<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 333-3326
------------------------------------
DIATIDE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 04-3078258
- --------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation
or organization) (IRS Employer Identification No.)
9 DELTA DRIVE, LONDONDERRY, NH 03053
- --------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
603-437-8970
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes / / No /X/
The number of shares outstanding of each of the issuer's classes of common
stock as of
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT AUGUST 12, 1996
----- ------------------------------
<S> <C>
Common Stock, $0.001 par value 10,221,650
</TABLE>
<PAGE> 2
DIATIDE, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1 CONDENSED FINANCIAL STATEMENTS (Unaudited)
Condensed Balance Sheets as of June 30, 1996 and December 31, 1995... 3
Condensed Statements of Operations for the three months ended June
30, 1996 and 1995.................................................... 4
Condensed Statements of Operations for the six months ended June 30,
1996 and 1995, and for the period from February 6, 1990 (date of
inception) to June 30, 1996.......................................... 5
Condensed Statements of Cash Flows for the six months ended June 30,
1996 and 1995, and for the period from February 6, 1990 (date of
inception) to June 30, 1996.......................................... 6
Notes to Condensed Financial Statements.............................. 7
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 8
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings................................................. 11
ITEM 2 Changes in Securities............................................. 11
ITEM 3 Defaults upon Senior Securities................................... 11
ITEM 4 Submission of Matters to a Vote of Security Holders............... 11
ITEM 5 Other Information................................................. 13
ITEM 6 Exhibits and Reports on Form 8-K.................................. 13
SIGNATURES..................................................................... 14
EXHIBIT INDEX.................................................................. 15
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
DIATIDE, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1996
(UNAUDITED) DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 21,533,945 $ 5,084,197
Marketable securities....................................... 435,000 3,993,345
Other current assets........................................ 290,256 431,174
------------
Total current assets.......................................... 22,259,201 9,508,716
Property and equipment, at cost............................... 2,068,696 1,745,830
Less: accumulated depreciation and amortization............... 1,079,595 882,698
------------ ------------
989,101 863,132
Capitalized financing costs................................... -- 263,783
Other assets.................................................. 161,648 16,592
------------ ------------
Total assets.................................................. $ 23,409,950 $ 10,652,223
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....................... $ 2,837,883 $ 900,709
Deferred revenues........................................... -- 166,666
Current portion of long-term debt........................... 178,571 214,286
------------ ------------
Total current liabilities..................................... 3,016,454 1,281,661
Long-term debt, less current portion.......................... 17,951 89,286
Stockholder's equity:
Preferred stock, $0.01 par value
Authorized shares -- 23,725,973
Series A, B, C, D and E convertible preferred stock:
Issued and outstanding shares -- none (12,551,928 in
1995)............................................... -- 125,520
Common stock, $0.001 par value
Authorized shares -- 50,000,000
Issued and outstanding shares -- 10,210,115 (478,915 in
1995).................................................. 10,210 479
Additional paid-in capital.................................. 49,615,644 33,121,680
Deferred compensation....................................... (1,451,713) (1,619,000)
Deficit accumulated during development stage................ (27,798,572) (22,347,379)
------------ ------------
20,375,569 9,281,300
Less: 4,800 shares of common stock in treasury, at cost..... (24) (24)
------------ ------------
Total stockholders' equity.................................... 20,375,545 9,281,276
------------ ------------
Total liabilities and stockholders' equity.................... $ 23,409,950 $ 10,652,223
============ ============
<FN>
Note: The balance sheet at December 31, 1995 has been derived from audited
financial statements at that date but does not include all of the financial
information and footnotes required by generally accepted accounting principles
for complete financial statements.
</TABLE>
See Notes to Condensed Financial Statements.
3
<PAGE> 4
DIATIDE, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
License fees................................................ $ 500,000 $ --
Research grants............................................. 56,073 --
Sponsored research.......................................... 500,000 --
----------- -----------
Total revenues................................................ 1,056,073 --
Costs and expenses:
Research and development.................................... 3,663,644 1,437,234
General and administrative.................................. 584,588 393,038
----------- -----------
Total costs and expenses...................................... 4,248,232 1,830,272
Loss from operations.......................................... (3,192,159) (1,830,272)
Other income (expense):
Interest income............................................. 108,368 32,754
Interest expense............................................ (6,142) (13,889)
----------- -----------
Total other income (expense).................................. 102,226 18,865
----------- -----------
Net loss...................................................... $(3,089,933) $(1,811,407)
=========== ===========
Pro forma net loss per share (Note 4)......................... $ (0.37) $ (0.29)
=========== ===========
Shares used in computing pro forma net loss per share
(unaudited) (Note 4)........................................ 8,464,612 6,516,692
</TABLE>
See Notes to Condensed Financial Statements.
4
<PAGE> 5
DIATIDE, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 6, 1990
SIX MONTHS ENDED JUNE 30, (DATE OF INCEPTION)
----------------------------- TO JUNE 30,
1996 1995 1996
----------- ----------- -------------------
<S> <C> <C> <C>
Revenues:
License fees.............................. $ 500,000 $ -- $ 1,300,000
Research grants........................... 56,073 -- 505,498
Sponsored research........................ 1,000,000 -- 1,778,388
----------- ----------- ------------
Total revenues.............................. 1,556,073 -- 3,583,886
Costs and expenses:
Research and development.................. 6,192,247 2,544,096 24,951,897
General and administrative................ 1,023,600 800,226 7,132,174
----------- ----------- ------------
Total costs and expenses.................... 7,215,847 3,344,322 32,084,071
Loss from operations........................ (5,659,774) (3,344,322) (28,500,185)
Other income (expense):
Interest income........................... 224,757 47,692 939,892
Interest expense.......................... (16,176) (24,267) (238,279)
----------- ----------- ------------
Total other income (expense)................ 208,581 23,425 701,613
----------- ----------- ------------
Net loss.................................... $(5,451,193) $(3,320,897) $(27,798,572)
=========== =========== ============
Net loss per share (Note 4)................. $ (0.65) $ (0.52)
=========== ===========
Shares used in computing pro forma net loss
per share (unaudited) (Note 4)............ 8,330,108 6,344,692
</TABLE>
See Notes to Condensed Financial Statements.
5
<PAGE> 6
DIATIDE, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 6, 1990
SIX MONTHS ENDED JUNE 30, (DATE OF INCEPTION)
----------------------------- TO JUNE 30,
1996 1995 1996
----------- ----------- -------------------
<S> <C> <C> <C>
Operating activities:
Net loss.................................... $(5,451,193) $(3,320,897) $(27,798,572)
Adjustments to reconcile net loss to cash
(used in) provided by operating
activities:
Depreciation and amortization.......... 196,897 173,636 1,118,450
Cancellation of accrued interest....... -- -- 111,438
Amortization of deferred
compensation......................... 167,287 -- 211,287
Changes in operating assets and
liabilities.......................... 1,766,370 145,624 (2,347,124)
----------- ----------- ------------
Cash used in operating activities........... (3,320,639) (3,001,637) (24,010,273)
Investing activities:
Additions to property and equipment.... (322,866) (298,237) (2,068,696)
Purchases of marketable securities..... (1,351,749) -- (5,845,094)
Sales of marketable securities......... 4,910,094 -- 5,410,094
----------- ----------- ------------
Cash (used in) provided by investing
activities................................ 3,235,479 (298,237) (2,503,696)
Financing activities:
Sale of preferred stock..................... -- 3,422,767 28,255,133
Issuance of convertible notes............... -- -- 3,508,464
Repayment of convertible notes.............. -- -- (315,000)
Issuance of long-term debt.................. -- -- 900,518
Repayment of long-term debt................. (107,050) (122,883) (703,996)
Sale of common stock........................ 16,641,958 2,200 16,402,819
Repurchase of common stock.................. -- -- (24)
----------- ----------- ------------
Cash provided by financing activities....... 16,534,908 3,302,084 48,047,914
----------- ----------- ------------
Net increase in cash and cash equivalents... 16,449,748 2,210 21,533,945
Cash and cash equivalents at beginning of
period.................................... 5,084,197 2,709,760 --
----------- ----------- ------------
Cash and cash equivalents at end of
period.................................... $21,533,945 $ 2,711,970 $ 21,533,945
=========== =========== ============
Noncash transactions:
Conversion of convertible notes and
accrued interest to preferred stock.... $ -- $ -- $ 3,304,902
Deferred compensation associated with
stock options issued at less than fair
value.................................. $ -- $ -- $ 1,663,000
Conversion of preferred stock to common
stock.................................. $31,559,922 $ -- $ 31,559,922
</TABLE>
See Notes to Condensed Financial Statements.
6
<PAGE> 7
DIATIDE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF BUSINESS
Diatide, Inc. (the "Company") was founded in 1990 and is a development
stage company engaged in the discovery and development of proprietary
radiopharmaceuticals for use in nuclear medicine imaging procedures.
