<PAGE>
As filed with the Securities and Exchange Commission on November 16, 1999
Registration No. 333-81283
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 2 to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
UroGen Corp.
(Name of small business issuer in its charter)
------------------------------
<TABLE>
<S> <C> <C>
Delaware 3845 33-0687976
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
10835 Altman Row,
Suite 150
San Diego, Ca 92121
(858) 450-5949
(Address and telephone number of principal executive office and principal
place of businesss)
------------------------------
Robert E. Sobol, MD
President and Chief Executive Officer
Urogen Corp.
10835 Altman Row, Suite 150
San Diego, Ca 92121
(619) 450-5949
(Name, address and telephone number of agent for service)
Copies to:
Herbert P. Fockler, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
------------------------------
Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Proposed
Title of each class Proposed Maximum
of securities to be Amount to be maximum offering Aggregate offering Amount of
registered Registered (1) price per unit (2) price (2) registration fee
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<S> <C> <C> <C> <C>
Common Stock,
$0.001 par value 4,339,977 shares $0.22 954,793 $265 (3)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents shares already issued plus the estimated maximum number of
shares of the Common Stock of the Registrant which may be issued to the
Selling Security Holders upon exercise of the warrants for Common Stock. In
the event of a stock split, stock dividend or similar transaction involving
the Common Stock of the Registrant, in order to prevent dilution, the
number of shares registered shall be automatically increased to cover
additional shares in accordance with Rule 416 (a) under the Securities Act.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended,
calculated in accordance with Rule 457(c) on the basis of the average of
the bid and ask prices reported for such securities on the Electronic
Bulletin Board on September 17, 1999.
(3) $298 has previously been paid.
- --------------------------------------------------------------------------------
______________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
PROSPECTUS
UroGen Corp.
4,339,977 Shares
COMMON STOCK
On July 8, 1998 and April 28, 1999, we sold convertible subordinated notes
with detachable warrants raising $1,030,000 and $400,000, respectively. The
purpose of this registration statement is to register the shares of common
stock underlying the notes and warrants by their current holders.
On November 15, 1999, the closing price of our common stock, which is
quoted on the Electronic Bulletin Board under the symbol "UROG", was $0.32 per
share.
--------------
THE COMMON STOCK OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 16, 1999
<PAGE>
PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
and our Financial Statements and notes appearing elsewhere in this
prospectus.
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<PAGE>
UROGEN CORP.
UroGen Corp. is a biotechnology company dedicated to the development of
innovative gene therapy products for the treatment of hemophilia, cancer and
other genetic disorders. Gene therapy is technology that uses genetic materials
as therapeutic agents to treat disease. Gene therapy seeks to restore, augment
or correct gene functions either by the addition of normal genes or by
neutralizing the activity of defective genes. An essential requirement of gene
therapy is a suitable delivery system for introducing therapeutic genes into
cells. Two major approaches which have been used are viral and non-viral
delivery systems, also called vectors.
Prior to July 1998, UroGen was a biotechnology company developing gene
therapy products for the diagnosis and treatment of prostate cancer. We had
licensed technology in this area and were evaluating gene delivery systems. In
July 1998, UroGen acquired equipment from the gene therapy unit of Baxter
Healthcare Corporation together with exclusive rights to gene delivery
technologies in exchange for 1,841,217 shares of our common stock and 5,830
shares of our Series A preferred stock. See "Certain Relationships and Related
Transactions - Baxter Agreements" for a description of this transaction. The
technology acquired from Baxter is based upon gene transfer systems derived from
a type of cold virus called an adenovirus. We believe this adenoviral system
provides superior gene transfer efficiency and expression compared to other gene
therapy approaches. Gene expression is the biological process the body employs
to make proteins from the genetic code of DNA. High levels of gene expression
mean that high levels of proteins are made. The gene transfer system has been
engineered to remove the original adenovirus genes which all then replaced with
therapeutic genes. These genetically engineered therapeutic viruses contain less
than 3% of the original adenovirus. We believe that removal of unwanted
adenoviral genes permits increased gene transfer capacity with a high level of
expression of the gene being delivered. In addition, there is improved safety
compared to standard gene transfer systems. Because these therapeutic viruses
are engineered to minimize the presence of adenoviral genes, they are termed
"Mini-Ad" vectors. These Mini-Ad vectors retain the ability to infect other
cells and the efficient gene transfer characteristics of original adenoviruses.
Importantly, we believe we have engineered capabilities into our Mini-Ad systems
which provide for sustained, high level expression of the gene being
transferred. We believe our gene transfer and expression systems will advance
the capabilities of gene therapy for disease management, providing what we
believe to be efficient gene transfer and long term gene expression desired for
effective theraputic treatments.
The research performed at Baxter before we licensed the technology was
focused on the use of this delivery system to treat hemophilia and cancer. We
have continued our research and development of products for the treatment of
hemophilia and prostate cancer. Two gene therapy products are under development:
1) Factor VIII Mini-Ad Vector for the treatment of hemophilia; 2) Tumor killing
Interleukin-3 (IL-3) Adenoviral Vectors for the treatment of prostate cancer.
The Factor VIII Mini-Ad Vector for hemophilia is expected to provide a greater
duration of the normally occurring protein, Factor VIII, preventing chronic
bleeding and joint damage which are characteristic of this disorder. The IL-3
Adenoviral product is comprised of a mixture of two adenoviral vectors which
complement each other resulting in replication of the virus in tumor tissues,
leading to destruction of tumor cells, radiation sensitization and anti-tumor
immune responses for the treatment of prostate cancer.
UroGen was incorporated in Delaware in June 1995 as a wholly-owned
subsidiary of Medstone International, Inc., a Delaware Company. The business of
UroGen was formed from the molecular biology and small molecule pharmaceuticals
divisions of Medstone. UroGen operated as two divisions of Medstone from July 1,
1991 to December 29, 1996, when the operations of these divisions were
transferred into UroGen Corp. On February 9, 1996, Medstone distributed of all
of the outstanding stock of UroGen Corp. to its shareholders by issuing a
dividend of one share of UroGen common stock for each share of Medstone stock
held as of December 29, 1995. Our principal executive offices are located at
10835 Altman Row, Suite 150, San Diego, California 92121, and our telephone
number is (858) 450-5949.
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<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by UroGen None
Common stock offered by the selling stockholders 4,339,977 shares, including 1,879,166
shares issuable upon exercise of the
warrants
Common stock outstanding after the offering 12,097,999 shares
13,977,165 shares assuming all 1,879,166
shares are issued upon exercise of the
warrants
Use of proceeds Urogen will not receive proceeds from
the sale of the Shares offered. The warrants
include a net exercise provision. Accordingly,
we may not receive significant proceeds from
exercise of the warrants.
</TABLE>
The above number of shares outstanding after the offering is based on the shares
outstanding as of September 30, 1999. This number excludes:
. 3,286,183 shares subject to outstanding options at a weighted average
exercise price of $0.28 as of September 30, 1999.
. 450,000 shares issuable upon exercise of outstanding warrants, other than
those which are a subject of this prospectus, at a weighted average
exercise price of $0.17 per share as of September 30, 1999.
. An aggregate of 1,791,485 shares available for future issuance under our
stock option plans.
Summary Consolidated Financial Information
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period
from July
Nine Months Ended 1, 1991 to
Year Ended December 31, September 30, September 30,
-------------------------------------------------- ------------------ -------------
1998(1) 1997 1996 1995 1994 1999 1998 1999
-------- ------ ------- ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues................... $ 192 $ 194 $ - $ - $ - $ 67 $ 192 $ 909
Total costs and expenses ...... 7,858 497 522 75 398 2,453 4,906 15,513
Loss from operations........... (7,666) (303) (522) (75) (398) (2,386) (4,714) (14,604)
Other income................... - - 64 - - 1 - 65
Interest income (expense)...... (296) 4 14 - - (334) (167) (611)
Net loss....................... $(7,962) $ (299) $ (444) $ (75) $ (398) $(2,719) $(4,881) $ (15,150)
Net loss per share............. $ (1.00) $(0.04) $ (0.07) N/A N/A $ (0.27) $ (0.65)
Weighted average shares
outstanding................... 7,997 7,331 5,980 N/A N/A 10,237 7,537
</TABLE>
_________________________
(1) Includes a one-time charge of $5,455,000 related to the write-off of
acquired in-process technology. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations."
<TABLE>
<CAPTION>
December 31 September 30,
------------------------------------------------------------
1998 1997 1996 1995 1994 1999
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital............................. $(1,274) 5 235 1 - $ 777
Total assets................................ 1,098 77 253 163 201 1,877
Long-term debt, net of current portion...... 1,044 - - - - 3,467
Stockholders deficit........................ (1,934) 9 237 163 201 (2,145)
</TABLE>
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<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below and the other information
contained in this prospectus before deciding to invest in our common stock. The
risks described below are not the only ones facing our company. Additional risks
not presently known to us or which we currently consider immaterial may also
adversely affect our business. If any of the following risks actually happen,
our business, financial condition and operating results could be materially
adversely affected. In this case, the trading price of our common stock could
decline, and you could lose part or all of your investment.
This prospectus contains forward-looking statements that involve risks and
uncertainties. The statements contained in this prospectus that are not purely
historical are forward-looking statements , including statements regarding our
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to UroGen on the date of this prospectus. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of various factors, including those set forth in the following risk
factors and elsewhere in this prospectus.
UROGEN RISKS
We will need substantial additional funding and our access to capital is
uncertain.
Our operations to date have consumed substantial amounts of cash. The
negative cash flow from operations is expected to continue and to accelerate for
at least the next three years. The development of our products will require a
commitment of substantial funds to conduct the costly and time-consuming
research, preclinical and clinical testing necessary to bring our products to
market and to establish manufacturing and marketing capabilities. UroGen's
future capital requirements will depend on many factors:
. the progress of our research and development programs;
. the progress of preclinical and clinical testing;
. the time and cost involved in obtaining regulatory approvals;
. the cost of filing, prosecuting, defending and enforcing patent claims
and other intellectual property rights;
. competing technological and market developments; and
. our ability to establish collaborative and other arrangements with
third parties, such as licensing and manufacturing agreements.
Baxter has committed to fund the development of our hemophilia product
under the Developmental Collaboration Agreement until we treat the first patient
in Phase I clinical trials, at which time they will pay us a $2 million
milestone payment. Additionally, Baxter has committed $400,000 in additional
capital. We expect that our existing capital resources and the amounts committed
by Baxter will enable us to maintain our current and planned operations through
December 2000. We will need to raise substantial additional capital to fund our
operations. We intend to seek this additional funding either through
collaborative arrangements or through public or private equity or debt
financings. We cannot be certain that additional
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<PAGE>
financing will be available on acceptable terms, or at all. If we raise
additional funds by issuing equity securities you will experience further
dilution with respect to the stock purchased in this offering. If adequate funds
are not available, we may be required to delay or reduce the scope of our
operations or to obtain funds through arrangements with collaborative partners
or others that may require us to relinquish rights we may have acquired in the
interim.
Our auditors have expressed doubt regarding our ability to continue operations.
Our independent auditors have issued their report on our financial
statements. This report contains an explanatory paragraph which expresses
substantial doubt regarding our ability to continue as a going concern based
upon certain existing conditions such as our negative stockholders' equity
position and the negative cash flow generated from operations. Successful
completion of our development program and our transition, ultimately, to
profitable operations depends on obtaining additional financing and achieving a
level of revenues to support our cost structure.
We are in the early stage of product development and face a risk of failure. If
any of our products fail, it would significantly impair our business.
Our products are in the early stages of development. They will require
additional research and development, clinical testing and regulatory clearances.
We currently do not sell any products and do not expect to have any products
commercially available for at least two years. Our proposed products are subject
to the risks of failure inherent in the development of gene therapy products
based on innovative technologies.
As a result, we are not able to predict whether our research and
development activities will result in any commercially viable products or
applications. In our industry, the majority of the potential products fail to
enter clinical studies, and the majority of products entering clinical studies
after achieving promising preclinical results are not commercialized
successfully.
Because of our limited manufacturing and marketing experience, we may not be
able to develop those capacities successfully.
We cannot guarantee that we will be able to develop manufacturing or
marketing capabilities successfully, either on our own or through third parties.
To date, we have engaged only in the development of pharmaceutical technology
and products, and have more limited experience in manufacturing or procuring
products in commercial quantities or in marketing pharmaceutical products. We
have only limited experience in conducting clinical trials and other later-stage
phases of the regulatory approval process. We cannot be certain that we will be
able to engage successfully in any of these activities for any of the products
we attempt to commercialize.
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<PAGE>
We may have difficulty managing our growth, which may strain our resources.
If we decide to establish a commercial-scale manufacturing facility, we
will require substantial additional funds and personnel and will be required to
comply with extensive regulations applicable to such a facility. This growth may
strain our management and operations. Our ability to manage growth depends on
the ability of our officers and key employees to:
. broaden our management team and to attract, hire and retain skilled
employees;
. implement and improve our operational, management information and
financial control systems:
. expand, train and manage our employee base; and
. develop additional expertise among existing management personnel.
We depend on future collaborations with others, which may be difficult to
obtain, and our revenues may depend on the efforts of third parties.
Our strategy for the development, clinical testing, manufacturing and
commercialization of our products includes entering into various collaborations
with corporate partners, licensors, licensees and others. We have entered into a
distribution agreement with Baxter Healthcare Corporation under which Baxter has
the exclusive right to market, sell and distribute the hemophilia product.
Therefore, any revenues we may receive from the hemophilia product are dependent
on the efforts of Baxter. To the extent that we enter into additional co-
promotion, distribution or other licensing arrangements, any revenues we receive
will depend on the efforts of the other parties in these arrangements.
We may not be able to negotiate these collaborative arrangements on
acceptable terms, if at all. Even if we enter into these collaborative
arrangements, they may not be successful. If we are unable to establish these
arrangements, UroGen would need to raise additional capital to undertake these
activities at our own expense. In addition, we may encounter significant delays
in introducing our products into some markets or find that the development,
manufacture or sale of our products in these markets is adversely affected by
the absence of these collaborative agreements.
We are a development stage company with a limited operating history; We expect
continued losses.
We are considered a development stage company because we have not yet
generated revenues from sales. From our inception in June 1995 through June 30,
1999, we have incurred cumulative losses of approximately $14.3 million, almost
all of which consisted of research and development and general and
administrative expenses. We expect our losses to increase in the future as we
begin our clinical trials and increase our research and development activities.
It is possible that we may never achieve significant revenues or become
profitable.
Even if we eventually generate revenues from sales, we expect to incur
significant operating losses over the next several years. Our ability to become
profitable and to achieve long-term success will depend on:
. the time and expense necessary to develop our proposed products
. whether and how quickly we can obtain regulatory approvals for proposed
products; and
. our success in bringing these products to market.
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<PAGE>
See "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Inability to protect our technologies could affect our ability to compete.
We actively pursue patent protection for our proprietary products and
technologies. We hold one U.S. patent and currently have 7 U.S. patent
applications pending and several foreign patent applications pending. In
addition, we have numerous foreign patent applications pending corresponding to
our U.S. patents. However, our patents may not protect us against our
competitors. We may be required to file suit to protect our patents, and we
cannot be certain that we will have the resources necessary to pursue such
litigation or otherwise protect our patent rights.
In April 1999, the United States Patent and Trademark Office issued a
patent to another company for an adenoviral vector technology. This patent may
be competitive with our Mini-Ad vector technology. Although we do not believe
that our technology infringes upon any valid claim of this patent, we cannot be
certain that our position would be substantiated if challenged.
We also rely on trade secret protection for our unpatented proprietary
technology. However, trade secrets are difficult to protect. Others could
develop substantially equivalent information or gain access to our trade
secrets.
We have a policy requiring that our employees and consultants execute
proprietary information agreements upon commencement of employment or consulting
relationships. These agreements provide that all confidential information
developed or made known to the individual during the course of the relationship
must be kept confidential except in specified circumstances. However, these
agreements may not successfully protect our trade secrets or other proprietary
information.
Others could assert claims against us based on their patents. Claims
could seek damages as well as an injunction prohibiting clinical testing,
manufacturing and marketing of the product at issue. If any actions are
successful, in additional to any potential liability for damages, we could be
required to obtain a license in order to continue to manufacture or market the
product at issue. It is possible that any license required under any patent
would not be made available on acceptable terms, if at all. There has been, and
we believe that there will continue to be, significant litigation in the
pharmaceutical industry regarding patent and other intellectual property rights.
If we become involved in any litigation, a substantial portion of our financial
and personnel resources could be consumed, regardless of the outcome of
litigation. See "Business - Patents and Proprietary Rights."
We depend upon on the services of our Chairman of the Board and President, and
loss of these individuals could hurt our business.
Our future success if any, depends to a significant degree upon the
continued service of key technical and senior management personnel, particularly
Paul D. Quadros and Robert E. Sobol, MD., the loss of whose services might
significantly delay our product development and commercialization efforts. We
do not have agreements with Mr. Quardros or Mr. Sobol which would assure
retention of their services for more than sixty days.
We will also need substantial additional expertise in the areas of
manufacturing, marketing and finance, among others, in order to achieve our
business objectives. Competition for qualified personnel is intense, and the
loss of key personnel or the inability to attract and retain the additional
skilled personnel required for the expansion of our business could damage our
business.
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<PAGE>
INDUSTRY RISKS
We face risks and uncertainties related to conducting clinical trials. If the
clinical trials are not successful, we will incur additional expense and our
potential products may not be approved for sale.
Extensive and costly clinical testing will be necessary to assess the
safety and efficacy of our potential products. The rate of completion of
clinical trials depends on, among other factors, the type, novelty and
complexity of the product and the rate of patient enrollment. Patient enrollment
is a function of many factors, including:
. the nature of the clinical trial protocols;
. the existence of competing protocols;
. size of the patient population;
. proximity of patients to clinical sites; and
. eligibility criteria for the study.
There are other companies conducting clinical trials in patients with
hemophilia. As a result, we must compete with them for clinical sites,
physicians and the limited number of patients with hemophilia who fulfill the
stringent requirements for participation in clinical trials. Delays in patient
enrollment will increase costs and delay the introduction of our potential
products, thereby harming our business and financial condition.
Even if we successfully enroll patients in our clinical trials, we cannot
guarantee they will respond to our potential products. We think it is prudent to
expect setbacks. If we do not comply with the U.S. Food and Drug Administration
regulations applicable to clinical trials, our trials could be delayed,
suspended or cancelled, or the FDA might not accept the results of our trials.
The FDA may suspend clinical trials at any time if it concludes that the
subjects participating in our trials are being exposed to unacceptable health
risks. Further, we cannot assure you that human clinical testing will show any
current or future product candidate to be safe and effective .
We face intense competition and must cope with rapid technological change, which
may adversely affect earnings and financial condition and/or render our
potential products obsolete.
UroGen is engaged in a rapidly changing field. Existing products and
therapies to treat hemophilia and prostate disorders will compete directly with
the products that we are seeking to develop and market. Competition from fully
integrated pharmaceutical companies and more established biotechnology companies
is expected to increase. Most of these companies have significantly greater
financial resources and expertise than we do in the following areas:
. research and development;
. manufacturing;
. preclinical and clinical testing;
. obtaining regulatory approvals; and
. marketing
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<PAGE>
Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large pharmaceutical
companies. Many of these competitors have significant products approved or in
development and operate large, well-funded research and development programs.
Academic institutions, governmental agencies and other public and private
research organizations also conduct research, seek patent protection and
establish collaborative arrangements for product and clinical development and
marketing. These companies and institutions also compete with us in recruiting
and retaining highly qualified scientific and management personnel.
In addition, our competitors may develop more effective or more affordable
products, or achieve earlier patent protection or product commercialization and
market penetration than we will. Additionally, technologies developed by our
competitors may render our potential products uneconomical or obsolete, and we
may not be successful in marketing our potential products against competitors.
We need to comply with significant government regulation to obtain product
approvals and to market products after approvals. If these approvals are not
obtained, we will not be able to sell our potential products.
Various agencies in the United States and abroad regulate the testing,
manufacturing, labeling, distribution, marketing and advertising of proposed
products and ongoing research and development activities. The U.S. Food and Drug
Administration and comparable agencies in foreign countries impose many
requirements on the introduction of new pharmaceutical products through lengthy
and detailed clinical testing procedures, and other costly and time consuming
compliance procedures. These requirements make it difficult to estimate when our
potential products will be commercially available, if at all.
Our potential products will require substantial clinical trials and FDA
review as new drugs. We cannot predict with certainty when we might submit any
of our proposed products currently under development for regulatory review. Once
we submit a product for review, we cannot guarantee that FDA or other regulatory
approvals will be granted on a timely basis, if at all.
If we are delayed or fail to obtain required approvals, our business and
results of operations would be damaged. If we fail to comply with regulatory
requirements, either prior to approval or in marketing our products after
approval, we could be subject to regulatory or judicial enforcement actions.
These actions could result in:
. product recalls or seizures;
. injunctions;
. civil penalties;
. criminal prosecution;
. refusal to approve new products and withdrawal of existing approvals;
and
. enhanced exposure to product liabilities.
If we sell our products outside the U.S., we will be subject to regulatory
requirements governing these sales. These requirements vary widely from country
to country and could delay introduction of our products in those countries.
