<PAGE> 1
Filed pursuant to Rule 424(b)(1)
Registration No. 333-03326
2,200,000 SHARES
DIATIDE
COMMON STOCK
The 2,200,000 shares of common stock, par value $0.001 per share (the
"Common Stock"), offered hereby are being offered by Diatide, Inc. ("Diatide" or
the "Company"). Prior to this offering there has been no public market for the
Common Stock. See "Underwriting" for the factors considered in determining the
initial public offering price.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "DITI."
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES
OF COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 6 TO 16.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS* COMPANY+
<S> <C> <C> <C>
Per Share............................. $8.500 $0.595 $7.905
Total++............................... $18,700,000 $1,309,000 $17,391,000
<FN>
- ---------------
* The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
+ Before deducting expenses of the offering payable by the Company estimated to
be $800,000.
++ The Company has granted the Underwriters a 30-day option to purchase up to
330,000 additional shares of Common Stock on the same terms per share solely
to cover over-allotments, if any. If such option is exercised in full, the
total price to public will be $21,505,000, the total underwriting discounts
and commissions will be $1,505,350 and the total proceeds to Company will be
$19,999,650. See "Underwriting."
</TABLE>
------------------------
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of certificates therefor
will be made at the offices of Dillon, Read & Co. Inc., New York, New York, on
or about June 18, 1996. The Underwriters include:
DILLON, READ & CO. INC. OPPENHEIMER & CO., INC.
The date of this Prospectus is June 13, 1996
<PAGE> 2
[A picture of a man with four blown-up pictures showing the images produced by
nuclear medicine imaging with the Company's product candidates of (i) carotid
artery thrombus in the neck, (ii) pulmonary embolus imaged in the left lung,
(iii) deep vein thrombosis in the thigh and knee and (iv) deep vein thrombosis
in the calf appear here]
The images above are from clinical trials of Diatide's cardiovascular
product candidates for nuclear medicine imaging of thrombosis. These product
candidates are currently being evaluated in clinical trials and have not
received marketing approval from the FDA.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
As a result of this offering, the Company will become subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended, and in accordance therewith will file periodic reports, proxy
statements and other information with the Securities and Exchange Commission.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports containing unaudited financial statements for the first three
quarters of each fiscal year.
<PAGE> 3
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus, including the information under "Risk Factors." Except as
otherwise specified, all information in this Prospectus assumes no exercise of
the Underwriters' over-allotment option and reflects (i) the conversion of all
outstanding shares of the Company's Convertible Preferred Stock into an
aggregate of 7,531,140 shares of Common Stock at the closing of this offering
and (ii) a 6-for-10 reverse stock split of the Common Stock of the Company
effected on June 6, 1996.
THE COMPANY
Diatide is engaged in the discovery and development of proprietary
radiopharmaceuticals for use in nuclear medicine imaging procedures. The Company
is applying its proprietary peptide and radiolabelling technologies to the
development of technetium-99m labelled synthetic peptides ("Techtides") as
medical imaging agents for life-threatening and chronic diseases and conditions.
Because Techtides are designed to bind selectively with molecular targets that
localize or proliferate as disease is developing, the Company believes that
Techtides have the potential to produce images based on the process of disease
rather than the anatomical result of disease, which may alter patient treatment
protocols. The Company believes that its Techtides will permit a number of
clinically important new diagnostic procedures to be performed using the large
installed base of nuclear medicine imaging equipment and that nuclear medicine
imaging with Techtides may be more accurate, more cost-effective, less invasive
and/or safer than alternative imaging modalities for certain diseases and
conditions. In August 1995, the Company entered into a comprehensive strategic
alliance relating to its Techtides with Nycomed Imaging ASA (together with its
United States subsidiary, "Nycomed"), one of the world's leading producers of
medical imaging agents.
The Company has four Techtides and one non-peptide-based therapeutic
product candidate currently undergoing clinical trials:
- P280 for Deep Vein Thrombosis and Carotid Thrombus. P280 is a Techtide
for nuclear medicine imaging of deep vein thrombosis ("DVT") and carotid
thrombus. P280 targets the glycoprotein ("GP") IIb/IIIa receptor on
platelets involved in blood clot formation. The Company is conducting
Phase III clinical trials of P280 for nuclear medicine imaging of DVT and
recently completed a Phase II clinical trial of P280 for nuclear medicine
imaging of carotid thrombus.
