<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 2000.
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CONNETICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-3173928
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
3400 WEST BAYSHORE ROAD
PALO ALTO, CA 94303
(650) 843-2800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
THOMAS G. WIGGANS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CONNETICS CORPORATION
3294 WEST BAYSHORE ROAD
PALO ALTO, CA 94303
(650) 843-2800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
BRIAN V. CAID, ESQ.
MORRISON & FOERSTER LLP
370 SEVENTEENTH STREET, SUITE 5200
DENVER, CO 80202
(303) 592-1500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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, please 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 this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF SHARES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
------------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value
per share................... 375,000(3) $17.2815 $6,480,562.50 $1,710.85
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In the event of a stock split, stock dividend or similar transaction
involving the Registrant's common stock, in order to prevent dilution, the
number of shares registered shall automatically be increased to cover the
additional shares in accordance with Rule 416 under the Securities Act of
1933.
(2) Estimated solely for the purpose of computing the amount of the registration
fee, in accordance with Rule 457(c) under the Securities Act of 1933, based
on the average of the high and low sale prices of the common stock on the
Nasdaq National Market on August 29, 2000, which was $17.2815 per share.
(3) Represents: (i) 327,937 shares of common stock which may be issued to the
selling stockholder pursuant to the terms of the Structured Equity Line
Flexible Financing Agreement between the Registrant and the selling
stockholder, (ii) 22,063 shares issuable to the selling stockholder upon the
exercise of a warrant dated June 6, 2000 at an exercise price of $7.8585 per
share, and (iii) up to 25,000 shares issuable upon the exercise of warrants
to be issued to the selling stockholder on December 1, 2000 under the
Structured Equity Line Flexible Financing Agreement.
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 SEC, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER
TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION. DATED AUGUST 31, 2000
PRELIMINARY PROSPECTUS
CONNETICS CORPORATION
375,000 SHARES OF COMMON STOCK
The stockholder named on page 29 is selling up to 375,000 shares of our
common stock together with up to 47,063 shares of common stock issuable upon the
exercise of warrants. We will receive proceeds only upon the exercise of the
warrants and the issuance of up to 500,000 shares of our common stock to the
selling stockholder under the Structured Equity Line Flexible Financing
Agreement between us and the selling stockholder.
Our common stock is quoted on the Nasdaq National Market under the symbol
"CNCT." On August 29, 2000, the last reported sale price of our common stock was
$17.00 per share.
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 3.
-------------------------
KEPLER CAPITAL LLC
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2000
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk Factors................................................ 3
Forward-Looking Statements.................................. 9
Trademarks.................................................. 10
Use of Proceeds............................................. 10
Dividend Policy............................................. 10
Business.................................................... 11
Issuance of Common Stock and Warrants to the Selling
Stockholder............................................... 27
Selling Stockholder......................................... 28
Plan of Distribution........................................ 28
Legal Matters............................................... 31
Experts..................................................... 31
Where You Can Find Additional Information................... 31
</TABLE>
-------------------------
YOU SHOULD ONLY RELY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
2
<PAGE> 4
RISK FACTORS
You should carefully consider the following risks and all of the other
information included in or incorporated by reference into this prospectus before
buying our common stock.
RISKS RELATED TO OUR BUSINESS
IF WE DO NOT SUSTAIN PROFITABILITY, STOCKHOLDERS MAY LOSE THEIR INVESTMENT.
Until the first quarter of fiscal year 2000, we lost money every year since
our inception. We had net losses of $26.6 million in 1998 and $27.3 million in
1999. Our accumulated deficit was $118.8 million at June 30, 2000. We may incur
additional losses during the next few years. If we do not sustain the
profitability we achieved in the first quarter of fiscal year 2000, our stock
price may decline.
IF WE DO NOT OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE WILL BE
UNABLE TO DEVELOP OR MARKET OUR PRODUCTS.
We currently believe that our available cash resources will be sufficient
to fund our operating and working capital requirements for the next 18 months.
Accordingly, we may need to raise additional funds through public or private
financings, strategic relationships or other arrangements. In particular, we
would need to raise additional funds if our relaxin clinical trial is successful
because our working capital needs will increase as we incur additional
regulatory and commercialization expenses for relaxin. Relaxin is a hormone that
occurs naturally in humans, and which we manufacture using recombinant process.
If we are unable to raise additional funds when needed, we may not be able to
market our products as planned or continue development of our other products. If
we are unable to successfully complete development and commercialization of
relaxin, we may never achieve profitability.
IF WE FAIL TO PROTECT OUR PROPRIETARY RIGHTS, COMPETITORS MAY BE ABLE TO USE OUR
TECHNOLOGIES, WHICH WOULD WEAKEN OUR COMPETITIVE POSITION, REDUCE OUR REVENUES
AND INCREASE OUR COSTS.
Our commercial success depends in part on our ability and the ability of
our licensors to protect our technology and processes.
The foam technology used in our Luxiq and OLUX products is not covered by
issued patents but is the subject of pending patent applications. If we do not
obtain patent coverage for Luxiq and OLUX, it may be easier and more attractive
for potential new market entrants to develop and introduce competitive products.
With regard to patent applications that we or our licensors have filed, or
patents issued to us or our licensors:
- any pending patent applications may not issue as patents;
- our competitors may successfully challenge or circumvent our patents; or
- any patents which exist or are issued may not provide us with a
competitive advantage.
In addition, others may obtain patents that contain claims which cover
products or processes that we make, have made, use, or sell. If a third party
claimed an intellectual property right to technology we use, we might be forced
to:
- discontinue an important product or product line;
- alter our products or processes to avoid infringement;
- pay license fees and/or damages; and
- cease certain activities.
3
<PAGE> 5
Under these circumstances, we may not be able to obtain a license to such
intellectual property on favorable terms, if at all. We may not succeed in any
attempt to redesign our products or processes to avoid infringement.
A judgment adverse to us in any patent interference, litigation or other
proceeding arising in connection with these patent applications could materially
harm our business. In addition, the costs of any such proceeding may be
substantial whether or not we are successful.
In addition, the patents in our relaxin patent portfolio begin to expire in
2002 in foreign countries and 2005 in the United States. Additional patents may
not issue, and if they do, they may not be sufficient to protect our relaxin
products.
IF OUR CORPORATE PARTNERS ARE NO LONGER WILLING OR ABLE TO FUND THE DEVELOPMENT
OF RELAXIN, OUR CURRENT PRODUCT REVENUE WILL NOT COVER THE COST OF FULLY
DEVELOPING AND COMMERCIALIZING RELAXIN.
We depend on licensing agreements with our corporate partners to
successfully develop and commercialize our products. We also generate revenue by
licensing our products to third parties for specific territories and
indications. Our reliance on licensing arrangements with third parties carries
several risks, including the possibilities that:
- a product development contract may expire or a relationship may be
terminated, and we will not be able to attract a satisfactory alternative
corporate partner within a reasonable time;
- a corporate partner involved in the development of our products does not
commit sufficient capital to successfully develop our products; and
- we may be contractually bound to terms that, in the future, are not
commercially favorable to us.
If any of these risks occurs, we may not be able to successfully develop our
products.
WE DEPEND ON THIRD PARTIES TO PROTECT AND MAINTAIN OUR PATENT PORTFOLIO.
Nearly our entire patent portfolio is licensed from third parties, who are
responsible to varying degrees for the prosecution and maintenance of those
patents. Our success will depend on our ability, or the ability of our
licensors, to obtain and maintain patent protection on technologies, to preserve
trade secrets, and to operate without infringing the proprietary rights of
others. It is possible that before any of our products in development can be
commercialized, the related patents may have expired or be close to expiration,
thus reducing any advantage of the patent. Moreover, composition of matter
patent protection, which gives patent protection for a compound or a
composition, may not be available for some of our product candidates.
IF WE DO NOT SUCCESSFULLY COMMERCIALIZE RELAXIN, WE MAY LOSE FUNDAMENTAL
INTELLECTUAL PROPERTY RIGHTS TO THE PRODUCT.
Licenses with Genentech, Inc. and The Howard Florey Institute of
Experimental Physiology and Medicine require us to use our best efforts to
commercialize relaxin. Our failure to successfully commercialize relaxin may
result in the reversion of our rights under these licenses to Genentech and the
Florey Institute. The termination of these agreements and subsequent reversion
of rights could cause us to lose fundamental intellectual property rights to
relaxin. This would prohibit us from continuing our relaxin development
programs.
WE ARE SUBJECT TO FOREIGN EXCHANGE RISKS WHICH MAY INCREASE OUR OPERATIONAL
EXPENSES.
We make payments to Boehringer Ingelheim for the production of relaxin in
Austrian schillings, and to CCL Pharmaceuticals for the production of Luxiq and
OLUX in pounds sterling. If the
4
<PAGE> 6
U.S. dollar depreciates against the schilling or the pound, the payments that we
must make will increase, which will increase our expenses. We do not currently
hedge our foreign currency exposure related to these Agreements.
WE RELY ON OUR EMPLOYEES AND CONSULTANTS TO KEEP OUR TRADE SECRETS CONFIDENTIAL.
We rely on trade secrets and proprietary know-how. We require each of our
employees, consultants and advisors to execute a confidentiality agreement
providing that all proprietary information developed or made known to the
individual during the course of the relationship will be kept confidential and
not used or disclosed to third parties except in specified circumstances. The
agreements also provide that all inventions conceived by an employee, consultant
or advisor, to the extent appropriate for the services provided during the
course of the relationship, shall be our exclusive property, other than
inventions unrelated to us and developed entirely on the individual's own time.
These agreements may not provide meaningful protection or adequate remedies for
misappropriation of our trade secrets in the event of unauthorized use or
disclosure of such information.
OUR USE OF HAZARDOUS MATERIALS EXPOSES US TO THE RISK OF ENVIRONMENTAL
LIABILITIES, AND WE MAY INCUR SUBSTANTIAL ADDITIONAL COSTS TO COMPLY WITH
ENVIRONMENTAL LAWS.
Our research and development activities involve the controlled use of
hazardous materials, chemicals and various radioactive materials. We are subject
to federal, state and local laws and regulations governing the use, storage,
handling and disposal of these materials and certain waste products. In the
event of accidental contamination or injury from these materials, we could be
liable for any damages that result and any liability could exceed our resources.
We may also be required to incur significant costs to comply with environmental
laws and regulations as our research activities increase.
RISKS RELATED TO OUR PRODUCTS
IF WE DO NOT OBTAIN AND MAINTAIN GOVERNMENTAL APPROVALS FOR OUR PRODUCTS, WE
CANNOT SELL THESE PRODUCTS FOR THEIR INTENDED DISEASES.
The process of obtaining and maintaining regulatory approvals for
pharmaceutical and biological drug products, and obtaining and maintaining
regulatory approvals to market these products for new indications, is lengthy,
expensive and uncertain. The manufacturing and marketing of drugs are subject to
continuing FDA and foreign regulatory review, and later discovery of previously
unknown problems with a product, manufacturing process or facility may result in
restrictions, including withdrawal of the product from the market. To obtain
approval, we must show in preclinical and clinical trials that our products are
safe and effective.
After we complete the clinical trials for a product, we must file a new
drug application if the product is classified as a new drug, or a biologics
license application if the product is classified as a biologic, which is a drug
based on natural substances. The FDA approval processes require substantial time
and effort, the FDA continues to modify product development guidelines, and the
FDA may not grant approval on a timely basis or at all. Clinical trial data can
be the subject of differing interpretation, and the FDA has substantial
discretion in the approval process. The FDA may not interpret our clinical data
the way we do. The FDA may also require additional clinical data to support
approval. The FDA can take between one and two years to review new drug
applications and biologics license applications, or longer if significant
questions arise during the review process. Even after such time and
expenditures, we may not obtain regulatory approval or the approval we get may
have strict limitations.