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<PAGE>
The pricing of our product may depend on third-party payors, whose reimbursement
and/or cost control policies may adversely affect our earnings and financial
condition.
In both domestic and foreign markets, sales of our products, if any, will
depend, in part, on the extent to which third-party payors, including government
agencies such as Medicare, managed care providers and private health insurers
will reimburse users for the costs of our products and any related treatments.
If those who buy our products are not adequately reimbursed, they may forego or
reduce use.
Third-party payors are engaged in ongoing efforts to reduce the costs of
pharmaceutical products. In the United States, an increasing emphasis on managed
care and consolidation of hospital purchasing has and is expected to continue to
place pressure on pharmaceutical prices, and may reduce the prices we can charge
for our potential products. In many major foreign markets, pricing approval is
required before sales can commence and prices are often set by governmental
authorities. These price controls are subject to change at unpredictable times.
Market acceptance of our potential products will be severely curtailed if
adequate coverage and reimbursement levels are not provided by governmental
authorities and private third-party payors.
We face the risk of product liability claims which may affect our earnings and
financial condition; we do not currently have product liability insurance
coverage, which increases our financial exposure to these claims.
Our business will expose us to potential product liability risks that are
inherent in the testing, manufacturing and marketing of human therapeutic
products. Product liability results from harm to patients using our potential
product that was either not communicated as a potential side-effect, or was more
extreme that communicated. We currently have no clinical trial liability
insurance for our human clinical trials and will be required to obtain insurance
prior to beginning the trials. We will require all patients enrolled in the
clinical trials to sign consents which explain the risks involved with
participating in the trial. The consents, however, provide only a limited level
of protection and product liability insurance will be required. We may not be
able to obtain and maintain product liability insurance for all of our clinical
trials. We may not be able to obtain or maintain product liability insurance in
the future on acceptable terms or with adequate coverage against potential
liabilities, which would expose us to potential product liability.
Accidents related to hazardous materials used in our research and development
efforts, could adversely affect our business.
Our research and development efforts involve the controlled use of
hazardous materials and biological hazardous materials, such as isopropyl
alcohol, ethanol and bromides. Although we believe that our safety procedures
for handling and disposing of such materials comply with the standards
prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, we could be held liable for any damages that
result and any such liability could exceed our resources.
RISKS RELATED TO THIS OFFERING
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<PAGE>
Our stock is subject to "penny stock" regulations, which may limit your ability
to trade your shares.
Our stock is subject to certain rules promulgated under the Exchange Act which
impose additional disclosures and various sales practice requirements on broker-
dealers in connection with any trades involving a stock defined as "penny
stock". Penny stocks are generally defined as any non-exchange listed security
that has a market price of less than $5.00 per share, subject to certain
exceptions. Under the Exchange Act Rule 15g-9 broker-dealers must, prior to
selling a penny stock:
. Obtain from the investor information concerning the person's financial
situation, investment experience and investment objectives;
. Reasonably determine that transactions in penny stocks are suitable for
the investor and that the investor, or the investor's independent
advisor in the transactions, has sufficient knowledge and experience in
financial matters so as reasonably to be expected to be capable of
evaluating the risks of transactions in penny stock; and
. Deliver a written statement, which must be signed and returned to the
broker-dealer by the investor, setting forth among other things, the
basis on which the broker-dealer approved the investor's account for the
transaction.
If the penny stock rules are not followed by a broker-dealer, the investor has
no obligation to purchase the shares. The broker-dealer is also obligated to
provide certain information statements to investors in penny stocks. The
additional burdens imposed upon broker-dealers by these requirements may
discourage broker-dealers from effecting transactions in our common stock and
the ability of purchasers to resell our stock in the secondary market. This
could affect the ability or willingness of broker-dealers to sell and/or make a
market in our securities and the ability of holders of our securities to sell
their securities in the secondary market.
There may be an adverse impact on the value of your investment from shares
eligible for future sale.
Sales of shares of our common stock in the public market, including shares
being registered in this prospectus and shares which will be issued when stock
options are exercised, could have an adverse effect on the market price of our
common stock. The common stock being registered for resale in this prospectus
represents 36% of our total outstanding shares, assuming exercise of all of the
warrants being registered. Sales of this stock might also make it more difficult
for us to sell equity securities and equity-related securities in the future at
a time and price that is acceptable.
-12-
<PAGE>
USE OF PROCEEDS
We will not receive proceeds from the sale of the common stock offered in this
prospectus. The maximum amount we could receive upon exercise of the warrants is
$501,100. However, the warrants include a "net exercise" provision where the
investors can elect to receive fewer shares upon exercise rather than pay the
exercise price in cash. Accordingly, we may not receive significant proceeds
from the exercise of the warrants. In addition, as the warrants can be exercised
at any time until June 30, 2005 and April 28, 2006 for the $1,030,000
offering and $400,000 offering, respectively, and are exercisable at the
option of the holder, we cannot predict when we might receive any cash proceeds.
Any amount we do receive will be used for general working capital purposes.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the over-the-counter market on the electronic
bulletin board under the symbol "UROG." Our common stock began trading on
February 13, 1998, upon the lapse of the prohibition on transfers imposed at the
time the common stock was first distributed. The following table shows for the
periods indicated the high and low closing prices for the common stock:
<TABLE>
<CAPTION>
High LOW
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FISCAL YEAR ENDED December 31, 1998
First Quarter $2.25 $0.22
Second Quarter $1.25 $0.31
Third Quarter $1.00 $0.38
Fourth Quarter $0.50 $0.31
FISCAL YEAR ENDED December 31, 1999
First Quarter $0.40 $0.31
Second Quarter $0.33 $0.27
Third Quarter $0.33 $0.13
Fourth Quarter (through November 15, 1999) $0.33 $0.25
</TABLE>
On November 15, 1999, the last reported sale price of the common stock as
reported on the over-the-counter market was $0.32 per share. As of November 15,
1999, there were approximately 1,000 holders of record of Common Stock.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock to date. We
currently anticipates that we will retain all future earnings, if any, to fund
the development and growth of our business and do not anticipate paying any cash
dividends for at least the next five years, if ever.
-13-
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of September
30, 1999. We will not receive proceeds from this offering, therefore, there is
no change to the capitalization of the Company due to this offering. This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
Notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
September 30,
1999
(in thousands)
--------------
<S> <C>
Advance from related party $ 3,392
Capital lease obligation, net of current position 75
Stockholders' deficit
Preferred Stock - $0.01 par value; 5,000,000 shares
authorized; issued and outstanding -
Common Stock - $0.001 par value; 40,000,000 shares
authorized; 12,097,999 issued and outstanding 12
Additional paid-in capital 9,268
Deficit accumulated during development stage (11,425)
--------
Total stockholders' deficit $ (2,145)
--------
Total capitalization $ 1,322
========
</TABLE>
(1) The number of shares of common stock issued and outstanding above excludes:
. 3,286,183 shares subject to outstanding options at a weighted average
exercise price of $0.28 as of September 30, 1999.
. 2,329,166 shares issuable upon exercise of outstanding warrants, of
which 1,879,166 are being registered by this prospectus, at a weighted
average exercise price of $0.38 per share as of September 30, 1999.
. An aggregate of 1,791,485 shares available for future issuance under
our stock option plans.
See "Description of Capital Stock" and Notes to the Financial statements.
-14-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical financial data of UroGen Corp., and
UroGen's predecessor divisions of Medstone reflect UroGen's operating results as
a stand-alone entity during 1996, 1997, 1998 and the first nine months of 1999,
and UroGen's historical operation as divisions of Medstone for the prior
periods. The financial data as of September 30, 1999 and for the periods ended
September 30, 1999 and 1998 and for the period from July 1, 1991, our inception,
to September 30, 1999 have been derived from unaudited financial statements of
the Company. In the opinion of management, such unaudited financial statements
reflect all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation. The financial data as of December 31, 1998
and 1997 and for each of the years in the three-year period ended December 31,
1998 have been derived from the audited financial statements of UroGen Corp.
included elsewhere in this prospectus. The financial data for all other periods
and dates have been derived from audited financial statements of the UroGen
divisions of Medstone which are not included in this prospectus. The data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements,
related notes and other financial information included in this prospectus.
<TABLE>
<CAPTION>
Period from
Six Months July 1, 1991
ended (inception) To
Year ended December 31, September 30, September 30,
------------------------------------------------ ------------------ --------------
1998 1997 1996 1995 1994 1999 1998 1999
-------- -------- -------- -------- -------- -------- -------- --------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues......................... $ 192 $ 194 $ - $ - $ - $ 67 $ 192 $ 909
------- ------- -------- -------- -------- -------- ------- ---------
Costs and expenses:
Cost of sales - - - - - - - 822
Research and development.......... 1,916 346 384 75 165 1,862 1,177 7,296
General and administrative........ 487 151 174 - 233 591 299 1,940
Write-off of acquired in-process
technology.................... 5,455 - - - - - 3,430 5,455
------- ------- -------- -------- -------- -------- ------- ---------
Total costs and expenses.... 7,858 497 22 5 98 2,453 4,906 15,513
------- ------- -------- -------- -------- -------- ------- ---------
Income from operations............ (7,666) (303) (522) (75) (398) (2,386) (4,714) (14,604)
Other income........................ - - 64 - - 1 65
Interest expense.................... (306) - - - - (349) (171) (655)
Interest income..................... 10 4 14 - - 15 3 44
------- ------- -------- -------- -------- -------- ------- ---------
Net loss............................ $(7,962) $ (299) $ (444) $ (75) $ (398) $ (2,719) (4,881) $ (15,150)
======= ======= ======== ======== ======== ======== ======= =========
Net loss per share.................... $ (1.00) $ 0.04) $ (0.07) N/A N/A $ (0.27) $ (0.65)
======= ======= ======== ======== =======
Weighted average shares outstanding... 7,997 7,311 5,980 N/A N/A 10,237 7,537
======= ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
------------------------------------------------------ -------------
1998 1997 1996 1995 1994 1999
<S> ---- ---- ---- ---- ---- ------------
Balance Sheet Data: <C> <C> <C> <C> <C> <C>
Working capital.................................. $(1,274) 5 235 1 - $ (777)
Total assets..................................... 1,098 77 253 163 201 1,877
Long-term debt, net of current portion........... 1,044 - - - - 3,467
Stockholders' deficit............................ (1,934) 9 237 163 201 (2,145)
</TABLE>
-15-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements that involve risks and
uncertainties. The statements contained in this prospectus that are not purely
historical are forward-looking statements including without limitation
statements regarding our expectations, beliefs, intentions or strategies
regarding the future. All forward-looking statements included in this document
are based on information available to us on the date hereof, and we assume no
obligation to update any such forward-looking statements. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth below,
under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
UroGen commenced operations as a stand-alone entity in January 1996 and has
been in the development stage since inception. Our original mission was to
develop products to treat diseases in urology, with a particular interest in
prostate cancer. We had licensed technology that uses the IL-3 gene to treat
several types of cancer, but did not have technology to deliver the gene. On
July 8, 1998, we entered into an agreement with Baxter Healthcare Corporation in
which we acquired the exclusive rights to gene delivery technologies and
laboratory equipment. The gene delivery technology will be used to enhance our
existing technology and to develop products to deliver other genes. We believe
that the gene delivery technology provides a higher level of expression of the
gene being delivered compared to other gene therapy approaches. Prior to our
license of the technology, Baxter had been developing this technology for the
treatment of hemophilia and cancer and has continued to fund the development of
our Factor VIII product for hemophilia. See "Certain Relationships and Related
Transactions-Baxter Agreements".
In exchange for the exclusive license to the gene delivery technology and
equipment, we issued 1,841,219 shares of common stock and 5,830 shares of Series
A preferred stock to Baxter. The assets acquired from Baxter were valued based
on the fair market value of our common stock on the date of the agreement. We
obtained an appraisal of the value of the equipment acquired. Based upon the
very early stage of development of the technology, the value of the technology
was charged to acquired in-process technology.
Our current activities consist of the development of the gene transfer
system in our Factor VIII Mini-Ad product for hemophilia. If we are successful
in raising sufficient capital, we plan to develop the system for our Tumor
Killing IL-3 product to treat prostate cancer. We expect to incur increasing
research and development expenditures as we focus our efforts on further
development of these products. We expect no significant revenues and to incur
significant operating losses for at least the next five years.
RECENT EVENTS
In April 1999, we received $400,000 from the sale of unsecured convertible
notes payable. These notes bore interest at 8% per annum and were due on March
30, 2000, unless previously converted. The notes were convertible, at the option
of the holder, into common stock at $0.30 per share, and automatically converted
into common stock immediately prior to the filing of any registration statement
to register the resale of the underlying shares. The filing of the registration
statement of which this prospectus is a part caused a conversion, resulting in
the issuance of 1,333,333 shares of common stock. The filing also caused the
automatic conversion of $1,030,000 of notes issued in July 1998 into 1,030,000
shares of common stock. In addition, the interest accrued on both series of
notes converted into 97,478 shares of common stock.
In addition, each note holder received a warrant to purchase the same number
of shares of common stock as his or her notes converted into. The warrants are
exerciseable for seven years from issuance and have an exercise price of $0.30
per share.
In April 1999, the United States Patent and Trademark Office issued a patent
to another company for an adenoviral vector technology. Although we do not
believe that our technology infringes upon any valid claim of this patent, there
can be no assurances that our position would be sustained if challenged. Such a
conflict could also result in a significant reduction of the coverage in our
patents, if issued. In addition, we may be required to obtain licenses to this
patent or to develop or obtain alternative technology. If a license is
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<PAGE>
required, there can be no assurances that we will be able to obtain such a
license, or that if we do, that it will be on commercially favorable terms.
RESULTS OF OPERATIONS
Revenues
UroGen has generated revenues to date of $908,581 from contract research
agreements and grants. Total revenues for the years ended December 31, 1996,
1997 and 1998 and these nine months ended September 30, 1998 and 1999 were
$192,300, $193,500 none, $192,300 and $67,201, respectively. We anticipate
seeking additional research agreements and grants to help fund research and
development efforts; however, we do not expect that contract research will
result in significant revenues in the future. We do not anticipate revenues from
products for at least four years. Product revenues are dependent on the success
of our clinical trials. See "Risk Factors - we face risks and uncertainties
related to conducting clinical trials".
Research and development and acquired in-process technology
Research and development expenses and acquired in-process technology charges
during the years ended December 31, 1996, 1997 and 1998 and the nine months
ended September 30, 1998 and 1999 were $347,698, $345,592, $7,371,053,
$4,606,380 and $1,861,892, respectively. Research and development expenses
during 1996, 1997 and through June 30, 1998 consisted primarily of payments to
consultants who were performing research and to fees related to technology
licenses and patent applications. Following consummation of the Baxter
transaction on July 8, 1998, research and development costs were expanded to
include the costs of the hemophilia and cancer programs acquired from Baxter,
but which were continued at Baxter until the employees and tangible assets
involved were moved to our facilities in October 1998. Additionally, the
technology acquired from Baxter valued at $5,455,505 was charged to acquired in-
process technology due to the early stage of development. We estimate that it
will take five more years and approximately $30 million dollars to complete the
development of the Factor VIII product and obtain regulatory approvals, if we
are able to obtain approvals. See "Risk Factors - We face risks and
uncertainties related to conducting clinical trials. If the clinical trials are
not successful, we will incur additional expense and our potential products may
not be approved for sale."
We anticipate increasing research and development expenditures in the future
as we conduct preclinical and clinical testing necessary to bring our products
to market and to establish manufacturing and marketing capabilities. We are
currently in the process of developing a facility to manufacture the materials
for Phase I and Phase II clinical trials for our hemophilia product. We estimate
that the costs to develop the facility and manufacture materials for Phase I
clinical trials will be approximately $4.4 million dollars, which will be funded
by Baxter under the developmental collaboration agreement. We are unable to
estimate the costs to develop manufacturing facilities for Phase III clinical
trials and for commercial quantities of our potential products and the costs to
develop marketing capabilities, because we have not determined whether we will
build these capabilities within the company or enter into collaborative
arrangement with others to perform these functions.
General and administrative expenses
General and administrative expenses during the years ended December 31, 1996,
1997 and 1998 and the nine months ended September 30, 1998 and 1999 were
$174,472, $151,315, $487,501, $299,501 and $591,777, respectively. General and
administrative expenses include the costs of our administrative personnel and
consultants, office lease expenses and other overhead costs, including legal and
accounting costs. General and administrative expenses have increased as the
level of our operations has increased and we expect general and administrative
expenses to continue to increase to support our increasing research and
development activities.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion compares activity for the nine months ended September
30, 1999 to the year ended December 31, 1998 because comparison to the nine
months ended September 30, 1998 is not considered to be appropriate due to
changes in operations resulting from the consummation of the Baxter transaction
on July 8, 1998. Net cash used by operating activities was $642,511 during the
year ended December 31, 1998 and $2,915,335 during the nine months ended
September 30, 1999. Net cash used by operating activities consists primarily of
UroGen's net loss increased by non-cash expenses, such as the write-off of in-
process technology acquired with stock, expenses paid through advances from
Baxter and amortization of debt discount. Net cash used by investing activities
of $63,493 during 1998 and $65,048 for the nine months ended September 30, 1999
consists of the purchase of furniture and equipment. Net cash provided by
financing activities of $946,634 during 1998 consists of proceeds from the notes
payable, proceeds from additional notes payable described below of $1,030,000
offset by expenses paid to raise capital. Net cash provided by financing
activities for the nine months ended September 30, 1999 of $3,823,399 consists
primarily of amounts received from Baxter for development of the hemophilia
product, proceeds from additional notes payable described below and repayment of
a note
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<PAGE>
receivable from a stockholder.
UroGen's future capital requirements will depend on many factors, including
scientific progress in our research and development programs, our ability to
establish collaborative arrangements with others for drug development, progress
with preclinical and clinical trials, the time and costs involved in obtaining
regulatory approvals and effective commercialization activities. Medstone funded
all of UroGen's operations from July 1, 1991, our inception, through and ending
with a $500,000 capital contribution of cash on February 9, 1996. In July 1998,
we completed an offering of 8% Convertible Subordinated Notes due June 30, 1999,
which raised $1,030,000. In April 1999, we completed another offering of
Convertible Subordinated Notes due March 31, 2000, which raised $400,000. UroGen
has incurred net losses of $15,150,520 since its inception and has never been
profitable during its existence. We expect to incur significant additional
operating losses over the next several years as our research and development
efforts expand. Our ability to achieve profitability depends upon our ability,
alone or with others, to successfully complete development of products, obtain
required regulatory approvals and manufacture and market products. We may not be
successful and we may never attain significant revenues or profitability. Our
operations to date have consumed substantial amounts of cash. The negative cash
flow from operations is expected to continue and to accelerate in the
foreseeable future. The development of our products will require a commitment of
substantial funds to conduct the costly and time-consuming research, preclinical
and clinical testing necessary to bring our products to market and to establish
manufacturing and marketing capabilities.
Under the terms of our Developmental Collaboration Agreement and Credit
Agreements with Baxter (See "Certain Relationships and Related Transactions
Baxter Transactions"), Baxter is required to provide funding for development of
the hemophilia product until we commence a Phase I clinical trial for the
hemophilia product, at which time a milestone payment of $2,000,000 is due from
Baxter. The funding under the Developmental Collaboration Agreement provided by
Baxter is in the form of a note payable, which can be converted to Series B
Preferred Stock at our option on December 31 of each year of the agreement. The
$2,000,000 milestone payment is in the form of a purchase of Series C preferred
stock.
We have a commitment from Baxter for $400,000 in additional capital through
the sale of preferred stock and warrants. We anticipate our existing capital
resources, including funds received from Baxter under the Developmental
Collaboration Agreement, coupled with the commitment for an additional $400,000
in capital, will enable us to maintain our current and planned operations
through October 2000. Accordingly, we will need to raise substantial additional
capital to fund our operations. We intend to seek such additional funding either
through collaborative arrangements or through public or private equity or debt
financings. Additional financing may not be available on acceptable terms or at
all. If adequate funds are not available, we may be required to delay or reduce
the scope of our operations or to obtain funds through arrangements with
collaborative partners or others that may require us to relinquish rights we may
have.
Our independent auditors have issued their report on our financial
statements. This report contains an explanatory paragraph which expresses
substantial doubt regarding our ability to continue as a going concern based on
certain existing conditions. Successful completion of our development program
and the transition, ultimately, to attaining profitable operations are dependent
upon obtaining additional financing adequate to fund our research and
development activities, and achieving a level of revenues adequate to support
our cost structure.
-18-
<PAGE>
TECHNOLOGY LICENSES
UroGen entered into a license agreement with The Immune Response Corporation
in March 1997, which was subsequently amended in January 1999, whereby we
licensed from IRC tumor radiosensitization gene therapy technology. Under the
IRC License, UroGen is obligated to make a milestone payment to IRC of $200,000
upon the approval by the Food and Drug Administration or the governing health
authority of any other country of UroGen's first product related to the
technology licensed from IRC. This fee can be offset against future royalty
payments. UroGen is obligated to pay royalties on its net sales revenue and a
percentage of all revenues received from sublicenses relating to the licensed
technology. Additionally, UroGen agreed in the January 1999 amendment to
reimburse IRC for past patent expenses relating to the licensed technology in
the amount of $59,400, which amount is payable during 1999.