2. BASIS OF PRESENTATION
The accompanying unaudited financial statements for the three and six
months ended June 30, 1996 and 1995 and for the period February 6, 1990 (date of
inception) to June 30, 1996 have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying financial statements include all adjustments of a
normal recurring nature necessary for a fair presentation of results for these
interim periods. The results of operations for the three and six months ended
June 30, 1996 are not necessarily indicative of the results to be expected for
the year ending December 31, 1996.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1995
included in the Company's Registration Statement on Form S-1 (Registration No.
333-3326) as filed with the Securities and Exchange Commission (the "SEC") on
June 12, 1996.
3. PUBLIC OFFERING
In June 1996, the Company completed its initial public offering of
2,200,000 shares of Common Stock raising approximately $16.4 million of net
proceeds after deducting offering costs. Concurrent with the completion of the
initial public offering, all 12,551,928 shares of Series A, Series B, Series C,
Series D and Series E Convertible Preferred Stock (collectively, the
"Convertible Preferred Stock") were converted into 7,531,140 shares of Common
Stock. In connection with this conversion, all such shares of Convertible
Preferred Stock were retired.
4. FINANCIAL INFORMATION
Pro forma net loss per share is computed using the weighted average number
of outstanding shares of Common Stock and Common Stock equivalents and assuming
the previously outstanding Convertible Preferred Stock had been converted into
common shares effective at the beginning of the respective period. Common Stock
equivalent shares are excluded from the computation if their effect is
anti-dilutive; however, pursuant to the requirements of the SEC, common shares
issued by the Company and common equivalent shares relating to stock options
(using the treasury stock method) issued during the twelve months prior to the
initial public offering are included whether or not they are anti-dilutive.
Historical earnings per share have not been presented for any periods since such
amounts are not deemed meaningful due to the significant change in the Company's
capital structure that occurred in connection with the initial public offering.
The common share amounts and per share dollar amounts have been adjusted
for all periods presented to reflect the effect of the 6-for-10 reverse stock
split effective immediately prior to the Company's initial public offering.
7
<PAGE> 8
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is a development stage company engaged in the discovery and
development of proprietary radiopharmaceuticals for use in nuclear medicine
imaging procedures. To date, the Company has not received revenue from the sale
of products. In order to commercialize products, the Company will need to
address a number of technological challenges and comply with comprehensive
regulatory requirements. Accordingly, it is not possible to predict the amount
of funds that will be required or the length of time that will pass before the
Company receives revenues from sales of its products. All revenues received by
the Company through June 30, 1996 have resulted from research grants from the
National Institutes of Health (the "NIH") and the Department of Defense
(collectively, the "Research Grants"), fees received for entering into option
agreements with a pharmaceutical company and research and development support
payments and the P280 and the P829 option exercise payments from Nycomed ASA
("Nycomed") under the Company's collaborative agreements with Nycomed.
The Company has incurred net losses since its inception, expects to incur
significant operating losses over the next several years and expects its
cumulative net losses to increase significantly as the Company's research and
development and clinical trial efforts expand. The Company expects that its
research and development expenses will be significantly higher during 1996 and
in future years as it moves its principal research and development programs
towards more advanced preclinical studies and late-stage clinical trials and
makes filings for related regulatory approvals in connection therewith. In
addition, the Company expects that its personnel and patent costs will increase
in the future. Patent costs also would increase if the Company became involved
in litigation or administrative proceedings involving its patents or those of
third parties. The Company has incurred cumulative net losses since inception
through June 30, 1996 of $27,798,572.
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve a number of risks and uncertainties. Among the important factors that
could cause actual results to differ materially from those indicated by such
forward-looking statements are the Risk Factors set forth on pages 6 through 16
of the Company's Registration Statement on Form S-1 (Registration No. 333-3326)
as filed with the SEC on June 12, 1996, which Risk Factors are expressly
incorporated by reference herein.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Revenues. The Company had revenues of $1,056,073 and $0 in the three
months ended June 30, 1996 and 1995, respectively. Revenues in the three months
ended June 30, 1996 were comprised of $56,073 of contract revenues received
under research grants from the NIH, and $500,000 of research and development
support payments and a $500,000 option exercise payment for P829 received by the
Company under its collaborative agreements with Nycomed.
Research and development. During the three months ended June 30, 1996 and
1995, the Company expended $3,663,644 and $1,437,234, respectively, on research
and development activities. The $2,226,410 increase in the three months ended
June 30, 1996 resulted from additional expenses associated with ongoing clinical
trials of P280 and P829, preclinical studies of additional compounds, increased
salaries and staffing in clinical and regulatory areas and costs and consulting
fees associated with the higher level of research and development activities.
General and administrative. The Company's general and administrative
expenses were $584,588 and $393,038 in the three months ended June 30, 1996 and
1995, respectively. The $191,550 increase in the three months ended June 30,
1996 resulted from increases in staffing and outside services to support the
Company's growth.
Interest. Interest expense in the three months ended June 30, 1996 and
1995 was $6,142 and $13,889, respectively, and was comprised primarily of
interest incurred on borrowings to finance the acquisition of certain equipment
and leasehold improvements. Interest income was $108,368 in the three months
ended
8
<PAGE> 9
June 30, 1996 compared with $32,754 in the three months ended June 30, 1995,
reflecting the Company's
increased cash balances during 1996.
Net loss. As a result of the above factors, the Company incurred net
losses of $3,089,933 and $1,811,407 in the three months ended June 30, 1996 and
1995, respectively.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Revenues. The Company had revenues of $1,556,073 and $0 in the six months
ended June 30, 1996 and 1995, respectively. Revenues in the six months ended
June 30, 1996 were comprised of $56,073 of contract revenues received under
research grants from the NIH, and $1,000,000 of research and development support
payments and a $500,000 option exercise payment for P829 received by the Company
under its collaborative agreements with Nycomed.
Research and development. During the six months ended June 30, 1996 and
1995, the Company expended $6,192,247 and $2,544,096, respectively, on research
and development activities. The $3,648,151 increase in the six months ended June
30, 1996 resulted from additional expenses associated with ongoing clinical
trials of P280 and P829, preclinical studies of additional compounds, increased
salaries and staffing in clinical and regulatory areas and costs and consulting
fees associated with the higher level of research and development activities.
General and administrative. The Company's general and administrative
expenses were $1,023,600 and $800,226 in the six months ended June 30, 1996 and
1995, respectively. The $223,374 increase in the six months ended June 30, 1996
resulted from increases in staffing and outside services to support the
Company's growth.
Interest Interest expense in the six months ended June 30, 1996 and 1995
was $16,176 and $24,267, respectively, and was comprised primarily of interest
incurred on borrowings to finance the acquisition of certain equipment and
leasehold improvements. Interest income was $224,757 in the six months ended
June 30, 1996 compared with $47,692 in the six months ended June 30, 1995,
reflecting the Company's increased cash balances during 1996.
Net loss. As a result of the above factors, the Company incurred net
losses of $5,451,193 and $3,320,897 in the six months ended June 30, 1996 and
1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed its initial public offering of 2,200,000 shares of
Common Stock in June 1996 raising approximately $16.4 million of net proceeds.
As of June 30, 1996, the Company had $21,968,945 of cash, cash equivalents and
marketable securities and working capital of $19,242,747.
During the six months ended June 30, 1996, the Company's capital
expenditures totaled $322,866 primarily for the acquisition of certain equipment
and leasehold improvements.
The Company's future capital requirements will depend on many factors,
including continued progress in its research and product development programs,
the magnitude of these programs, the results of preclinical studies and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting, enforcing and defending patent claims,
competing technological and market development, the ability of the Company to
establish and maintain collaborative academic and commercial research,
development and marketing relationships, and the costs and success of
commercialization activities and arrangements.
Based on its current operating plan, the Company anticipates that its
existing capital resources, together with the proceeds of the initial public
offering and interest earned thereon, will be adequate to satisfy its capital
requirements for at least the next 22 months. Substantial additional funds may
be required from external sources to support the Company's operations beyond
that time, although there can be no assurance that additional funds will be
available, or, if available, that such funds will be available on acceptable
terms.
9
<PAGE> 10
The Company intends to seek additional equity, debt and lease financing to
fund future operations, depending upon the terms on which such sources may be
available from time to time. In addition, the Company intends to seek additional
collaborative development and commercialization relationships with potential
corporate partners in order to fund certain of its programs, including the
continued development and commercialization of Sn-117 DTPA.
Except for research and development funding from Nycomend pursuant to its
collaboration with Diatide (which is subject to early termination in certain
circumstances), the Company has no committed external sources of capital, and,
as discussed above, expects no product revenues for a number of years. If the
Company is unable to obtain necessary additional funds, it would be required to
delay, scale back or eliminate certain of its research and development or
commercialization efforts or license to third parties certain technologies which
the Company would otherwise pursue on its own.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS:
Not applicable.