5
<PAGE> 7
In particular, relaxin is critical to our future success. We are initially
studying relaxin for the treatment of diffuse scleroderma, a serious disease
involving the excessive formation of connective tissue, and we are in earlier
stages of clinical development of relaxin for other indications, including
infertility and the treatment of blocked or restricted blood vessels in the arms
and legs. For relaxin to succeed, we will need, at a minimum, to demonstrate the
safety and efficacy of relaxin in these clinical studies.
To market our products in countries outside of the United States, we and
our partners must obtain similar approvals from foreign regulatory bodies. The
foreign regulatory approval process includes all of the risks associated with
obtaining FDA approval, and approval by the FDA does not ensure approval by the
regulatory authorities of any other country. The process of obtaining these
approvals is time consuming and requires the expenditure of substantial
resources.
IF LUXIQ AND OLUX DO NOT ACHIEVE OR SUSTAIN MARKET ACCEPTANCE, OUR REVENUES WILL
NOT INCREASE AND MAY NOT COVER OUR OPERATING EXPENSES.
Our future revenues will depend upon dermatologist and patient acceptance
of Luxiq and OLUX. Factors that could affect acceptance of Luxiq and OLUX
include:
- satisfaction with existing alternative therapies;
- the effectiveness of our sales and marketing efforts;
- undesirable and unforeseeable side effects; and
- the cost of the product as compared with alternative therapies.
Since we have only had approval to sell Luxiq for one year, and OLUX was
only approved on May 26, 2000, we cannot predict the potential long-term patient
acceptance of either product.
IF WE ARE UNABLE TO DEVELOP ALTERNATIVE DELIVERY SYSTEMS FOR RELAXIN, PATIENTS
THAT DO NOT SUFFER FROM SEVERE DISEASES MAY NOT BE WILLING TO USE THE CURRENT
DRUG DELIVERY SYSTEM.
In addition to demonstrating the safety and efficacy of relaxin in our
current clinical trials, we must meet several additional major development
objectives for relaxin. In particular, we may need to develop an alternative
means of delivering the drug. In our current clinical trials, relaxin is being
delivered through the use of an infusion pump. For a serious and life
threatening condition, such as diffuse scleroderma, this method of delivery may
be acceptable. However, we are pursuing other indications for relaxin, such as
treatment of infertility and peripheral arterial disease. For these indications,
we may need to develop an alternative delivery system; however, the known
biological properties of the relaxin molecule may decrease the availability of
certain delivery systems. If we are not able to develop a suitable alternative
delivery system for relaxin, we may be unable to market relaxin effectively for
indications that are not life threatening, such as infertility, and the
commercial potential of relaxin would be seriously harmed. Our inability to
develop relaxin to its full commercial potential would harm our future prospects
and revenue growth and our stock price would likely decline.
WE RELY ON THIRD PARTIES TO CONDUCT CLINICAL TRIALS FOR OUR PRODUCTS, AND THOSE
THIRD PARTIES MAY NOT PERFORM SATISFACTORILY.
We do not have the ability to independently conduct clinical studies, and
we rely on third parties to perform this function. If these third parties do not
perform satisfactorily, we may not be able to locate acceptable replacements or
enter into favorable agreements with them, if at all. If we are unable to rely
on clinical data collected by others, we could be required to repeat clinical
trials, which could significantly delay commercialization and require
significantly greater capital.
6
<PAGE> 8
MANUFACTURING DIFFICULTIES COULD DELAY COMMERCIALIZATION OF OUR PRODUCTS.
We depend on third parties to manufacture our products, and each product is
manufactured by a sole source manufacturer. Boehringer Ingelheim Austria GmbH,
SmithKline Beecham, and CCL Pharmaceuticals are our sole source manufacturers
for our products. All of our contractors must comply with the applicable FDA
good manufacturing practice regulations, which include quality control and
quality assurance requirements as well as the corresponding maintenance of
records and documentation. Manufacturing facilities are subject to ongoing
periodic inspection by the FDA and corresponding state agencies, including
unannounced inspections, and must be licensed before they can be used in
commercial manufacturing of our products. If our sole source manufacturers
cannot provide us with our product requirements in a timely and cost-effective
manner, if the product they are able to supply cannot meet commercial
requirements for shelf life, or if they are not able to comply with the
applicable good manufacturing practice regulations and other FDA regulatory
requirements, our sales of marketed products could be reduced and we could
suffer delays in the progress of clinical trials for products under development.
We do not have control over our third-party manufacturers' compliance with these
regulations and standards.
IF WE ARE UNABLE TO CONTRACT WITH THIRD PARTIES TO MANUFACTURE AND DISTRIBUTE
OUR PRODUCTS IN SUFFICIENT QUANTITIES, ON A TIMELY BASIS, OR AT AN ACCEPTABLE
COST, WE MAY BE UNABLE TO MEET DEMAND FOR OUR PRODUCTS AND MAY LOSE POTENTIAL
REVENUES.
We have no manufacturing or distribution facilities for any of our
products. Instead, we contract with third parties to manufacture our products
for us. We have manufacturing agreements with the following companies:
- Boehringer Ingelheim Austria GmbH for relaxin;
- CCL Pharmaceuticals, a Division of CCL Industries Limited, a U.K.
corporation, for Luxiq and OLUX; and
- SmithKline for Ridaura.
If these third parties are unable or unwilling to produce our products in
sufficient quantities, with appropriate quality for our clinical trials and
subsequent commercialization, if any, and under commercially reasonably terms,
our business will suffer.
In addition, we have entered into an agreement with CORD Logistics, Inc. to
distribute Luxiq and Ridaura. If CORD is unable to continue to distribute our
products in an effective manner or if we are unable to maintain sufficient
personnel with the appropriate levels of experience to manage this function, we
may be unable to meet the demand for our products and we may lose potential
revenues.
RISKS RELATED TO OUR INDUSTRY
WE FACE INTENSE COMPETITION, WHICH MAY LIMIT OUR COMMERCIAL OPPORTUNITIES AND
OUR ABILITY TO BECOME PROFITABLE.
The pharmaceutical and biotechnology industries are highly competitive.
Products and therapies currently on the market or under development could
compete directly with some of our products. Numerous pharmaceutical and
biotechnology companies and academic research groups are engaged in research and
development efforts with respect to therapeutic products targeted at diseases or
conditions addressed by us. Our commercial opportunities will be reduced or
eliminated if our competitors develop and market products that are more
effective, have fewer or less severe adverse side effects or are less expensive
than our products. In addition, many of our existing or potential competitors,
particularly large pharmaceutical companies, have substantially greater
financial,
7
<PAGE> 9
technical and human resources than we have. Many of these competitors have more
collective experience than we do in undertaking preclinical testing and human
clinical trials of new pharmaceutical products and obtaining regulatory
approvals for therapeutic products. Accordingly, our competitors may succeed in
developing and marketing products either that are more effective than those that
we may develop, alone or with our collaborators, or that are marketed before any
products we develop are marketed. We believe that competitive factors in our
industry include:
- scientific and technological expertise;
- sales and marketing resources;
- operational competence in developing, protecting, manufacturing and
marketing products and obtaining timely regulatory agency approvals;
- managerial competence in identifying and pursuing product in-licensing
and acquisition opportunities; and
- financial resources.
Physicians may not adopt our products over competing products, and our
products may not offer an economically feasible alternative to existing modes of
therapy.
IF THIRD PARTY PAYORS WILL NOT PROVIDE COVERAGE OR REIMBURSE PATIENTS FOR THE
USE OF OUR PRODUCTS, OUR REVENUES AND PROFITABILITY WILL SUFFER.
Our products' commercial success is substantially dependent on whether
third-party reimbursement is available for the use of our products by hospitals,
clinics and doctors. Medicare, Medicaid, health maintenance organizations and
other third-party payers may not authorize or otherwise budget for the
reimbursement of our products. In addition, they may not view our products as
cost-effective and reimbursement may not be available to consumers or may not be
sufficient to allow our products to be marketed on a competitive basis.
Likewise, legislative proposals to reform health care or reduce government
programs could result in lower prices for or rejection of our products. Changes
in reimbursement policies or health care cost containment initiatives that limit
or restrict reimbursement for our products may cause our revenues to decline.
IF PRODUCT LIABILITY LAWSUITS ARE BROUGHT AGAINST US, WE MAY INCUR SUBSTANTIAL
COSTS.
The testing and marketing of pharmaceutical products entails an inherent
risk of product liability. Our insurance may not provide adequate coverage
against potential product liability claims or losses, and insurance coverage may
not continue to be available to us on reasonable terms or at all. Even if we are
ultimately successful in product liability litigation, the litigation would
consume substantial amounts of our financial and managerial resources, and might
create adverse publicity, all of which would impair our ability to generate
sales.
RISKS RELATED TO OUR STOCK
OUR STOCK PRICE IS VOLATILE AND THE VALUE OF YOUR INVESTMENT IN OUR STOCK COULD
DECLINE IN VALUE.
The market prices for securities of biotechnology companies like our
company have been and are likely to continue to be highly volatile. As a result,
investors in these companies often buy at very high prices only to see the price
drop substantially a short time later, resulting in an extreme drop in value in
the stock holdings of these investors. In addition, the volatility could result
in securities class action litigation. Any litigation would likely result in
substantial costs, and divert our management's attention and resources.
8
<PAGE> 10
IF OUR OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS ACT TOGETHER, THEY MAY BE
ABLE TO CONTROL OUR MANAGEMENT AND OPERATIONS AND THEY MAY MAKE DECISIONS THAT
ARE NOT IN THE BEST INTERESTS OF OTHER STOCKHOLDERS.
Our directors, executive officers and principal stockholders and their
affiliates currently beneficially own in the aggregate approximately 65% of our
outstanding common stock. Accordingly, they collectively have the ability to
determine the election of all of our directors and to determine the outcome of
most corporate actions requiring stockholder approval. They may exercise this
ability in a manner that advances their best interests and not necessarily those
of other stockholders. This concentration of ownership may also have the effect
of delaying, deferring or preventing a change in control of our company, even if
the change in control would be beneficial to other stockholders.
OUR CHARTER DOCUMENTS AND DELAWARE LAW CONTAIN PROVISIONS THAT COULD DELAY OR
PREVENT AN ACQUISITION OF US, EVEN IF THE ACQUISITION WOULD BE BENEFICIAL TO OUR
STOCKHOLDERS.
Our certificate of incorporation authorizes our board of directors to issue
undesignated preferred stock and to determine the rights, preferences,
privileges and restrictions of the preferred stock without further vote or
action by our stockholders. The issuance of preferred stock could make it more
difficult for third parties to acquire a majority of our outstanding voting
stock. We also have a stockholder rights plan, which entitles existing
stockholders to rights, including the right to purchase shares of preferred
stock, in the event of an acquisition of 15% or more of our outstanding common
stock, or an unsolicited tender offer for such shares. The existence of the
rights plan could delay, prevent, or make more difficult a merger or tender
offer or proxy contest involving us. Other provisions of Delaware law and of our
charter documents, including a provision eliminating the ability of stockholders
to take actions by written consent, could also delay or make difficult a merger,
tender offer or proxy contest involving us. Further, our stock option and
purchase plans generally provide for the assumption of such plans or
substitution of an equivalent option of a successor corporation or,
alternatively, at the discretion of the board of directors, exercise of some or
all of the option stock, including non-vested shares, or acceleration of vesting
of shares issued pursuant to stock grants, upon a change of control or similar
event.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act, and Section 21E of the Securities Exchange
Act. When used in this prospectus, the words "anticipate," "believe,"
"estimate," "will," "may," "intend" and "expect" and similar expressions
identify forward-looking statements. Although we believe that our plans,
intentions and expectations reflected in these forward-looking statements are
reasonable, these plans, intentions or expectations may not be achieved.