In November 1997, UroGen entered into a license agreement with Dr. Daniel
Mucola and Sidney Kimmel Cancer Center under which we obtained an exclusive
right to technology which makes cancer cells more vulnerable to many existing
therapies. UroGen is obligated to pay royalties on its net sales revenues and a
percentage of revenues from sublicenses relating the technology. Additionally,
UroGen is required to pay minimum annual royalties of $30,000 for the duration
of the agreement. The minimum annual royalties may be credited against royalties
based on revenues for that year. If there are no revenue-based royalties to
offset the annual royalty, one-half of the minimum annual royalty may be carried
forward to offset royalties for the following year. In addition, within thirty
days of UroGen entering into an agreement with a corporate partner or strategic
alliance relationship related to this technology, UroGen must pay a minimum of
$12,500 per month to SKCC fund additional research. The license ends when the
patents to the related technology expire.
In September 1996, UroGen entered into a license agreement with the Regents
of the University of California to license rights to patents in the field of
diagnosis of cancer using very sensitive molecular biology techniques that
detect the presence of cancer cells. We are required to pay an annual license
maintenance fee of $10,000 until we start selling licensed product. We are also
required to pay milestone fees of $25,000 upon filing an Investigative Device
Exemption Application on a licensed product or method with the Food and Drug
Administration and $50,000 upon marketing approval of a licensed product or
method by the FDA. UroGen must also pay to the UC Regents royalties on its net
sales revenues of licensed products or royalties from sublicenses. A minimum
annual royalty of $50,000 is payable beginning with the year of first commercial
sale of licensed product, but no later than the fifth year of the agreement. The
minimum annual royalty may be credited against revenue-based royalties due for
the year in which the annual minimum payment was made.
YEAR 2000 COMPLIANCE
The Year 2000 issue refers to the inability of a date-sensitive computer
program to recognize a two-digit date field designated as "00" as the year 2000.
Mistaking "00" for 1900 could result in a system failure or miscalculations
causing disruptions to operations, an inability to process transactions or an
inability to engage in other normal business activities.
We are in the process of addressing the Year 2000 issue. The majority of our
systems are either new or have been recently upgraded with upgrades including
Year 2000 compliance. These upgrades have cost approximately $1,500 to date. We
do not engage in significant electronic interfaces with third parties. We have
inquired about Year 2000 compliance with all of our significant service
providers, our significant vendors and with Baxter, and have received
satisfactory responses. Failure on the part of third parties with which we do
business to be Year 2000 compliant could impact their operations, which would,
in turn, affect our operations. Additionally, we have assessed all of our
critical equipment to determine whether our equipment contains embedded chip,
and have determined that all of our critical internal equipment is compliant.
The most reasonably likely worse case scenario resulting from the Year 2000
issue is a delay in operations while third parties provide data retrieval and
temperature regulation functions. We expect to have a contingency plan in place
for Year 2000 issues by October 1999.
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<PAGE>
We anticipate that the amount we will spend to modify or replace software and
equipment in order to remediate the Year 2000 issue should not have a material
effect on UroGen's liquidity or results of operations. We do not have a large
number of systems or equipment with embedded chips that are vulnerable to Year
2000 issues.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 1999, our cash and cash equivalents were invested in liquid
checking and money market accounts, which do not change in value if interest
rates change. Accordingly, an immediate 10% change in interest rates would not
have an impact on our financial condition or results of operations.
We do not conduct business with foreign entities, and does not have
any foreign exchange risk.
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<PAGE>
GENE THERAPY TECHNOLOGY
UroGen's business is based on the technology described in this section. For a
complete discussion of UroGen's business, see the Business section below.
Gene therapy is a technology that uses genetic materials as therapeutic agents
to treat various diseases. Gene therapy seeks to restore or correct defective
gene functions or to enhance normal gene activity. Gene therapy involves two
major components: the genetic material needed to treat the disease and the
system to deliver this material to the therapeutic site.
An essential requirement of gene therapy is a suitable delivery system for
introducing therapeutic genes. The two major approaches that have been used to
deliver genes are viral and non-viral delivery systems, called vectors.
Different disease targets and routes of administration generally require
delivery systems with differing characteristics. Viral delivery systems are
generally more efficient than non-viral systems.
Adenoviral vectors, derived from a common cold virus, are one of the most
common vectors being used today. Adenoviral vectors can infect and express genes
in non-dividing as well as dividing cells. Therefore, adenoviral vectors can
deliver genes to a wide variety of cells and tissues. UroGen has developed
improved adenoviral gene delivery systems for therapeutic applications.
BUSINESS
UroGen Corp. is focused on the development of innovative gene therapy products
for the treatment of hemophilia, cancer and other genetic disorders.
UroGen's gene delivery systems are derived from a type of cold virus termed an
adenovirus that we believe provides superior gene transfer efficiency and
expression compared to other gene therapy approaches. The gene transfer system
has been engineered to remove the original adenovirus genes which are then
replaced with therapeutic genes. These genetically engineered therapeutic
viruses contain less than 3% of the original adenovirus. We believe that removal
of unwanted adenoviral genes permits increased gene transfer capacity with a
higher level of gene expression and improved safety compared to standard gene
transfer systems. Because these therapeutic viruses are engineered to minimize
the presence of adenoviral gene parts, they are termed "Mini-Ad" viruses. These
Mini-Ad viruses retain the ability to infect cells and the efficient gene
transfer characteristics of the original adenoviruses. We believe our gene
transfer and expression systems will advance the capabilities of gene therapy
for disease management, providing what we believe to be efficient gene transfer
and long term gene expression desired for clinical applications.
The initial focus of our research and development efforts will be the
generation of products for the treatment of hemophilia and prostate cancer. Two
gene therapy products are under development: 1) Factor VIII Mini-Ad Vector for
the treatment of hemophilia; 2) Complementary Oncolytic Interleukin-3 (IL-3)
Adenoviral Vectors for the treatment of prostate cancer. The Factor VIII Mini-Ad
Vector for hemophilia is expected to provide a greater duration of active Factor
VIII function, which is the protein that prevents the
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<PAGE>
chronic bleeding and joint damage characteristic of this disorder. The IL-3
Adenoviral product is comprised of a mixture of two adenoviruses which
complement each other resulting in viral replication and propagation only in
target tissues, leading to tumor cell destruction, radiation sensitization and
anti-tumor immune responses for the treatment of prostate cancer.
RESEARCH AND DEVELOPMENT
The Mini-Ad System
The Mini-Ad system is an adenoviral gene delivery system. The system is
derived from a type of cold virus called an adenovirus. The adenovirus has been
engineered to remove the original virus genes that are replaced with therapeutic
genes. These genetically engineered viruses contain less than 3% of the original
adenovirus. We believe that the removal of the majority of the unwanted
adenoviral genes permits increased ability to transfer the therapeutic genes and
permits a high level of expression of the therapeutic genes.
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<PAGE>
Factor VIII Mini-Ad Vector for Hemophilia A / Liver Directed GeneTherapy
Hemophilia is a bleeding disorder caused by abnormalities in the gene
that produces the protein controlling blood clotting, which is called Factor
VIII. Factor VIII is normally produced in the liver. The ease of delivery and
affinity of adenoviruses for the liver makes adenoviral-based therapies a
logical delivery system to deliver Factor VIII genes. Intravenous injection of
adenoviruses results in delivery of the virus to liver cells. The first Mini-Ad
product under development is for the delivery of the Factor VIII gene for the
treatment of hemophilia A. As the liver is one of the major organs for natural
Factor VIII production, the virus has been engineered to increase Factor VIII
production in this organ. In studies which have been performed on normal and
hemophiliac mice, intravenous injection of this Mini-Ad vector resulted in
Factor VIII concentrations that are twenty to thirty times the level necessary
to prevent bleeding.
Our Developmental Collaboration Agreement with Baxter Healthcare
Corporation provides for Baxter to fund the development of the Factor VIII Mini-
Ad product until we treat the first patient in the Phase I clinical trial, at
which time Baxter is required to make a milestone payment of $2 million to
maintain their distribution rights. Baxter will receive Series C preferred stock
for the $2 million milestone payment. Baxter is required to make additional
milestone payments if we begin Phase III clinical trials and if we obtain FDA
approval on the Factor VIII product (see Certain Relationships and Related
Transactions").
We believe that there may be additional product opportunities for this
liver directed gene delivery technology. Diseases resulting from abnormal
function or biochemistry of the liver are among the leading causes of sickness
and death. There are several common genetic liver diseases for which effective
gene therapy to replace defective genes would replace current conventional
therapies, which are either cumbersome or not very effective.
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<PAGE>
Tumor Killing IL-3 Viral Vector for Prostate Cancer
Cancer of the prostate gland is the most common cancer among men. It
currently occurs in approximately one in six men and has an annual incidence in
the United States of 187,000 new cases. Our tumor killing IL-3 gene delivery
vector has demonstrated intrinsic anti-tumor killing activity in animal models.
In addition, we believe the product will result in expression of the IL-3 gene,
which sensitizes tumors to the effects of radiation, providing improved
treatment of disease within the prostate, and simultaneously generating anti-
tumor immunity capable of destroying cancerous lesions. We believe that a
significant advantage of our tumor killing IL-3 viral vector product may be its
ability to have anti-tumor activity, while sensitizing tumors to the effects of
standard cancer therapies. These multiple modes of action may have benefits in
the treatment of prostate cancer and other tumors. Successful treatment of
prostate cancer requires complete eradication of tumors within the prostate and
the elimination of undetected tumor cells, which have migrated from the prostate
in approximately fifty percent of patients at the time of initial diagnosis. Our
first tumor killing IL-3 viral vector product is designed to be injected into
tumors and administered in combination with radiation for the treatment of
prostate cancer (Figure 1).
[DIAGRAM APPEARS HERE]
Figure 1 -- Diagram of the multiple effect of the Oncolytic Mini-Ad IL-3 and
Radiosensitization
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<PAGE>
The tumor killing IL-3 viral product is comprised of a mixture of two
adenoviruses that complement each other to permit viral replication that kills
tumor cells. In this system, one virus contains certain viral genes that are
only active in prostate cells, and the second virus contains the remainder of
the viral genes necessary for the virus to replicate. The viruses complement
each other, resulting in viral replication and propagation in tumor tissues
leading to tumor cell killing. Adenoviruses kill the cells in which they
replicate. Importantly, we believe the controlled virus can be engineered to
carry and express additional therapeutic genes such as IL-3.
Preliminary studies with vectors incorporating a prostate specific
antigen (PSA) promoter have cured prostate tumors in animal models following
injection into tumors (Figure 2).
Fig. 2 Chart showing the Oncolytic Effect of Prostate-Specific Dual-Ad in Mice
Our viruses may be further engineered to express therapeutic genes that can
enhance anti-tumor immunity. We have demonstrated that IL-3 gene therapy
sensitizes tumors to the effects of radiation and stimulates anti-tumor immune
responses capable of eradicating tumor cells. In animal tumor models, the
combination of IL-3 gene therapy with radiotherapy was synergistic resulting in
enhanced efficacy of local radiotherapy and generating anti-tumor immunity. We
used IL-3 gene transfer into mouse tumors as a model in these studies. The
tumors injected with IL-3 were more sensitive than unmodified tumors to
irradiation (Figure 3), and after radiation therapy they developed anti-tumor
immune responses. In this study, radiation caused unmodified tumors to regress
only temporarily, and then began progressing again after 10 days. In contrast,
IL-3 gene modified tumors continued to regress after irradiation and complete
tumor remission was achieved (Figure 3). These cured mice developed immunity to
unmodified tumor and were resistant to injection with unmodified tumor cells
three months later in five out of five animals tested. The dose of tumor cells
studied caused tumors in one hundred percent of non-immunized animals.
[CHART APPEARS HERE]
Time (days) After Irradiation
Fig. 3 Chart showing the effect of the IL-3 Gene Injected In Vivo, coupled with
radiosensitization treatment versus other treatments
We believe our multiple-activity tumor killing, radiation sensitizing, and
immune therapy approach is well suited for the treatment of prostate cancer,
which requires elimination of tumors both within the prostate and at distant
sites where the tumor has spread.
Approximately 79% of UroGen's employees are engaged in research and
development. During the years ended December 31, 1998, 1997 and 1996, we spent
approximately $1,915,548, before the non-cash write-off of acquired in-process
technology, $346,000 and $348,000, respectively, for research and development.
Manufacturing
We are currently in the process of developing a manufacturing facility to
produce materials for clinical trials for our hemophilia product. We have
retained consultants with experience in designing, construction and completing
validation for manufacturing operations which comply with the FDA's Good
Manufacturing Practices regulations. We have entered into a facility lease for
the manufacturing operations and are in the process of completing the necessary
improvements. We expect that construction will be completed in November 1999 and
that the validation of the manufacturing operations will be completed in
December 1999.
We have not yet determined whether we will establish relationships with third
party manufacturers or establish expanded facilities for future manufacturing
needs. Commercial-scale manufacturing will require significant
improvements in our current manufacturing techniques, as well as rigorous
process controls. Companies often encounter manufacturing difficulties during
the course of implementing processes for commercial manufacturing
including:
. Problems involving production yields;
. quality control and assurance; and
. shortages of qualified personnel
Manufacturing facilities will be required to be registered with the FDA and
will be subject to inspections confirming compliance with the FDA's Good
Manufacturing Practices regulations. We cannot be sure that we will be able to
produce clinical or commercial quantities of our potential products in
compliance with application regulations or at an acceptable cost.
If we decide to establish relationships with third parties to manufacture our
potential products, we will be dependent on these third parties, which may
adversely affect our profit margins and our ability to develop and commercialize
products on a timely and competitive basis. Further, manufacturing or quality
control problems may arise and third party manufacturers may not be able to
maintain the necessary governmental licenses and approvals to continue
manufacturing our potential products. If we fail to establish relationships with
third parties for our manufacturing requirements on commercially acceptable
terms, we would be required to develop our own manufacturing facility, which
would require a significant amount of time and financial resources. See "Risk
Factors - Our management has limited manufacturing experience"
Patents and Licenses
We believe that patent and trade secret protection is important to our
business and that our future will depend, in part, on our ability to maintain
our technology licenses, protect our own trade secrets, secure additional
patents and operate without infringing the proprietary rights of others. UroGen
currently holds exclusive rights to one issued United States patent which
expires in 2010, and several other pending patent applications that relate to
genetic therapies and molecular diagnostics.
We have filed a series of United States and foreign patent applications for
the Mini-Ad and Tumor Killing Vector systems. These applications cover all
fields of use for the Mini-Ad system. We have obtained from the Immune Response
Corporation exclusive world-wide rights to a patent application covering the use
of cytokines like IL-3 used in combination with radiation for enhancing the
effects of radiation and stimulating anti-tumor immunity in the treatment of
certain cancers.
The pharmaceutical and biotechnology fields are characterized by a large
number of patent filings. A substantial number of patents have already been
issued to other pharmaceutical and biotechnology companies. Research has been
conducted for many years in the gene therapy field by pharmaceutical and
biotechnology companies and other organizations. Competitors may have filed
applications for or have been issued patents and may obtain additional patents
and proprietary rights related to products or processes competitive with or
similar to ours. Patents applications are maintained in secrecy for a period
after filing. Publication of discoveries in the scientific or patent literature
tends to lag behind actual discoveries and the filing of related patent
applications. We may not be aware of all of the patents potentially adverse to
UroGen's interest that may have been issued to other companies, research or
academic institutions, or others. No assurances can be given that these patents
do not contain claims relating to UroGen's technology.
To date, no consistent policy has emerged regarding the breadth of claims
allowed in pharmaceutical and biotechnology patents. If patents have been or are
issued to others containing preclusive or conflicting claims, and these claims
are ultimately determined to be valid, we may be required to obtain licenses to
one or more of these patents or to develop or obtain alternative technology. We
believe that our current and proposed activities do not infringe on any patents
that would be determined to be valid. We can not assure you that patents do not
exist in the United States or in other countries or that patents will not be
issued to third parties that contain preclusive or conflicting claims with
respect to any of UroGen's technologies. Commercialization of UroGen's proposed
products may require licensing and/or cross-licensing of one or more patents
with other organizations in the field. We can not assure you that the licenses
that might be required for UroGen's processes or products would be available on
commercially acceptable terms, if at all.
UroGen's breach of an existing license or failure to obtain a license to
technology required to commercialize its product candidates may have a material
adverse effect on our business, financial condition and results of operations,
Litigation, which could result in substantial cost, may also be necessary to
enforce any patents issued to UroGen or to determine the scope and validity of
third-party proprietary rights. If our competitors prepare and file patent
applications in the United States that claim technology also claimed by us, we
may have to participate in interference proceedings declared by the United
Stated Patent and Trademark Office to determine the priority of invention, which
could result in substantial cost, even if the eventual outcome is favorable to
us. An adverse outcome could subject UroGen to significant liabilities to third
parties and require us to license disputed rights from third parties or to cease
using such technology.
UroGen also relies on trade secrets to protect our technology, especially
where patent protection is not believed to be appropriate or obtainable. We
protect our proprietary technology and processes, in part, by confidentiality
agreements with our employees, consultants and collaborators. We can not assure
you that these agreements will not be breached, that we would have adequate
remedies for any breach, or that UroGen's trade secrets or those of its
collaborators or contractors will not otherwise become known or be discovered
independently by competitors.
Patents issued and patent applications filed internationally relating to
gene therapy are numerous and we cannot assure you that current and potential
competitors or other third parties have not filed or received or will not file
or receive applications in the future for, patents or obtain additional
proprietary rights relating to products or processes used or proposed to be used
by UroGen.
Additionally, there is certain subject matter which is patentable in the
United States but not generally patentable outside of the United States.
Differences in what constitutes patentable subject matter in various countries
may limit the protection we can obtain on some of our inventions outside of the
United States. For example, methods of treating humans are not patentable in
many countries outside of the United States. These and-or other issues may
prevent UroGen from obtaining patent protection outside of the United States
which would have a material adverse effect on our business, financial condition
and results of operations.
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<PAGE>
Government Regulation
The production and marketing of our proposed products and our research
and development activities are subject to regulation for safety, effectiveness
and quality by numerous governmental authorities in the United States and other
countries. In the United States, drugs are subject to rigorous FDA regulations.
The Federal Food, Drug, and Cosmetic Act, as amended, the regulations
promulgated thereunder, and other federal and state statutes and regulations
govern, among other things, the testing, manufacture, safety, effectiveness,
labeling, storage, record keeping, advertising and promotion of our products.
Product development and approval within this regulatory framework take a number
of years and involve the expenditure of substantial resources.
The steps required before our proposed products may be marketed in the United
States include:
. preclinical laboratory tests, in vivo preclinical studies and formulation
studies,
. the submission to the FDA of an Initial New Drug application for human
clinical testing, which must become effective before human clinical trials
commence,
. adequate and well-controlled human clinical trials to establish the safety
and effectiveness of the drug,
. the submission to the FDA of a Product License Application (for a biologic)
or a New Drug Application (for a drug), and
. the FDA approval of the Product License Application or New Drug Application
prior to any commercial sale or shipment of the drug.
In addition to obtaining FDA approval for each product and indication, each
domestic manufacturing establishment must be registered with, and approved by,
the FDA. Domestic manufacturing establishments are subject to biennial
inspections by the FDA and must comply with the FDA's good manufacturing
practices for both drugs and devices. To supply products for use in the United
States, foreign manufacturing establishments, including third party facilities,
must comply with the FDA's good manufacturing practices and are subject to
periodic inspection by the FDA or by corresponding regulatory agencies in
countries under reciprocal agreements with the FDA. In addition to FDA
regulation, we are is also subject to a variety of additional governmental
regulations under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Energy Reorganization Act
of 1974, the Resource Conservation and Recovery Act and other current and future
federal, state and local regulations.
Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the potential safety and
effectiveness of the product. Compounds must be adequately manufactured and
preclinical safety tests must be conducted by laboratories that comply with FDA
good laboratory practices regulations. The results of the preclinical tests are
submitted to the FDA as part of an Initial New Drug application and are reviewed
by the FDA prior to the commencement of human clinical trials. There can be no
assurance that submission of an Initial New Drug application will result in FDA
authorization to commence clinical trials.
Clinical trials involve the administration of the investigational new drug to
healthy volunteers or to patients, under the supervision of qualified principal
investigators. Clinical trials must be conducted in accordance with the FDA's
good clinical practices under protocols that detail the objectives of the study,
the parameters to be used to monitor safety and the effectiveness criteria to be
evaluated. Each protocol must be submitted to the FDA for clearance as part of
the Initial New Drug application. Further, each clinical trial must be conducted
under the auspices of an independent Institutional Review Board ("IRB") at the
institution at which the trial will be conducted. The Institutional Review Board
will consider, among other things, ethical factors, the safety of human
subjects, informed consent and the possible liability of the institution.
Clinical trials are typically conducted in three sequential phases, but the
phases often overlap. In Phase I, the initial introduction of the drug into
healthy subjects or patients, the drug is tested for safety (adverse effects),
dosage tolerance, absorption, distribution, metabolism, excretion and
pharmacodynamics (clinical pharmacology). Phase II involves studies in a limited
patient population to
. determine the effectiveness of the drug for specific, targeted
indications,
. determine dosage tolerance and optional dosage and
. identify possible adverse effects and safety risks.