- P829 for Neuroendocrine and Other Tumors. P829 is a Techtide for nuclear
medicine imaging of neuroendocrine and other tumors that overexpress the
receptor for the hormone somatostatin, such as melanomas and lung and
certain breast tumors. The Company is conducting Phase III clinical
trials of P829 for nuclear medicine imaging of neuroendocrine tumors and
plans to initiate additional clinical trials of P829 for nuclear medicine
imaging of melanomas and lung and certain breast tumors.
- P748 for Pulmonary Embolism. P748 is a Techtide for nuclear medicine
imaging of pulmonary emboli. As with P280, P748 targets the GP IIb/IIIa
receptor on platelets involved in blood clot formation. The Company is
initiating Phase II clinical trials of P748.
- P483H for Inflammation Due to Infection. P483H is a Techtide for nuclear
medicine imaging of inflammation due to infection, such as post-surgical
infection and occult (hidden) infection. The Company is conducting Phase
I clinical trials of P483H.
- Sn-117m DTPA for Reduction of Pain Due to Metastatic Cancer to the
Bone. Sn-117m DTPA is a compound comprised of the tin radioisotope
Sn-117m, which has an affinity for bone, combined with DTPA, a common
chelating (binding) agent. This compound is intended to reduce pain due
to metastatic cancer to the bone. The Company has licensed the exclusive
rights to Sn-117m DTPA from Associated Universities, Inc., the operator
of Brookhaven National Laboratories ("BNL"), which completed a Phase II
clinical trial of this compound.
- --------------------------------------------------------------------------------
3
<PAGE> 4
- --------------------------------------------------------------------------------
The Company believes that medical images produced with Techtides may
provide physicians with information concerning the physiology of diseased cells,
tissues and organs, rather than only the anatomical information generally
provided by other imaging modalities. The Company believes that this information
may permit a more definitive diagnosis of disease, thereby avoiding the costs
and delays incident to additional diagnostic tests or an inappropriate course of
therapy, and may facilitate diagnosis at an earlier stage of disease
development, when therapy can more favorably alter the outcome.
Nuclear medicine involves the use of radioisotopes, either by themselves or
attached to carriers ("radiopharmaceuticals"), for the diagnosis and treatment
of disease. In nuclear medicine imaging, the signal emitted by the
radiopharmaceutical is detected with a gamma camera. There are approximately
9,600 gamma cameras in hospitals and other clinical facilities in the United
States. In 1994, approximately 9,100,000 nuclear medicine imaging examinations
were performed in the United States.
Nuclear medicine imaging is distinguishable from other imaging modalities
in two significant respects. First, other modalities use the imaging device as
the principal component of the procedure, employing contrast agents to improve
image quality. Nuclear medicine imaging uses radiopharmaceuticals as the
principal component of the procedure; the gamma camera is only a means to record
the signal emitted by the radiopharmaceutical. Second, other modalities
generally only provide a visualization of the anatomy of an organ or other
tissue, while nuclear medicine imaging can provide important information about
the physiology of cells, tissues and other organs. Although nuclear medicine
images are not as anatomically clear as images from other modalities, such as
magnetic resonance imaging ("MRI") or computerized tomography ("CT"), the
Company believes that nuclear medicine imaging currently is the only modality
with the capability to enable imaging of pathology at the microscopic level.
Techtides consist of two principal components, synthetic peptides, which
are small molecules that are designed to bind with high specificity and affinity
with certain molecular targets on diseased tissues, and technetium-99m
("technetium"), a commonly-used radioisotope which emits signals that can be
detected using widely available nuclear medicine diagnostic equipment. Diatide
applies its expertise in peptide engineering and radiolabelling chemistry to
design its Techtides to selectively locate and tightly bind with their molecular
targets, to label these compounds with technetium in a manner that preserves the
selectivity and binding characteristics of the peptide and to optimize the
pharmacokinetics of the radiopharmaceutical.
Key elements of the Company's strategy are to: (i) establish the clinical
utility and advantages of Techtides, (ii) exploit the large installed base of
nuclear medicine equipment and know-how and (iii) leverage strong marketing
collaborations. The Company also intends to utilize its proprietary peptide
technology and understanding of radiopharmaceuticals to develop
radiopharmaceuticals that specifically target diseased tissue as cancer
therapies.