ITEM 2 CHANGES IN SECURITIES:
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES:
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
In a Written Consent, Waiver and Amendment Agreement of Securityholders
dated as of May 3, 1996, the following matters were acted upon by the
securityholders of the Company:
1. The approval of a Certificate of Amendment to the Company's Restated
Certificate of Incorporation, as amended, to be effective upon the filing
thereof, (a) providing for a 6-for-10 reverse stock split (the "Split") of the
Company's Common Stock, (b) providing for an increase in the number of
authorized shares of Common Stock, (c) providing for the automatic conversion of
the Company's Convertible Preferred Stock (as that term is defined therein) into
shares of Common Stock upon the closing of the sale of shares of Common Stock in
a public offering at a price per share of at least $10.00 (subject to
adjustment), (d) providing for new and more detailed provisions relating to the
indemnification of the officers and directors of the Company, (e) establishing a
staggered Board of Directors, (f) providing that a director may be removed only
for cause and only then by the holders of two-thirds of the outstanding capital
stock of the Company, (g) prohibiting stockholder action by written consent, (h)
prohibiting stockholders from calling special meetings of the stockholders, (i)
allowing only certain procedures for the introduction of business at
stockholders' meetings, (j) requiring a vote of the holders of 75% of the
outstanding capital stock of the Company to amend or repeal any of the above
provisions described in clauses (e) through (j).
2. The approval of an amendment to the Company's 1992 Stock Option Plan
(the "Plan"), providing for an increase in the number of shares of Common Stock
issuable upon exercise of options granted under the Plan.
3. The approval of the Company's 1996 Employee Stock Purchase Plan.
4. The approval of the Company's 1996 Director Stock Option Plan.
5. The approval of an amendment to the Series D Convertible Preferred Stock
and Warrant Purchase Agreement dated as of May 17, 1995, as amended (the "Series
D Agreement"), between the Company and the Purchasers (as defined therein),
providing for the exclusion of the issuance of certain shares of Common Stock
from the right of first refusal provisions set forth in the Series D Agreement.
6. The approval of an amendment to the Series D Agreement, between the
Company and the Purchasers (as defined therein), providing for the termination
of rights granted in Section 7 of the Series D Agreement to occur on the closing
of an underwritten public offering of Common Stock of the Company to the public
at an initial public offering price of not less than $10.00 per share (subject
to adjustment).
11
<PAGE> 12
7. The election of each of the following directors to hold office until the
next Annual Meeting of Stockholders and until their respective successors are
elected and qualified, or until their respective earlier death, resignation or
removal:
Richard T. Dean
Gustav A. Christensen
Robert A. Curry
Jean Deleage
Trond Jacobsen
Robert S. Lees
Joseph F. Lovett
Donald Murfin
8. The approval of the allocation of the Board of Directors of the Company
into the following newly-created classes:
Class I
-------
Jean Deleage
Donald Murfin
Class II
--------
Gustav A. Christensen
Robert E. Curry
Joseph F. Lovett
Class III
---------
Richard T. Dean
Trond Jacobsen
Robert S. Lees
9. The ratification of the selection of Ernst & Young LLP as the Company's
auditors for the fiscal year ending December 31, 1996.
<TABLE>
On May 3, 1996, the outstanding capital stock of the Company consisted of
Common Stock and Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock, Series C Convertible Preferred Stock, Series D Convertible
Preferred Stock and Series E Convertible Preferred Stock (such series of
Preferred Stock collectively being referred to as the "Series Preferred Stock").
All of the shares of Series Preferred Stock converted into Common Stock
immediately upon the closing of the Company's initial public offering on June
18, 1996. The number of shares of capital stock voting for and against the
foregoing matters are as set forth below (without giving effect to the Split):
<CAPTION>
CLASS OF STOCK VOTES FOR VOTES AGAINST
- -------------- --------- -------------
<S> <C> <C>
Common 742,511 47,681
Series A Convertible Preferred Stock 1,955,600 44,400
Series B Convertible Preferred Stock 2,580,019 22,200
Series C Convertible Preferred Stock 4,569,655 20,000
Series D Convertible Preferred Stock 860,054 0
Series E Convertible Preferred Stock 2,500,000 0
</TABLE>
Each of the stockholders who submitted a written consent to the Company
consented to all of the foregoing matters. Although the Company cannot determine
whether stockholders who failed to return consents would have voted against the
matters or simply abstained from voting, the failure to return consents to the
Company was effectively a vote "against" the matters. There were no broker
non-votes.
In a Written Consent of Securityholders (other than holders of Common
Stock) dated as of June 13, 1996, the following matters were acted upon by the
securityholders (other than holders of Common Stock) of the Company:
12
<PAGE> 13
1. The approval of a Certificate of Amendment to the Company's Restated
Certificate of Incorporation, as amended, providing for the automatic conversion
of the Convertible Preferred Stock (as that term is defined therein) into Common
Stock upon the closing of the sale of shares of Common Stock at a price of at
least $8.00 per share (subject to adjustment) in an underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, resulting in at least $15,000,000 of gross proceeds to the
Company.
2. The approval of an amendment to the Series D Agreement, between the
Company and the Purchasers (as defined therein), providing for the termination
of rights granted in Section 7 of the Series D Agreement to occur on the closing
of an underwritten public offering of Common Stock of the Company to the public
at an initial public offering price of not less than $8.00 per share (subject to
adjustment).
<TABLE>
On June 13, 1996, the outstanding capital stock of the Company consisted of
Common Stock and the Series Preferred Stock. All of the shares of Series
Preferred Stock converted into Common Stock immediately upon the closing of the
Company's initial public offering on June 18, 1996. The numer of shares of
capital stock voting for an against the foregoing matters are as set forth below
(without giving effect to the Split):
<CAPTION>
CLASS OF STOCK VOTES FOR VOTES AGAINST
- -------------- --------- -------------
<S> <C> <C>
Common N/A N/A
Series A Convertible Preferred Stock 1,300,000 0
Series B Convertible Preferred Stock 2,355,000 0
Series C Convertible Preferred Stock 2,487,288 0
Series D Convertible Preferred Stock 480,339 0
Series E Convertible Preferred Stock 2,500,00 0
</TABLE>
Each of the stockholders who submitted a written consent to the Company
consented to all of the foregoing matters. Although the Company cannot determine
whether stockholders who failed to return consents or stockholders whose
consents were not solicited would have voted against the matters or simply
abstained from voting, stockholders whose consents were not solicited were not
counted in the above table. There were no broker non-votes.
ITEM 5 OTHER INFORMATION:
In June 1996, the Company settled the claims asserted by Mallinckrodt Group,
Inc. ("Mallinckrodt"), arising out of the hiring by the Company of four former
Mallinckrodt employees.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K:
<TABLE>
<S> <C> <C>
(a) Exhibits. See exhibit index on page 15.
(b) Reports on Form 8-K. None.
</TABLE>
13
<PAGE> 14
DIATIDE, INC
FORM 10-Q
JUNE 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DITATIDE, INC.
BY: /S/ MARK ALLEN ATTARIAN
-----------------------------
DATE: August 13, 1996 Mark Allen Attarian
Duly Authorized Officer and
Principal Financial Officer
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
4.1 Restated Certificate of Incorporation of Diatide, Inc.
11.1 Statement Re: Computation of Pro Forma Net Loss Per Share
99.1 Page 6 through 16 of the Company's Prospectus dated June 13,
1996 included in the Company's Registration Statement on Form
S-1 (Registration No. 333-3326) as filed with the SEC on June
12, 1996 (which is not deemed filed except to the extent that
portions thereof are expressly incorporated by reference
herein).
</TABLE>
15
<PAGE> 1
EXHIBIT 4.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
DIATIDE, INC.
Diatide, Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, does hereby certify as
follows:
1. The Corporation filed its original Certificate of Incorporation with the
Secretary of State of Delaware on February 6, 1990, which Certificate of
Incorporation was amended by a Certificate of Amendment of Certificate of
Incorporation filed on April 19, 1990, a Certificate of Amendment of Certificate
of Incorporation filed on September 18, 1990, a Certificate of Amendment of
Certificate of Incorporation filed on December 5, 1991, a Certificate of
Amendment of Certificate of Incorporation filed on December 27, 1991, a
Certificate of Amendment of Certificate of Incorporation filed on August 17,
1992, a Certificate of Amendment of Certificate of Incorporation filed on March
17, 1993, a Certificate of Amendment of Certificate of Incorporation filed on
November 12, 1993, a Certificate of Amendment of Certificate of Incorporation
filed on January 14, 1994, a Certificate of Amendment of Certificate of
Incorporation filed on May 17, 1995, a Certificate of Amendment of Certificate
of Incorporation filed on August 11, 1995, a Certificate of Amendment of
Certificate of Incorporation filed on January 26,
<PAGE> 2
1996, a Certificate of Amendment of Certificate of Incorporation filed on June
6, 1996, a Certificate of Amendment of Certificate of Incorporation filed on
June 14, 1996, a Certificate of Correction to the Certificate of Incorporation
filed on July 24, 1996, and a Certificate of Retirement of Stock filed on even
date herewith.