When a compound is found to be effective and to have an acceptable safety
profile in Phase II evaluations, Phase III trials are undertaken to further
evaluate clinical effectiveness and to further test for safety within an
expanded patient population at geographically dispersed clinical study sites.
Phase I, Phase II or Phase III testing may not be completed within any specific
time period, if at all, with respect to any of our products. Furthermore, we or
the FDA may suspend clinical trials at any time if it is believed that the
patients are being exposed to an unacceptable health risk.
Among other things, the results of the preclinical and clinical studies, along
with manufacturing information, are submitted to the FDA in the form of a
Product License Application or a New Drug Application for approval of the
marketing and commercial shipment of the drug. Upon accepting a company's
marketing approval applications, the FDA generally convenes an Advisory
Committee to review clinical trial results and make a non-binding recommendation
concerning the drug's approval. After considering the Advisory Committee
recommendation and other information, the FDA may or may not issue an approval
letter. This letter sets out the specific terms and conditions that the company
must satisfy in order to receive final approval to market. The testing and
approval process is likely to require substantial time and effort and there can
be no assurance that any approval will be granted on a timely basis, if at all.
The FDA may deny a Product License Application or an New Drug Application if
applicable regulatory criteria are not satisfied, require additional testing or
information, or require postmarketing testing and surveillance to monitor the
safety of the company's products if they do not view the Product License
Application or the New Drug Application as containing adequate evidence of the
safety and effectiveness of the drug. Notwithstanding the submission of data,
the FDA may ultimately decide that the application does not satisfy regulatory
criteria for approval. Moreover, if regulatory approval is granted, such
approval will entail limitations on the indicated uses for which it may be
marketed. Finally, approvals may be withdrawn if compliance with regulatory
standards is not maintained or if problems occur following initial marketing.
Under the Orphan Drug Act, the FDA may designate drug products as orphan drugs
if there is no reasonable expectation of recovery of the costs of research and
development from sales in the United States or if these drugs are intended to
treat a rare disease or condition, which is defined as a disease or condition
that affects less than 200,000 persons in the United States. If certain
conditions are met, designation as an orphan drug confers upon the sponsor
marketing exclusivity for seven years following FDA approval of the product,
meaning that the FDA cannot approve another version of the same product for the
same use during the seven-year period. The market exclusivity provision does
not, however, prevent the FDA from approving a different orphan drug for the
same use or the same orphan drug for a different use. We believe that some of
our potential products may qualify for orphan drug designation. Our potential
products may not ultimately receive orphan drug designation, or the benefits
currently provided by an orphan drug designation may be amended or eliminated.
The Orphan Drug Act has been controversial, and many legislative proposals have
from time to time been introduced in Congress to modify various aspects of the
Orphan Drug Act, particularly the market exclusivity provisions. New legislation
may be introduced in the future that may adversely impact the availability or
attractiveness of orphan drug status for any of our potential products.
Among the conditions for FDA approval is the requirement that the prospective
manufacturer's quality control and manufacturing procedures conform to good
manufacturing practices. In complying with standards set forth in these
regulations, manufacturers must continue to expend time, money and effort in the
area of production and quality control to ensure full technical compliance. The
FDA stringently applies regulatory standards for manufacturing.
Both of our potential products are in preclinical testing. We anticipate that
it will take between five to ten years for both of our potential products to
complete clinical trials and, if the trials are successful, be approved by the
FDA.
Competition
The pharmaceutical and biotechnology industries are intensely competitive.
Any product candidate developed by UroGen would compete with existing drugs and
therapies and with others under development. There are many pharmaceutical
companies, biotechnology companies, public and private universities and research
organizations actively engaged in research and development of products for the
treatment of hemophilia and prostate cancer. Many of these organizations have
financial, technical, manufacturing and marketing resources which are greater
than ours. If a competing company develops or acquires rights to a more
efficient, more effective, or safer competitive therapy for treatment of the
same diseases we have targeted, or one which offers significantly lower costs of
treatment, our business, financial condition and results of operations could be
materially adversely affected. We believe that the most significant competitive
factors in the Gene Therapy Field are the effectiveness and safety of a product
due to the relatively early stage of the industry.
We believe that our product development programs will be subject to
significant competition from companies using alternative technologies, as well
as to increasing competition from companies that develop and apply technologies
similar to ours. Other companies may succeed in developing products
earlier than we do, obtaining approvals for such products from the FDA more
rapidly than we do or developing products that are safer and more effective than
those under development or proposed to be developed by us. We can not assure you
that research and development by others will not render our technology or
potential products obsolete or non-competitive or result in treatments superior
to any therapy developed by us, or that any therapy developed by UroGen will be
preferred to any existing or newly developed technologies.
Marketing and Sales
We entered a Distribution Agreement with Baxter in July 1998. Under the
Distribution Agreement, Baxter has the exclusive, worldwide right to market,
sell and distribute all products which are developed under the Development
Collaboration Agreement with Baxter. It is anticipated that Baxter will fund
the development of the hemophilia product and have distribution rights for all
hemophilia products. Under the terms of the agreement, UroGen receives a
percentage of the revenues generated by Baxter.
We have no internal sales force and currently plan to enter into additional
corporate partnership arrangements under which a corporate partner would fund
development of our cancer product and/or other potential products and would have
distribution rights for the product funded. See "Risk Factors" for a further
discussion of the risks associated with distribution agreements.
Employees
As of June 30, 1999 UroGen had 17 employees, including 13 in research and
development and 4 in finance and administration. Our continued success will
depend in large measure on our ability to attract and retain highly skilled
employees who are in great demand. None of our employees are represented by a
labor union and we believe that our relations with the employees are generally
good.
Properties
UroGen leases approximately 4,800 square feet of office and laboratory space
in San Diego, California. The term of the lease expires in May 2000.
Additionally, we lease approximately 8,600 square feet of office and laboratory
space for our manufacturing operations in San Diego, California. The term of the
lease expires in August, 2004. We believe our existing facilities will be
sufficient to meet our anticipated operating needs through May 2000.
Legal Proceedings
UroGen is not a party to any material litigation or legal proceedings.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
The names of the directors and executive officers of UroGen, their ages as of
December 31, 1998 and certain information about them are set forth below:
<TABLE>
<CAPTION>
NAME OF DIRECTORS
AND EXECUTIVE OFFICERS AGE PRINCIPAL OCCUPATION
- -------------------------- ---- --------------------
<S> <C> <C>
Paul D. Quadros 52 Chairman of the Board of Directors
Robert E. Sobol, M.D. 46 President, Chief Executive Officer and
Director
Wei-Wei Zhang. M.D, PhD 41 Senior Vice President, Chief
Scientific Officer and Director
William Raschke, PhD 52 Vice President
Carin D. Sandvik 35 Controller, Chief Accounting Officer
and Corporate Secretary
Peter F. Bernardoni 39 Director
Ivor Royston, M.D. 53 Director
Victor W. Schmitt 50 Director
</TABLE>
PAUL D. QUADROS has been Chairman of the Board and our Chief Financial
Officer since August 1998. Prior to that Mr. Quadros had been the President and
Chief Executive Officer since April 1997 and prior to that was the
Chairman of the Board, Chief Financial Officer and Secretary since our
formation in June 1995. From June 1994 to May 1995, Mr. Quadros served as Senior
Vice President and Chief Financial Officer of Thermatrix, Inc., a manufacturer
of pollution control equipment. Prior to joining Thermatrix, Mr.Quadros was,
from January 1985 an officer and from April 1986 a general partner of Technology
Funding, a venture capital management organization. From April 1986 through May
1994, Mr. Quadros was a member of Technology Funding's Commitments Committee,
serving as its chairman from 1987 to 1990. During his affiliation with
Technology Funding he also served as Director of Research and Director of Equity
Investments. From 1991 to 1994 Mr. Quadros was chairman of Technology Funding's
Medical Investment Committee and was involved in managing Technology Funding's
healthcare portfolio. Mr. Quadros currently serves as a director of several
private companies and one public company, Cardiac Science, Inc.
Prior to joining Technology Funding in 1985, Mr. Quadros was Executive Vice
President of Amreal Securities Corp., an affiliate of Home Federal Savings and
Loan. Before joining Amreal in April 1984, Mr. Quadros was a Senior Vice
President of Public Storage, Inc., a national real estate developer. Prior to
joining Public Storage in 1981, Mr. Quadros was Assistant Treasurer of The Times
Mirror Company, where he served for seven years in several corporate finance
positions. Mr. Quadros began his career as a securities analyst and
institutional portfolio manager. Mr. Quadros has a B.A. in Finance from
California State University at Fullerton and an M.B.A. from the UCLA Graduate
School of Management.
ROBERT E. SOBOL, M.D has been President and Chief Executive Officer since
August 1998. Prior to that Dr. Sobol was the Executive Vice President and Chief
Operating Officer since July 1996. Dr. Sobol was previously the Director of
Clinical Science at Sidney Kimmel Cancer Center, which is affiliated with Sharp
HealthCare, one of the largest healthcare providers in San Diego. Dr. Sobol has
developed clinical applications of immuno therapy and gene therapy for the
treatment of cancer and is a
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<PAGE>
founder of several successful biotechnology ventures. He was a founder and Vice
President of IDEC Pharmaceuticals Corporation, a publicly traded company
developing monoclonal antibody based treatments for cancer and autoimmune
disorders. He was also a founder of GeneSys Therapeutics, a gene therapy company
which merged with publicly traded Somatix Therapy Corporation and subsequently
with Cell GeneSys Incorporated.
Dr. Sobol led the research team which was the first to treat a brain tumor
patient with cytokine gene therapy. He is also the principal investigator for
one of the first gene therapy protocols approved for the treatment of colon
carcinoma. Dr. Sobol is the Editor of the journal Cancer Gene Therapy.
Dr. Sobol received a B.A. in Philosophy from Boston University and an M.D.
from The Chicago Medical School. He subsequently trained at the University of
Southern California Medical Center and at the University of California, San
Diego. He is Board Certified in Internal Medicine and Medical Oncology.
WEI-WEI ZHANG, M.D., PH.D. joined UroGen as Senior Vice President, Chief
Scientific Officer and Director in October 1998. Dr. Zhang has sixteen years of
biomedical research experience including nine years of research management
experience. He was formerly the Director of Molecular Biology in the Gene
Therapy Unit of Baxter Healthcare Corporation since March 1995. Dr. Zhang
established the Department of Molecular Biology at Baxter and initiated a
comprehensive program for the mini-Ad vector system for in vivo gene therapy.
Dr. Zhang has significant technical expertise in vector technology, particularly
with adenoviral vectors and their application in gene therapy of cancer and
hemophilia. Prior to joining Baxter, Dr. Zhang was an Assistant Professor in the
Department of Thoracic and Cardiovascular Surgery at the University of Texas MD
Anderson Cancer Center, where he was a member of the team that developed
adenovirus-mediated tumor suppressor gene therapy of cancer (Adp53) from lab to
clinic.
Dr. Zhang received his M.D. from the Zhejiang Medical University in China and
received a Ph.D. in molecular biology, recombinant DNA, and protein chemistry
from The University of Alabama. Dr. Zhang had postdoctoral training in gene
manipulation and transfer technologies at the Baylor College of Medicine.
WILLIAM C. RASCHKE, PH.D has been Vice President since August 1998 and devotes
his efforts to both scientific and corporate development projects. He was
previously Director of Research since September 1996. Dr. Raschke also holds the
positions of Member and Director of Molecular Immunology of the Sidney Kimmel
Cancer Center (formerly the San Diego Regional Cancer Center), positions he has
held since coming to the Center in 1994. Since March 1997, he has also served as
the Acting Scientific Director of the Center. Dr. Raschke has previously held
positions at SIBIA, Inc. from 1988 to 1994 where he was Senior Research Fellow,
The Salk Institute from 1988 to 1994, and 1975 to 1981 with various staff
appointments and the La Jolla Cancer Research Foundation (now the Burnham
Institute) from 1981 to 1988 as Associate Scientific Director and Staff
Scientist.
Dr. Raschke has served as a reviewer for the National Institute of Health with
two four - year terms on the Experimental Immunology Study Section, the American
Cancer Society and The National Science Foundation, as well as international
funding agencies. He also reviews manuscripts for various immunology and cancer
journals.
Dr. Raschke received a B.S. in Chemistry from the University of Texas, Austin
and a Ph.D. in Biochemistry from the University of California, Berkley. He
conducted post graduate training at the Salk
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<PAGE>
Institute in Developmental Biology and Immunology.
CARIN D. SANDVIK has served as the Company's Controller, Chief Accounting
Officer and Corporate Secretary since joining UroGen in October 1998. Prior to
joining UroGen, Ms. Sandvik was a Senior Manager in the Technology Industry
Group at Pricewaterhouse Coopers LLP (formerly Price Waterhouse LLP), where she
had served in various positions for twelve years. Ms. Sandvik received a B.A in
Business Administration with an emphasis in Accounting from the University of
San Diego.
PETER F. BERNARDONI is a Partner of Technology Funding. Mr. Bernardoni joined
Technology Funding as an Investment Officer in 1988, was elected as a Vice
President in 1992 and a Partner in 1994. Mr. Bernardoni has served as a member
of Technology Funding's Commitments Committee since 1994 and as Chairman of
Technology Funding's Medical Investment Committee since 1994. Prior to joining
Technology Funding, Mr. Bernardoni was employed for six years by IBM and served
in several capacities including Design Engineer and as a manager for large scale
information systems in major pharmaceutical and hospital accounts.
Mr. Bernardoni has served as a Director for several private and two public
companies, Poly Medical Industrial and Circadian. He currently serves on the
Board of Endocare, Inc., Avalon Imaging and Reflection Technology, and is
Chairman of Portable Energy Products.
Mr. Bernardoni has a B.S.M.E. from Santa Clara University and an M.S.M.E. from
Stanford University.
IVOR ROYSTON, M.D. was the Chairman of the Board from April 1997 until August
1998. Prior to that, he served as President and Chief Executive Officer. He has
served as a Director since our formation in June 1995. Dr. Royston was appointed
by the President of United States to the National Cancer Advisory Board during
1996.
Dr. Royston is the President and Chief Executive Officer of Sidney Kimmel
Cancer Center (formerly the San Diego Regional Cancer Center), a position he has
held since founding the Center in 1990. He is also a General Partner of Forward
Ventures, a life science venture capital firm. From 1977 to 1993, Dr. Royston
held various positions in academic medicine at the University of California, San
Diego (UCSD) School of Medicine. Dr. Royston also served as Director, Clinical
Immunology Program at the UCSD Cancer Center and Chief of Oncology at the San
Diego VA Medical Center.
Dr. Royston was a founder and Director of Hybritech, Inc., GeneSys
Therapeutics Corporation and IDEC Pharmaceuticals, Inc. He has served on the
Board of Directors of various companies, including Unisyn Technologies, Inc.,
Medstone International Inc., Sequana Therapeutics, Inc., Corixa, Inc.,
CombiChem, Inc. IDEC Pharmaceuticals and GenQuest, Inc. He currently is a member
of the Board of Directors of the Sidney Kimmel Cancer Center.
Dr. Royston received a B.A. in Human Biology from Johns Hopkins University and
an M.D. from the Johns Hopkins School of Medicine. He later trained in internal
medicine and oncology at Stanford University and is board certified in both
Internal Medicine and Medical Oncology.
VICTOR W. SCHMITT is President, Venture Management, Baxter Healthcare
Corporation. He has held this position since 1994 and is responsible for the
creation and management of Baxter's interests in development-stage biotech
companies. Prior to his current assignment, he held the operating position of
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<PAGE>
President, Baxter Biotech Europe. He has also served as Vice President, Business
Development and Finance for Baxter's Blood Therapy Group.
Mr. Schmitt joined Baxter from a sixteen-year career with the American Red
Cross Blood Services. At the Red Cross Blood Services, Mr. Schmitt held
positions in marketing and operations. At the time of his departure, he was
Vice President, Blood Services with responsibility for the organization's
national blood services program.
Mr. Schmitt holds a B.S. from the University of Virginia and an M.B.A. from
the University of Maryland. He serves on the Board of Directors of a number of
development-stage biotech companies.
Compensation of Directors
Cash Compensation
UroGen does not compensate its Directors for their services as such.
However, Directors are reimbursed for their out-of-pocket expenses in attending
Board meetings.
1995 Directors' Option Plan
Non-employee directors also receive stock options under UroGen's 1995
Directors' Option Plan. The Directors' Plan was adopted and approved by the
shareholders of the Company in 1995 to provide automatic, nondiscretionary
grants of options to non-employee directors of the Company. A total of 100,000
shares of Common Stock have been reserved for issuance under the Directors'
Plan. The Directors' Plan provides that each non-employee director is
automatically granted an option to purchase 10,000 shares of UroGen Corp. Common
Stock upon his or her initial election or appointment as an non-employee
director (Initial Options). Subsequently, each non-employee director who has
served for at least six months will be granted an additional option to purchase
5,000 shares of UroGen Corp. Common Stock on December 31 or each year so long as
he or she remains an non-employee director (Subsequent Options). The exercise
price of the options granted to non-employee directors must be the fair market
value of UroGen Common Stock on the date of grant.
Options granted to non-employee directors have ten-year terms, subject to an
non-employee director's continued service as a director. Initial Options vest
over three years rate of 33.3% per year, subsequent options vest one year from
the grant date. As of December 31, 1998, options to purchase 35,000 shares of
Common Stock to non-employee directors has been granted under the Directors'
Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16") requires UroGen's executive
officers, directors and beneficial owners of more than 10% of UroGen Common
Stock to file reports of ownership and changes in ownership of Common Stock with
the Securities and Exchange Commission, and to furnish us with copies of all
Section 16(a) forms they file. Based solely on its review of the copies of the
forms received by it, or written representations from certain reporting persons
that no Form 5's were required for those persons, we are not aware that any
reporting persons did not comply with all applicable Section 16 filing
requirements during fiscal 1998.
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Board Meetings and Committees
The Board of Directors of the Company held a total of four meetings during
the year ended December 31, 1998. The Board of Directors has a Compensation
Committee and an Audit Committee.
The Compensation Committee of the Board of Directors consists of Mr.
Bernardoni, Mr. Quadros and Mr. Schmitt and held two meeting during the year
ended December 31, 1998. The Compensation Committee establishes executive
compensation policy, determines the salary and bonuses of the executive officers
and recommends to the Board of Directors stock option grants for executive
officers.
The Audit Committee of the Board of Directors consists of Mr. Bernardoni
and Mr. Schmitt. The Audit Committee was formed in January 1999 and has held no
meetings to date. The Audit Committee recommends engagement of our independent
accountants and is primarily responsible for approving the services performed by
our independent accountants and for reviewing and evaluating our accounting
principles and its system of internal accounting controls.
No director attended fewer than 100% of the sum of the total number of
meetings of the Board of Directors or the total number of meetings of all
committees of the Board of Directors on which that director served.
Compensation Committee Interlocks and Insider Participation
Two of the members of the Compensation Committee are independent Directors.
Only Mr. Quadros is a member of the Compensation Committee and an officer and
employee.
Indemnification
Our certificate of incorporation and bylaws contain certain provisions
relating to the limitations of liability and indemnification of directors and
officers. The certificate of incorporation provides that our directors shall not
be personally liable to UroGen or its stockholders for monetary damages for any
breach of fiduciary duty as a director, except for liability:
. For any breach of the director's duty of loyalty to us or our
stockholders;
. For acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. In respect of certain unlawful payments of dividends or unlawful stock
repurchases or redemption as provided in Section 174 of the Delaware
General Corporation Law, or
. For any transaction from which the director derives any improper
personal benefit.
Our certificate of incorporation also provides that if Delaware law is
amended after the approval by our stockholders of the certificate of
incorporation to authorise corporate action further eliminating or limiting the
personal liability of directors, than the liability of our directors shall be
eliminated or limited to the fuller extent permitted by Delaware law. The
foregoing provisions of the certificate of incorporation are not intended to
limit the liability of directors or officers for any violation of applicable
federal securities laws. In addition, as permitted by Section 145 of the
Delaware General Corporation Law, our bylaws provide that:
. We are required to indemnify our directors and executive officers to the
fullest extent permitted by Delaware law;
. We may, in our discretion, indemnify other officers, employees and
agents as provided by Delaware law;
. To the fullest extent permitted by Delaware law, but subject to various
exceptions, we are required to advance all expenses incurred by our
directors and executive officers in connection with a legal proceeding;
. The right conferred in the bylaws are not exclusive;
. We are authorised to enter into indemnification agreement with our
directors, officers, employees and agents; and
. We may not retroactively amend the bylaw provisions relating to
indemnity.
Our bylaws provide that we shall indemnify our directors to the fullest
extent permitted by Delaware law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law.
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EXECUTIVE COMPENSATION
The table below sets forth information for the annual and long-term
compensation of the Chief Executive Officer and all executive officers who
received cash compensation greater than $100,000 during the three years ended
December 31, 1998 for services to UroGen in all capacities during the three
years ended December 31, 1998. No other corporate officer received cash
compensation in excess of $100,000 during the three years ended December 31,
1998:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------
Annual Compensation Restricted Securities All Other
-----------------------
Fiscal Salary Bonus Stock Underlying Compensation
Name and Principal Position Period ($) ($) Award ($) Options (#) ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Paul D. Quadros (1)........................ 1998 $ 95,000 - - - -
Chairman of the Board 1997 $ 60,000 - - - -
1996 $ 83,000 - - - -
Robert E. Sobol, M.D (2).................. 1998 $162,917 - - - -
President and Chief Executive Officer 1997 $143,379 - - - -
1996 $ 9,000 - - 150,000 -
Wei-Wei Zhang, M.D., PhD (3).............. 1998 $ 40,000 - - - -
Sr. Vice President and Chief 1997 - - - - -
Scientific Officer 1996 - - - -
</TABLE>
(1) Mr. Quadros served as the President and CEO from April 1997 to August 1998.