Forward-looking statements in this prospectus include, but are not limited to,
those relating to:
- the commercialization of our currently marketed products;
- the progress of our product development programs;
- developments with respect to clinical trials and the regulatory approval
process;
- developments related to acquisitions and clinical development of drug
candidates; and
- developments relating to the growth of our sales and marketing
capabilities.
Actual results, performance or achievements could differ materially from
those contemplated, expressed or implied, by the forward-looking statements
contained in this prospectus. Important factors that could cause actual results
to differ materially from our forward-looking statements are set
9
<PAGE> 11
forth in this prospectus, including under the heading "Risk Factors." These
factors are not intended to represent a complete list of the general or specific
factors that may affect us. You should recognize that other factors, including
general economic factors and business strategies, may be significant, presently
or in the future, and the factors set forth in this prospectus may affect us to
a greater extent than indicated. All forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements set forth in this prospectus. Except as required by
law, we undertake no obligation to update any forward-looking statement, whether
as a result of new information, future events or otherwise.
TRADEMARKS
Connetics(R), Ridaura(R), ConXn(R), and the interlocking globe design are
registered trademarks of Connetics. We also own the trademarks Luxiq(TM) and
OLUX(TM). ACTIMMUNE(R) is a registered trademark of Genentech, Inc. All other
trademarks or service marks appearing in this prospectus are the property of
their respective companies.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of our common
stock by the selling stockholder. However, we will receive proceeds upon the
selling stockholder's exercise of warrants issued in connection with our
Structured Equity Line Flexible Financing Agreement with the selling
stockholder. Upon the exercise of the warrant dated June 6, 2000, we will
receive proceeds of up to approximately $173,382.00. The exercise price for the
warrant to be issued on December 1, 2000 will be 110% of the closing price of
our common stock as quoted on the Nasdaq National Market on December 1, 2000.
Accordingly, we cannot determine at this time the exact amount of proceeds we
will receive upon the exercise of the warrant.
We will also receive proceeds in the amount of the aggregate purchase price
paid to us by the selling stockholder under the terms of the Structured Equity
Line Agreement to the extent we issue shares of our common stock in connection
with a draw down under the agreement. The purchase price per share is determined
by the trading price of our common stock for a period prior to purchase date and
is subject to adjustment. Accordingly, at this time we cannot determine the
exact amount of proceeds we will receive upon the issuance of our common stock
in connection with draw downs under the Structured Equity Line Agreement.
We intend to use any proceeds we receive upon the exercise of the warrants
or the issuance of common stock under the Structured Equity Line Agreement for
working capital and other general corporate purposes.
DIVIDEND POLICY
We have not declared or paid cash dividends on our common stock in the past
and do not intend to pay dividends on our common stock in the foreseeable
future.
10
<PAGE> 12
BUSINESS
OVERVIEW
We are developing a biotechnology product that has significant potential to
treat multiple diseases and we develop and commercialize pharmaceutical
products. Our product is a recombinant form of a natural hormone called relaxin.
Relaxin reduces the hardening, or fibrosis, of skin and organ tissue, dilates
existing blood vessels and stimulates new blood vessel growth. We currently have
clinical trials underway with relaxin for scleroderma and infertility and have
submitted an application with the FDA to commence testing the efficacy of
relaxin to treat blocked or restricted blood vessels in the extremities, which
is known in the medical field as peripheral arterial disease. We currently
market three products targeted at specialty medical markets. Specialty medical
markets are characterized by markets with large patient populations that are
served by relatively small, and therefore more accessible, groups of treating
physicians. Our initial commercial focus is on dermatology. If we receive FDA
approval to commercialize relaxin, we intend to expand our commercial efforts to
the rheumatology, infertility and other specialty medical markets.
We are building our business by developing relaxin for a number of
indications, and are conducting multiple clinical trials. These include a
pivotal trial for scleroderma and two trials to determine safety and efficacy
for infertility. In addition, in March 2000, we submitted an investigational new
drug application to initiate a clinical trial to determine relaxin's efficacy
for the treatment of peripheral arterial disease. In our commercial business, we
are offering products with clinically proven therapeutic advantages and are
providing quality customer service to physicians through our experienced sales
and marketing staff. By pursuing a dual business model of developing relaxin for
a variety of significant markets, while at the same time commercializing our
current products, we believe we have a diversified and balanced strategy. We
maintain North American rights for relaxin and have entered into three
collaborative relationships for this program for markets outside of the United
States.
CONXN -- OUR RELAXIN DEVELOPMENT PROGRAM
OVERVIEW
We manufacture a cloned version of the natural hormone relaxin. Relaxin
circulates in the blood and has a broad spectrum of biological activities. It
plays a role during pregnancy in pelvic remodeling and increasing blood supply
to the fetus. Relaxin may also enhance the kidneys' ability to remove toxins
from the woman's body. In a non-pregnant state, administering relaxin stimulates
blood flow to oxygen-deprived tissue, and inhibits the hardening or fibrosis
associated with a number of diseases. Relaxin is in a category of hormones that
includes erythropoetin, growth hormone and insulin which circulate in the blood
in response to specific stimuli. These hormones tend to have an excellent safety
profile since they circulate naturally in the blood and their sites of targeted
activity are separate from the site where they are produced. By contrast, some
biotechnology products that act locally tend to cause significant toxicities
when they are administered systemically, or into the bloodstream. In addition,
hormones in the category that relaxin is in are highly selective in their
biological actions. Given relaxin's biological properties and its strong safety
profile, the hormone has significant potential for the treatment of a variety of
human diseases.
We believe the most significant near-term use of relaxin is for the
treatment of progressive systemic sclerosis, a severe form of scleroderma that
is life threatening and afflicts approximately 70,000 persons in the United
States. Scleroderma is a disease where skin and organs harden, or become
fibrotic, with unknown causes. We completed patient enrollment in a clinical
trial intended to provide sufficient data for approval, known as a Phase II/III
pivotal clinical trial, for the treatment of
11
<PAGE> 13
scleroderma in December 1999, and anticipate announcing results of that trial in
the fourth quarter of 2000.
Infertility, peripheral vascular disease, cardiovascular disease, and
kidney disease represent opportunities for relaxin's other biologic properties,
namely, enhancing blood flow to oxygen-deprived tissues and enhancing kidney
function. There are two ways to increase blood flow to a specific region. The
first is by increasing the size of the blood vessel, or vasodilation, and the
second is by generating more blood vessels, or angiogenesis. Relaxin
accomplishes both by inducing factors that act locally. In December 1999, we
initiated enrollment in two clinical trials to determine safety and efficacy for
the treatment of infertility. In March 2000, we filed an investigational new
drug application to begin a clinical trial to determine efficacy for the
treatment of peripheral arterial disease. We licensed the exclusive worldwide
rights to develop and commercialize recombinant human relaxin from Genentech,
except for co-exclusive rights with Genentech for reproductive indications. Our
strategy has been to retain U.S. rights for all potential indications for the
drug.
The status of our relaxin development program is as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
DISEASE STATUS MARKETING(1)
<S> <C> <C>
-----------------------------------------------------------------------------------------------
Scleroderma Pivotal clinical trial Connetics -- United States and other
enrollment completed; Medeva -- Europe
results expected by year end Paladin -- Canada
2000 Suntory -- Japan
Faulding -- Australia
-----------------------------------------------------------------------------------------------
Infertility(2) Trials ongoing to determine Connetics -- United States and other
safety and efficacy Medeva -- Europe
Paladin -- Canada
Faulding -- Australia
-----------------------------------------------------------------------------------------------
Peripheral arterial Investigational new drug Connetics -- United States and other
disease application submitted, Medeva -- Europe
expect to clinical trials to Paladin -- Canada
determine efficacy by fall Faulding -- Australia
2000
-----------------------------------------------------------------------------------------------
Kidney failure Expect to initiate clinical Connetics -- United States and other
trials to determine efficacy Medeva -- Europe
in late 2000 Paladin -- Canada
Faulding -- Australia
-----------------------------------------------------------------------------------------------
Organ fibroses, prevention Preclinical development Connetics -- United States and other
of scarring Medeva -- Europe
Paladin -- Canada
Faulding -- Australia
-----------------------------------------------------------------------------------------------
</TABLE>
(1) We retain the rights to non-U.S. territories that are not the subject of
collaboration agreements.
(2) We have co-exclusive rights with Genentech for infertility and other
reproductive indications.
12
<PAGE> 14
THE PRIMARY BIOLOGICAL ACTIVITIES OF RELAXIN
Hundreds of researchers have tested and analyzed the biology of relaxin
since the 1950s. Relaxin was first identified over 70 years ago as a substance
that circulates in the blood stream during pregnancy. While we are still
learning about relaxin as a treatment for human disease, the multi-faceted
biological mechanisms of the hormone are well understood. Relaxin has three
principle biological activities:
- anti-fibrosis, or reducing the hardening and scarring of tissue;
- vasodilation, or expanding blood vessels; and
- angiogenesis, or stimulating the production of new blood vessels.
These natural activities of the hormone may be useful for the treatment of
a variety of diseases. Because the biological effects of relaxin have been shown
to be independent of gender or reproductive state, relaxin has the potential to
have numerous therapeutic benefits in humans.
Anti-Fibrosis
Relaxin plays a key role in blocking the formation of excessive scar or
fibrotic tissue by regulating both the material that causes tissue scarring as
well as the material that breaks down scar tissue. Specifically, relaxin
decreases the production of collagen, which is the material that makes up scar
tissue. In addition, relaxin promotes collagen breakdown by stimulating the
production of collagenase, an enzyme that breaks down collagen, and by
decreasing the production of a known agent that blocks collagenase activity. In
preclinical studies, relaxin demonstrated a dose-dependent ability to inhibit
collagen accumulation in fibrosis models. In animal studies, relaxin has been
shown to inhibit organ fibroses in the lung and kidney, and to improve organ
function. These studies together, with the human data we have collected in
scleroderma patients, demonstrate that relaxin holds significant promise as an
anti-fibrotic agent in the treatment of various fibrotic diseases and disorders.
Vasodilation
Relaxin induces vasodilation, the expansion of blood vessels, by
stimulating the secretion of nitric oxide into the blood stream. Nitric oxide
relaxes and expands blood vessels, enabling the vessels to carry more blood.
Renal vasodilation occurs during pregnancy and has been observed in various
animal studies after relaxin administration. In addition, recently published
research indicates that relaxin may be the hormone responsible for the dramatic
increases in kidney function that occur during a normal pregnancy. The
publication cites research in which relaxin treatment in animals significantly
increased the kidneys' ability to filter blood by 33%, and increased blood flow
to the kidney by 49%.
