services which the clinics provide to dialysis patients. Because dialysis patients all suffer from end-stage renal disease which qualifies all such patients for Medicare, dialysis clinics generally derive a high percentage of their revenues from the Medicare program. Pre-dialysis patients primarily seek reimbursement from third-party payors who generally are either insurance companies or governmental agencies, such as Medicaid.

	•		the terms of our contracts with our collaborators may not be favorable to us in the future;

	•		a collaborator with marketing and distribution rights to one or more of our products may not commit enough resources to the marketing and distribution of such products;

	•		disputes with our collaborators may arise, leading to delays in or termination of the development or commercialization of our products, or resulting in significant litigation or arbitration;

	•		contracts with our collaborators may fail to provide significant remedies if one or more of them fail to perform;

	•		our contracts with collaborators may be terminated and we may not be able to replace our collaborators;

	•		in some circumstances, if a collaborator terminates an agreement, or if we are found to be in breach of our obligations, we may be unable to secure all of the necessary intellectual property rights and regulatory approval to continue developing the same compound or product; and

	•		our collaborators could independently develop, or develop with third parties, products that compete with ours.

	•		perceptions about the safety and efficacy of our products;

	•		cost-effectiveness of our products relative to competing products;

	•		availability of reimbursement for our products from government or third-party payors; and

	•		effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any.