(2) Dr. Sobol served as the Executive Vice President and Chief Operating
Officer from June 1996 until August 1998.
(3) Dr. Zhang joined UroGen in October 1998. His annual salary is $160,000.
There were no grants of options to purchase UroGen's Common Stock made
during the fiscal year ended December 31, 1998 to the officers named in the
Summary Compensation Table, however, the Board of Directors committed to issue
options to purchase 81,903 shares, 627,141 shares and 781,713 shares of Common
Stock to Mr. Quadros, Dr. Sobol and Dr. Zhang, respectively, once a new stock
option plan has been adopted.
There were no options to purchase UroGen's Common Stock exercised
during the year ended December 31, 1998, and no unexercised options held as of
December 31, 1998 by the persons named in the Summary Compensation Table.
Change in Control Arrangements
UroGen's 1995 Stock Option Plan authorizes the acceleration or payment
of awards and related shares in the event of a Change in Control as defined in
the Plan. Acceleration or payment may cause part or all of the
consideration involved to be treated as a parachute payment under the Internal
Revenue Code of 1986, as amended, which may subject the recipient
thereof to a 20% excise tax and which may not be deductible.
Employment Agreement
In April 1997, Paul D. Quadros entered into an employment agreement with
UroGen which provides for a monthly base salary of $10,000 and health insurance
and other benefits as UroGen customarily provides to its employees. If Mr.
Quadros is terminated by UroGen without cause, Mr. Quadros is entitled to
receive his base salary and benefits for six months from the date of
termination, and one-half of his base salary and benefits for months six through
twelve after termination. Mr. Quadros is required to give the Company sixty days
written advance notice of his intent to resign.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BAXTER TRANSACTIONS
In July 1998, UroGen executed various agreements with Baxter Healthcare
Corporation pursuant to which we acquired certain rights and assets from Baxter.
Under the terms of the agreements, UroGen obtained the rights to Baxter's
adenoviral-based gene transfer technologies and certain equipment in exchange
for 5,830 shares of non-voting convertible Series A Preferred Stock and
1,841,219 shares of Common Stock. The shares issued to acquire the gene transfer
technologies were valued at $5,455,505 based on the fair value of the stock on
the date of issuance and was charged to acquired in-process technology due to
the early stage of development of the technology. The value of the stock issued
for fixed assets was $343,937 based upon the fair value of those assets.
Baxter will provide funding to UroGen for continued research and
development of this technology as it relates to the treatment of hemophilia
under the Developmental Collaboration Agreement. Baxter will provide such
funding through the date on which the treatment of the first patient in a Phase
I clinical trial begins. This development funding is provided under a Credit
Agreement. The balance outstanding under the Credit Agreement as of December 31,
1998 was $1,044,275. Under the terms of the Credit Agreement, the amounts
outstanding under the Credit Agreement are due and payable on December 31 of
each year during the term of the agreement. At UroGen's option, the amounts may
be paid by issuing to Baxter the number of shares of Series B Preferred Stock
determined by dividing the outstanding amount under the Credit Agreement by one
thousand. The balance has been presented as a non-current liability on the
accompanying balance sheet due to the conversion feature and because we intend
to convert the debt rather than repay it with cash. Amounts outstanding under
the Credit Agreement do not accrue interest unless UroGen is in default, in
which case the amount due bears interest at prime plus 4%. In January 1999, we
issued 704 shares of Series B Preferred Stock to convert $704,000 outstanding
under the Credit Agreement. The remaining $340,276 will be converted at December
31, 1999.
UroGen entered into a Distribution Agreement with Baxter under which Baxter
will have an exclusive, worldwide right to market, sell and distribute all
products which may be developed under the Developmental Collaboration Agreement.
The term of the Distribution Agreement is the longer of ten years from the date
of regulatory approval of the first product or the expiration of the last to
expire of any related patents issued on or before ten years from the date of
regulatory approval.
UroGen, Baxter and certain founding shareholders entered into the Investor
Rights Agreement under which the shares held by these entities are subject to
certain restrictions on transferability of the shares until July 8, 2003 and
have certain registration rights. Additionally, under this agreement, Baxter
has the right to purchase up to twenty percent of any new securities issued and
has the obligation to purchase Series C Preferred Stock at a price of $1,000 per
share upon our achievement of the following milestones:
. $2,000,000 upon treatment of the first patient in a Phase I clinical
trial for a product developed under the Developmental Collaboration
Agreement;
. $5,000,000 upon commencement of Phase III clinical trials of a product
developed under the Developmental Collaboration Agreement; and
. $10,000,000 upon approval by the Food and Drug Administration of a
product developed under the Developmental Collaboration Agreement.
Baxter has committed to provide an additional $400,000 in funding on terms
similar to those of the offering of unsecured convertible notes payable which
closed in April 1999. UroGen may request this financing when and if needed.
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MEDSTONE AGREEMENTS
UroGen was incorporated on June 30, 1995 as a wholly-owned subsidiary of
Medstone International, Inc. UroGen was formed from the medical biology and
small molecule pharmaceuticals divisions of Medstone, which were started in
1991. From 1991 until the distribution described below on February 9, 1996,
UroGen relied upon Medstone for financial support. UroGen also relied on
Medstone for assistance with personnel management and financial administration.
Upon completion of the Distribution, UroGen began to operate independently from
Medstone.
Prior to the Distribution, UroGen and Medstone entered into a Distribution
Agreement, Administrative Services Agreement and Contribution Agreement. The
following are summaries of the material provisions of the agreements. These
summaries are qualified in their entirety by reference to the full text of the
agreements, which were filed by Urogen as exhibits to the registration statement
on Form 10-SB filed on January 5, 1996.
Contribution Agreement
Under the Contribution Agreement, Medstone transferred to UroGen certain
Medstone property, including certain intellectual property and other rights,
used in connection with UroGen's business and made a cash contribution of
$500,000 to UroGen.
Stock Distribution Agreement
On December 29, 1995, Medstone declared a dividend of all of the stock of
UroGen Corp. to be distributed to all Medstone stockholders. Each stockholder
of Medstone received, on February 9, 1996, one share of UroGen Common Stock for
each share of Medstone Common Stock held on the record date, December 29, 1995.
The Stock Distribution Agreement provided that in connection with the
transfer of assets and the assumption of liabilities relating to the separation
of the business of UroGen and Medstone, that UroGen and Medstone would execute
or cause to be executed various conveyancing and assumption instruments in such
forms as the parties to the Stock Distribution Agreement agreed.
Pursuant to the Stock Distribution Agreement, Medstone agreed to obtain all
consents, permits and authorizations necessary to transfer to UroGen any assets
associated with the UroGen business which had not been transferred by the
Distribution Date. In addition, Medstone agreed to obtain consents, permits and
authorizations necessary to permit UroGen to assume any liabilities associated
with the UroGen business which had not been assumed by UroGen by the
distribution date.
The Stock Distribution Agreement sets forth the respective obligations of
Medstone and UroGen with respect to liabilities for taxes and tax returns and
other tax related filings. In general, Medstone was responsible for tax filings
of UroGen and paying those taxes, other than taxes accrued on its financial
statements, attributable to any taxable period ending on or before the
Distribution Date. UroGen is be responsible for filing its tax returns and
paying its taxes attributable to periods, or portions of any taxable periods,
commencing on or after the date immediately following the Distribution Date. In
addition, the Stock Distribution Agreement requires Medstone and UroGen to
cooperate in preparing those filings which cover overlapping taxable periods
that include the distribution date.
The Stock Distribution Agreement also provided that each party agreed to
indemnify and hold the other harmless from certain liabilities, including claims
resulting from any breach of representations and
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warranties made by the indemnifying party in connection with the Stock
Distribution.
Administrative Services Agreement
Under the Administrative Services Agreement, Medstone provided certain public
reporting assistance services to UroGen and, under this agreement, Medstone also
provided to UroGen the use of certain facilities. In consideration for services
and the use of facilities, UroGen paid to Medstone an hourly fee of $100.
Pursuant to the terms of the Administrative Services Agreement, UroGen and
Medstone contracted employee services from each other for a period not to exceed
two years following the Distribution Date. There were no payments to Medstone
during 1998 or 1997.
SIDNEY KIMMEL CANCER CENTER
Sidney Kimmel Cancer Center owns 339,000 shares of UroGen Common Stock and Dr.
Royston is Chief Executive Officer of SKCC. UroGen has entered into the
following transactions with SKCC:
In June 1996, UroGen and SKCC entered into an affiliation agreement with a
three year term. Under the affiliation agreement, SKCC agreed to provide the
following services:
. to allow Dr. Royston to serve as UroGen's Chief Executive Officer and
devote part time executive services to UroGen;
. to lease approximately 100 square feet of office space in SKCC's facility;
. to allow UroGen to consult and confer with scientific staff of SKCC; and
. to make available clerical support for up to ten hours per week at a
compensation rate of $10.00 per hour.
In exchange UroGen agreed to make the following payments:
. cash consideration of $3,000 per month;
. conveyance of certain equipment with a book value of approximately $42,000;
and
. 339,000 shares of UroGen Corp. Common Stock.
The affiliation agreement was amended in May 1997 to reduce the monthly
cash consideration to $1,000 due to Dr. Royston's resignation as Chief Executive
Officer of UroGen.
In September 1997, the affiliation agreement was terminated and UroGen signed
a sublease agreement with SKCC for use of approximately 500 square feet of
office and laboratory space on a month to month basis. The monthly rent for the
space was $1,065.
In August 1998, UroGen and SKCC entered into a new sublease agreement for
approximately 4,800 square feet of office and laboratory space. The monthly
lease payment is approximately $14,800 plus our share of facility expenses. The
lease expires in May 2000.
In November 1997, UroGen entered into a license agreement with Dr. Daniel
Mercola and SKCC under which UroGen obtained an exclusive right to certain
technology.UroGen is obligated to pay royalties on its net sales revenues and a
percentage of revenues from sublicenses relating the technology. Additionally,
UroGen is required to make minimum annual royalties of $30,000 for the duration
of the agreement. The minimum annual royalties may be credited against revenue-
based royalties for that year. If there are no revenue-based royalties to offset
the annual royalty, one-half of the annual royalty may be carried forward to
offset revenue-based royalties from the following year. Within thirty days of
UroGen entering into an agreement with a corporate partner or strategic alliance
relationship related to this technology, UroGen must pay a minimum of $12,500
per month to fund additional research.
OTHER TRANSACTIONS
In July 1998, we received $1,030,000 representing proceeds from the sale of
unsecured convertible notes payable which bore interest at 8% per annum and were
due on June 30, 1999, unless previously converted. The notes are convertible,
at the option of the holder, into Common Stock at $1.00 per share and
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<PAGE>
automatically converted into Common Stock immediately prior to the filing of
this registration statement to registered the resale of the underlying shares.
In addition, each note holder received a warrant to purchase a number of shares
of Common Stock of UroGen equal to one share for each $2.00 of principal under
the purchased note. The warrants are exercisable for seven years from issuance
and have an exercise price of $0.74 per share. The following UroGen officers and
directors participated in this transactions: Mr. Quadros, Dr. Sobol, Dr. Raschke
and Dr. Royston each purchased notes for $50,000 and received a warrant for
25,000 shares of Common Stock.
In April 1999, we received $400,000 representing proceeds from the sale of
unsecured convertible notes payable which bear interest at 8% per annum and are
due on March 31, 2000, unless previously converted. The notes are convertible,
at the option of the holder, into Common Stock at $0.30 per share and
automatically converted into Common Stock immediately prior to the filing of
this registration statement to registered the resale of the underlying shares.
In addition, each note holder received a warrant to purchase a number of shares
of Common Stock of UroGen equal to one share for each $0.30 of principal under
the purchased note. The warrants are exercisable for seven years from issuance
and have an exercise price of $0.30 per share. The following UroGen officers and
directors participated in this transactions:
. Mr. Quadros purchased notes for $10,000 and received a warrant for
33,333 shares of Common Stock.
. Dr. Raschke purchased notes for $40,000 and received warrants for
133,333 shares of Common Stock.
. Carin Sandvik purchased notes for $5,000 and received warrants for
16,667 shares of Common Stock.
. Dr. Royston purchased notes for $25,000 and received a warrant for
83,333 shares of Common Stock.
. Dr Raschke and his spouse also received a Finder's Fee for amounts
raised in this offering of $9,250 in cash and warrants for 30,833 shares
of common stock exercisable at $0.30 per share for seven years.
In August 1997, UroGen issued warrants to purchase 200,000 shares of Common
Stock to Dr. Sobol. These warrants are exercisable at $0.05 per share (the fair
market value of the Common Stock on the date of grant) and expire on July 31,
2001.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the UroGen Corp. consists of 40,000,000
shares of Common Stock, $.001 par value, and 5,000,000 shares of Preferred
Stock, $.001 par value, of which 40,000 shares are designated Series A Preferred
Stock, $.01 par value, 10,000 shares are designated Series B Preferred Stock,
and 17,000 shares are designated Series C Preferred Stock.
Common Stock
As of December 31, 1998, there were 9,378,538 shares of Common Stock
outstanding held of record by 1,115 registered shareholders.
Subject to preferences that may be applicable to any outstanding Preferred
Stock, holders of Common Stock are entitled to receive ratably the dividends
which may be declared by the Board of Directors out of funds legally available.
We have not paid any cash dividends on Common Stock. Each holder of Common Stock
is entitled to one vote for each share held of record on all matters submitted
to a vote in the election of directors. In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of liabilities and the
liquidation preference of any outstanding Preferred Stock. Holders of Common
Stock have no preemptive rights and have no rights to convert their Common Stock
into any other securities and there are no redemption provisions with respect to
these shares. All of the outstanding shares of Common Stock are fully paid and
non-assessable.
The transfer agent and registrar for UroGen Corp. Common Stock is U.S. Stock
Transfer.
Preferred Stock
As of December 31, 1998, there were 5,830 shares of Series A Preferred Stock
outstanding. Holders of the Series A Preferred Stock are not entitled to
receive dividends with respect to the Series A Preferred, have a liquidation
preference amount of ten dollars ($10.00) per share prior to any distribution to
holders of Common Stock, and have no voting rights. The Series A Preferred
Stock is convertible to Common Stock on a 1000 to 1 basis, provided, however,
that no shares are convertible prior to July 8, 2001.
As of December 31, 1998, there were no shares of Series B Preferred Stock
issued and outstanding. It is anticipated that Series B Preferred Stock will be
issued only to Baxter related to amounts funded by Baxter under the Credit
Agreement. Holders of the Series B Preferred Stock are not entitled to receive
dividends, have a liquidation preference amount of one thousand dollars
($1,000.00) per share prior to any distribution to holders of Common Stock and
have no voting rights, except for a vote as to whether UroGen may issue
additional Series B Preferred Stock. The Series B Preferred Stock may be
converted to Common Stock or to Series A Preferred Stock at the option of the
holder, and converts automatically to Common Stock upon the earlier of:
. the first business day following the treatment of the first patient under
an Initial New Drug Application for a Collaboration Product (as defined)
commences in a Phase I Clinical Trial,
. the date five years after the last advance of funds by Baxter under the
Credit Agreement between Baxter and UroGen through and including the date
a Phase I Clinical Trial commences and
. automatic conversion pursuant to the terms of the Credit Agreement (See
"Certain Relationships and Related Transactions - Baxter Transactions").
The Series B Preferred Stock is convertible to Common Stock in an amount
equal to:
. the quotient of the Liquidation Value (adjusted for Recapitalizations),
divided by one hundred and ten percent (110%) of the per share Fair Market
Value of UroGen Common Stock (as defined), multiplied by
. the number of shares of Series B Preferred converted. The Series B
Preferred Stock is convertible into Series A Preferred on a one for one
basis.
. The "Liquidation Value" shall initially be $1,000 per share of Series B
Preferred.
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In January 1999, 704 shares of Series B Preferred were issued to Baxter to
convert $704,000 outstanding under the Credit Agreement.
As of December 31, 1998, there were no shares of Series C Preferred Stock
issued and outstanding. It is anticipated that Series C Preferred Stock will be
sold only to Baxter upon UroGen meeting certain specified milestones (See
"Certain Relationships and Related Transactions - Baxter Transactions"). Holders
of the Series C Preferred Stock are not entitled to receive dividends, have a
liquidation preference amount of one thousand dollars ($1,000.00) per share
prior to any distribution to holders of Series A Preferred Stock and to holders
of Common Stock and have no voting rights, except as to the issuance of
additional Series C Preferred Stock. Each share of Series C Preferred may be
converted to Common Stock or to Series A Preferred Stock at the option of the
holder, and converts automatically upon the earlier of:
. the first business day following the approval by the FDA of the right to
market, sell or distribute any product using the Mini-Ad Vector
Technology for treatment of blood clotting disorders in humans relating
to hemophilia A, which has been developed pursuant to the Development
Agreement between Baxter and Urogen and
. the date seven years after the achievement of the most recently achieved
Series C Milestones.
The Series C Preferred Stock is convertible to Common Stock in an amount
equal to:
. the quotient of the Liquidation Value (adjusted for Recapitalizations),
divided by one hundred and ten percent (110%) of the per share Fair
Market Value of the Company's Common Stock (as defined), multiplied by
. the number of shares of Series C Preferred converted. The Series C
Preferred Stock is convertible into Series A Preferred on a one for one
basis.
The Preferred Stock may be issued from time to time in one or more
additional series. Our Board of Directors has authority to fix the designation,
powers, preferences and rights of each additional series and the qualifications,
limitations and restrictions thereon and to increase or decrease the number of
shares of series, but not below the number of shares of the series then
outstanding, without any further vote or action by the shareholders. Except in
accordance with the Baxter Transaction described below, we have no present plans
to issue any shares of Preferred Stock.
Stock Options
The 1995 Director Option Plan was adopted by the Board and approved by the
Shareholders in 1995, to provide automatic, nondiscretionary grants of options
to non-employee directors of the Company. A total of 100,000 shares of Common
Stock has been reserved for issuance under the Director Plan. The Director Plan
provides that each Non-employee director is automatically granted an option to
purchase 10,000 shares of UroGen Common Stock upon his or her initial election
or appointment as an Non-employee director. Subsequently, each non-employee
director who has served for at least six months will be granted an additional
option to purchase 5,000 shares of UroGen Common Stock on December 31 of each
year so long as he or she remains an non-employee director. The exercise price
of options granted to non-employee directors must be the fair market value of
UroGen Common Stock on the date of grant.
Options granted to non-employee directors have ten-year terms, subject to an
non-employee director's continued service as a director. Options granted to
non-employee directors vest over four years at the rate of twenty-five percent
per year. As of December 31, 1997, options to purchase 15,000 shares of Common
Stock to an non-employee director had been granted under The Director Option
Plan.
The 1995 Stock Plan authorizes the Board of Directors, or one or more
committees which the Board may appoint from among its members, to grant options
and rights to purchase Common Stock to officers, key employees consultants and
certain advisors to the Company. Options granted under the 1995 Stock Plan may
be either "incentive stock options" as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, or nonstatutory stock options, as determined
by the Board or the Committee. The
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1995 Stock Plan initially reserved 1,850,000 shares for issuance under the Plan
to be increased the first day of each year by the number of shares equal to two
percent of the Company's total outstanding common shares. As of December 31,
1998, there were outstanding options granted under the 1995 Stock Plan to
purchase 350,000 shares of the Company's Common Stock at $0.05 per share.
In March 1999, the Board adopted the 1999 Stock Plan, subject to shareholder
approval. The 1999 Stock Plan authorizes the Board of Directors, or one or more
committees which the Board may appoint from among its members, to grant options
and rights to purchase Common Stock to officers, key employees consultants and
certain advisors to the Company. Options granted under the 1999 Stock Plan may
be either "incentive stock options" as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, or nonstatutory stock options, as determined
by the Board or the Committee. The 1999 Stock Plan initially reserved 4,000,000
shares for issuance under the Plan to be increased the first day of each year by
the number of shares equal to two percent of the Company's total outstanding
common shares. Options to purchase 2,881,183 shares of Common Stock at an
average exercise price of $0.31 per share have been issued to employees under
the 1999 Stock Plan.
Warrants
In April 1999, UroGen completed an offering of 8% Convertible Subordinated
Notes in which we raised $400,000. Each Note holder received a warrant to
purchase a number of shares of Common Stock equal to one share conversion share
resulting in warrants to purchase 1,333,333 shares of Common Stock. The Warrants
are exercisable for seven years from issuance and have an exercise price of
$0.30. The warrants include a provision whereby the holder may exercise via
surrender of debt or equity instruments of Urogen.
In July 1998, we completed a $1,030,000 offering of 8% Convertible
Subordinated Notes. Each Note holder received a warrant to purchase a number of
shares of Common Stock equal to one share for each $2.00 of principal resulting
in warrants to purchase 515,000 shares of Common Stock. The Warrants are
exercisable for seven years from issuance and have an exercise price of $0.74.