Angiogenesis
Angiogenesis refers to the creation of new blood vessels, which has shown
promise in animal models and human clinical trials for the treatment of
ischemic, or oxygen deprived, tissue. Vascular endothelial growth factor, or
VEGF, and basic fibroblast growth factor, or bFGF, have individually been shown
to promote angiogenesis in animal models and human studies of heart disease as
well as peripheral vascular disease. However, when bFGF and VEGF proteins are
administered systemically, they have been shown to cause a variety of adverse
side effects such as low blood pressure, irregular heartbeat, and reduced
cardiac output. Due to these toxicities, there is limited therapeutic value in
administering bFGF and VEGF directly into the bloodstream. In contrast, relaxin
induces angiogenesis selectively in animal models when it is introduced into the
bloodstream, because it stimulates the production of both VEGF and bFGF only at
the site where the tissue is oxygen-
13
<PAGE> 15
deprived, and not throughout the body. Relaxin circulates in the blood naturally
during pregnancy, and has an established safety profile based on Phase II
clinical trials. We believe, therefore, that relaxin may have more potential to
treat vascular diseases than bFGF or VEGF. In addition, studies show that when
VEGF and bFGF are both stimulated, there is a synergistic therapeutic effect
that is greater than when either growth factor is present alone.
RELAXIN DEVELOPMENT PROGRAMS
Scleroderma
The first indication for which we are developing relaxin is scleroderma, a
serious disease involving the excessive formation of connective tissue.
Scleroderma is characterized by thickening and hardening of the skin and, in
severe cases, the internal organs, including the heart, lungs, kidneys and the
organs of the gastrointestinal tract. Scleroderma can cause extensive
disfigurement and quality of life impairment, often making it impossible for
patients to carry out the most routine daily functions. The disease also affects
lung and kidney function causing serious illness and, in the most severe cases,
death. The Scleroderma Research Foundation estimates that between 300,000 and
500,000 individuals in the United States, of whom 80% are women, suffer from
various forms of this disease, with approximately 70,000 having a severe form of
scleroderma called progressive systemic sclerosis. We have been granted orphan
drug status in the United States for relaxin for treatment of progressive
systemic sclerosis.
The most serious form of progressive systemic sclerosis, called diffuse
scleroderma, is often fatal. Few therapies exist that ease the pain and
suffering of scleroderma patients. In June 1997, we announced results of a Phase
II trial for relaxin in patients with diffuse scleroderma. The results of the
Phase II trial showed that the administration of 25 micrograms per kilogram of
body weight per day of relaxin caused a statistically significant (p = 0.04)
reduction in skin score the primary clinical endpoint, and positive trends were
seen in eleven other secondary disease parameters. Skin score is a physical
evaluation of a patient's skin measuring the thickness of the skin at 17 points
on the body. In the 25 micrograms per day group, 71% of the patients showed a
7-point or better improvement in skin score as compared to 37% of the patients
receiving placebo. A 7-point reduction in skin score represents approximately a
25% reduction in skin fibrosis. No patients receiving the 25 microgram dose got
worse while on therapy whereas 21% of the placebo treated patients worsened.
Patient lung function was a secondary parameter as measured by forced vital
capacity. Diffuse scleroderma patients typically lose approximately 8% of lung
function every year. Over the duration of the six-month study, the patients
treated with placebo experienced a 3.8% decrease in lung function, compared to a
1.0% decrease in the patients receiving 25 micrograms. This outcome demonstrated
a positive trend in slowing progression of loss of lung function, but was not
statistically significant. In addition to the 25 microgram and placebo groups,
in the Phase II trial we also evaluated a group of patients receiving a higher
daily dose of 100 micrograms per kilogram of body weight per day. The 100
microgram dose level was safe; however, we did not observe a significant
clinical effect versus placebo.
To our knowledge, recombinant human relaxin is the only therapy to show
statistically significant efficacy in a double-blind, placebo-controlled trial
for scleroderma. Based partly on the results of our clinical trials for
scleroderma, we believe that relaxin may have a beneficial effect on reducing
fibrotic tissue and may serve as a treatment for scleroderma. We completed
enrollment of a 239-patient Phase II/III pivotal clinical trial of relaxin for
the treatment of diffuse scleroderma in December 1999. We anticipate announcing
trial results by the end of 2000. If the results from this trial are positive,
we intend to submit a biologics license application to the FDA requesting
clearance to market relaxin for the treatment of scleroderma in 2001.
14
<PAGE> 16
Infertility
Industry sources estimate that one out of six American couples is
infertile, with 60% of the cases being due to disorders in the woman. One half
of these problems in women are caused by pelvic factors, including how receptive
the endometrium is to implantation of an embryo. Recent technological progress
in the area of infertility, including the development of techniques for
controlled ovarian hyperstimulation and donor embryo transfers, has resulted in
approximately 75,000 births annually in the United States from assisted
reproductive technologies. However, despite the progress, a successful pregnancy
occurs in only approximately 20% of in vitro fertilization cycles started. Two
major causes of infertility are the failure of the embryo to implant in the
uterus, and failure of the embryo and fetus to receive adequate blood flow to
develop and grow.
The promise of relaxin to treat infertility is based on its ability to
stimulate new blood vessel growth in the endometrium. We believe this mechanism
of action is due to relaxin's ability to induce VEGF, which is a potent
angiogenic agent, locally in the cells of the endometrium. Endometrial blood
flow is believed to be important in determining how receptive the endometrial
lining is to implantation of an embryo. We believe that, by enhancing
endometrial blood flow, relaxin treatment may increase the likelihood that an
embryo will successfully implant in the endometrium, and therefore would
increase pregnancy success rates. In addition, an increase in the rate of embryo
implantation would reduce the need for multiple embryo transfers in in vitro
fertilization cycles, and hence reduce the costs and high frequency of multiple
births from women undergoing in vitro fertilization treatments.
An analysis of relaxin levels produced by cultured ovarian cells obtained
from in vitro fertilization subjects shows that relaxin levels are positively
correlated with implantation and full term pregnancy. Relaxin has been
associated with placental blood flow in the developing placenta in pregnant
women. Other studies have associated relaxin with the growth of new blood
vessels in the endometrium of monkeys. In addition, 72% of all women receiving
relaxin in our scleroderma clinical trial reported heavier than usual menstrual
bleeding. Researchers have correlated heavy menstrual bleeding with increased
uterine artery blood flow. Accordingly, we believe that relaxin may be useful in
the treatment of infertility. In December 1999, we initiated two clinical trials
with relaxin to determine the safety and efficacy for the treatment of
infertility. The trials have been designed to test relaxin's ability to cause
both increased blood flow to and thickening in the endometrium, which may
enhance implantation of the embryo. We are conducting reproductive toxicology
tests in animals in parallel with the trials in anticipation of studying relaxin
in women trying to get pregnant.
Peripheral Arterial Disease
Peripheral arterial disease is a syndrome characterized by inadequate blood
flow to the extremities, particularly the lower limbs. Peripheral arterial
disease often leads to severe leg pain and debilitating ulcers due to chronic
oxygen deprivation of the lower extremities. In its more serious manifestations,
patients with peripheral arterial disease can develop gangrene, which may result
in amputation of the affected limb. It is caused by a variety of serious medical
conditions, but the single most common cause is diabetes mellitus or Type II
diabetes. As the incidence of Type II diabetes is increasing in both developed
and developing nations, and because there are limited therapeutic options for
treatment, peripheral arterial disease is becoming an increasingly frequent
medical problem.
The promise of relaxin to treat peripheral arterial disease is based on its
ability to increase blood flow to oxygen-deprived tissue through its
vasodilatory and angiogenic activities. Relaxin's vasodilatory property relates
to its ability to stimulate the secretion of nitric oxide at selective targets
without side effects. Nitric oxide is an agent known to cause vasodilation and
improve vascularization, or blood flow. There is evidence that nitric oxide
synthesis is impaired in patients with peripheral arterial
15
<PAGE> 17
disease, and restoration of nitric oxide levels in the blood vessels by the
administration of a known nitric oxide stimulator reduced the severe pain
experienced by peripheral arterial disease patients due to constricted blood
vessels. Clinical studies have shown that other agents that cause vasodilation,
such as prostacyclin, alleviated the acute symptoms of peripheral arterial
disease and improved ulcer healing, but are also associated with side effects,
including low blood pressure. Although there are drugs currently available for
pain due to constricted blood vessels, surgery is the only option available for
more severe incidences. We believe that relaxin, although it is administered
systemically, may have a specific therapeutic effect at the precise location
where more blood flow is needed, and may have a positive effect in the treatment
of more severe incidences of the disease.
Relaxin may also be beneficial in treating peripheral arterial disease due
to its angiogenic activity. Relaxin stimulates the growth of new blood vessels
at the site of oxygen-deprived tissue through a several step process, further
enhancing the blood flow to the site of oxygen-deprived tissue. At this site,
macrophages, which are cells that help fight infection and injury, become
activated. Relaxin is known to bind to activated macrophages, which in turn
stimulates the production of VEGF and bFGF. These two growth factors play a
potent role in the growth of new blood vessels.
Clinical trials using porcine relaxin for the treatment of peripheral
arterial disease have been published prior to the era of recombinant DNA
technology. In these studies, improved blood flow and healing of oxygen deprived
ulcers was reported. Forty-three patents were treated with porcine relaxin daily
and efficacy was judged either by skin temperature or blood flow to digits and
segments. Mean skin temperature, compared to baseline, increased over six months
by approximately 3(LOGO)C, indicating increased blood flow. Some patients
experienced healing of ulcers, typically within 3 months of therapy.
Additionally, patients with Raynaud's symptoms, or extreme sensitivity to cold
causing restriction of blood vessels, experienced improvement in their symptoms.
Finally, two patients taking relaxin who were known to have heart disease and
chest pain, had a dramatic decrease in their need for nitroglycerin tablets,
which stimulate the production of nitric oxide. Withdrawal of therapy or
conversion to a much less potent relaxin therapy resulted in recurrence of
symptoms and decline in skin temperatures.
We have recently submitted an investigational new drug application to the
FDA to initiate a Phase II clinical trial with relaxin to treat peripheral
arterial disease. Our peripheral arterial disease trial will also examine
relaxin's effect in treating kidney and cardiovascular disease, which are often
present in patients with peripheral arterial disease.
Organ Fibroses
We believe that relaxin may have further potential in treating
organ-specific fibroses, such as kidney, pulmonary, and liver fibroses. Each of
these fibrotic conditions has a common cause, namely the production of excessive
amounts of collagen that the body is unable to break down adequately. Relaxin's
ability to interrupt the production of and to promote the breakdown of scarred
or hardened tissue may make it effective in the treatment of such diseases.
Relaxin may have potential for treating kidney fibrosis that occurs from
diabetes and other diseases leading to impairment of the kidney, which are
currently treated with steroids and angiotensin-converting enzyme inhibitors. We
are also exploring the possibility of using relaxin to treat cardiac diseases,
specifically the scarring of the heart that occurs in heart attacks,
atherosclerosis and hypertension, as well as vessel blockage following
angioplasty. There may also be potential for the treatment of chronic
inflammation and scarring in the walls of the lungs, and fibrosis induced in the
liver by chronic hepatitis or cirrhosis of the liver.
RELAXIN STRATEGIC AGREEMENTS
To date, we have entered into four strategic agreements for our relaxin
program for markets outside of the United States. We have licensed rights to
develop and commercialize relaxin to
16
<PAGE> 18
Medeva Plc for Europe, Suntory Pharmaceuticals, Ltd. for Japan, Paladin Labs,
Inc. for Canada, and F.H. Faulding & Co. for Australia. Our license agreements
with these international companies are financially and commercially valuable as
they offset much of the costs associated with developing relaxin and will make
it possible to commercialize the product in geographical markets outside of our
focus. In combination, the three agreements may potentially provide
approximately $52 million in license, development, milestone and equity
payments, plus royalties on product sales for the successful development of
relaxin for the treatment of scleroderma. We may receive additional milestone
payments for the approval of additional indications outside of the United
States. We may pursue additional license agreements for other foreign markets,
and intend to retain rights for the United States. We have entered into a
collaborative research agreement with another company for the development of a
new delivery system for relaxin that may be more convenient than the current
pump delivery system.