2. At a meeting of the Board of Directors of the Corporation, a resolution
was duly adopted, pursuant to Sections 141(f) and 245 of the General Corporation
Law of the State of Delaware, setting forth a Restated Certificate of
Incorporation of the Corporation and declaring said Restated Certificate of
Incorporation advisable. The resolution setting forth the Restated Certificate
of Incorporation is as follows:
RESOLVED: That the Restated Certificate of Incorporation of the Corporation, as
amended, be and hereby is restated in its entirety so that the same shall read
as follows:
FIRST. The name of the Corporation is:
Diatide, Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of all classes of stock which the
Corporation shall have authority to issues is Fifty Million (50,000,000) shares
of Common Stock, $.001 par value per
- 2 -
<PAGE> 3
share ("Common Stock"), and (ii) Ten Million Five Hundred Ninety-One
Thousand Eight Hundred Seventy-Four (10,591,874) shares of Preferred Stock,
$.01 par value per share ("Preferred Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred
- 3 -
<PAGE> 4
Stock which may be redeemed, purchased or acquired by the Corporation may be
reissued except as otherwise provided by law. Different series of Preferred
Stock shall not be construed to constitute different classes of shares for the
purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law. Except as otherwise specifically provided in this Certificate
of Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the issuance of any shares of any series of the
Preferred Stock authorized by and complying with the conditions of the
Certificate of Incorporation, the right to have such vote being expressly waived
by all present and future holders of the capital stock of the Corporation.
FIFTH. The name and mailing address of the sole incorporator are as
follows:
NAME MAILING ADDRESS
---- ---------------
Richard A. Hoffman 60 State Street
Boston, MA 02109
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or repeal
the By-Laws of the Corporation.
- 4 -
<PAGE> 5
SEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any promise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
EIGHTH. Except to the extent that the General Corporation Law of the State
of Delaware prohibits the elimination or limitation of liability of directors
for breaches of fiduciary duty, no director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
NINTH. 1. ACTION, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF
THE CORPORATION. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he or she is or was, or has agreed to become, a director
or officer of the Corporation, or is or was serving, or has agreed to serve, at
the request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"),
- 5 -
<PAGE> 6
or by reason of any action alleged to have been taken or omitted in such
capacity, against all expenses (including attorneys' fees) judgment, fines and
amounts paid in settlement actually and reasonably incurred by him or her on his
or her behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his or her conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he or she reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful. Notwithstanding anything to the
contrary in this Article, except as set forth in Section 6 below, the
Corporation shall not indemnify an Indemnitee seeking indemnification in
connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation
shall indemnify any Indemnitee who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that he or she is or was, or has agreed to become, a director or officer of
the Corporation, or is or was serving, or has agreed to serve, at the request of
the Corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other enterprise
(including any employee benefit plan), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees) and amounts paid in settlement actually and reasonably incurred
by him or her or on his or her behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he or she acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such person is
fairly and reasonably
- 6 -
<PAGE> 7
entitled to indemnity for such expenses (including attorneys' fees) which the
Court of Chancery of Delaware or such other court shall deem proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he or she shall be indemnified against all expenses (including
attorneys' fees) actually and reasonably incurred by him or her or on his or her
behalf in connection therewith. Without limiting the foregoing, if any action,
suit or proceeding is disposed of, on the merits or otherwise (including a
disposition without prejudice), without (i) the disposition being adverse to the
Indemnitee, (ii) an adjudication that the Indemnitee was liable to the
Corporation, (iii) a plea of guilty or NOLO CONTENDERE by the Indemnitee, (iv)
an adjudication that the Indemnitee did not act in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and (v) with respect to any criminal proceeding, an adjudication
that the Indemnitee had reasonable cause to believe his or her conduct was
unlawful, the Indemnitee shall be considered for the purposes hereof to have
been wholly successful with respect thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his or
her right to be indemnified, the Indemnitee must notify the Corporation in
writing as soon as practicable of any action, suit, proceeding or investigation
involving him or her for which indemnity will or could be sought. With respect
to any action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his or her own counsel in connection with such claim, but the
fees and expenses of such counsel incurred after notice from the Corporation of
its assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense
- 7 -
<PAGE> 8
of such action or (iii) the Corporation shall not in fact have employed counsel
to assume the defense of such action, in each of which cases the fees and
expenses of counsel for the Indemnitee shall be at the expense of the
Corporation, except as otherwise expressly provided by this Article. The
Corporation shall not be entitled, without the consent of the Indemnitee, to
assume the defense of any claim brought by or in the right of the Corporation or
as to which counsel for the Indemnitee shall have reasonably made the conclusion
provided for in clause (ii) above.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below, in
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter, PROVIDED,
HOWEVER, that the payment of such expense incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking may be accepted without reference to the financial ability of
such person to make such repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines, by clear and convincing evidence, within such 60-day
period that the Indemnitee did not meet the applicable standard of conduct set
forth in Section 1 or 2, as the case may be. Such determination shall be made in
each instance by (a) a majority vote of a quorum of the directors of the
Corporation consisting of persons who are not at that time parties to the
action, suit or proceeding in question ("disinterested directors"), (b) if no
such quorum is obtainable, a majority vote of a committee of two or more
disinterested directors, (c) a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single
- 8 -
<PAGE> 9
class, which quorum shall consist of stockholders who are not at that time
parties to the action, suit or proceeding in question, (d) independent legal
counsel (who may be regular legal counsel to the Corporation), or (e) a court of
competent jurisdiction.
7. REMEDIES. The right to indemnification or advances as granted by this
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advances of expenses under this
Article shall be on the Corporation. Neither the failure of the Corporation to
have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such proceeding shall also be indemnified by the Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses provided
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the Corporation,
and shall continue as to an Indemnitee who has ceased to be a director or
officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in this Article shall be
deemed to prohibit, and the Corporation is specifically authorized to enter
into, agreements with officers and directors providing indemnification rights
and procedures different from those set forth in this Article. In addition, the
Corporation may, to the
- 9 -
<PAGE> 10
extent authorized from time to time by its Board of Directors, grant
indemnification rights to other employees or agents of the Corporation or other
persons serving the Corporation and such rights may be equivalent to, or greater
or less than, those set forth in this Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or her or on his or
her behalf in connection with any action, suit, proceeding or investigation and
any appeal, therefrom but not, however, for the total amount thereof, the
Corporation shall nevertheless indemnify the Indemnitee for the portion of such
expenses (including attorneys' fees), judgments, fines or amounts paid in
settlement to which the Indemnitee is entitled.
11. INSURANCE. The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the General
Corporation law of Delaware.
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees) judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
- 10 -
<PAGE> 11
14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of Delaware is
amended after adoption of this Article to expand further the indemnification
permitted to Indemnities, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
TENTH. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Restated Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
ELEVENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation.
1. NUMBER OF DIRECTORS. The number of directors of the Corporation shall
not be less than three. The exact number of directors within the limitations
specified in the preceding sentence shall be fixed from time to time by, or in
the manner provided in, the Corporation's By-Laws.
2. CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class II, and if such fraction is two-thirds, one of the extra directors shall
be a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
3. ELECTION OF DIRECTORS. Elections of directors need not be by written
ballot except as and to the extent provided in the By-Laws of the Corporation.
4. TERMS OF OFFICE. Each director shall serve for a term ending on the date
of the third annual meeting following the annual meeting at which such director
was elected; PROVIDED, that each initial director in Class I shall serve for a
term ending on the date of the annual meeting in 1997; each initial director in
Class II shall serve for a term ending on the date of the annual meeting in
1998; and each initial director in Class III shall
- 11 -
<PAGE> 12
serve for a term ending on the date of the annual meeting in 1999; and PROVIDED
FURTHER, that the term of each director shall be subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
5. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. QUORUM; ACTION AT MEETING. A majority of the directors at any time in
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third of the number of directors
fixed pursuant to Section 1 above constitute a quorum. If at any meeting of the
Board of Directors there shall be less than such a quorum, a majority of those
present may adjourn the meeting from time to time. Every act or decision done or
made by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors unless
a greater number is required by law, by the By-Laws of the Corporation or by
this Restated Certificate of Incorporation.
7. REMOVAL. Directors of the Corporation may be removed only for cause by
the affirmative vote of the holders of at least two-thirds of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote.
8. VACANCIES. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the board, shall be filled
only by a vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next
- 12 -
<PAGE> 13
election of the class for which such director shall have been chosen, subject to
the election and qualification of his or her successor and to his or her earlier
death, resignation or removal.
9. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
10. AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of law,
this Restated Certificate of Incorporation or the By-Laws of the Corporation,
and notwithstanding the fact that a lesser percentage may be specified by law,
the affirmative vote of the holders of at least seventy-five percent (75%) of
the shares of capital stock of the Corporation issued and outstanding and
entitled to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article ELEVENTH.
TWELFTH. Stockholders of the Corporation may not take any action by written
consent in lieu of a meeting. Notwithstanding any other provisions of law, the
Restated Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article TWELFTH.
THIRTEENTH. Special meetings of stockholders may be called at any time by
only the President or the Board of Directors. Business transacted at any special
meeting of stockholders shall be limited to matters relating to the purpose or
purposes stated in the notice of meeting. Notwithstanding any other provision of
law, this Restated Certificate of Incorporation or the By-Laws of the
Corporation, as amended, and notwithstanding the fact that a lesser percentage
may be specified by law, the affirmative vote of the holders of at least
seventy-five percent (75%) of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote shall be required to amend or
repeal, or to adopt any provision inconsistent with this Article THIRTEENTH.