The warrants include a provision whereby the holder may exercise via surrender
of debt or equity instruments of Urogen.
A license agreement granted to the licensor a warrant to purchase
additional shares of Urogen common stock to maintain a fully-diluted ownership
percentage of two percent (2%) or increase its ownership percentage up to three
percent (3%). The warrant rights were exercisable at prices ranging from $.03 to
$.04 per share. This warrant was exercised in May 1999.
In 1997 Urogen issued 200,000 warrants to purchase common stock to Robert E.
Sobol, who was the Chief Operating Officer at the time. These warrants are
exercisable at $.05 per share and expire on July 31, 2001.
In September 1999, Urogen issued a warrant for 250,000 shares of common stock
to the lessor related to an equipment lease line. The warrants are exercisable
at $0.30 per share and expire in August 2007.
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PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the principal
stockholders of UroGen and selling stockholders and the shares of common
stock beneficially owned by them as of June 30, 1999, and assumes the exercise
in full of the warrants issued in connection with the convertible subordinated
notes. All of these shares were held of record with sole voting and investment
power, subject to applicable community property laws, by the named individual
and/or by his or spouse, except as indicated in the footnotes below. For each
selling stockholder, the number of shares beneficially owned includes shares
issuable upon exercise of the warrants for which the underlying shares are
covered by this prospectus. Because the selling stockholders may offer all or
some portion of the shares of common stock being offered pursuant to this
Prospectus, no estimate can be given as to the amount of the common stock that
will be held by the selling stockholders upon termination of any sales. None of
the non-officer/director selling stockholders has had a material relationship
with us in the past three years.
<TABLE>
<CAPTION>
Shares Beneficially Shares Owned
Owned Prior to Sale Number Assuming all Sold
------------------------ -----------------------
Directors, Executive Officers, 5% Percent of Shares Percent
Stockholders and Selling Stockholder Number (%) Offered Number (%)
- --------------------------------------- ----------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Victor W. Schmitt (1) 1,841,219 15.5% - 1,841,219 15.5%
Baxter Healthcare Corporation (1) 1,841,219 15.5% - 1,841,219 15.5%
Ivor Royston 1,019,963 8.4% 246,630 773,333 8.2%
Peter Bernardoni (2) 760,032 6.1% 730,032 30,000 0.3%
Technology Funding Venture Partner IV L.P. (2) 730,032 5.8% 730,032 - -
Paul D. Quadros 532,672 4.4% 146,005 386,667 3.3%
William C. Raschke 478,088 3.9% 378,088 100,000 *
Robert E. Sobol (3) 428,923 3.5% 78,923 350,000 2.9%
Carin D. Sandvik 33,541 * 33,541 - -
All executive officers and directors as a group
(9 persons)(2) 5,094,438 37.1 1,613,219 3,481,219 28.8%
Ira M. Lechner IRA rollover 286,092 2.4% 286,092 - -
City National Bank 246,630 2.0% 246,630 - -
Wailes and Harris Family Trust 201,249 1.7% 201,249 - -
Elliot Lepler MD, A Sole Proprietor, Profit
Sharing Plan 167,707 1.4% 167,707 - -
Susan Pryor and Richard Boner 167,707 1.4% 167,707 - -
Tom Neal 167,707 1.4% 167,707 - -
J. Nevins McBride, Jr. 157,847 1.3% 157,847 - -
Paul Patek 134,166 1.1% 134,166 - -
David Burwen 122,329 1.0% 122,329 - -
Ronald T. Davis 114,436 1.0% 114,436 - -
Dr. and Mrs. W.R. Furtick 100,625 * 100,625 - -
Elliot Lepler 67,082 * 67,082 - -
Richard Maki 67,082 * 67,082 - -
Jack Roziner 67,082 * 67,082 - -
Gerald Sullivan 67,082 * 67,082 - -
Marcus Contardo 67,082 * 67,082 - -
Mike Weinberg 67,082 * 67,082 - -
Pacific Rim Capital 39,462 * 39,462 - -
Dorf Family Trust 39,462 * 39,462 - -
Norman Sokoloff 39,462 * 39,462 - -
James B. Glavin 39,462 * 39,462 - -
Dennis Family Trust 39,462 * 39,462 - -
Camelot Medical Group 39,462 * 39,462 - -
</TABLE>
-40-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Warren Kessler 59,462 * 39,462 - -
Elliot Feuerstein 59,462 * 39,462 - -
Jeff Sollender 59,462 * 39,462 - -
Frank Ruderman 59,462 * 39,462 - -
Alfred Mandel 31,569 * 31,569 - -
Blumberg Community Property 31,569 * 31,569 - -
</TABLE>
* less than 1%
(1) Excludes 5,830 shares of non-voting Series A Preferred Stock convertible
subsequent to July 8, 2001 into 5,830,000 shares of common stock held by
Baxter Healthcare Corporation. Baxter Healthcare Corporation and Mr. Victor
W. Schmitt are entitled to exercise voting and investment power with
respect to all shares owned by Baxter Healthcare Corporation, and
therefore, are deemed to be beneficial owner of these shares.
(2) Includes 291,667 shares issuable upon exercise of presently outstanding
warrants held by Technology Funding Venture Partners IV, an Aggressive
Growth Fund, L.P. Technology Funding, Inc. and Technology Funding Ltd., of
which Peter Bernardoni is an officer and a partner, are the managing
general partners of Technology Funding Venture Partners IV, an Aggressive
Growth Fund, L.P. Technology Funding and Mr. Bernardoni are entitled to
exercise voting and investment power with respect to all shares owned by
Technology Funding Venture Partners IV, an Aggressive Growth Fund, L.P. and
therefore are deemed to be beneficial owner of these shares. Mr. Bernardoni
also owns currently exercisable options to purchase 30,000 shares.
(3) Includes 200,000 shares issuable upon exercise of presently outstanding
warrants, which are not being offered by this prospectus.
-41-
<PAGE>
PLAN OF DISTRIBUTION
Urogen will not receive any of the proceeds of the sale of the shares
offered in this prospectus. The shares of Common Stock may be sold from time to
time to purchasers directly by the Selling Securityholders. Alternatively, the
Selling Securityholders may from time to time offer the Securities through
brokers, dealers or agents who may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the Securities for whom they may act as agent. The Selling
Securityholders and any such brokers, dealers or agents who participate in the
distribution of the Securities may be deemed to be "underwriters," and any
profits on the sale of the Securities by them and any discounts, commissions or
concessions received by any such brokers, dealers or agents might be deemed to
be underwriting discounts and commissions under the Securities Act. To the
extent the Selling Securityholders may be deemed to be underwriters, the Selling
Securityholders may be subject to certain statutory liabilities, including, but
not limited to, under Sections 11, 12 and 17 of the Securities Act and Rule 10b-
5 under the Exchange Act.
The Securities offered hereby may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
Securities may be sold by one or more of the following methods, without
limitation:
. a block trade in which the broker or dealer so engaged will attempt to
sell the Securities as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
. purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus;
. ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
. an exchange distribution in accordance with the rules of such exchange;
. face-to-face transactions between sellers and purchasers without a
broker-dealer;
. through the writing of options; and
. other.
At any time a particular offer of the Securities is made, a revised
prospectus or prospectus supplement, if required, will be distributed which will
set forth the aggregate amount and type of Securities being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, any discounts, commissions, concessions and other items constituting
compensation from the Selling Securityholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers. The prospectus supplement
and, if necessary, a post-effective amendment to the registration statement of
which this prospectus is a part, will be filed with the Commission to reflect
the disclosure of additional information with respect to the distribution of the
Securities. In addition, the Securities covered by this prospectus may be sold
in private transactions or under Rule 144 rather than pursuant to this
prospectus.
To the best of our knowledge, there are currently no plans, arrangement or
understandings between any Selling Securityholders and any broker, dealer, agent
or underwriter regarding the sale of the Securities by the Selling
Securityholders. There is no assurance that any Selling Securityholder will sell
any or all of the Securities offered by it hereunder or that any such Selling
Securityholder will not transfer, devise or gift such Securities by other means
not described in this prospectus.
The Selling Securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M which may limit the timing of purchases and sales of any of the Securities by
the Selling Securityholders and any other such person. Furthermore, Regulation M
of the Exchange Act may restrict the ability of any person engaged in the
distribution of the Securities to engage in market-making activities with
respect to the particular Securities being distributed for a period of up to
five business days prior to the commencement of such distribution. All of the
foregoing may affect the marketability of the Securities and the ability of any
person or entity to engage in market-making activities with respect to the
Securities.
-42-
<PAGE>
Pursuant to the Registration Rights Agreement entered into in connection
with the offer and sale of the Notes by the Company, each of the Company and the
Selling Securityholders will be indemnified by the other against certain
liabilities, including certain liabilities under the Securities Act, or will be
entitled to contribution in connection therewith.
Urogen has agreed to pay substantially all of the expenses incidental
to the registration, offering and sale of the Securities to the public other
than commissions, fees and discounts of underwriters, brokers, dealers and
agents.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.
EXPERTS
The financial statements as of December 31, 1998 and 1997 and for each of
the three fiscal years in the period ended December 31, 1998 included in this
registration statement have been so included in reliance on the report of Ernst
& Young LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
Urogen is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy and information statements, and other information with the Securities and
Exchange Commission. Such reports, proxy and information statements, and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as the regional offices of the
Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Such reports, proxy statements and other information can also
be inspected at the offices of the National Association of Securities Dealers,
Inc. at 1735 K Street, N.W., Washington, D.C. 20006. The Commission maintains a
World Wide Web site that contains reports, proxy and information statements, and
other information that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval System. This Web site can be accessed at
http://www.sec.gov.
Urogen has filed with the Commission a Registration Statement on Form SB-2
under the Securities Act with respect to the Common Stock offered hereby. This
prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to Urogen, the notes and the common stock,
reference is made to the registration statement and the exhibits and schedules
thereto. Statements contained in this prospectus as to the contents of any
contract or other document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the registration statement, each such statement being qualified in all
respects by such reference. Copies of the registration statement, including all
exhibits thereto, may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission, or may
be examined without charge at the offices of the Commission described above.
-43-
<PAGE>
UroGen Corp.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited Financial Statements:
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the three years ended December 31, 1998 and F-4
for the period from July 1, 1991 (inception) to December 31, 1998
Consolidated Statements of Stockholders'/Division's Equity for the for the period from
July 1, 1991 (inception) to December 31, 1998 F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 1998 and F-6
for the period from July 1, 1991 (inception) to December 31, 1998
Notes to Financial Statements F-7
Unaudited Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 F-18
Condensed Consolidated Statements of Operations for the three and nine month periods ended
September 30, 1999 and 1998 and the period from July 1, 1991 (inception)
to September 30, 1999 F-19
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 and the period from July 1, 1991 (inception)
to September 30, 1999 F-20
Notes to Unaudited Condensed Consolidated Financial Statements F-21
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors
UroGen Corp.
We have audited the accompanying consolidated balance sheets of UroGen Corp. (a
development stage enterprise) as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998 and the period
from July 1, 1991 (inception) to December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of UroGen Corp. (a
development stage enterprise) at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 and the period from July 1, 1991 (inception) to December
31, 1998, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company has reported
accumulated losses during the development stage aggregating $8,705,563 and
without additional financing, lacks sufficient working capital to fund
operations through December 1999, which raises substantial doubt about its
ability to continue as a going concern. Management's plans as to these matters
are described in Note 1. The 1998 financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
ERNST & YOUNG LLP
San Diego, California
March 25, 1999
F-2
<PAGE>
UROGEN CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
----------- --------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 314,983 $74,353
Accounts receivable from related party 348,718 -
Other current assets 20,173 -
---------- -------
Total current assets 683,874 74,353
Property and equipment, net 383,826 2,111
Other assets 30,052 1,065
---------- -------
$1,097,752 $77,529
========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 392,461 $ 68,824
Amounts due to stockholder 315,000
Accrued employee benefits 200,716 -
Other accrued liabilities 58,280 -
Notes payable 991,761 -
---------- ---------
Total current liabilities 1,958,218 68,824
Deferred compensation 28,987 -
Advance from related party 1,044,275 -
Commitments
Stockholders' equity:
Preferred Stock - $0.01 par value,
5,000,000 shares authorized:
Series A preferred stock, 5,830 and
none issued and outstanding 58 -
Common Stock - $0.001 par value,
40,000,000 shares authorized,
9,378,538 and 7,537,319 issued
and outstanding 9,379 7,538
Additional paid-in capital 6,782,920 751,584
Note receivable from stockholder (20,522) (7,242)
Deficit accumulated during
development stage (8,705,563) (743,175)
---------- ---------
Total stockholders' equity (1,933,728) 8,705
---------- ---------
$1,097,752 $ 77,529
========== =========
</TABLE>
See accompanying notes.
F-3
<PAGE>
UROGEN CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
July 1, 1991
For the Year Ended December 31, (inception) to
------------------------------------- December 31,
1998 1997 1996 1998
------------ ---------- ----------- --------------
<S> <C> <C> <C> <C>
Revenues $ 192,300 $ 193,500 $ - $ 841,380
Costs and expenses:
Cost of sales - - - 821,878
Research and development 1,915,548 345,592 347,698 5,434,668
Write-off of acquired
in-process technology 5,455,505 - - 5,455,505
General and administrative 487,501 151,315 174,472 1,346,953
----------- ---------- --------- ------------
Total costs and expenses 7,858,554 496,907 522,170 13,059,004
----------- ---------- --------- ------------
Loss from operations (7,666,254) (303,407) (522,170) (12,217,624)
Other income (expense) 300 - 63,776 64,076
Interest expense (306,106) (306,106)
Interest income 9,672 4,230 14,396 28,298
----------- ---------- --------- ------------
Net loss $(7,962,388) $ (299,177) $(443,998) $(12,431,356)
=========== ========== ========= ============
Basic and diluted loss
per share $ (1.00) $ (0.04) $ (0.07)
=========== ========== =========
Number of shares used in
the computation of basic
and diluted loss per share 7,997,319 7,311,573 5,979,528
=========== ========== =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
UROGEN CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS'/DIVISION EQUITY
-------------------------------------------------------
FOR THE PERIOD JULY 1, 1991 (INCEPTION) TO DECEMBER 31, 1998
------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Preferred Stock Common Stock Note Accumulated
---------------------- ----------------------- Additional Receivable During
Number of Number of paid-in From Development
shares Amount shares Amount Capital Stockholder Stage
---------- ---------- ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Advances from Medstone
July 1, 1991 to
December 31, 1995 - $ - - $ - $ - $ - $ -
Net loss July 1, 1991
to December 31, 1995 - - - - - - -
---------- --------- ---------- ---------- ---------- ----------- ------------
Balance at December 31, 1995 - - - - - - -
Capital contribution by
Medstone - - - - - - -
Distribution of stock
dividend and net
assets February 9, 1996 5,616,528 5,617 657,465 - -
Distribution of Common Stock
for services at $.05 per share 363,000 363 17,787 - -
Net loss - - - - - - (443,998)
---------- --------- ---------- ---------- ---------- ----------- ------------
Balance at December 31, 1996 5,979,528 5,980 675,252 - (443,998)
Issuance of Common Stock
for cash upon exercise of
options at $.05 per share 1,410,000 1,410 69,090 - -
Issuance of Common Stock
for cash and note receivable
at $.05 per share 147,791 148 7,242 (7,242) -
Net loss - - - - - - (299,177)
---------- --------- ---------- ---------- ---------- ----------- ------------
Balance at December 31, 1997 7,537,319 7,538 751,584 (7,242) (743,175)
Issuance of Preferred and
Common Stock for equipment
and acquired in-process
technology at $0.63 and $630,
respectively, net of
issuance costs of $83,366 5,830 58 1,841,219 1,841 5,714,176
Issuance of Warrants for Common
Stock valued at $0.59 per
share 305,910
Interest and other related
to note receivable
from stockholder 11,250 (13,280)
Net loss - - - - - - (7,962,388)
---------- --------- ---------- ---------- ---------- ----------- ------------
Balance at December 31, 1998 5,830 $ 58 9,378,538 $ 9,379 $6,782,920 $ (20,522) $ (8,705,563)
========== ========= ========== ========== ========== =========== ============
<CAPTION>
Advances Divisional
from Accumulated
Medstone (Deficit) Total
---------- ----------- -----------
<S> <C> <C> <C>
Advances from Medstone
July 1, 1991 to
December 31, 1995 $ 3,888,875 - $ 3,888,875
Net loss July 1, 1991
to December 31, 1995 - (3,725,793) (3,725,793)
----------- ----------- -----------
Balance at December 31, 1995 3,888,875 (3,725,793) 163,082
Capital contribution by
Medstone 500,000 - 500,000
Distribution of stock
dividend and net
assets February 9, 1996 (4,388,875) 3,725,793 -
Distribution of Common
Stock for services at
$.05 per share - - 18,150
Net loss - - (443,998)
----------- ----------- -----------
Balance at December 31,1996 - - 237,234
Issuance of Common Stock
for cash upon exercise of
options at $.05 per share - - 70,500
Issuance of Common Stock
for cash and note
receivable
at $.05 per share - - 148
Net loss - - (299,177)
----------- ----------- -----------
Balance at December 31, 1997 - - 8,705
Issuance of Preferred and
Common Stock for fixed
assets and acquired in-
process technology at $0.63
and $630, respectively, net of
issuance costs of $83,366 - - 5,716,075
Issuance of detachable
warrants for Common
Stock valued at $0.59 per
share - - 305,910
Interest and other related
to note receivable for
Common Stock - (2,030)
Net loss - - (7,962,388)
----------- ----------- -----------
Balance at December 31, 1998 $(1,933,728)
===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
UROGEN CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------
<TABLE>
<CAPTION>
July 1, 1991
(inception) to
For the Year Ended December 31, December 31,
-------------------------------------
1998 1997 1996 1998
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net loss $(7,962,388) $( 299,177) $( 443,998) $(12,431,356)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Write-off of in-process
technology acquired with stock 5,455,505 - - 5,455,505
Expenses paid via advances
from related party 695,557 - - 695,557
Depreciation and amortization 25,715 828 120,158 520,327
Non-cash distribution of
common stock - - 18,150 18,150
Non-cash outside service cost - - 106,000 106,000
Gain (loss) on disposal of
fixed assets - - (63,776) (81,807)
Amortization of debt discount 265,640 - - 265,640
Change in assets and
liabilities:
Other current assets (20,173) - - (20,173)
Other assets (28,987) (1,065) - (30,052)
Accounts payable 323,637 53,364 15,460 392,461
Amounts due to stockholder 315,000 - - 315,000
Other current liabilities 258,996 - - 258,996
Deferred compensation 28,987 - - 28,987
----------- ---------- ---------- ------------
Net cash used in
operating activities (642,511) (246,050) (248,006) (4,506,765)
Cash flows from investing
activities:
Purchase of property and
equipment (63,493) (500) (2,739) (578,999)
----------- ---------- ---------- ------------
Net cash used in
investing activities (63,493) (500) (2,739) (578,999)
Cash flows from financing
activities:
Proceeds from notes payable 1,030,000 - - 1,030,000
Stock issuance costs (83,366) - - (83,366)
Proceeds from issuance of
common stock upon exercise
of options - 70,500 - 70,500
Proceeds from sale of
common stock - 148 - 148
Net advances from Medstone - - - 3,883,465
Capital contribution of cash
by Medstone - - 500,000 500,000
----------- ---------- ---------- ------------
Net cash provided by
financing activities 946,634 70,648 500,000 5,400,747
----------- ---------- ---------- ------------
Net increase(decrease) in
cash and equivalents 240,630 (175,902) 249,255 314,983
----------- ---------- ---------- ------------
Cash and equivalents,
beginning of period 74,353 250,255 1,000 -
----------- ---------- ---------- ------------
Cash and equivalents,
end of period $ 314,983 $ 74,353 $ 250,255 $ 314,983
=========== ========== ========== ============
</TABLE>
See Note 11 for supplemental cash flow information.
See accompanying notes.
F-6
<PAGE>
UROGEN CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
December 31, 1998
-----------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
UroGen Corp. (the "Company"), a Delaware corporation, was incorporated on June
30, 1995, as a wholly-owned subsidiary of Medstone International, Inc.
("Medstone"). The Company was formed from the medical biology and small molecule
pharmaceuticals divisions of Medstone to continue the effort, started in 1991,
to develop pharmaceuticals to treat diseases in urology, with a particular
interest in prostate cancer. UroGen operated as two divisions of Medstone from
July 1, 1991 to December 29, 1995.
DISTRIBUTION AND CAPITALIZATION
On December 29, 1995, Medstone declared a dividend of all of the stock of UroGen
Corp. to be distributed to all Medstone stockholders. Each stockholder of
Medstone received, on February 9, 1996, one share of UroGen Common Stock for
each share of Medstone Common Stock held on the Record Date, December 29, 1995.
The distribution resulted in the receipt by record holders of Medstone Common
Stock of all of UroGen's outstanding Common Stock. Upon completion of the
Distribution, there were 5,616,528 shares of UroGen Common Stock outstanding.
The distribution occurred on February 9, 1996, on which date Medstone also
contributed to the capital of UroGen Corp. $500,000 cash. For financial
reporting purposes, the distribution and contribution to capital have been
considered effective as of January 1, 1996, and the operations of the business
have been considered those of UroGen Corp. effective that date.