COMMERCIALIZATION AND DERMATOLOGY ACTIVITIES
We are currently selling three products targeted at specialty medical
markets, and developing others. These products include:
<TABLE>
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
PRODUCT DISEASE STATUS MARKETING
-----------------------------------------------------------------------------------------
Luxiq Mild to moderate scalp dermatoses Marketed North America
-----------------------------------------------------------------------------------------
OLUX Moderate to severe scalp New drug application Worldwide
dermatoses approved
-----------------------------------------------------------------------------------------
Liquipatch Various diseases of the skin In development North America(1)
-----------------------------------------------------------------------------------------
Other foam Various diseases of the skin In development North America
formulations
-----------------------------------------------------------------------------------------
Ridaura Rheumatoid arthritis Marketed United States
-----------------------------------------------------------------------------------------
Actimmune Chronic granulomatous disease Marketed United States
Royalties
-----------------------------------------------------------------------------------------
</TABLE>
(1) Soltec reserved rights to certain specific Liquipatch formulations for North
America.
Our commercialization activities target specialty medical markets, which
are characterized by markets with large patient populations that are served by
relatively small, and therefore accessible, groups of treating physicians. In
our commercial business, we are offering products with clinically proven
therapeutic advantages and are providing quality customer service to physicians
through our experienced and focused sales and marketing staff. Our commercial
strategy permits us to effectively reach the majority of the treating
physicians. Currently, our primary commercial focus is on dermatology.
Approximately 6,000 of the 8,500 U.S. dermatologists account for 90% of the
prescriptions written by dermatologists.
Dermatological diseases often persist for an extended period of time and
are treated with clinically proven drugs that are currently delivered in a
variety of formulations, including solutions, creams, gels and ointments. We
believe that these existing delivery systems often inadequately address a
patient's needs for efficacy and cosmetic elegance, and that the failure to
address those needs may decrease patient compliance. We have two foam-based
products for the treatment of scalp dermatoses: Luxiq, which we currently
market, and OLUX, which the FDA approved in late May 2000. We believe that our
proprietary foam delivery system has significant treatment and cosmetic
advantages over conventional therapies for scalp dermatoses. These advantages
include improved efficacy due to higher absorption and more localized delivery
of the active agent. The unique foam formulation liquefies when applied to the
skin, and enables rapid penetration of the active
17
<PAGE> 19
dermatologic agent, thus enhancing efficacy. When the foam is applied, it dries
quickly, is not greasy, and does not stain or have any odor. As a result, we
believe that the combination of the increased efficacy and the cosmetic elegance
of the foam may actually improve patient compliance and satisfaction.
Luxiq Foam
Luxiq is a foam formulation of betamethasone valerate, a mid-potency
topical steroid which is prescribed for the treatment of mild to moderate
steroid responsive scalp dermatoses such as psoriasis, eczema and seborrheic
dermatitis. We licensed the North American rights from Soltec Research Pty Ltd.,
a subsidiary of F.H. Faulding & Co., Ltd., to develop and commercialize Luxiq.
In our pivotal trial, patients treated with Luxiq experienced a statistically
significant improvement over patients treated with placebo or a currently
approved betamethasone valerate mid-potency lotion. In March 1999, we received
FDA clearance for Luxiq and in April 1999 we initiated commercial sales in the
United States.
OLUX Foam
OLUX is a foam formulation of clobetasol propionate, a super high-potency
topical steroid which we are developing for the treatment of moderate to severe
steroid-responsive dermatoses of the scalp. We have licensed worldwide rights
from Soltec to develop and commercialize OLUX. In 1998, we completed a pivotal
clinical trial of approximately 190 scalp psoriasis patients, comparing OLUX to
a currently approved clobetasol solution and placebo during a two week treatment
regimen. OLUX trial results showed a 74% improvement in the global response to
treatment as judged by the investigators for OLUX as opposed to 63% for
clobetasol solution and 8% for placebo. Primary endpoints included changes in
the clinical signs of psoriasis: plaque thickness, scaling, erythema, or
redness, and the global response to treatment as judged by the investigator. In
May 2000, the FDA approved our new drug application for OLUX, and we anticipate
beginning commercial sales of OLUX in late 2000.
Dermatology Product Pipeline
In December 1999, we entered into a comprehensive licensing agreement with
Soltec for exclusive rights to certain applications of a broad range of unique
topical delivery technologies, including aerosol foam formulations and Soltec's
patented Liquipatch technology. Similar to our foam delivery system for Luxiq
and OLUX, the new aerosol foams, including water-, ethanol- and petrolatum-based
foams, may offer improved efficacy over traditional formulations due to greater
absorption of the active ingredient to the skin. In addition to the potential
for improved efficacy, the foam formulations represent a cosmetically elegant
alternative to existing dermatologic treatments. Liquipatch is a gel-matrix
delivery system that applies to the skin like a normal gel and dries to form a
very thin, invisible, water-resistant film. This film enables a controlled
release of the active agent to provide longer relief, with the potential of
being less irritating to the skin than other delivery systems. With this
agreement in place we are positioned to pursue simultaneous development of a
number of innovative products. We anticipate developing one or more new products
in the aerosol foam or Liquipatch formulations, by incorporating leading
dermatologic agents, in such a way as to deliver formulations that are tailored
to treat specific diseases or different areas of the body. We expect to seek
partners for over-the-counter market opportunities and for development and
commercialization outside the United States.
Ridaura
Ridaura is an oral formulation of a gold salt for the treatment of
rheumatoid arthritis, a chronic autoimmune disease that results in painful
inflammation and erosion of the joints and loss of mobility. Over two million
individuals in the United States suffer from this disease. Ridaura is currently
18
<PAGE> 20
indicated for adults with active rheumatoid arthritis who are not responsive to,
or are intolerant of, treatment with non-steroidal anti-inflammatory drugs.
Ridaura competes on the basis of clinical evidence that shows the drug slows the
progression of damage to joint tissue. Our 1999 sales of Ridaura declined to
approximately $5.7 million from $7.5 million in 1998. We believe that our sales
have declined over this time period, and are likely to continue to decline, in
part due to the introduction of several major rheumatoid arthritis therapies in
late 1998 and 1999.
Actimmune
In 1998, we licensed from Genentech exclusive rights to Actimmune,
interferon gamma, for the United States and Japan. Interferon gamma is one of a
family of proteins involved in the regulation of the immune system and has been
shown to reduce the frequency and severity of certain infections. We formed a
subsidiary, InterMune Pharmaceuticals, Inc., to develop Actimmune for various
infections and fungal diseases. In April 1999, InterMune became an independent
company, and on June 26, 2000 we assigned our remaining rights to InterMune to
develop Actimmune. In exchange, InterMune paid us approximately $5.2 million and
will pay us an additional $0.9 million in March 2001. InterMune will pay us a
royalty on Actimmune sales beginning January 1, 2002. In addition, we have
retained the product rights for potential dermatological applications. Our sales
of Actimmune for the twelve months ended December 31, 1999 were approximately
$4.8 million and $1.8 million during Q1 of 2000. There were no sales in Q2.
SALES AND MARKETING
We have an experienced, highly productive sales and marketing organization.
We intend to maintain control of sales and marketing responsibilities for our
targeted specialty markets in the United States. Outside of our target markets,
we have entered into partnerships to manage product commercialization
activities. For example, our relaxin partners, Medeva for Europe, Suntory for
Japan, Paladin for Canada, and Faulding for Australia, will be responsible for
commercializing relaxin in their territories should that product be approved. In
addition, we have agreements with MGI Pharma to provide sales support for
Ridaura and Luxiq to rheumatologists.
Our sales representatives focus on cultivating relationships of trust and
confidence with the physicians they call upon. We use a variety of advertising,
promotional material, specialty publications, participation in educational
conferences and product Internet sites to achieve our marketing objectives. We
supplemented our sales staff in late 1999 with contract sales representatives to
increase the frequency of our sales calls or to assist with the launch of
products. Currently, all of our product distribution activities are handled by
CORD in the United States. As of August 24, 2000, we had 54 people in our sales
and marketing organization, including 43 sales representatives and others
working outside of our principal offices.
STRATEGIC AGREEMENTS
We have entered into numerous strategic development and commercialization
relationships that have substantially expanded our business. Our main reasons
for entering into strategic partnerships are to gain access to additional
product and market opportunities and to share the risk and financial cost of
developing products. These collaborations may help us to increase product sales
and marketing activities, and extend development and commercialization
activities to foreign markets.
Relaxin -- Biotechnology Product Development Agreements
Medeva PLC
In January 1999, we entered into an exclusive license agreement with Medeva
PLC for the development and commercialization of relaxin in Europe. Under the
terms of the agreement, Medeva
19
<PAGE> 21
will pay up to $35.0 million in development, milestone and equity payments for
the successful development of relaxin for the treatment of scleroderma. As of
June 30, 2000, we have received $7 million. We may receive additional milestone
payments for the approval of additional indications for relaxin in Europe.
Medeva will be responsible for all development and commercialization activities
in Europe. Medeva will purchase relaxin from us and pay royalties on European
sales of relaxin. Until the earlier of five years after we launch relaxin in the
United States or the end of the first calendar year when Medeva's European net
sales of relaxin exceed $25.0 million, Medeva will receive 50% of our operating
profits from U.S. relaxin sales.
Suntory
In April 1998, we entered into an exclusive license agreement with Suntory
for the development, commercialization and supply of relaxin for scleroderma in
Japan. Under the terms of the agreement, Suntory will pay up to 1.6 billion yen,
which we estimated to be up to $14.0 million in license, development and
milestone payments, based upon the exchange ratio at the time of the
transaction. Suntory is responsible for all development and commercialization
activities in Japan. Suntory will purchase relaxin materials from us, make
payments based upon development progress in the United States and Japan and pay
us royalties on sales in Japan.
Paladin Labs
In July 1999, we entered into an exclusive license agreement with Paladin
for the development and commercialization of relaxin in Canada. Under the terms
of the agreement, Paladin will pay up to $3.2 million in development, milestone
and equity payments for the successful development of relaxin for the treatment
of scleroderma. We may receive additional milestone payments for the approval of
additional indications for relaxin in Canada. Paladin is responsible for all
development and commercialization activities in Canada, and will pay royalties
on all sales of relaxin in Canada.
Faulding
In April 2000, we entered into an exclusive license agreement with Faulding
for the development and commercialization of relaxin in Australia. Under the
terms of the agreement, Faulding paid $500,000 for the initial license of
relaxin for the treatment of scleroderma. We may receive additional milestone
payments for the approval of additional indications for relaxin in Australia.
Faulding is responsible for all development and commercialization activities in
Australia, and will pay royalties on all sales of relaxin in Australia.
Genentech
In September 1993, we entered into an agreement with Genentech, which was
subsequently amended in July 1994 and April 1996. The agreement, as amended,
grants to us exclusive rights, for indications other than reproductive
indications, to make, have made, use, import and sell certain products derived
from recombinant human relaxin. Many of our relaxin patent rights are owned by
The Florey Institute, and we license them through the agreements with Genentech.
Genentech retains co-exclusive rights for reproductive indications. The
agreement also includes technology transfer, supply, and intellectual property
provisions, including a provision requiring us to meet milestones. Our failure
to achieve designated milestones allows Genentech to terminate the license. Upon
termination, we could be required to license our relaxin technology to
Genentech, on a non-exclusive basis.