- 13 -
<PAGE> 14
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Restated Certificate of Incorporation to be signed by
its President and Chief Executive Officer this _____ day of July, 1996.
DIATIDE, INC.
By:______________________________
Richard T. Dean,
President and
Chief Executive Officer
- 14 -
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE: COMPUTATION PRO FORMA NET LOSS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding... 2,588,654 465,325 1,531,385 465,325
Effect of convertible preferred stock
converted at date of issuance.............. 5,875,958 5,861,036 6,703,557 5,689,036
Effect of common equivalent shares issued by
the Company during the twelve month period
immediately preceding the Company's initial
public offering in June 1996, as if they
were outstanding for all periods presented
prior to June 30, 1996 (using the treasury
stock method).............................. -- 190,331 95,166 190,331
----------- ----------- ----------- -----------
Shares used in computing pro forma net loss
per share.................................. 8,464,612 6,516,692 8,330,108 6,344,692
Net loss..................................... $(3,089,933) $(1,811,407) $(5,451,193) $(3,320,897)
Pro forma net loss per share................. $ (0.37) $ (0.28) $ (0.65) $ (0.52)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND CONDENSED BALANCE SHEETS (UNAUDITED) AT JUNE 30, 1996 IN FORM 10-Q.
</LEGEND>
<CIK> 0001011888
<NAME> DIATIDE, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 21,533,945
<SECURITIES> 435,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,259,201
<PP&E> 2,068,696
<DEPRECIATION> 1,079,595
<TOTAL-ASSETS> 23,409,950
<CURRENT-LIABILITIES> 3,016,454
<BONDS> 17,951
<COMMON> 10,210
0
0
<OTHER-SE> 20,365,335
<TOTAL-LIABILITY-AND-EQUITY> 23,409,950
<SALES> 0
<TOTAL-REVENUES> 1,556,073
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,215,847
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,176
<INCOME-PRETAX> (5,451,193)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,451,193)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,451,193)
<EPS-PRIMARY> (0.65)
<EPS-DILUTED> (0.65)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information
contained in this Prospectus, should be carefully considered in evaluating the
Company and its business before purchasing the shares of Common Stock offered
hereby.
EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
Diatide was founded in February 1990 and is at an early stage of
development. All of the Company's potential products are in research or
development and will require additional research and development, extensive
preclinical studies and clinical trials and regulatory approval prior to any
commercial sales. The Company must successfully address a number of
technological challenges to complete certain of its development efforts. In
addition, there can be no assurance that the Company will be permitted to
undertake and complete human clinical trials of any of the Company's potential
products, either in the United States or elsewhere, or, if permitted, that such
products will be demonstrated to be safe and efficacious. In addition, there can
be no assurance that any of the Company's potential products will obtain United
States Food and Drug Administration ("FDA") or other regulatory approval for any
indication or that an approved product will be capable of being produced in
commercial quantities at reasonable cost and successfully marketed. See
"Business."
The use of synthetic peptides in radiopharmaceuticals, which is central to
the Company's technology, is new to nuclear medicine. The Company is aware of
only one imaging product and no therapeutics based on this scientific approach
that have been approved for sale by the FDA. The products for which the Company
has submitted or currently plans to submit investigational new drug ("IND")
applications and all of the Company's other potential products in research or
development may prove to have undesirable and unintended side effects in humans
or other characteristics that may prevent or limit their commercial use.
UNPROVEN SAFETY AND EFFECTIVENESS OF POTENTIAL PRODUCTS; UNCERTAINTIES RELATED
TO CLINICAL TRIALS
Before obtaining regulatory approvals for the commercial sale of any of its
products under development, the Company must demonstrate through preclinical
studies and clinical trials that the product is safe and efficacious for use in
each indication. The results from preclinical testing and early clinical trials
may not be predictive of results that will be obtained in large-scale clinical
trials, and there can be no assurance that the Company's clinical trials will
demonstrate the safety and effectiveness of any products or will result in
marketable products. A number of companies have suffered significant setbacks in
advanced clinical trials, even after promising results in earlier trials. The
Company, the FDA or other regulatory authorities may suspend or terminate
clinical trials at any time.
The Company relies on scientific, technical and clinical data supplied by
its academic collaborators and licensors in the evaluation and development of
potential products, including Sn-117m DTPA, which was licensed from BNL. BNL
conducted the Phase I and the Phase II clinical trials of the compound. There
can be no assurance that there are no errors or omissions in such data that
would materially adversely affect the development of such products.
The rate of completion of the Company's clinical trials is dependent upon,
among other things, the rate of patient enrollment. 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, program delays, or both, which could have a material
adverse effect on the Company.
The Company relies, in part, on clinical research organizations to conduct
its clinical trials. There can be no assurance that such entities will conduct
the clinical trials successfully.
The Company currently intends to complete Phase III clinical trials of P280
for the diagnosis of DVT and P829 for the diagnosis of neuroendocrine tumors in
the first half of 1997. These are the Company's most advanced product
candidates. There can be no assurance that the Company will meet its development
6
<PAGE> 2
schedule for P280 or P829, or that P280 or P829 or any of the Company's other
products in development will receive marketing approval in any country on a
timely basis, or at all. If the Company were unable to complete clinical trials
or demonstrate the safety and effectiveness of P280 or P829, the Company's
business, financial condition and results of operations could be materially
adversely affected.
The Company also is currently conducting clinical trials with respect to
certain of its other Techtides and plans to continue clinical trials of its
therapeutic radiopharmaceutical, Sn-117m DTPA. There can be no assurance that
any of these clinical trials will be successfully completed within any specified
time period, if at all. There also can be no assurance that the results from any
of these clinical trials will warrant the commencement of further clinical
trials or that the Company will not encounter problems in these or other
clinical trials which would cause the Company or the FDA to delay or suspend the
trials. In Phase I clinical trials of one of its Techtides, P483H for the
medical imaging of infection due to inflammation, the compound concentrated in
patients' stomachs at unexpectedly high levels. As a result, the Company
conducted additional preclinical testing of this compound and alternative
compounds in animals to determine the cause of this phenomenon and recently
initiated a new Phase I clinical trial of a new formulation of P483H. In a pilot
study of a compound for medical imaging of atherosclerotic plaque, the Company
determined that the compound did not exhibit sufficient sensitivity to warrant
continuing development of the compound. The Company currently is synthesizing
new compounds for this application and screening them in animal models. See
"Business -- Products Under Development" and "Business -- Government
Regulation."
NO ASSURANCE OF REGULATORY APPROVAL; EXTENSIVE GOVERNMENT REGULATION
The production and the marketing of the Company's products and the
Company's ongoing research and development activities are and will be subject to
extensive regulation by numerous federal, state and local governmental
authorities in the United States. The Company has had only limited experience in
filing or pursuing applications necessary to gain regulatory approvals.
Preclinical testing of the Company's product development candidates is subject
to Good Laboratory Practice ("GLP") requirements and the manufacture of any
products developed by the Company will be subject to Good Manufacturing Practice
("GMP") requirements prescribed by the FDA.
The regulatory process, which includes preclinical studies, clinical trials
and ongoing post-approval testing of each compound to establish or monitor its
safety and effectiveness, takes many years and requires the expenditure of
substantial resources. The Company has limited experience in filing or pursuing
applications necessary to gain regulatory approval. There can be no assurance
that, even after the performance of clinical studies, and the passage of time
and the expenditure of such resources, regulatory approval will be obtained for
any products developed by the Company. The Company's analysis of data obtained
from preclinical and clinical activities is subject to confirmation and
interpretation by regulatory authorities which could delay, limit or prevent FDA
regulatory approval. The Company or the FDA may suspend clinical trials at any
time if the participants in such trials are being exposed to unanticipated or
unacceptable health risks. Moreover, if regulatory approval to market a product
is granted, such approval may entail limitations on the indicated uses for which
it may be marketed. Failure to comply with applicable regulatory requirements
can, among other things, result in fines, suspension or withdrawal of regulatory
approvals, product recalls, seizure of products, operating restrictions and
criminal prosecutions. FDA policy may change and additional government
regulations may be established that could prevent or delay regulatory approval
of the Company's potential products. In addition, a marketed product, its
manufacturer and its manufacturing facilities are subject to continual review
and periodic inspections, and subsequent discovery of previously unknown
problems with a product, manufacturer or facility may result in restrictions on
such product or manufacturer, including withdrawal of the product from the
market. All of the foregoing regulatory matters also will be applicable to
development, manufacturing and marketing undertaken by any strategic partners of
the Company.
There can be no assurance that additional statutes or regulations
applicable to the Company's business will not be adopted, impose substantial
additional costs or otherwise adversely affect the Company's operations.
7
<PAGE> 3
The use, handling, storage and disposal of products containing
radioisotopes, such as Sn-117m and sources of technetium, are regulated by the
Nuclear Regulatory Commission and by state authorities. Enforcement of existing
laws and regulations or future amendments or limitations thereto could have a
material adverse effect on the market for radiopharmaceuticals and on the
Company's business, financial condition and results of operations. See "Business
- -- Government Regulation."
