1129425--3/1/2007--ZYMOGENETICS

related topics

{product, candidate, development}

{property, intellectual, protect}

{product, liability, claim}

{stock, price, operating}

{provision, law, control}

{operation, natural, condition}

{cost, regulation, environmental}

{cost, operation, labor}

{personnel, key, retain}

{control, financial, internal}

{acquisition, growth, future}

Risks Related to Our Business We have limited experience in developing or commercializing products and may not be successful in developing or commercializing any products. Our near-term success is highly dependent on the approval and commercialization of rhThrombin, our lead product candidate. As we progress from a primarily research and development company to a company involved in commercialization, we may encounter difficulties in managing our growth and expanding our operations, including our product supply chain. Because we currently have no sales capabilities and limited marketing capabilities, we may be unable to successfully commercialize rhThrombin or our other potential products. We may be unable to satisfy the rigorous government regulations relating to the development and commercialization of rhThrombin or our other product candidates. Any failure or delay in commencing or completing nonclinical studies or clinical trials for product candidates could severely harm our business. Clinical trials may fail to demonstrate the safety and effectiveness of our product candidates, which could prevent or significantly delay their regulatory approval. Because we currently have no capability for commercial-scale manufacturing and only limited capabilities to manufacture materials for clinical trials, we will have to rely on third parties to manufacture our potential products, and we may be unable to obtain required quantities in a timely manner or on acceptable terms, if at all. The process of building or acquiring our own commercial manufacturing capacity would be expensive, lengthy and would require compliance with extensive manufacturing regulations, which could not be assured. Because we will depend on third parties to conduct certain laboratory tests and clinical trials, we may encounter delays in or lose some control over our efforts to develop product candidates. Our bioinformatics-based discovery strategy is unproven, and genes or proteins we have discovered may have no commercial value. The lack of novel genomic data has required us to pursue novel approaches to discovering proteins that may not yield new product candidates. Our patent applications may not result in issued patents, and our competitors may commercialize the discoveries we attempt to patent. Third parties may infringe our patents or challenge their validity or enforceability. We may be subject to patent infringement claims, which could result in substantial costs and liability and prevent us from commercializing our potential products. Issued patents may not provide us with any competitive advantage or provide meaningful protection against competitors. The patent field relating to therapeutic protein-based products is subject to a great deal of uncertainty, and if patent laws or the interpretation of patent laws change, our competitors may be able to develop and commercialize products based on proteins that we discovered. We expect to incur significant expenses in applying for patent protection and prosecuting our patent applications. We may be unable to protect our unpatented proprietary technology and information. Our plan to use collaborations to leverage our capabilities may not be successful. We may not be able to generate any revenue from product candidates developed by collaborators or licensees if they are unable to successfully develop those candidates. Merck Serono has substantial rights to license proteins we discover, which may limit our ability to pursue other collaboration or licensing arrangements or maximize the benefit from our discoveries. Environmental and health and safety laws may result in liabilities, expenses and restrictions on our operations. Natural or man-made disasters may impair our ability to conduct our business. We anticipate incurring additional losses and may not achieve profitability. If we do not obtain substantial additional funding on acceptable terms, we may not be able to continue to grow our business or generate enough revenue to recover our investment in research and development. Our operating results are subject to fluctuations that may cause our stock price to decline. Risks Related to Our Industry Many of our competitors have substantially greater capabilities and resources than we do and may be able to develop and commercialize products before we do. Our product candidates, even if approved by the FDA or foreign regulatory agencies, may not achieve market acceptance among hospitals, insurers or patients. If the health care system, reimbursement policies or any other health care related regulations change, the prices of our potential products may fall or our potential sales may decline. Negative public opinion and increased regulatory scrutiny of genetic and clinical research may limit our ability to conduct our business. The marketing and sale of pharmaceutical products and biologics is subject to extensive regulation and aggressive government enforcement. The failure to attract or retain key management or other personnel could decrease our ability to discover, develop and commercialize potential products. We may be required to defend lawsuits or pay damages in connection with alleged or actual harm caused by our product candidates. Risks Related to Ownership of Our Stock Our stock price may be volatile. Certain of our shareholders have significant control of our management and affairs, which they could exercise against other shareholders best interests. Provisions in our charter documents could prevent or frustrate any attempts to replace our current board of directors or management by shareholders.

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1129425--3/1/2007--ZYMOGENETICS_INC