20
<PAGE> 22
Dermatology Program and Other Commercialized Products Agreements
Soltec
We are party to four agreements with Soltec, which give us exclusive rights
to specified applications of a broad range of unique topical delivery
technologies, including several distinctive aerosol foams. Our relationship with
Soltec led to our development of Luxiq, which we launched in April 1999, and to
the development of OLUX. In May 2000, the FDA approved our new drug application
for OLUX for the treatment of moderate to severe scalp dermatoses. We anticipate
conducting parallel product development on several products over the next
several years.
Under a comprehensive collaboration agreement that we entered into with
Soltec in December 1999, we paid Soltec $1 million in cash and stock, and may
make future milestone, development and royalty payments. We also have
obligations to develop new products incorporating the licensed technology on
timelines agreed to by the parties, and we will pay royalties on our net sales
on those products if and when they are approved for sale in the licensed
territory. We also agreed to pay Soltec an annual fee in exchange for continuing
research and the rights to future product formulations that Soltec may develop.
InterMune Pharmaceuticals
In December 1995, we entered into a license agreement with Genentech to
acquire exclusive U.S. development and marketing rights to interferon gamma for
dermatological indications. The cumulative effect of a number of subsequent
amendments to the original license agreement is to expand the fields of use for
which the license applies, and adding Japan and Canada to the licensed
territory. Genentech manufactures and supplies Actimmune pursuant to a separate
supply agreement. We established a subsidiary, InterMune, in 1998 to develop
Actimmune for serious pulmonary and infectious diseases and congenital
disorders. In April 1999, InterMune became an independent company, and in March
2000, InterMune went public. As of August 24, 2000, we held 1,049,445 shares of
common stock of InterMune, which represents approximately a 4.4% equity position
in InterMune. We will receive additional cash payments in March 2001, and
royalties on Actimmune sales after December 31, 2001. On June 26, 2000 we
assigned our remaining rights and obligations under the license with Genentech
and the corresponding supply agreement to InterMune. In addition, we hold an
option to purchase the product rights for potential dermatological applications
of Actimmune.
MGI Pharma
In March 1999, we entered into two agreements with MGI Pharma. Under the
terms of the agreements, MGI Pharma promotes Ridaura and Luxiq to the
rheumatology market in the United States. These arrangements take advantage of
MGI Pharma's specialty sales force that calls on rheumatologists in the United
States, and allow us to focus our attention on the dermatology marketplace.
PATENTS AND PROPRIETARY RIGHTS
Our success will depend in part on our ability and our licensors' ability
to obtain and retain patent protection for our products and processes, to
preserve our trade secrets, and to operate without infringing the proprietary
rights of third parties.
We own or are exclusively licensed under pending applications and/or issued
patents worldwide relating to ConXn, Luxiq and OLUX, as well as other technology
in the earlier stages of research.
We license many of our relaxin patent rights from The Florey Institute
through a sublicense from Genentech. We have a separate agreement with the
Florey Institute that requires us to pay
21
<PAGE> 23
relaxin royalties based on our sales directly to the Florey Institute in
addition to those royalties payable to Genentech. Under the agreement, we
provide annual research funding to the Florey Institute for up to five years or
until the date of the first sale of a relaxin product. We have also agreed to
pay the Florey Institute a portion of revenues we receive from corporate
collaborators.
Our relaxin patent portfolio includes pending applications and issued
patents in the United States and various international equivalents which we own
or license from others. Our relaxin patent portfolio includes certain claims
within the following categories:
- compositions of matter;
- pharmaceutical compositions;
- methods of manufacture; and
- methods of treatment.
The issued patents in our relaxin patent portfolio will expire at various
times between 2002 and 2015. Recently, new biological activities of relaxin have
been elucidated, and we are pursuing methods of treatment patents with our
academic collaborators. The U.S. Patent and Trademark Office does not have a
consistent policy regarding the breadth of claims allowed in biotechnology
patents and the degree of future protection for our proprietary rights is
uncertain. In addition, the patent laws of foreign countries differ from those
of the U.S. and the claims allowed may differ from country to country.
Accordingly, the degree of protection, if any, afforded by foreign patents may
be different from that in the U.S.
One of the European patents licensed to us, which claims gene sequence
encoding human relaxin, was opposed by a third party challenging the ethics of
patents on a human gene sequence. Our licensor successfully defended the
original opposition, resulting in a decision in our favor, but the decision has
been appealed. We may not be successful on appeal. An adverse decision could
result in a requirement that our licensor amend the language of the patent in
ways that we cannot currently predict, and would require us to reassess the
strength of that patent after it was amended.
With respect to patent applications that we or our licensors have filed,
and patents issued to us or our licensors, we cannot assure you that:
- any of our or our licensors' patent applications will issue as patents;
- any such issued patents will provide competitive advantage to us; or
- our competitors will not successfully challenge or circumvent any such
issued patents.
The interferon gamma patent portfolio includes issued U.S. patents and
other pending U.S. applications. We receive revenue and royalty payments from
the interferon gamma patent portfolio pursuant to our agreement with InterMune.
The issued interferon gamma patents begin to expire in 2009. The interferon
gamma portfolio covers compositions of matter, pharmaceutical compositions, and
methods of treatment.
We encourage ongoing scientific research on relaxin by making samples of
recombinant human relaxin available for medical or scientific research studies.
To preserve our rights to the recombinant protein and to the technology in
general, we require each recipient of relaxin samples to sign a materials
transfer agreement. If these agreements are breached, however, remedies may not
be available or adequate and our trade secrets may otherwise become known to
competitors. To the extent that our consultants, employees or other third
parties apply technological information independently developed by them or by
others to our proposed projects, third parties may own all or part of the
proprietary rights to such information, and disputes may arise as to the
ownership of these
22
<PAGE> 24
proprietary rights which may not be resolved in our favor. Such third parties
may attempt to patent their work and, if patents are issued, they may not be
available to license to us.
MANUFACTURING
We contract with independent sources to manufacture our products, which
enables us to focus on product and clinical development strengths, minimize
fixed costs and capital expenditures, and gain access to advanced manufacturing
process capabilities. Boehringer Ingelheim manufactures relaxin for us for
clinical and commercial uses under a long-term contract. Luxiq and OLUX are
currently manufactured for us by CCL Pharmaceuticals. Actimmune is manufactured
by Genentech, and Ridaura is manufactured by SmithKline.
COMPETITION
We believe relaxin provides opportunities for treatment of life threatening
diseases for which there are few or no current alternatives. Nevertheless, the
pharmaceutical and biotechnology industries are highly competitive. Other
products and therapies currently exist on the market or are under development
that could compete directly with some of the products that we are developing or
marketing. Numerous pharmaceutical and biotechnology companies and academic
research groups throughout the world are engaged in research and development
efforts with respect to therapeutic products targeted at diseases or conditions
that we are also addressing. In addition, we believe that the principal
competitive factors in our industry include:
- ability to obtain timely regulatory approvals from the FDA and similar
foreign regulatory agencies;
- operational competence in developing, protecting, manufacturing and
marketing products;
- managerial competence in identifying and pursuing product in-licensing
and acquisition opportunities; and
- access to financial resources.
Many of our existing or potential competitors, particularly large
pharmaceutical companies, have substantially greater financial, technical and
human resources than we do. In addition, many of these competitors have more
collective experience than we do in undertaking preclinical testing and human
clinical trials of new pharmaceutical products and obtaining regulatory
approvals for therapeutic products. Accordingly, our competitors may succeed in
obtaining FDA approval for products more rapidly than we do.
We intend to compete on the basis of the quality and efficacy of our
products, combined with the effectiveness of our marketing and sales efforts.
Competing successfully will depend on our continued ability to attract and
retain skilled and experienced personnel, to identify, secure the rights to, and
develop pharmaceutical products and compounds and to exploit these products and
compounds commercially before others are able to develop competitive products.
With regard to Ridaura, there are numerous products on the market, and
under development, for the treatment of rheumatoid arthritis. We believe that
our Ridaura sales declined in 1999 in part due to the competition of new
rheumatoid arthritis therapies introduced by Hoechst Marion Roussel, Immunex
Corporation and Monsanto Company.
GOVERNMENT REGULATION
The pharmaceutical and biotechnology industries are subject to regulation
by the FDA under the Food Drug and Cosmetic Act, and by similar agencies outside
of the United States. We expect that all of our pharmaceutical products will
require regulatory approval by governmental agencies before
23
<PAGE> 25
we can commercialize them. In particular, human pharmaceutical therapeutic
products are subject to rigorous preclinical and clinical testing and other
approval procedures by the FDA in the United States and similar health
authorities in foreign countries. Labeling and promotional activities are
subject to scrutiny by the FDA. Various federal and, in some cases, state
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, record keeping and marketing of such pharmaceutical products.
Failure to comply with applicable requirements can result in, among other
things, warning letters, fines, injunctions, penalties, recall or seizure of
products, total or partial suspension of production, denial or withdrawal of
approval, and criminal prosecution. Accordingly, ongoing regulation by
governmental entities in the United States and other countries will be a
significant factor in the production and marketing of any pharmaceutical
products that we have or may develop. The process of obtaining these approvals
and the subsequent compliance with appropriate federal and foreign statutes and
regulations are time-consuming and require the expenditure of substantial
resources.
Generally, in order to obtain FDA approval for a new therapeutic agent, a
company first must conduct pre-clinical studies. The basic purpose of
pre-clinical investigation is to gather enough evidence on the potential new
agent through laboratory experimentation and animal testing, to determine if it
is reasonably safe to begin preliminary trials in humans. The results of these
studies are submitted as a part of an investigational new drug application,
which the FDA must review before human clinical trials of an investigational
drug can start. We have filed and will continue to be required to sponsor and
file investigational new drug applications, and will be responsible for
initiating and overseeing the clinical studies to demonstrate the safety and
efficacy that are necessary to obtain FDA approval of our products.
Clinical trials are normally done in phases and generally take two to five
years, but may take longer, to complete. The rate of completion of our clinical
trials depends upon, among other factors, the rate at which patients enroll in
the study. Patient enrollment is a function of many factors, including the size
of the patient population, the nature of the protocol, the proximity of patients
to clinical sites and the eligibility criteria for the study. Delays in planned
patient enrollment may result in increased costs and delays, which could have a
material adverse effect on our business. Phase I trials generally involve
administration of a product to a small number of persons to determine safety,
tolerance and the metabolic and pharmacologic actions of the agent in humans and
the side effects associated with increasing doses. Phase II trials generally
involve administration of a product to a larger group of patients with a
particular disease to obtain evidence of the agent's effectiveness against the
targeted disease, to further explore risk and side effect issues, and to confirm
preliminary data regarding optimal dosage ranges. Phase I and Phase II trials
can sometimes be combined, with the FDA's concurrence, into a Phase I/II trial.
Phase III trials involve more patients, and often more locations and clinical
investigators than the earlier trials. At least one such trial is required for
FDA approval to market a drug. Phase II and Phase III trials can sometimes be
combined, with the FDA's concurrence, into a Phase II/III trial, which is an
accelerated clinical trial intended to provide sufficient data for approval.
After we complete the clinical trials of a product, we must file with the
FDA a new drug application, if the product is classified as a new drug, or a
biologics license application if the product is classified as a biologic. We
must receive FDA clearance before we can commercialize the product. The testing
and approval processes require substantial time and effort, and the FDA may not
grant approval on a timely basis or at all. The FDA can take between one and two
years to review new drug applications and biologics license applications, and
can take longer if significant questions arise during the review process. While
various legislative and regulatory initiatives have focused on the need to
reduce FDA review and approval times, the ultimate impact of such initiatives on
our products cannot be certain. In addition, if there are changes in FDA policy
while we are in product development, we may encounter delays or rejections that
we did not anticipate when we submitted
24
<PAGE> 26
the new drug application or biologics license application for that product. We
could encounter similar delays in other countries. We may not obtain regulatory
approval for any products that we develop, even after committing such time and
expenditures to the process. If regulatory approval of a product is granted,
such approval may entail limitations on the indicated uses for which the product
may be marketed.