The Company is also subject to numerous and varying foreign regulatory
requirements governing the design and conduct of clinical trials and the
manufacturing and marketing of its products. The approval procedure varies among
countries and can involve additional testing, and the time required to obtain
approval may differ from that required to obtain FDA approval. The foreign
regulatory approval process may include all of the risks associated with
obtaining FDA approval set forth above, and there can be no assurance that
foreign regulatory approvals will be obtained on a timely basis, if at all.
Approval by the FDA does not ensure approval by regulatory authorities in other
countries and approval by one foreign regulatory authority does not ensure
approval by regulatory authorities in other foreign countries or by the FDA.
There can be no assurance that the Company or its strategic marketing partners
will file for regulatory approvals or receive necessary approvals to
commercialize its products in any market. Delays in receipt of or failure to
receive regulatory approvals, or the loss of previously received approvals,
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Government Regulation."
NEED TO ESTABLISH COLLABORATIVE COMMERCIAL RELATIONSHIPS; DEPENDENCE ON PARTNERS
Diatide's business strategy includes entering into strategic alliances or
marketing and distribution arrangements with corporate partners, primarily
pharmaceutical companies, for the development, commercialization and marketing
and distribution of certain of its potential products worldwide. To date, the
Company is a party to a collaborative arrangement with only one corporate
partner, Nycomed. There can be no assurance that the arrangement with Nycomed
will be scientifically or commercially successful. In the event that this
arrangement is terminated, such action might adversely affect the Company's
ability to develop, commercialize, market and distribute certain of its
potential products. If Dr. Richard T. Dean, the Company's President and Chief
Executive Officer, ceases to be employed by Diatide through August 11, 1997,
other than as a result of his death or disability or termination for cause,
Nycomed may terminate its collaboration with the Company. In addition, the
Company does not plan to conduct extensive Phase II/III clinical trials of
Sn-117m DTPA unless it enters into a corporate collaboration for the completion
of the development and the commercialization of Sn-117m DTPA. There can be no
assurance that the Company will be able to negotiate any additional
collaborative or marketing and distribution arrangements, that such arrangements
will be available to the Company on acceptable terms or that any such
relationships, if established, will be scientifically or commercially
successful. The Company's product candidates will only generate milestone
payments and royalties from collaborators upon the occurrence of significant
preclinical and clinical development, requisite regulatory approvals, the
establishment of manufacturing capabilities and successful marketing.
There can be no assurance that the Company's collaborative partners will
not be pursuing alternative technologies or developing alternative products
either on their own or in collaboration with others, including the Company's
competitors, as a means for developing imaging agents or treatments for the
diseases targeted by these collaborative programs. For example, Nycomed
manufactures and distributes a wide variety of imaging agents for other
modalities that may compete against the products that Nycomed licenses from
Diatide or co-markets with Diatide. The Company's business also will be affected
by the success of its corporate partners in marketing any successfully developed
products within the geographic areas in which such partners are granted
marketing rights. A reduction in sales efforts or a discontinuance of sales of
the Company's products by collaborative or corporate partners, who are not
within the control of the Company, may result in reduced revenues and have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Attraction and Retention of Key
Management and Qualified Personnel" and "Business -- Products Under
Development," "-- Corporate Collaborations" and "-- Marketing and Distribution."
8
<PAGE> 4
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
Diatide has incurred net losses since its inception. At March 31, 1996, the
Company's accumulated deficit was approximately $24.7 million. No revenues have
been generated from product sales, and no product sales revenues are anticipated
for a number of years. The Company expects to incur additional significant
operating losses over the next several years and expects cumulative losses to
increase significantly as the Company's research and development and clinical
trial efforts expand. The Company expects that losses will fluctuate from
quarter to quarter and that such fluctuations may be substantial. The Company's
ability to achieve profitability is dependent in part on obtaining regulatory
approvals for its products, entering into satisfactory agreements with
pharmaceutical corporate partners for research and development and
commercialization of its products and developing the capacity to manufacture,
market and sell its products or entering into satisfactory arrangements for such
manufacture, marketing and sale with third parties. There can be no assurance
that the Company will obtain required regulatory approvals, enter into any
additional agreements for drug discovery, development and commercialization,
develop the capacity to manufacture and sell its products (or enter into
arrangements therefor with third parties) or ever achieve sales or
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's future capital requirements will depend on many factors,
including continued progress in its research and product development programs,
the magnitude of these programs, the results of preclinical studies and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting, enforcing and defending patent claims,
competing technological and market developments, the ability of the Company to
establish and maintain collaborative academic and commercial research,
development and marketing relationships, and the costs and success of
commercialization activities and arrangements.
Based upon its current operating plan, the Company anticipates that its
existing capital resources, together with the proceeds of this offering and
interest earned thereon, will be adequate to satisfy its capital requirements
for at least the next 24 months. The Company anticipates that it may be required
to raise substantial additional funds, including through collaborative
relationships and public or private financings. No assurance can be given that
additional financing will be available, or, if available, that it will be
available on acceptable terms. If additional funds are raised by issuing equity
securities, further dilution to then existing stockholders will result.
Additionally, the terms of the financing may adversely affect the holdings or
the rights of the then existing stockholders. If adequate funds are not
available, the Company may be required to significantly curtail one or more of
its research or product development programs, or obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates or
products which the Company would otherwise pursue on its own. See "Business --
Products Under Development" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
INTENSE COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE
There are many companies, both private and publicly traded, that are
conducting extensive research and development activities on technologies and
products similar to or competitive with the Company's technologies and proposed
products. For example, many other companies are actively seeking to develop
nuclear medicine imaging agents that will compete with the Company's Techtides.
There can be no assurance that the Company's competitors will not succeed in
developing technology similar to the Company's proprietary process of
radiolabelling peptides with technetium used in the Company's Techtides.
The pharmaceutical industry is characterized by rapid and substantial
technological change and there can be no assurance that the Company's
competitors will not succeed in developing products which are more effective
than any that are being developed by the Company, or which would render
Diatide's technologies and products obsolete and noncompetitive. For example,
diagnostic imaging tests may be developed that are more cost-effective and have
superior imaging quality than the Company's tests or new radiopharmaceuticals
may
9
<PAGE> 5
be developed that have superior targeting and binding qualities than the
Company's Techtides. Certain radiopharmaceuticals already have been approved for
sale for the diagnosis or treatment of the indications targeted by the Company's
products under development. In particular, OctreoScan(R), a peptide-based
radiopharmaceutical, is available for the diagnosis of neuroendocrine tumors,
Ceretec(R), a radiopharmaceutical labelled with technetium, is available for
imaging inflammation due to infection, and Metastron(R) is available for the
reduction of pain due to metastatic cancer to the bone. There are several
well-established medical imaging modalities that currently, and will continue
to, compete against nuclear medicine imaging, including x-rays, CT, MRI and
ultrasound, and there are alternative therapeutics available for the treatment
of the cancer indications that are the subject of the Company's therapeutic
programs.
The Company has numerous competitors in the United States and
internationally, which include, among others, pharmaceutical and chemical
companies, biotechnology firms, universities and other research institutions.
Large pharmaceutical companies with significant research, development, marketing
and manufacturing operations in the nuclear medicine field include The DuPont
Merck Pharmaceutical Company ("DuPont Merck"), Mallinckrodt Group Inc.
("Mallinckrodt") and Amersham International PLC ("Amersham"). Many of the
Company's competitors have substantially greater financial, technical and human
resources than the Company. In addition, many of these competitors have
significantly greater experience than the Company in undertaking preclinical
studies and human clinical trials of new pharmaceutical products and obtaining
FDA and other regulatory approvals of products for use in health care.
Accordingly, the Company's competitors may succeed in obtaining FDA or other
regulatory approvals for products more rapidly than the Company. Furthermore, if
the Company is permitted to commence commercial sales of products, it will also
be competing with respect to manufacturing efficiency and marketing
capabilities, areas in which it has limited or no experience. See "Risk Factors
- -- Attraction and Retention of Key Management and Qualified Personnel" and
"Business -- Competition" and "-- Marketing and Distribution."
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to develop
patentable products, enforce its patents and obtain patent protection for its
products both in the United States and in other countries. The Company intends
to file applications as appropriate for patents covering both its products and
processes. However, the patent positions of pharmaceutical and biotechnology
firms, including Diatide, are generally uncertain and involve complex legal and
factual questions. No assurance can be given that patents will issue from any
patent applications owned by or licensed to Diatide or that, if patents do
issue, the claims allowed will be sufficiently broad to protect the Company's
technology. In addition, no assurance can be given that any issued patents owned
by or licensed to the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company.
The commercial success of the Company will also depend in part on its
neither infringing patents issued to competitors or others nor breaching the
technology licenses upon which the Company's products might be based. The
Company's licenses of patents and patent applications impose various
commercialization, sublicensing, royalty and other payment, insurance and other
obligations on the Company. Failure of the Company to comply with these
requirements could result in conversion of the licenses from being exclusive to
nonexclusive in nature or termination of the licenses. The Company is aware of
patents and patent applications belonging to competitors, and it is uncertain
whether these patents and patent applications will require the Company to alter
its products or processes, pay licensing fees or cease certain activities.