Additionally, effective January 1, 1996, Medstone executed a forgiveness of all
intercompany advances resulting from the prior divisional funding of operations
between Medstone and UroGen.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of UroGen Corp. and
its wholly-owned subsidiary. All significant intercompany transactions and
balances have been eliminated in consolidation.
The accompanying financial statements for the year ended December 31, 1998 have
been prepared assuming the Company will continue as a going concern. However,
the Company incurred net losses of $7,962,388 during 1998 and has a deficit
accumulated during the development stage of $8,705,563 at December 31, 1998.
During 1999, management intends to raise additional debt and/or equity financing
to fund future operations and to provide additional working capital. However,
there is no assurance that such financing will be consummated or obtained in
sufficient amounts necessary to meet the Company's needs.
The accompanying financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classifications of liabilities that may result from the
possible inability of the Company to continue as a going concern.
F-7
<PAGE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost. Depreciation is computed
using the straight-line method over the useful lives of the assets, estimated at
three to five years.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants to employees in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
recognizes no compensation expense for the stock option grants to employees.
NET LOSS PER SHARE
Net loss per share is computed on the basis of the weighted average number of
common shares outstanding during the periods presented. Loss per share assuming
dilution is computed on the basis of the weighted-average number of common
shares outstanding and the dilutive effect of all common stock equivalents and
convertible securities. Net loss per share assuming dilution for the years ended
December 31, 1998, 1997 and 1996 is equal to net loss per share due to the fact
that the effect of common stock equivalents outstanding during the periods,
including stock options, warrants and convertible debt, are antidilutive.
INCOME TAXES
The Company provides for income taxes under the principles of Statement of
Financial Accounting Standards No. 109, which requires that provision be made
for taxes currently due and for the expected future tax effects of temporary
differences between book and tax bases of assets and liabilities.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
COMPREHENSIVE INCOME
During 1998, the Company adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 requires that all
components of comprehensive income, including net income, be reported in the
financial statements in the period in which they are recognized. Comprehensive
income is defined as the change in equity during a period from transactions and
other events and circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation adjustments, and
unrealized gains and losses on investments, shall be reported, net of their
related tax effect, to arrive at comprehensive income. Comprehensive income
(loss) was not different than net income (loss) in 1997 or 1998.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications of prior year balances have been made to conform to
the current year presentation.
F-8
<PAGE>
2. ACQUISITION OF TECHNOLOGY AND RELATED AGREEMENTS
In July 1998, the Company executed various agreements with Baxter Healthcare
Corporation pursuant to which the Company acquired certain rights and assets
from Baxter. Under the terms of the agreements, the Company obtained the rights
to Baxter's adenoviral-based gene transfer technologies and certain equipment in
exchange for 5,830 shares of non-voting convertible Series A Preferred Stock and
1,841,219 shares of Common Stock of the Company. The shares issued to acquire
the gene transfer technologies were valued at $5,455,505 based upon a discounted
cash flow analysis with a discount rate of 50%, estimated research and
development costs for six years and product revenues beginning in year seven,
after the assumed completion of clinical trials and product approval by the FDA.
The value of the technology was charged to acquired in-process technology due to
the early stage of development of such technology. The value of the stock issued
for fixed assets was $343,937 based upon the fair value of those assets.
Baxter will provide funding to the Company for continued research and
development of this technology as it relates to the treatment of hemophilia
under the Developmental Collaboration Agreement. Baxter will provide such
funding through the date on which the treatment of the first patient in a Phase
I clinical trial begins. This development funding is provided under a Credit
Agreement. The balance outstanding under the Credit Agreement as of December 31,
1998 was $1,044,275. Under the terms of the Credit Agreement, the amounts
outstanding under the Credit Agreement are due and payable on December 31 of
each year during the term of the agreement. At the Company's option, the amounts
may be paid by issuing to Baxter the number of shares of Series B Preferred
Stock determined by dividing the outstanding amount under the Credit Agreement
by one thousand. The balance has been presented as a non-current liability on
the accompanying balance sheet due to the conversion feature and because the
Company intends to convert the debt rather than repay it with cash. Amounts
outstanding under the Credit Agreement do not accrue interest unless the Company
is in default, in which case the amount due bears interest at prime plus 4%. In
January 1999, the Company issued 704 shares of Series B Preferred Stock to
convert $704,000 outstanding under the Credit Agreement. The remaining $340,276
will be converted at December 31, 1999.
The Company entered into a Distribution Agreement with Baxter whereby Baxter
will have an exclusive, worldwide right to market, sell and distribute all
products which may be developed under the Developmental Collaboration Agreement.
The term of the Distribution Agreement is the longer of ten years from the date
of regulatory approval of the first product or the expiration of the last to
expire of any related patents issued on or before ten years from the date of
regulatory approval.
The Company, Baxter and certain founding shareholders (the "Founders") entered
into the Investor Rights Agreement under which the shares held by these entities
are subject to certain restrictions on transferability of the shares until July
8, 2003 and have certain registration rights. Additionally, under this
agreement, Baxter has the right to purchase up to twenty percent of any
F-9
<PAGE>
new securities issued and has the obligation to purchase Series C Preferred
Stock at a price of $1,000 per share upon the Company's achievement of the
following milestones: (i) $2,000,000 upon treatment of the first patient in a
Phase I clinical trial for a product developed under the Developmental
Collaboration Agreement; (ii) $5,000,000 upon commencement of Phase III clinical
trials of a product developed under the Developmental Collaboration Agreement;
and (iii) $10,000,000 upon approval by the Food and Drug Administration of a
product developed under the Developmental Collaboration Agreement.
F-10
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Equipment $ 372,276 $ 3,239
Furniture and fixtures 16,063 -
Leasehold improvements 22,330 -
------------ ------------
410,669 3,239
Accumulated depreciation 26,843 1,128
------------ ------------
$ 383,826 $ 2,111
============ ============
</TABLE>
4. NOTES PAYABLE
In July 1998, the Company received $1,030,000, representing proceeds from the
sale of unsecured convertible notes payable, which bear interest at 8% per annum
and are due on June 30, 1999, unless previously converted. The notes are
convertible, at the option of the holder, into common stock at $1.00 per share,
and automatically convert into common stock immediately prior to the filing of
any registration statement to register the resale of the underlying shares.
In addition, each note holder received a warrant to purchase a number of shares
of common stock of the Company equal to one share for each $2.00 of principal
under the purchased note. The warrants are exercisable for seven years from
issuance and have an exercise price of $0.74 per share. The fair value of the
warrants is being amortized to interest expense through the expected date of
conversion of the notes. Amortization during the year ended December 31, 1998
was $265,640.
5. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of Preferred Stock $0.01 par
value. As of December 31, 1998, 40,000, 10,000 and 17,000 shares were designated
Series A, Series B and Series C, respectively.
As of December 31, 1998, there were 5,830 shares of Series A Preferred Stock
outstanding. Holders of the Series A Preferred Stock are not entitled to receive
dividends, have a liquidation preference amount of ten dollars ($10.00) per
share and have no voting rights. The Series A Preferred Stock is convertible to
Common Stock on a 1000 to 1 basis; provided, however, that no shares are
convertible prior to July 8, 2001.
As of December 31, 1998, there were no shares of Series B Preferred Stock issued
and outstanding. It is anticipated that Series B Preferred Stock will be issued
only to Baxter in payment for amounts funded by Baxter under the Credit
Agreement. Holders of the Series B Preferred Stock are not entitled to receive
F-11
<PAGE>
dividends, have a liquidation preference amount of one thousand dollars
($1,000.00) per share prior to any distribution to holders of Series A Preferred
Stock and holders of Common Stock and have no voting rights, except for a vote
as to whether the Company may issue additional Series B Preferred Stock. The
Series B Preferred Stock may be converted into Common Stock or to Series A
Preferred Stock at the option of the holder, and converts automatically to
Common Stock upon the earlier of (i) the first business day following the
treatment of the first patient under an Initial New Drug Application for a
Collaboration Product (as defined) commences in a Phase I Clinical Trial (the
"IND Milestone Date"), (ii) the date five years after the last advance of funds
by Baxter under the Credit Agreement between Baxter and the Company through and
including the IND Milestone Date and (iii) automatic conversion pursuant to the
terms of the Credit Agreement. The Series B Preferred Stock is convertible to
Common Stock in an amount equal to (a) the quotient of (i) the Liquidation Value
(adjusted for recapitalizations), divided by (ii) one hundred and ten percent
(110%) of the per share Fair Market Value of the Company's Common Stock (as
defined), multiplied by (b) the number of shares of Series B Preferred
converted. The Series B Preferred Stock is convertible into Series A Preferred
on a one for one basis. The "Liquidation Value" is initially $1,000 per share of
Series B Preferred. In January 1999, 704 shares of Series B Preferred Stock were
issued to Baxter to convert $704,000 outstanding under the Credit Agreement.
As of December 31, 1998, there were no shares of Series C Preferred Stock issued
and outstanding. It is anticipated that Series C Preferred Stock will be sold
only to Baxter upon UroGen meeting certain specified milestones (the "Series C
Milestones"). Holders of the Series C Preferred Stock are not entitled to
receive dividends, have a liquidation preference amount of one thousand dollars
($1,000.00) per share prior to any distribution to holders of Series A Preferred
Stock and to holders of Common Stock and have no voting rights, except as to the
issuance of additional Series C Preferred Stock. Each share of Series C
Preferred may be converted into Common Stock or to Series A Preferred Stock at
the option of the holder, and converts automatically to Common Stock upon the
earlier of (i) the first business day following the approval by the FDA of the
right to market, sell or distribute any product using the Mini-Ad Vector
Technology for treatment of blood clotting disorders in humans relating to
Hemophilia A, which product has been developed pursuant to the Developmental
Collaboration Agreement between Baxter and the Company and (ii) the date seven
years after the achievement of the most recently achieved Series C Milestone.
The Series C Preferred Stock is convertible to Common Stock in an amount equal
to (a) the quotient of (i) the Liquidation Value (adjusted for
Recapitalizations), divided by (ii) one hundred and ten percent (110%) of the
per share Fair Market Value of the Company's Common Stock (as defined),
multiplied by (b) the number of shares of Series C Preferred converted. The
Series C Preferred Stock is convertible into Series A Preferred on a one for one
basis.
COMMON STOCK
The Company is authorized to issue 40,000,000 shares of Common Stock $0.001 par
value. As of December 31, 1998, there are 9,378,538 shares issued and
outstanding.
In March 1997, the Company entered into a License Agreement with The Immune
Response Corporation (the IRC License), a public biotechnology company. The
Company obtained an exclusive license to use certain patented technologies to
develop and commercialize products based upon the licensed patent rights. The
IRC License requires the Company to pay future cash royalties to the licensor
based upon net sales. In connection with this agreement, the Company entered
into a Stock and Warrant Purchase Agreement with IRC whereby the Company issued
147,791 shares of Common Stock at $.05 per share, the fair value of the shares
on the date of issuance as determined by the Board of Directors, for total
proceeds of $7,390. See description of the Immune Response Corporation warrant
below.
WARRANTS
Holders of the convertible notes payable also hold warrants to purchase 515,000
shares of Common Stock at an exercise price of $0.74 per share (Note 4).
F-12
<PAGE>
The Company granted to IRC a warrant to purchase additional shares in the
Company to maintain a fully-diluted ownership percentage of two percent (2%) or
increase its ownership percentage up to three percent (3%). Such warrant rights
are exercisable at prices ranging from $.03 to $.04 per share. Such warrant
rights expire sixty days after the later of March 5, 1999 or the first date on
which the aggregate outstanding shares of the Company equals or exceeds
15,000,000 shares on a fully diluted basis.
In 1997 the Company issued warrants to purchase 200,000 shares of Common Stock
to an officer of the Company. These warrants are exercisable at $.05 per share
and expire on July 31, 2001.
STOCK OPTIONS
The 1995 Director Option Plan (the "Director Plan") was adopted by the Board and
approved by the stockholders in 1995, to provide automatic, nondiscretionary
grants of options to non-employee directors of the Company. A total of 100,000
shares of Common Stock have been reserved for issuance under the Director Plan.
The Director Plan provides that each non-employee director is automatically
granted an option to purchase 10,000 shares of UroGen Common Stock upon his or
her initial election or appointment as a non-employee director. Subsequently,
each non-employee director who has served for at least six months will be
granted an additional option to purchase 5,000 shares of UroGen Common Stock on
December 31 of each year so long as he or she remains a non-employee director.
The exercise price of options granted to non-employee directors must be the fair
market value of UroGen Common Stock on the date of grant.
Options granted to non-employee directors have a ten-year term, subject to a
non-employee director's continued service as a director. The initial options
granted to non-employee directors vest over three years at the rate of one-third
per year and the annual options vest one year from the date of grant. As of
December 31, 1998, options to purchase 35,000 shares of Common Stock to non-
employee directors had been granted under The Director Option Plan and options
to purchase 20,000 shares were vested.
The 1995 Stock Plan was adopted by the Board of Directors (the "Board") and
authorized by the Stockholders in 1995 and authorizes the Board or one or
more committees which the Board may appoint from among its members (the
"Committee"), to grant options and rights to purchase Common Stock to officers,
key employees consultants and certain advisors to the Company. Options granted
under the 1995 Stock Plan may be either "incentive stock options" as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
nonstatutory stock options, as determined by the Board or the Committee. The
1995 Stock Plan initially reserved 1,850,000 shares for issuance under the Plan
to be increased the first day of each year by the number of shares equal to two
percent of the Company's total outstanding common shares. Options granted
pursuant to the 1995 Stock Plan above have exercise periods of ten years and
vest over one to four years.
As of December 31, 1998, management and the Board had committed to issue options
to purchase 2,391,183 shares of Common Stock to employees under a new stock
option plan once adopted by the Board.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee and director stock options and warrants, because,
as discussed below, the alternative fair value accounting provided
F-13
<PAGE>
for under SFAS 123, "Accounting for Stock-based Compensation," requires use of
option valuation models that were not developed for use in valuing employee and
director stock options and warrants. Under APB 25, when the exercise price of
the Company's employee stock options equals the market price or fair value of
the underlying stock on the date of grant, no compensation expense is
recognized.
The following table summarizes the activity of the Company's stock options:
<TABLE>
<CAPTION>
Employee Director Weighted
Stock Stock Average
Options Options Exercise Price
----------- -------- --------------
<S> <C> <C> <C>
Balance at December 31, 1995 1,160,000 - $0.05
Granted 250,000 15,000 $0.05
Exercised - - -
Canceled - - -
Expired - - -
----------- -------- --------------
Balance at December 31, 1996 1,410,000 15,000 $0.05
Granted 350,000 5,000 $0.05
Exercised (1,410,000) - $0.05
Canceled - - -
Expired - - -
----------- -------- --------------
Balance at December 31, 1997 350,000 20,000 $0.05
Granted - 15,000 $0.33
Exercised - - -
Canceled - - -
Expired - - -
----------- -------- --------------
Balance at December 31, 1998 350,000 35,000 $0.06
=========== ======== ==============
</TABLE>
In January 1997, four officers of the Company exercised options to purchase a
total of 1,410,000 shares of Common Stock at $.05 per share for total cash
proceeds of $70,500.
The following Common Stock is reserved for future issuance at December 31, 1998:
Stock options
Granted and outstanding 385,000
Reserved for future grants 672,668
---------
1,057,668
Warrants 848,748
Series A Preferred Stock 5,830,000
Convertible debt 1,030,000
---------
8,766,416
=========
F-14
<PAGE>
<TABLE>
<CAPTION>
Options outstanding as of December 31, 1998:
Weighted
Weighted Average
Average Weighted Exercise
Contractual Average Price of
Exercise Options Life in Exercise Options Options
Price Outstanding Years Price Exercisable Exercisable
- -------------- ------------- ------------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.05 370,000 8.23 $0.05 210,553 $0.05
$0.33 15,000 10.00 $0.33 - -
</TABLE>
Pro forma information regarding net loss and net loss per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1998
and 1997: a risk-free interest rate of 6%, a dividend yield of 0%, a volatility
factor of the expected market price of the Company's common stock of 65% and
50%, respectively, and an expected life of the option of two to five years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
1998 1997
------------ -----------
Pro forma net loss $(7,964,255) $(307,352)
Pro forma net loss per share $ (1.00) $ (0.04)
The pro forma results above for 1998 and 1997 are not likely to be
representative of the effects of applying SFAS 123 on reported net income or
loss for future years as these amounts reflect the expense for less than four
years of vesting.
6. INCOME TAXES
Prior to the distribution of UroGen Common Stock by Medstone, income taxes had
been allocated to the Company on a "separate return" basis whereby such amounts
were determined as if the Company were a separate taxable entity. However, the
Company's net operating losses and research and development credits incurred
through December 31, 1995 were included in the consolidated tax returns of
Medstone and were fully utilized. As a result, the Company's available net
operating losses and research and development credits to offset future taxable
income are limited to amounts incurred during the three-year period ended
December 31, 1998. The Company has established a valuation allowance to fully
offset its deferred tax assets in accordance with Statements of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Accordingly, no
benefit for the Company's deferred tax assets has been recognized, as its
realization is uncertain.
F-15
<PAGE>
Deferred tax assets are comprised of the following:
December 31, December 31,
1998 1997
------------- -------------
Loss carryforwards $ 1,284,000 $ 279,000
Research and development credit carryforwards 99,000 29,000
Capitalized research and development 2,149,000 -
Other, net 63,000 8,000
------------ -------------
Total deferred tax assets 3,595,000 316,000
Valuation allowance (3,595,000) (316,000)
------------ -------------
Net deferred tax assets $ - $ -
============ =============
As of December 31, 1998, the Company has Federal and state net operating loss
carryforwards of approximately $3,146,000 and $3,184,000, respectively, which
will begin to expire in 2011 and 2001, respectively, unless previously utilized.
The company has Federal and state research and development credit carryforwards
of approximately $75,000 and $37,000, respectively, which will begin to expire
in 2011 unless previously utilized.
Under Internal Revenue Code Sections 382 and 383, the Company's use of its net
operating loss and tax credit carryforwards could be limited in the event of
certain cumulative changes in the Company's stock ownership.
7. REVENUES
For the year ended December 31, 1998, $143,500 of the revenues was from a
research agreement, and $48,800 was from a research grant.
8. RELATED PARTY BALANCES AND TRANSACTIONS
During 1996, the Company issued 339,000 shares of Common Stock valued at $.05
per share and transferred property and equipment with a book value of $42,224 to
a research organization, which is also a stockholder, in connection with the
execution of an Affiliation Agreement and for services rendered. Additionally,
during 1998, 1997 and 1996, the Company paid the research organization $115,493,
$53,741 and $67,000, respectively, for rent, license fees and services (Note 9).
During 1998, 1997 and 1996, the Company paid four stockholders/officers a total
of $81,250, $222,379 and $134,000, respectively, for consulting services.
9. COMMITMENTS
FACILITIES
The Company entered into a sublease agreement with an affiliated research
organization under which the Company leases approximately 4,800 square feet of
office and laboratory space through May 2000. Future minimum rent payments under
this agreement are $168,552 for 1999 and $70,230 for 2000. For
F-16
<PAGE>
the years ended December 31, 1998, 1997 and 1996, rent expense was approximately
$93,000, $36,000 and $67,000, respectively.
LICENSES
The Company entered into the IRC License in March 1997, which was amended in
January 1999. Under the IRC License, the Company is obligated to make a
milestone payment to Immune Response Corporation of $200,000 upon the approval
by the Food and Drug Administration or the governing health authority of any
other country of its first product related to the licensed technology. This fee
can be offset against future royalty payments. The Company is obligated to pay
royalties on its net sales revenue and a percentage of all revenues received
from sublicenses relating to the tumor radiosensitization gene therapy
technology. Additionally, the Company agreed in the January 1999 amendment to
reimburse IRC for past patent expenses relating to the licensed technology in
the amount of $59,400 payable during 1999.
In November 1997, the Company entered into a license agreement with an
individual and an affiliated research organization (Note 8) under which the
Company obtained an exclusive right to certain technology for commercial
purposes. The Company is obligated to pay royalties on its net sales revenues
and a percentage of revenues from sublicenses relating the technology (the
"Running Royalties"). Additionally, the Company is required to make minimum
annual royalties of $30,000 for the duration of the agreement. The minimum
annual royalties may be credited against Running Royalties, as defined, for that
year. If there are no Running Royalties to offset the annual royalty, one-half
of the annual royalty may be carried forward to offset Running Royalties from
the following year. Within thirty days of the Company entering into an agreement
with a corporate partner or strategic alliance relationship related to this
technology, the Company shall pay a minimum of $12,500 per month to fund
additional research.
In September 1996, the Company entered into a license agreement with the Regents
of the University of California to license rights to certain patents and
continuing applications thereof in the field of diagnosis of metastases by
nucleic acid amplification. The Company is required to pay an annual license
maintenance fee of $10,000 until the Company is selling licensed product. The
Company is also required to pay milestone fees of $25,000 upon filing an Initial
New Drug Application on a licensed product or method with the Food and Drug
Administration and $50,000 upon marketing approval of a licensed product or
method by the FDA. The Company will pay royalties on its net sales revenues of
licensed products or methods. A minimum annual royalty of $50,000 is payable
beginning with the year of first commercial sale of licensed product, but no
later than the fifth year of the agreement. The minimum annual royalty will be
credited against earned royalty due for the year in which the annual minimum
payment was made.