The FDA continues to review marketed products even after granting
regulatory clearances, and later discovery of previously unknown problems or
failure to comply with the applicable regulatory requirements may result in
restrictions on the marketing of a product or withdrawal of the product from the
market, recalls, seizures, injunctions or criminal sanctions.
The Orphan Drug Act of 1983 provides incentives to develop and manufacture
products for the treatment of rare diseases. Under the Orphan Drug Act as
currently written, we may be eligible for tax benefits and be granted a
seven-year period of marketing exclusivity for ConXn for the orphan indication.
The "orphan drug" status of ConXn may provide us with seven years of market
exclusivity in the United States if ConXn is the first recombinant relaxin
product approval for the treatment of progressive systemic sclerosis. Although
this status would prevent other sponsors from obtaining clearance of the same
product for the same indication, or the same product for other indications, it
would not prevent sponsors from seeking or receiving clearance of other types of
products to treat the same indication. To maintain orphan drug status, we must
be able to manufacture a sufficient supply of the drug. We depend on Boehringer
Ingelheim to manufacture relaxin on a commercial scale, and any failure by
Boehringer Ingelheim to meet its commitments could jeopardize our period of
exclusivity in the U.S.
Our products will also be subject to foreign regulatory requirements
governing human clinical trials, manufacturing and marketing approval for
pharmaceutical products. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement are similar, but not
identical, to FDA requirements, and they vary widely from country to country.
THIRD PARTY REIMBURSEMENT AND HEALTH CARE REFORM
The commercial success of our products will be substantially dependent upon
the availability of government or private third-party reimbursement for the use
of such products. Medicare, Medicaid, health maintenance organizations and other
third-party payers may not authorize or otherwise budget such reimbursement.
Such governmental and third party payers are increasingly challenging the prices
charged for medical products and services. Consumers and third-party payers may
not view our marketed products as cost-effective, and consumers may not be able
to get reimbursement or reimbursement may be so low that we cannot market our
products on a competitive basis. Furthermore, federal and state regulations
govern or influence the reimbursement to health care providers of fees and
capital equipment costs in connection with medical treatment of certain
patients. We cannot predict the likelihood that federal and state legislatures
will pass laws related to health care reform or lowering pharmaceutical costs.
To the extent that these or other proposals or reforms have a material adverse
effect on our ability to secure funding for development, or on the business,
financial condition and profitability of other companies that are prospective
collaborators for certain of our product candidates, our product development
efforts will take longer than we currently anticipate. In certain foreign
markets pricing of prescription pharmaceuticals is already subject to government
control. Continued significant changes in the U.S. or foreign health care
systems could have a material adverse effect on our business.
ENVIRONMENTAL REGULATION
Our research and development activities involve the controlled use of
hazardous materials, chemicals and various radioactive materials. We are subject
to federal, state and local laws and
25
<PAGE> 27
regulations governing the use, storage, handling and disposal of such materials
and certain waste products. Although we believe that our safety procedures for
handling and disposing of such materials comply with the standards prescribed by
state, federal, and local laws and regulations, we cannot completely eliminate
the risk of accidental contamination or injury from these materials.
DEVELOPMENT
We have several products that require clinical and manufacturing
development, including our relaxin and dermatology products. Our development
activities involve work related to product formulation, preclinical and clinical
study coordination, regulatory administration, manufacturing, and quality
control and assurance. While many other pharmaceutical and biotechnology
companies conduct earlier stage research and drug discovery, our focus is on
later-stage development to minimize the risk and time requirements for us to get
a product on the market.
In addition to our in-house staff and resources, we contract a substantial
portion of development work to outside parties. For example, we typically engage
contract research organizations to manage our clinical trials. We have contracts
with vendors to conduct product analysis and stability studies, and we outsource
all of our manufacturing scale-up and production activities.
We also use collaborative relationships with pharmaceutical partners and
academic researchers to augment our product development activities. In
particular, we have four partners that have responsibility for developing
relaxin in Europe, Japan, Canada and Australia. Through our agreements with
these partners, we have joint development committees that collaborate on
decision-making and product development. Also, from time to time we enter
agreements with academic or university-based researchers to conduct various
studies for us.
YEAR 2000 COMPLIANCE
As of August 24, 2000, we had not experienced, nor do we expect to
experience, any Year 2000-related disruption in the operation of our systems. To
our knowledge, none of our material suppliers or customers experienced any
material Year 2000 problems or had any difficulty resolving the so-called
"century leap year" algorithm. Although most Year 2000 problems should have
become evident on January 1, 2000 or February 29, 2000, additional Year
2000-related problems may become evident in the future.
RECENT ACCOUNTING PRONOUNCEMENTS
When we receive non-refundable fees in connection with collaborative
agreements, we have recognized the fees as revenue when received, when the
technology has been transferred and when all of our contractual obligations
relating to the fees had been fulfilled. In December 1999, the SEC issued Staff
Accounting Bulletin No. 101-Revenue Recognition in Financial Statements, or SAB
101. SAB 101 describes the SEC staff's position on the recognition of certain
non-refundable upfront fees received in connection with research collaborations.
We are currently evaluating the applicability of SAB 101 to our existing
collaborative agreements. Should we conclude that SAB 101 requires a change in
our accounting, we will change our method of accounting effective January 1,
2000 to recognize such fees over the term of the related agreement. If we make
this change in accounting principle, the cumulative effect would be recognized
in the year to date presentation for the quarter ended December 31, 2000. The
cumulative effect, if any, would be recorded as deferred revenue and would be
recognized as revenue over the remaining term of the respective collaborative
research and development agreements.
26
<PAGE> 28
EMPLOYEES
As of August 24, 2000, we had 137 full-time employees. Of the full-time
employees, 54 were engaged in sales and marketing, 60 were in research and
development and 23 were in general and administrative positions. We believe our
relations with our employees are good.
FACILITIES
We currently lease 36,964 square feet of laboratory and office space at
3400 and 3294 West Bayshore Road in Palo Alto, California. We lease this space
under two lease agreements that will expire in January 2003. We believe that our
existing facilities are adequate to meet our requirements for the near term and
that additional space will be available on commercially reasonable terms if
needed.
LITIGATION
We are not a party to any material litigation proceedings.
ISSUANCE OF COMMON STOCK AND WARRANTS TO THE SELLING STOCKHOLDER
In connection with our Structured Equity Line Flexible Financing Agreement
with Kepler Capital LLC dated January 2, 1997, and a Registration Rights
Agreement with Kepler Capital dated January 2, 1997, we have agreed to register
certain shares of our common stock that may be issued to Kepler Capital if we
draw upon the equity line.
The Structured Equity Line Agreement, which expires on December 1, 2000,
also requires that we issue Kepler Capital warrants to purchase up to 25,000
shares of our common stock on December 1, 1998, 1999 and 2000, at an exercise
price equal to 110% of the closing price of our common stock as quoted on the
Nasdaq National Market on the date the warrant is issued. On December 1, 1998,
we issued warrants to purchase 25,000 shares at an exercise price of $4.40 per
share and expiring on December 1, 2003. On December 1, 1999, we issued warrants
to purchase up to 25,000 shares at an exercise price of $6.875 per share and
expiring on December 1, 2004. We previously registered the shares of our common
stock issuable upon the exercise of these warrants.
On June 6, 2000, we issued to Kepler Capital a warrant to purchase 22,063
shares of our common stock at an exercise price of $7.8585 per share. The
warrant expires on July 31, 2001. We issued this warrant in lieu of shares of
common stock required to be issued to Kepler Capital upon a draw down on the
equity line. On December 1, 2000, we will be required under the terms of the
Structured Equity Line Agreement to issue Kepler Capital a warrant to purchase
up to an additional 25,000 shares of our common stock. This warrant will expire
on December 1, 2005 and the exercise price will equal to 110% of the closing
price of our common stock as quoted on the Nasdaq National Market on December 1,
2000. The exact number of shares subject to the warrant will be calculated using
a formula set forth in the Structured Equity Line Agreement. We are registering
the shares issuable to Kepler Capital upon the exercise of these warrants as
well as up to 500,000 shares of our common stock that we may be required to
issue to Kepler Capital upon any draw downs under the Structured Equity Line
Agreement prior to its expiration on December 1, 2000.
27
<PAGE> 29
SELLING STOCKHOLDER
The following table sets forth certain information as of August 24, 2000
with respect to the beneficial ownership of our common stock by the selling
stockholder. Beneficial ownership is calculated based on 29,557,597 shares of
our common stock outstanding as of August 24, 2000. Beneficial ownership is
determined in accordance with the rules and regulations of the SEC and generally
includes voting or investment power with respect to securities. Based on
information provided to us by the selling stockholder, we believe the selling
stockholder has sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by it, except as indicated otherwise in
the footnotes below and subject to community property laws where applicable.
Anti-dilution adjustments may cause an increase in the number of shares of our
common stock to be issued under the Structured Equity Line Agreement and upon
the exercise of the warrants issued to the selling stockholder, which would
cause the number of shares of to be resold under this prospectus to increase.
Accordingly, we cannot determine with certainty the number of shares of common
stock the selling stockholder will sell under this prospectus.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
BEFORE OFFERING AFTER OFFERING(1)
SHARES OFFERED -------------------- --------------------
NAME OF SELLING STOCKHOLDER HEREBY NUMBER PERCENT NUMBER PERCENT
--------------------------- -------------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Kepler Capital LLC(2).......... 375,000(3) 299,875 *% 299,875 *%
</TABLE>
-------------------------
* Owns 1%.
(1) Assumes the sale of all shares offered by this prospectus and no other
purchases or sales of our common stock. If the selling stockholder does not
sell the shares offered by this prospectus, actual share ownership will be
higher than this table reflects. This number includes 206,250 shares
underlying warrants to purchase our common stock, which are exercisable as
of August 30, 2000.
(2) Mr. Jeffrey Devers, President of Kepler Capital LLC, may be deemed to be the
beneficial owner of shares held by Kepler Capital. Mr. Devers disclaims
beneficial ownership of such shares. During the past three years, Kepler
Capital has not had a material relationship with us or our affiliates other
than as a result of the Structured Equity Line Agreement.
(3) Represents 327,937 shares of common stock which we may issue to Kepler
Capital upon our draw downs under the Structured Equity Lined Agreement,
22,063 shares issuable upon the exercise of a warrant issued to Kepler
Capital on June 6, 2000 under the Structured Equity Line Agreement, and up
to 25,000 shares issuable upon the exercise of a warrant to be issued to
Kepler Capital on December 1, 2000 under the Structured Equity Line
Agreement.
PLAN OF DISTRIBUTION
The selling stockholder or its pledgees, donees, transferees, or other
successors-in-interest may sell the shares of our common stock offered by this
prospectus from time to time on the Nasdaq National Market, in the
over-the-counter market, in regular brokerage transactions, in transactions
directly with market makers, in private or negotiated transactions, in
settlement of short sale transactions, in settlement of option transactions, or
otherwise, or by a combination of these methods, at fixed prices that may be
changed, at market prices prevailing at the time of the sale, at prices related
to such market prices, at negotiated prices or otherwise. The selling
stockholder may effect
28
<PAGE> 30
these transactions by selling the shares directly to one or more purchasers or
to or through broker-dealers or agents including:
(1) in a block trade in which the broker or dealer so engaged will
attempt to sell the shares of common stock as agent, but may
position and resell a portion of the block as principal to
facilitate the transaction;
(2) in purchases by a broker or dealer and resale by such broker or
dealer as a principal for its own account pursuant to this
prospectus;
(3) in ordinary brokerage transactions; and
(4) in transactions in which the broker solicits purchasers.