Competitors of the Company and other third parties hold issued patents and
pending patent applications which may result in claims of infringement against
the Company or other patent litigation. In particular, the Company is aware of
one European patent issued to a pharmaceutical company which, if valid, may be
infringed by P748. The holder of this patent has indicated to the Company that
it is not prepared to offer a license under the patent to the Company. There can
be no assurance that the Company will be able to successfully obtain a license
to any technology that it may require or that, if obtainable, such technology
can be licensed at a reasonable cost or on an exclusive basis. Failure by the
Company to obtain a license to any technology that it may require to
commercialize its products could have a material adverse effect on the Company.
See "Business -- Patents, Trade Secrets and Licenses."
10
<PAGE> 6
The pharmaceutical and biotechnology industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
Litigation, which could result in substantial cost to the Company, may be
necessary to enforce any patents issued or licensed to the Company and/or to
determine the scope and validity of others' proprietary rights. The Company also
may have to participate in interference proceedings declared by the United
States Patent and Trademark Office, which could result in substantial cost to
the Company, to determine the priority of inventions. Furthermore, the Company
may have to participate at substantial cost in International Trade Commission
proceedings to abate importation of products which would compete unfairly with
products of the Company.
Amendments to Title 35 of the United States Code as amended by the General
Agreement on Tariffs and Trade ("GATT"), implementing the Uruguay Round
Agreement Act of 1994, have affected the period of enforceability of United
States patents. United States patents that issue from applications filed before
June 1, 1995 will be enforceable for the longer of 17 years from the date of
issue or 20 years from the earliest claimed priority date. United States patents
that issue from applications filed on or after June 1, 1995 will be enforceable
for 20 years from the earliest of the filing date or the earliest claimed
priority date. While the Company cannot predict the effect that such laws will
have on its business, the adoption of such laws could effectively reduce the
term during which a marketed product could be protected by patents.
Diatide engages in collaborations, sponsored research agreements and other
agreements with academic researchers and institutions and United States
government agencies. Under the terms of such agreements, third parties may have
rights in certain inventions developed during the course of the performance of
such collaborations and agreements.
The Company relies on trade secrets and proprietary know-how which it seeks
to protect, in part by confidentiality agreements with its employees,
consultants, members of its Scientific Advisory Board, outside scientific
collaborators and sponsored researchers and other advisors. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach or that the Company's trade secrets will
not otherwise become known or be independently developed by competitors. Failure
to obtain or maintain patent and trade secret protection, for any reason, could
have a material adverse effect on the Company. See "Business -- Patents, Trade
Secrets and Licenses."
UNCERTAINTY OF MARKET ACCEPTANCE OF TECHNOLOGY AND PRODUCTS
The commercial success of the Company's products, when and if approved for
marketing by the FDA, will depend upon their acceptance by the medical community
and third party payors as clinically useful, cost-effective and safe. The
synthetic peptide-based radiopharmaceutical technology being developed by the
Company is relatively new. To date, the Company is aware of only one imaging
product and no therapeutic products based on this scientific approach that has
been approved for sale by the FDA. Peptide-based radiopharmaceuticals have not
been extensively tested in humans. Market acceptance and thus, sales of the
Company's products, will depend on several factors, including the receipt of
regulatory approval in the United States, Europe, the Far East and elsewhere,
safety, price, ease of administration and effectiveness and extensive physician
education. There can be no assurance that the Company's products will gain
market acceptance. Failure to achieve market acceptance would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Government Regulation."
ABSENCE OF SALES AND MARKETING EXPERIENCE
Although Diatide plans to rely significantly on collaborative partners for
the marketing and distribution of its products through co-marketing or other
licensing or distribution arrangements, the Company expects to market and sell
certain of its products directly and to engage in certain other marketing
activities in collaboration with its collaborative partners. The Company has no
experience in sales, marketing or distribution. The Company does not expect to
establish a direct sales capability until such time as one or more of its
products in development approaches marketing approval. The Company has not
developed a specific sales and marketing plan with respect to any of its
potential products. Although Diatide plans to have only a
11
<PAGE> 7
small, specialized in house sales group, it will need to recruit and train
appropriate personnel and develop a supporting distribution capability.
To the extent the Company enters into marketing or distribution
arrangements with collaborative partners, any revenues the Company receives will
depend upon the efforts of third parties. There can be no assurance that any
third party will market the Company's products successfully or that any
third-party collaboration will be on terms favorable to the Company. If any
marketing partner does not market a product successfully, the Company's business
would be materially adversely affected. If Diatide's plan to rely on corporate
partners for significant aspects of marketing and selling the Company's products
is unsuccessful for any reason, Diatide may need to recruit and train a far
larger marketing and sales force than it currently anticipates doing, which
would entail the incurrence of significant additional costs.
There can be no assurance that the Company would be able to attract and
build a sufficient marketing staff or sales force, that the cost of establishing
such a marketing staff or sales force will be justifiable in light of any
product revenues or that the Company's direct sales and marketing efforts will
be successful. In addition, if the Company succeeds in bringing one or more
products to market, it may compete with other companies that currently have
extensive and well-funded marketing and sales operations. There can be no
assurance that the Company's marketing and sales efforts would enable it to
compete successfully against such other companies. See "Business -- Marketing
and Distribution" and "-- Corporate Collaborations."
LIMITED MANUFACTURING CAPABILITY; DEPENDENCE ON SOLE SOURCE SUPPLIER
The Company lacks commercial-scale facilities to manufacture its products
in accordance with current GMP requirements prescribed by the FDA. To date, the
Company has relied on a large third party pharmaceutical company for the
manufacture of its peptides for clinical trials and has entered into an
arrangement with a GMP-qualified third party manufacturer for the supply of
Sn-117m for clinical trials. The Company expects to be dependent on third party
manufacturers or collaborative partners for all of its commercial production of
peptides. There are a limited number of manufacturers that operate under GMP
regulations capable of manufacturing the Company's products. In the event that
the Company is unable to obtain contract manufacturing, or obtain such
manufacturing on commercially reasonable terms, it may not be able to
commercialize its products as planned. Where third-party arrangements are
established, the Company will depend upon such third parties to perform their
obligations in a timely manner. There can be no assurance that third parties
depended upon by the Company will perform and any failures by third parties may
delay clinical trial development or the submission of products for regulatory
approval, impair the Company's ability to commercialize its products as planned
and deliver products on a timely basis, or otherwise impair the Company's
competitive position, which could have a material adverse effect on the
Company's business, financial condition or results of operations.
The Company purchases its synthetic peptides from a sole source supplier
and may enter into similar arrangements with respect to other components of its
products. While the Company is aware of alternative sources for its peptides,
the establishment of additional or replacement suppliers could be time consuming
and result in a supply interruption and significant additional regulatory delays
and expense. The establishment of an alternative source of supply or any
significant supply interruption could have a materially adverse effect on the
Company's ability to develop and manufacture its potential products and,
therefore, upon its business, financial condition and results of operations. See
"Business -- Manufacturing."
If the Company determines to develop its own manufacturing capabilities, it
will need to recruit qualified personnel and build or lease the requisite
facilities and equipment because it has no experience in manufacturing on a
commercial scale and no facilities or equipment therefor. There can be no
assurance that Diatide will be able to successfully develop its own
manufacturing capabilities or as to the cost thereof or the time required. In
addition, the manufacture of any products by the Company is subject to
regulation by the FDA and comparable agencies in foreign countries. Delay in
complying or failure to comply with such manufacturing requirements could
materially adversely affect the marketing of the Company's products and the
Company's business, financial condition and results of operations.
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HAZARDOUS MATERIALS
The Company's research and development involves the controlled use of
hazardous materials, chemicals and various radioactive compounds. Although the
Company believes that its safety procedures for handling, storing and disposing
of such materials and the safety procedures of the third parties who ship such
materials for the Company comply with the standards prescribed by federal, state
and local regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for significant damages and any such liability
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Government Regulation."
POTENTIAL PRODUCT LIABILITY EXPOSURE AND INSURANCE
The use of any of the Company's potential products in clinical trials and
the commercial sale of any products may expose the Company to potential product
liability risks which are inherent in the testing, manufacturing, marketing and
sale of human diagnostic and therapeutic products. Product liability claims
might be made directly by consumers, health care providers or by pharmaceutical
companies or others selling such products. There can be no assurance that
product liability claims, if made, would not result in a recall of the Company's
products or a change in the indications for which they may be used. Diatide has
limited product liability insurance coverage, and such coverage is subject to
various deductibles. Such coverage is expensive, and no assurance can be given
that the Company will be able to maintain or obtain such insurance at reasonable
cost or in sufficient amounts to protect the Company against losses due to
liability claims that could have a material adverse effect on the Company. See
"Risk Factors -- Unproven Safety and Effectiveness of Potential Products;
Uncertainties Related to Clinical Trials."
UNCERTAINTY OF HEALTH CARE REFORM MEASURES
Federal, state and local officials and legislators (and certain foreign
government officials and legislators) have proposed or are reportedly
considering proposing a variety of reforms to the health care systems in the
United States and abroad. The Company cannot predict what health care reform
legislation, if any, will be enacted in the United States or elsewhere.