Under the Company's strategic alliance with Nycomed, Nycomed is required to
provide the Company with research and development support, and the Company has
granted Nycomed options to co-promote Techtides in the United States and to
distribute and license Techtides in Europe, South Africa and certain countries
in the Middle East. At the time the alliance was established, Nycomed made a $10
million equity investment in the Company. In December 1995 and May 1996, Nycomed
exercised its co-promotion and licensing options with respect to P280 and P829,
respectively. Nycomed is one of the world's leading producers of medical imaging
agents, with worldwide revenues from medical imaging operations of approximately
$800 million in 1995. The collaboration with Diatide represents the commencement
of Nycomed's nuclear medicine imaging activities.
- --------------------------------------------------------------------------------
4
<PAGE> 5
<TABLE>
THE OFFERING
<S> <C>
Common Stock offered by the Company....................... 2,200,000 shares
Common Stock to be outstanding after the offering......... 10,205,255 shares(1)
Use of proceeds........................................... To fund research and product
development, preclinical
studies and clinical trials,
to repay bank debt and for
general corporate purposes.
Nasdaq National Market symbol............................. DITI
Risk Factors.............................................. The offering involves a high
degree of risk. See "Risk
Factors."
<FN>
- ---------------
(1) Reflects the conversion of all outstanding shares of Convertible Preferred
Stock into an aggregate of 7,531,140 shares of Common Stock at the closing
of this offering. Does not include 770,472 shares reserved for issuance upon
the exercise of outstanding options and warrants as of March 31, 1996 at a
weighted average exercise price of $1.12 per share. See "Dilution,"
"Capitalization" and "Description of Capital Stock."
</TABLE>
<TABLE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................... $ -- $ -- $ 301 $ 208 $ 1,519 $ -- $ 500
Costs and expenses:
Research and
development........... 1,430 2,600 2,989 4,445 6,556 1,107 2,529
General and
administrative........ 365 838 1,217 1,714 1,636 407 439
Net loss..................... $(1,812) $(3,349) $(3,979) $(5,759) $(6,413) $(1,509) $(2,361)
======= ======= ======= ======= ======= ======= =======
Pro forma net loss per
share(1)................... $ (0.90) $ (0.29)
======= =======
Shares used in computing pro
forma net loss per
share(1)................... 7,149 8,196
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------
ACTUAL AS ADJUSTED(2)
-------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............. $ 6,897 $ 23,488
Working capital.............................................. 5,666 22,257
Total assets................................................. 8,547 25,138
Long-term debt, net of current portion....................... 37 37
Deficit accumulated during the development stage............. (24,709) (24,709)
Stockholders' equity......................................... 7,006 23,597
<FN>
- ---------------
(1) See Note 2 to Notes to Financial Statements for information concerning the
computation of pro forma net loss per share and shares used in computing pro
forma net loss per share.
(2) Reflects the conversion of all outstanding shares of Convertible Preferred
Stock into an aggregate of 7,531,140 shares of Common Stock at the closing
of this offering and the sale of the 2,200,000 shares of Common Stock
offered by the Company hereby at the initial public offering price of $8.50
per share and the application of net proceeds therefrom, after deducting the
underwriting discounts and commissions and offering expenses payable by the
Company. See "Use of Proceeds" and "Capitalization."
</TABLE>
5
<PAGE> 6
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
6
<PAGE> 7
its development 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.
7
<PAGE> 8
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.
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
8
<PAGE> 9
Factors -- Attraction and Retention of Key Management and Qualified Personnel"
and "Business -- Products Under Development," "-- Corporate Collaborations" and
"-- Marketing and Distribution."
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.
9
<PAGE> 10
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 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
10
<PAGE> 11
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."
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."
11
<PAGE> 12
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 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
12
<PAGE> 13
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.
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."
13
<PAGE> 14
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.
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.
14
<PAGE> 15
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 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."
15
<PAGE> 16
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."
16
<PAGE> 17
THE COMPANY
The Company was organized as a Delaware corporation in 1990. On January 26,
1996, the Company changed its name to Diatide, Inc. from Diatech, Inc. The
Company's principal office is located at Nine Delta Drive, Londonderry, New
Hampshire 03053 and its telephone number is (603) 437-8970.