10. PROFIT SHARING PLAN
In 1998, the Company established a savings plan which covers all employees
working more than 1,000 hours per year which has been established pursuant to
the provisions of Section 401(k) of the Internal Revenue Code. Contributions to
the plan are discretionary and vest over a four-year period. Employer
contributions during the year ended December 31, 1998 were $13,960.
11. SUPPLEMENTAL CASH FLOW INFORMATION
As more fully described in Note 2, in 1998 the Company acquired certain
technology and equipment in exchange for 5,830 shares of Series A Preferred
Stock and 1,841,219 shares of Common Stock of the Company valued at $5,799,442.
The equipment acquired was valued at $343,937 based on an appraisal.
During the third quarter of 1998, a portion of the Company's operations were
located at Baxter's facility. The costs incurred for such operations of
$695,557 were reimbursed to Baxter via the Credit Agreement (Note 2).
Cash paid for income taxes was $800 for each of the three years ended December
31, 1998. There was no cash paid for interest expense during the three years
ended December 31, 1998.
F-17
<PAGE>
UROGEN CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31
1999 1998
------------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,157,999 $ 314,983
Accounts receivable from related party - 348,718
Other current assets 22,821 20,173
------------ -----------
Total current assets 1,180,820 683,874
Property and equipment, net 477,878 383,826
Other assets 218,552 30,052
------------ -----------
$ 1,877,250 $ 1,097,752
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 222,944 $ 392,461
Amounts due to stockholder - 315,000
Accrued employee benefits 74,394 200,716
Other accrued liabilities 63,610 58,280
Current portion of capital lease obligation 43,072 -
Notes payable - 991,761
------------ -----------
Total current liabilities 404,020 1,958,218
Deferred compensation 150,644 28,987
Advance from related party 3,391,816 1,044,275
Capital lease obligation, net of current portion 75,423
Commitments
Stockholders' equity:
Preferred Stock - $0.01 par value, 5,000,000
shares authorized:
Series A Preferred Stock, 5,830 and 5,830
issued and outstanding 58 58
Series B Preferred Stock, 704 and none
issued and outstanding 7 -
Common Stock - $0.001 par value, 40,000,000
shares authorized; 12,097,999 and 9,378,538
issued and outstanding 12,097 9,379
Additional paid-in capital 9,267,909 6,782,920
Note receivable from stockholder - (20,522)
Deficit accumulated during development stage (11,424,724) (8,705,563)
------------ -----------
Total stockholders' equity (2,144,653) (1,933,728)
------------ -----------
$ 1,877,250 $ 1,097,752
============ ===========
</TABLE>
See accompanying notes
F-18
<PAGE>
UROGEN CORP.
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended July 1, 1991
------------------ ----------------- (inception) to
September 30, September 30, September 30, September 30, September 30,
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue $ 16,389 $ - $ 67,201 $ 192,300 $ 908,581
------------ ------------ ------------ ------------ -------------
Costs and expenses:
Cost of sales - - - - 821,878
Research and development 714,908 807,204 1,861,892 1,176,680 7,296,560
Write-off of acquired in-process
technology - 3,429,700 - 3,429,700 5,455,505
Selling, general and administrative 185,751 164,068 591,777 299,501 1,938,733
------------ ------------ ------------ ------------ -------------
Total costs and expenses 900,659 4,400,972 2,453,669 4,905,881 15,512,676
------------ ------------ ------------ ------------ -------------
Loss from operations (884,270) (4,400,972) (2,386,468) (4,713,581) (14,604,095)
Other income (expense) - - 905 - 64,981
Interest expense - (170,790) (348,890) (170,790) (654,996)
Interest income 7,454 2,057 15,292 3,031 43,590
------------ ------------ ------------ ------------ -------------
Net loss $ (876,816) $(4,569,705) $(2,719,161) $(4,881,340) $(15,150,520)
============ ============ ============ ============ =============
Basic and diluted loss per share $ (0.07) $ (0.61) $ (0.27) $ ( 0.65)
============ ============ ============ ============
Number of shares used in the
computation of basic and diluted
loss per share 12,097,999 7,537,319 10,237,493 7,537,319
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-19
<PAGE>
UROGEN CORP.
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
July 1, 1991
For the nine months ended (inception) to
September 30, September 30,
1999 1998 1999
------------ ------------- --------------
<S> <C> <C> <C>
Net loss $(2,719,161) $(4,881,340) $(15,150,520)
Adjustments to reconcile net loss to net cash used
In operating activities:
Write-off of in-process technology acquired with stock - 3,429,700 5,455,505
Expenses paid via advances from related party - 465,093 695,557
Depreciation and amortization 89,491 741 609,818
Distribution of common stock for services 2,900 - 21,050
Accrued interest paid through issuance of
Common Stock 42,563 42,563
Non-cash outside service cost - - 106,000
Gain (loss) on disposal of fixed assets - - (81,807)
Amortization of debt discount 305,428 152,955 571,068
Change in assets and liabilities:
Other current assets (2,648) (12,466) (22,821)
Other assets (188,500) (218,552)
Accounts payable (163,508) 216,154 228,953
Amounts due to stockholder (315,000) 315,000 -
Other current liabilities (88,557) 104,224 170,439
Deferred compensation 121,657 - 150,644
----------- ----------- ------------
Net cash used in operating activities (2,915,335) (209,939) (7,422,103)
Cash flows from investing activities:
Purchase of property and equipment (65,048) (2,306) (644,044)
----------- ----------- ------------
Net cash used in investing activities (65,048) (2,306) (644,044)
Cash flows from financing activities:
Advances from related party 3,401,670 - 3,401,670
Repayment of note receivable from stockholder 20,000 - 20,000
Proceeds from notes payable 400,000 1,030,000 1,430,000
Stock issuance costs (83,366) (83,366)
Proceeds from issuance of common stock upon
exercise of options and warrants 1,729 - 72,229
Proceeds from sale of Common Stock - - 148
Net advances from Medstone - - 3,883,465
Capital contribution by Medstone - - 500,000
----------- ----------- ------------
Net cash provided by financing activities 3,823,399 946,634 9,224,146
----------- ----------- ------------
Net increase (decrease) in cash and equivalents 843,016 734,389 1,157,999
Cash and equivalents, beginning of period 314,983 74,353 -
----------- ----------- ------------
Cash and equivalents, end of period $ 1,157,999 $ 808,742 $ 1,157,999
=========== =========== ============
</TABLE>
See accompanying notes.
F-20
<PAGE>
UROGEN CORP.
(A Development Stage Enterprise)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
September 30, 1999
------------------
1. The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments, consisting only of normal recurring
adjustments, which are necessary to state fairly the consolidated financial
position, results of operations, and cash flows of UroGen Corp. as of and
for the periods indicated. UroGen presumes that users of the interim
financial information have read or have access to the Company's audited
consolidated financial statements and Management's Discussion and Analysis
of Financial Condition and Results of Operations for the year ended December
31, 1998 and that the adequacy of additional disclosure needed for a fair
presentation, except in regard to material contingencies or recent
significant events, may be determined in that context. Accordingly, footnote
and other disclosures which would substantially duplicate the disclosures
contained in Form 10-KSB for the year ended December 31, 1998 filed on March
31, 1999 by the Company have been omitted. The financial information herein
is not necessarily representative of a full year's operations.
2. The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company incurred net losses of
$2,719,161 during the nine months ended September 30, 1999 and has a deficit
accumulated during its development stage of $11,424,724 at September 30,
1999. While management intends to raise additional debt and/or equity
financing to fund future operations and to provide additional working
capital, cash raised through the sale of the unsecured notes (Note 5) as
well as funds provided by Baxter Healthcare Corporation ("Baxter") are
expected to finance the Company's operations through October 2000.
The accompanying financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification
of assets or the amounts and classifications of liabilities that may result
from the possible inability of the Company to continue as a going concern.
3. The following summarizes non-cash investing and financing activities
during the nine months ended September 30, 1999:
Conversion of advance from related party to preferred stock $ 704,000
Conversion of notes payable to common stock 1,430,000
F-21
<PAGE>
4. In accordance with the Financial Accounting Standards Board's Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings per Share, net
loss per share is based on the average number of shares of common stock
outstanding during the nine-month periods ended September 30, 1999 and 1998.
Equivalent shares arising from convertible preferred stock, convertible
debt, warrants for Common Stock and outstanding stock options have not been
included in the computation of net loss per share as their effect would be
antidilutive.
5. In April 1999, the Company closed a financing in which we received $400,000
from the sale of unsecured convertible notes payable, which bore interest at
8% per annum and were due on March 30, 2000, unless previously converted.
The notes were convertible, at the option of the holder , into Common Stock
at $0.30 per share, and automatically converted into Common Stock
immediately prior to the filing of any registration statement to register
the resale of the underlying shares.
In addition, each note holder received a warrant to purchase the same number
of shares of Common Stock as their notes convert into. The warrants are
exerciseable for seven years from issuance and have an exercise price of
$0.30 per share. The warrants were valued at $266,667, which was recorded as
a discount to the notes payable. The discount was fully amortized to
interest expense upon the conversion of the notes to Common Stock on June
22, 1999 (Note 6).
6. On June 22, 1999 the Company filed a registration statement with the
Securities and Exchange Commission to register for resale the shares
underlying the unsecured convertible notes payable and the related warrants
issued in July 1999 and April 1999. Immediately prior to filing the
registration statement, the unsecured convertible notes payable and accrued
interest automatically converted into 2,460,811 shares of common stock of
UroGen Corp.
7. In September 1999, the Company entered into a facility operating lease for
approximately 8,600 square feet for manufacturing operations. The lease
expires in August 2004. Future minimum lease payments are $50,415 for
1999; $203,676 for 2000; $209,788 for 2001; $216,084 for 2002; $222,560 for
2003; and $151,312 for 2004.
8. In September 1999, the Company entered into a $250,000 capital lease line
under which it will lease furniture and equipment for manufacturing
operations. The term of the lease is thirty-six months and the line is
secured by all of the company's equipment. In connection with the lease, the
Company issued warrants to the lessor for 250,000 shares of common stock.
The warrants are exercisable at $0.30 per share and expire in August 2007.
As of September 30, 1999 the balance under the lease was $118,495.
F-22
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, in connection with the offer made by this prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the corporation. Neither the delivery of this prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has been no change in the affairs of the corporation since the date
hereof. This prospectus does not constitute an offer or solicitation by anyone
in any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not authorized to do so or
to anyone to whom it is unlawful to make such offer or solicitation in such
jurisdiction.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................................................... 2
UroGen Corp.......................................................... 3
The Offering......................................................... 4
Risk Factors......................................................... 5
Use of Proceeds...................................................... 13
Price Range of Common Stock.......................................... 13
Dividend Policy...................................................... 13
Capitalization....................................................... 14
Selected Consolidated Financial Data................................. 15
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 16
Business............................................................. 21
Management........................................................... 27
Certain Relationships and Related Transactions....................... 33
Description of Capital Stock......................................... 37
Principal stockholders and selling stockholders...................... 40
Plan of Distribution................................................. 42
Legal Matters........................................................ 43
Experts.............................................................. 43
Where you can find more information.................................. 43
Index to Consolidated Financial Statements........................... F-1
</TABLE>
UroGen Corp.
4,339,977 SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
November 16, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered hereby. Normal commission expenses and brokerage fees are payable
individually by the Selling Securityholders. All amounts are estimated except
the Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
Amount
------
<S> <C>
SEC registration fee............................................... $ 265
Accounting fees and expenses....................................... 7,000
Legal fees and expenses............................................ 15,000
Printing expenses.................................................. 10,000
Miscellaneous fees and expenses.................................... 3,000
-------
Total.............................................................. $32,265
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, the Registrant has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under Securities Act. The
Registrant's Bylaws provide that the Registrant will indemnify its directors and
executive officers and may indemnify other officers to the fullest extent
permitted by law. Under its Bylaws, indemnified parties are entitled to
indemnification for negligence, gross negligence and otherwise to the fullest
extent permitted by law. The Bylaws also require the Registrant to advance
litigation expenses in the case of stockholder derivative actions or other
actions. The indemnified party is required to repay such advances if it is
ultimately determined that the indemnified party is not entitled to
indemnification.
In addition, the Registrant's Certificate of Incorporation provides that,
pursuant to Delaware law, it directors shall not be liable for monetary damages
for breach of the directors' fiduciary duty of care to the Registrant and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the duty of care, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director is subject to liability for
breach of the director's duty of loyalty to the Registrant for acts or omissions
not in good faith or involving intentional misconduct, for knowing violation of
law, for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as federal securities laws or state
or federal environmental laws.
The Registrant has entered into indemnity agreements with each of it directors
and executive officers. Such indemnity agreements contain provisions that are
in some respects broader than the specific indemnification provisions contained
in Delaware law.
The foregoing summaries are necessarily subject to the complete text of the
statute, the Articles, the Bylaws and agreements referred to above and are
qualified in their entirety by reference thereto.
II-1
<PAGE>
Reference is made to the form of Note and Warrant Purchase Agreements included
below as Exhibits 10.9 and 10.11 for provisions regarding indemnification of the
Company's officers, directors and controlling persons against liabilities,
including liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since the distribution of the Company's stock in February 1996, the Company
has issued the following unregistered securities:
(1) In June 1996, the Company issued 363,000 shares of common stock at a
price of $0.05 per share, the fair value as determined by the Board of
Directors, to Sidney Kimmel related to an Affiliation Agreement (see
"Certain Relationships and Related Transactions").
(2) In March 1997, the Company issued 147,791 shares of common stock at a
price of $0.05 per share, the fair value as determined by the Board of
Directors, to The Immune Response Corporation related to a License
Agreement (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations"). The Company also issued The Immune
Response Corporation a warrant to purchase additional shares to maintain
a fully-diluted ownership percentage of two percent (2%) or increase its
ownership to three percent (3%) with exercise prices ranging from $0.03
to $0.04 per share.
(3) In August 1997, the Company issued a warrant to purchase 200,000 shares
of Common Stock to an officer of the Company. The warrant is exercisable
at $0.05 per share, the fair value as determined by the Board of
Directors, and expires on July 31, 2001.
(4) In July 1998 and April 1999, the Company received $1,030,000 and
$400,000, respectively and issued convertible subordinated notes to
thirty-five private investors. These notes were convertible into
1,030,000 and 1,333,333 shares of common stock, respectively. Holders of
the convertible subordinated notes also received warrants to purchase
515,000 and 1,333,333 shares of common stock at $0.74 and $0.30,
respectively. (See "Certain relationships and related transactions").
(5) In July 1998, the Company issued 1,841,219 shares of Common Stock and
5,830 shares of Series A Preferred Stock to Baxter Healthcare Corporation
related to the purchase of exclusive rights to certain technologies and
certain related equipment with an estimated fair value of $5,455,505 (see
"Certain Relationships and Related Transactions").
(6) In January 1999, the Company issued 704 shares of Series B Preferred
Stock to Baxter Healthcare Corporation to convert $704,000 funded under
the Developmental and Collaboration Agreement (see "Certain Relationships
and Related Transactions").
UroGen Corp. relied on the exemption from registration provided by Rule 506 of
Regulation D, and Section 4(2) under the Securities Act of 1933, as amended, for
each of the above issuances.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Exhibit No. DESCRIPTION
2.1 Distribution Agreement between the Company and Medstone
International Inc.(1)
2.2 Asset Purchase Agreement, dated as of February 28, 1998,
UroGen and Baxter Healthcare Corporation(2)
2.3 Amendment to Asset Purchase Agreement, dated as of May 27,
1998, between UroGen and Baxter.(2)
3.1 Certificate of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
3.3 Certificate of Designation of Preferences and Rights of Series
A Preferred Stock of UroGen.(2)
3.4 Certificate of Designation of Preferences and Rights of Series
B Preferred Stock of UroGen.(2)
3.5 Certificate of Designation of Preferences and Rights of Series
C Preferred Stock of UroGen.(2)
5.1 Opinion of Wilson Sonsini Goodrich & Rosati as to the legality
of securities being registered
10.1 Contribution Agreement between the Company and Medstone
International, Inc. dated October 31, 1995(1)
10.2 Form of Indemnification Agreement(1)
10.3 UroGen Corp. 1995 Stock Plan(1)
10.4 UroGen Corp. 1995 Director Option Plan(1)
II-2
<PAGE>
10.5 License Agreement, dated March 5, 1997, between UroGen and The
Immune Response Corporation.(3)
10.6 Amendment to License Agreement, dated January 29, 1999, between
UroGen and The Immune Response Corporation.(3)
10.7 License Agreement, dated November 5, 1997, by and among UroGen,
Sidney Kimmel Cancer Center and Daniel A. Mercola, M.D.,
Ph.D.(3)
10.8 License Agreement, dated September 20, 1996 between UroGen and
The Regents of the University of California.(3)
10.9 Form of Note and Warrant Purchase Agreement, dated July 8, 1998
between UroGen and various investors.(3)
10.10 Warrant Certificate, dated July 31, 1997, between UroGen and
Robert E. Sobol.(3)
10.11 Distribution Agreement, dated July 8, 1998, by and among Urogen
and Baxter.(2)
10.12 Investor Rights Agreement, dated July 8, 1998, between UroGen
and Baxter.(2)
10.13 Developmental Collaboration Agreement, dated July 8, 1998
between UroGen and Baxter.(2)
10.14 Credit Agreement, dated July 8, 1998, between UroGen and
Baxter.(2)
10.15 Technology License Agreement, dated July 8, 1998, between
UroGen and Baxter.(2)
10.16 Form of Note and Warrant Purchase Agreement, dated April 28,
1999 between UroGen and various investors.(3)
10.17 UroGen Corp. 1999 Stock Plan(3)
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Wilson Sonsini Goodrich & Rosati (included in the
opinion filed as Exhibit 5.1 hereto)
24.1 Power of Attorney (contained on page II-5 hereto)
27 Financial Data Schedule(4)
__________________________________________
(1) Previously filed with the Company's Application For Registration on
Form 10-SB dated February 9, 1996.
(2) Previously filed with the Company's Current Report on Form 8-K dated
July 23, 1998
(3) Previously filed with the Company's Annual Report on Form 10-KSB/A
dated May 24, 1999.
(4) Previously filed with the Company's Annual Report on Form 10-KSB dated
March 31, 1999 and the Company's Quarterly Report on Form 10-QSB dated August
------
6, 1999
- -
(b) Financial Statement Schedules
All schedules have been omitted because the information required to be set
forth in the schedules is not applicable or is shown in the financial statements
or notes to the financial statements.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement
(or the most recent post-effective amendment thereof)
which,
II-3
<PAGE>
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the
maximum aggregate offering price, set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Amendment to
Registration Statement to be signed on its behalf by the undersigned, in the
City of San Diego, State of California, on the 15/th/ day of November 1999.
UROGEN CORP.
By: *
--------------------------------------
President, Chief Executive Officer, and Director
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------------- --------------------------------------------------- -------------------------
<S> <C> <C>
/s/ * Chairman of the Board, Chief Financial Officer
- ----------------------------------------- and Director (Principal Financial Officer) November 15, 1999
/s/ * President, Chief Executive Officer and Director November 15, 1999
- -----------------------------------------
/s/ * Senior Vice President, Chief Scientific Officer
- ----------------------------------------- and Director November 15, 1999
/s/ CARIN D. SANDVIK Corporate Controller and Corporate Secretary
- ----------------------------------------- (Principal Accounting Officer) November 15, 1999
/s/ * Director November 15, 1999
- -----------------------------------------
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------------- --------------------------------------------------- -------------------------
<S> <C> <C>
/s/ * Director November 15, 1999
- -----------------------------------------
/s/ * Director November 15, 1999
- -----------------------------------------
</TABLE>
* By: /s/ CARIN D. SANDVIK
------------------------------------
Carin D. Sandvik, attorney-in fact
II-6
<PAGE>
November 12, 1999
UroGen Corp.
10835 Altman Row, Suite 150
San Diego, California 92121
Re: UroGen Corp. Registration Statement on Form SB-2
Ladies and Gentlemen:
We have examined the Registration Statement on Form SB-2 filed by
UroGen Corp. (the "Company") with the Securities and Exchange Commission on or
about June 22, 1999, as subsequently amended, (the "Registration Statement") in
connection with the registration under the Securities Act of 1933, as amended,
of 2,460,811 shares of Common Stock of the Company currently outstanding and
1,879,166 shares of Common Stock of the Company issuable upon exercise of
warrants (collectively, the "Shares").
It is our opinion that, upon completion of the proceedings being taken
or contemplated by us, as your counsel, to be taken, and upon the completion of
the proceedings being taken in order to permit such transactions to be carried
out in accordance with securities laws of various states, where required, the
Shares, when issued, if applicable and when sold in the manner referred to in
the Registration Statement, will be duly authorized, validly issued, fully paid
and nonassessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement, and further consent to the use of our name wherever
appearing in the Registration Statement, including the Prospectus constituting a
part thereof, and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini, Goodrich & Rosati
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 25, 1999 in the Registration Statement (Form SB-2)
and related Prospectus of UroGen Corp. for the registration of 4,339,977 shares
of its common stock.
/s/ ERNST & YOUNG LLP
San Diego, California
November 16, 1999