Significant changes in the health care system in the United States or elsewhere
are likely to have a substantial impact over time on the manner in which the
Company conducts its business. Such changes could have a material adverse effect
on the Company. The existence of pending health care reform proposals could have
a material adverse effect on the Company's ability to raise capital. Further, to
the extent that proposals have a material adverse effect on other pharmaceutical
companies that are prospective corporate partners for the Company, the Company's
ability to establish collaborative commercial relationships may be adversely
affected. Furthermore, the Company's ability to commercialize its potential
products may be adversely affected to the extent that such proposals have a
material adverse effect on the business, financial condition and profitability
of other companies that are prospective corporate partners with respect to
certain of the Company's proposed products. See "Business -- Government
Regulation."
UNCERTAINTY OF PHARMACEUTICAL PRICING AND ADEQUATE REIMBURSEMENT
The Company's ability to commercialize its products successfully will
depend in part on the extent to which appropriate reimbursement levels for the
cost of such products and related treatment are obtained from government
authorities, private health insurers and other organizations, such as health
maintenance organizations ("HMOs"). Third-party payors are increasingly
challenging the prices charged for medical products and services. Also the trend
towards managed health care in the United States and the concurrent growth of
organizations such as HMOs, which could control or significantly influence the
purchase of health care services and products, as well as legislative proposals
to reduce government insurance programs, may all result in lower prices for the
Company's products. The cost containment measures that health care providers are
instituting could affect the Company's ability to sell its products and may have
a material adverse effect on the Company.
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There can be no assurance that reimbursement in the United States or
foreign countries will be available for any of the Company's products, or if
available, will not be decreased in the future, or that reimbursement amounts
will not reduce the demand for, or the price of, the Company's products. The
unavailability or inadequacy of third-party reimbursement for the Company's
products would have a material adverse effect on the Company.
ATTRACTION AND RETENTION OF KEY MANAGEMENT AND QUALIFIED PERSONNEL
The Company is highly dependent on the principal members of its management
and scientific staff, particularly Dr. Dean, the Company's President and Chief
Executive Officer, the loss of whose services could have a material adverse
effect on the Company. The Company is a party to an employment agreement with
Dr. Dean that extends through April 2, 1998, subject to automatic extension for
additional one-year periods unless either Dr. Dean or the Company provides
written notice to the contrary to the other party at least six months prior to
the expiration period. In the event Dr. Dean ceases to be employed by Diatide
through August 11, 1997, other than as a result of his death or disability or
termination for cause, Nycomed may terminate its collaboration with the Company,
which would result in a material loss of research and development revenues to
the Company and might adversely affect the Company's ability to develop,
commercialize, market and distribute certain of its potential products. Also,
recruiting and retaining qualified scientific personnel to perform research and
development work in the future will be critical to the Company's success. There
can be no assurance that the Company will be able to attract and retain such
highly skilled personnel on acceptable terms given the competition for
experienced scientists among numerous pharmaceutical, biotechnology and health
care companies, universities and non-profit research institutions. See "Risk
Factors -- Need to Establish Collaborative Commercial Relationships; Dependence
on Partners." The Company does not carry key-man insurance with respect to any
of its executive officers.
The Company's anticipated growth and expansion into areas and activities
requiring additional expertise, such as clinical trials, governmental approvals,
production and marketing, are expected to require the addition of new management
personnel and the development of additional expertise by existing management
personnel. The failure to acquire such services or to develop such expertise
could have a material adverse effect on the Company.
CLAIM BY MALLINCKRODT
On May 16, 1996, the Company received a letter from Mallinckrodt Group Inc.
("Mallinckrodt") in which Mallinckrodt stated, among other things, that "there
appears to have been a systematic effort by Diatide to gain access to
proprietary knowledge and processes developed by Mallinckrodt." Mallinckrodt
noted that four former managers at Mallinckrodt are currently employed by
Diatide and asserted that it had grounds to bring a cause of action against
Diatide for tortious interference with the employment agreements that it had
with its former managers. Diatide believes that Mallinckrodt's claims are
without merit. Although there can be no assurance that Mallinckrodt will not
commence a legal action in furtherance of its claims or that any such claims
will not be upheld, Diatide intends to vigorously contest and defend any such
action.
NO PUBLIC MARKET; POSSIBLE VOLATILITY OF SHARE PRICE; DILUTION
Prior to this offering, there has been no public market for the Common
Stock of the Company, and there can be no assurance that an active trading
market will develop or be sustained after this offering. The initial public
offering price was determined by negotiations among the Company and the
representatives of the Underwriters based upon several factors and may not be
indicative of future market prices. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price. The market
price of the Company's Common Stock could be subject to wide fluctuations in
response to quarterly variations in the Company's operating results,
announcements of technological innovations or new commercial diagnostic or
therapeutic products by the Company, its collaborative partners or its
competitors, governmental regulation, developments in patent or other
proprietary rights and public concern regarding the safety, effectiveness or
other implications of the products being developed by the Company. In addition,
the stock market has experienced extreme price and volume fluctuations. This
volatility has significantly affected the market prices
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of securities of many pharmaceutical companies for reasons frequently unrelated
to or disproportionate to the operating performance of the specific companies.
These broad market fluctuations may adversely affect the market price of the
Company's Common Stock.
Purchasers of shares of Common Stock in this offering will experience an
immediate and substantial dilution of $6.23 per share in the net tangible book
value of the Common Stock from the initial public offering price (based on the
initial public offering price of $8.50 per share). Additional dilution is likely
to occur upon exercise of outstanding warrants and stock options. See
"Dilution."
CONTROL BY DIRECTORS AND OFFICERS
Upon completion of this offering, the Company's directors, executive
officers and principal stockholders, and their affiliates, will beneficially own
approximately 60.1% of the Company's outstanding Common Stock (approximately
58.3% if the underwriters exercise their over-allotment option in full). As a
result, these stockholders, if acting together, will have the ability to control
the outcome of corporate actions requiring stockholder approval, including
actions concerning the election of directors and the approval of certain mergers
and other significant corporate transactions, including a sale of substantially
all of the Company's assets, irrespective of how other stockholders of the
Company may vote. This concentration of ownership may have the effect of
delaying or preventing a change in control of the Company. See "Management" and
"Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
A substantial number of outstanding shares of Common Stock and shares of
Common Stock issuable upon exercise of outstanding options and warrants will
become eligible for future sale in the public market at prescribed times. Sales
of substantial numbers of shares of Common Stock in the public market following
this offering could adversely affect prevailing market prices. The Securities
and Exchange Commission (the "SEC") has proposed an amendment to Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"), that, if adopted,
would permit certain shares to be sold one year earlier than otherwise provided
by the current version of Rule 144. Holders of 7,976,644 shares of Common Stock
(including 125,330 shares of Common Stock that may be acquired upon the exercise
of warrants) are entitled to certain rights with respect to registration of such
shares of Common Stock for offer or sale to the public. Any such sales may have
an adverse effect on the Company's ability to raise needed capital and may
adversely affect the market price of the Common Stock. See "Shares Eligible for
Future Sale," "Description of Capital Stock," and "Underwriting."
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ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation (the "Certificate of
Incorporation"), as in effect upon the closing of this offering, will require
that any action required or permitted to be taken by stockholders of the Company
must be effected at a duly called annual or special meeting of stockholders and
may not be effected by any consent in writing, and will require reasonable
advance notice by a stockholder of a proposal or director nomination which such
stockholder desires to present at any annual or special meeting of stockholders.
Special meetings of stockholders may be called only by the President of the
Company or by the Board of Directors. The Certificate of Incorporation provides
for a classified Board of Directors, and members of the Board of Directors may
be removed only for cause upon the affirmative vote of holders of at least
two-thirds of the shares of capital stock of the Company entitled to vote. In
addition, the Board of Directors will have the authority, without further action
by the stockholders, to fix the rights and preferences of, and issue shares of,
Preferred Stock. These provisions, other provisions of the Certificate of
Incorporation, and provisions in certain of the Company's stock options which
provide for acceleration of exercisability upon a change in control of the
Company and the fact that, upon the completion of this offering, the Company's
directors, executive officers and principal stockholders, and their affiliates,
will beneficially own approximately 60.1% of the Company's outstanding Common
Stock (approximately 58.3% if the underwriters exercise their over-allotment
option in full), may have the effect of deterring hostile takeovers or delaying
or preventing changes in control or management of the Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over then current market prices. In addition, these provisions may limit
the ability of stockholders to approve transactions that they may deem to be in
their best interests. See "Description of Capital Stock -- Preferred Stock" and
"-- Delaware Law and Certain Charter and By-Law Provisions."
NO DIVIDENDS ANTICIPATED IN FUTURE
The Company has not paid any dividends on the Common Stock since its
inception and does not anticipate paying any dividends in the future.
Declaration of dividends on the Common Stock will depend upon, among other
things, future earnings, if any, the operating and financial condition of the
Company, its capital requirements and general business conditions. See "Dividend
Policy."
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