The compensation to a particular broker-dealer may be in excess of customary
commissions.
To our knowledge, the selling stockholder has made no arrangement with any
brokerage firm for the sale of the shares offered by this prospectus. The
selling stockholder has advised us that it presently intends to dispose of the
shares through broker-dealers in ordinary brokerage transactions at market
prices prevailing at the time of sale. However, depending on market conditions
and other factors, the selling stockholder may also dispose of the shares
through one or more of the other methods described above. Concurrently with
sales under this prospectus, the selling stockholder may effect other sales of
shares under Rule 144 of the Securities Act of 1933 or other exempt resale
transactions. The selling stockholder may not sell any or all of the shares
offered hereunder.
The selling stockholder is an "underwriter" within the meaning of Section
2(a)(11) of the Securities Act in connection with the sale of the shares of
common stock offered hereby. Any broker-dealers or agents who act in connection
with the sale of the shares may also be deemed to be underwriters within the
meaning of Section 2(a)(11) of the Securities Act. Profits on any resale of the
shares by the selling stockholder and any discounts, commissions or concessions
received by any such broker-dealers or agents may be deemed to be underwriting
discounts and commissions under the Securities Act.
Any broker-dealer participating in such transactions as agent may receive
commissions from the selling stockholder (and, if they act as agent for the
purchaser of such shares, from the purchaser). Broker-dealers may agree with the
selling stockholder to sell a specified number of shares at a stipulated price
per share and, to the extent such broker-dealer is unable to do so acting as
agent for the selling stockholder, to purchase as principal any unsold shares at
the price required to fulfill the broker-dealer commitment to the selling
stockholder. Broker-dealers who acquire shares as principal may thereafter
resell such shares from time to time in transactions (which may involve crosses
and block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market, in negotiated transactions or otherwise at market
prices prevailing at the time of sale or at negotiated prices, and in connection
with such resales may pay to or receive from the purchasers of such shares
commissions computed as described above. To the extent required under the
Securities Act, a supplemental prospectus will be filed disclosing:
(1) the name of such broker-dealers;
(2) the number of shares involved;
(3) the price at which such shares are to be sold;
(4) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable
29
<PAGE> 31
(5) that such broker-dealers did not conduct any investigation to
verify the information set out or incorporated by reference in
this prospectus, as supplemented; and
(6) other facts material to the transaction.
Under applicable rules and regulations under the Securities Exchange Act of
1934, any person engaged in a distribution of the shares offered hereby may not
simultaneously engage in market making activities with respect to the shares for
a period beginning when such person becomes a distribution participant and
ending upon such person's completion of participation in the distribution,
including stabilization activities in the common stock to effect covering
transactions, to impose penalty bids or to effect passive market making bids. In
addition to and without limiting the foregoing, in connection with transactions
in the shares covered hereby, we and the selling stockholder may be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Rule 10b-5 thereof and, insofar as we
and the selling stockholder are distribution participants, Regulation M and
Rules 100, 101, 102, 103, 104 and 105 thereof. All of the foregoing may affect
the marketability of the shares offered hereby.
The selling stockholder has agreed that it will not engage in any trading
practices or activity for the purpose of manipulating the price of our common
stock or otherwise engage in any trading practice or activity that violates the
rules and regulations of the Securities and Exchange Commission. In particular,
the selling stockholder has advised us that during such time as the selling
stockholder may be engaged in the attempt to sell shares registered under this
prospectus, it will:
(1) not engage in any stabilization activity in connection with any of
our securities;
(2) cause to be furnished to each person to whom shares included in
this prospectus may be offered, and to each broker-dealer, if any,
through whom shares are offered, such copies of this prospectus,
as supplemented or amended, as may be required by such person; and
(3) not bid for or purchase any of our securities or any rights to
acquire our securities, or attempt to induce any person to
purchase any of our securities or rights to acquire securities,
other than as permitted under the Exchange Act.
The selling stockholders will pay all commissions, transfer taxes and other
expenses associated with their sales of the shares offered hereby. We are
registering the shares pursuant to our contractual obligations and we have
agreed to pay the expenses incurred in connection with such registration, which
we estimate to be approximately $20,000. We have also agreed to indemnify the
selling stockholder against certain liabilities, including liabilities arising
under the Securities Act.
We will not receive any proceeds from the sale of the shares by the selling
stockholder; however, we will receive proceeds upon the exercise of the warrants
held by the selling stockholder. We will also receive proceeds in the amount of
the aggregate purchase price paid pursuant to the Structured Equity Line
Agreement if and to the extent we issue common stock pursuant thereto.
With regard to the shares, we have agreed to maintain the effectiveness of
this registration statement until two years after the effective date of this
registration statement; provided, however, that if our counsel provides an
opinion to the requesting holders, based on factual representations provided by
the requesting holders or information filed with the SEC that such holders are
not, at the time of such request, our "affiliates", within the meaning of Rule
144 of the Securities Act, then we shall not be obligated to extend the
effectiveness of the registration statement. No sales may be made pursuant to
this registration statement and prospectus after such dates unless we amend or
supplement this registration statement and prospectus to indicate that we have
agreed to extend such period of effectiveness.
30
<PAGE> 32
LEGAL MATTERS
The validity of our common stock offered by this prospectus will be passed
upon for us by Morrison & Foerster LLP, Denver, Colorado.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the years
ended December 31, 1999 and 1998, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
This prospectus is part of a registration statement on Form S-3 that we
filed with the SEC under the Securities Act. This prospectus does not contain
all of the information set forth in the registration statement, parts of which
are omitted in accordance with the rules and regulations of the SEC. For further
information about us and our common stock, you should read the registration
statement. Statements in this prospectus concerning the provisions of any
document are not necessarily complete, and each such statement is qualified in
its entirety by reference to the copy of such document filed with the SEC.
We file annual, quarterly and special reports, proxy statements, and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference facilities at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's following Regional Offices: Suite 1400, Northwest Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661; and 13th Floor, Seven
World Trade Center, New York, New York 10048. You can obtain copies of this
material at prescribed rates from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public at the SEC's web site at www.sec.gov.
You can find additional information about us on our web site at
www.connetics.com. Information contained on our web site does not constitute
part of this prospectus.
The SEC allows us to incorporate by reference the information we file with
the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and later information that we file with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below, and any future filings made with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, until the
offering is completed. This prospectus is part of a registration statement on
Form S-3 we filed with the SEC (Registration No. 333- ). The
documents we incorporate by reference are:
1. Connetics' Annual Report on Form 10-K for the fiscal year ended December
31, 1999.
2. Connetics' Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2000.
3. Connetics' Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2000.
4. Connetics' Report on Form 8-K dated June 20, 2000.
5. Connetics' Registration Statement on Form 8-A dated May 23, 1997, which
contains a description of our capital stock.
31
<PAGE> 33
6. Connetics' Registration Statement on Form 8-A dated December 8, 1995,
which contains a description of our capital stock.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: General Counsel, Connetics Corporation,
3400 West Bayshore Road, Palo Alto, CA 94303, telephone number (650) 843-2800.
32
<PAGE> 34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table shows the costs and expenses payable by us in
connection with the sale and distribution of common stock being registered. All
amounts are estimates except the SEC registration fee. The selling stockholder
is responsible for paying selling commissions, brokerage fees, and any
applicable transfer taxes and fees and disbursements of its counsel.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC registration fee........................................ $ 1,710.85
Legal fees and expenses..................................... 5,000.00
Printing expenses........................................... 5,000.00
Accounting fees and expenses................................ 5,000.00
Miscellaneous expenses...................................... 3,289.15
----------
Total..................................................... $20,000.00
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933. Article IX of the
registrant's Amended and Restated Certificate of Incorporation and Article VII,
Section 6 of the registrant's Bylaws provide for indemnification of its
directors, officers, employees and other agents to the maximum extent permitted
by law. In addition, we have entered into Indemnification Agreements with our
officers and directors and we maintain director and officer liability insurance.
Pursuant to the terms of the Structured Equity Line Flexible Financing
Agreement dated January 2, 1997 between us and Kepler Capital LLC, Kepler
Capital has agreed to indemnify our officers and directors against any loss,
liability, claim, damage or expense to the extent it is based on or arises from
an untrue statement or omission, or alleged untrue statement or omission, made
in the Registration Statement and the related prospectus (or any amendment or
supplement thereto), in reliance upon and in conformity with written information
furnished to us by Kepler Capital expressly for use in the Registration
Statement (or any amendment or supplement thereto).
ITEM 16. EXHIBITS
See Index to Exhibits (page II-5).
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement 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
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating
II-1
<PAGE> 35
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 remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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.
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 provisions referred to in Item 15 above 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 Securities Act of 1933 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 against the registrant by such director, officer
or controlling person in connection with the securities being registered
hereunder, 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 the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-2
<PAGE> 36
SIGNATURES
Pursuant to 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 S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Palo Alto, State of California, on the 30th day of
August, 2000.
CONNETICS CORPORATION
By: /s/ JOHN L. HIGGINS
------------------------------------
John L. Higgins
Executive Vice President, Finance
and
Administration and Chief Financial
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, John Higgins and
Katrina Church their attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Registration
Statement (including post-effective amendments), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys-in-fact to any and all
amendments to said Registration Statement.
Pursuant to 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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ THOMAS G. WIGGANS President, Chief Executive August 30, 2000
----------------------------------------------------- Officer (Principal Executive
Thomas G. Wiggans Officer) and Director
/s/ JOHN L. HIGGINS Executive Vice President, August 30, 2000
----------------------------------------------------- Finance and Administration
John L. Higgins and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ G. KIRK RAAB Chairman of the August 30, 2000
----------------------------------------------------- Board of Directors
G. Kirk Raab
/s/ ALEXANDER E. BARKAS Director August 30, 2000
-----------------------------------------------------
Alexander E. Barkas, Ph.D.
/s/ EUGENE A. BAUER Director August 30, 2000
-----------------------------------------------------
Eugene A. Bauer, M.D.
/s/ BRIAN H. DOVEY Director August 30, 2000
-----------------------------------------------------
Brian H. Dovey
</TABLE>
II-3
<PAGE> 37
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ JOHN C. KANE Director August 30, 2000
-----------------------------------------------------
John C. Kane
/s/ THOMAS D. KILEY Director August 30, 2000
-----------------------------------------------------
Thomas D. Kiley
/s/ LEON E. PANETTA Director August 30, 2000
-----------------------------------------------------
Leon E. Panetta
</TABLE>
II-4
<PAGE> 38
EXHIBIT INDEX
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
5.1 Opinion of Morrison & Foerster LLP
10.1 Structured Equity Line Flexible Financing Agreement Between
Kepler Capital LLC and the Registrant dated as of January 2,
1997 (incorporated herein by reference to Exhibit 10.42 to
the Registrant's Annual Report on Form 10-K (File No.
0-27406) for the year ended December 31, 1996)
10.2 Registration Rights Agreement Between Kepler Capital LLC and
the Registrant dated as of January 2, 1997 (incorporated
herein by reference to Exhibit 10.43 to the Registrant's
Annual Report on Form 10-K (File No. 0-27406) for the year
ended December 31, 1996)
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Morrison & Foerster LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on Page II-3 of the Registration
Statement)
</TABLE>