The Company has filed for trademark protection for "Diatide" and
"Techtide." This prospectus also includes the names and marks of companies other
than the Company.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,200,000 shares of
Common Stock offered are estimated to be $16,591,000 ($19,199,650 if the
Underwriters' exercise their over-allotment option in full), after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
The Company currently intends to use all of the net proceeds of this
offering for research and product development activities, including costs of
preparing IND applications and conducting preclinical studies and clinical
trials, for the repayment of approximately $230,000 of existing bank
indebtedness and for general corporate purposes. The existing bank indebtedness
bears interest at the prime rate plus 2.5% per annum and would mature in April
1997 if it were not otherwise repaid out of the net proceeds of this offering.
The amount and timing of expenditures may vary significantly depending upon
numerous factors, including the progress of the Company's research and product
development programs, the results of preclinical studies and clinical trials,
the timing and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting, enforcing and defending patent claims,
technological advances, the costs associated with the commercialization of
products and the status of competitive products. In addition, expenditures will
also depend upon the establishment of collaborative arrangements with other
companies.
Based upon its current operating plan, the Company believes that its
existing capital resources, together with the net proceeds of this offering and
interest earned thereon, will be adequate to satisfy its capital requirements
for at least the next 24 months. Pending application of the net proceeds of this
offering as described above, the Company intends to invest the net proceeds of
this offering in short-term, investment-grade, interest-bearing instruments. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings for use in its business
and therefore does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors after taking into account various factors,
including the Company's financial condition, operating results, current and
anticipated cash needs and plans for expansion.
17
<PAGE> 18
CAPITALIZATION
<TABLE>
The following table sets forth the capitalization of the Company (i) as of
March 31, 1996 and (ii) as adjusted to reflect (a) the issuance and sale of
2,200,000 shares of Common Stock offered hereby at the initial public offering
price of $8.50 per share and receipt of the net proceeds therefrom, after
deducting the underwriting discounts and commissions and estimated offering
expenses, and (b) the conversion of all issued and outstanding shares of
Convertible Preferred Stock into 7,531,140 shares of Common Stock. This table
should be read in conjunction with the Company's Financial Statements and the
Notes included elsewhere in this Prospectus.
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, net of current portion.............................. $ 37 $ 37
-------- --------
Stockholders' equity:
Convertible Preferred Stock, $0.01 par value; 23,725,973 shares
authorized; 12,551,928 shares issued and outstanding; no
shares outstanding, as adjusted............................... 125 --
Common Stock, $0.001 par value; 50,000,000 shares authorized;
474,115 shares issued and outstanding; 10,205,255 shares
issued and outstanding, as adjusted(1)........................ 1 10
Additional paid-in capital.......................................... 33,122 49,829
Deferred compensation............................................... (1,533) (1,533)
Deficit accumulated during the development stage.................... (24,709) (24,709)
-------- --------
Total stockholders' equity..................................... 7,006 23,597
-------- --------
Total capitalization...................................... $ 7,043 $ 23,634
======== ========
<FN>
- ---------------
(1) Does not include 770,472 shares of Common Stock reserved for issuance upon
exercise of outstanding options and warrants as of March 31, 1996. See Note
5 of Notes to Financial Statements.
</TABLE>
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<PAGE> 19
DILUTION
<TABLE>
The Company's net tangible book value at March 31, 1996 was $6,546,515 or
approximately $0.82 per share of Common Stock, after giving effect to the
automatic conversion of all outstanding shares of the Company's Convertible
Preferred Stock into an aggregate of 7,531,140 shares of Common Stock upon the
closing of this offering. Net tangible book value per share represents the
amount of total tangible assets, reduced by the amount of the Company's total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the Company's receipt of the net proceeds from the sale by the
Company of 2,200,000 shares of Common Stock in this offering at the initial
public offering price of $8.50 per share, the net tangible book value of the
Company as of March 31, 1996 would have been $23,137,515 or $2.27 per share.
This represents an immediate increase in the net tangible book value of $1.45
per share to the holders of Common Stock and an immediate dilution in the net
tangible book value of $6.23 per share to new investors purchasing Common Stock
in this offering. The following table illustrates such per share dilution to new
investors:
<S> <C> <C>
Initial public offering price per share...................................... $8.50
Net tangible book value per share of Common Stock at March 31, 1996..... $0.82
Increase per share of Common Stock attributable to new investors........ 1.45
-----
Net tangible book value per share of Common Stock after this offering........ 2.27
-----
Dilution per share of Common Stock to new investors.......................... $6.23
=====
</TABLE>
<TABLE>
The following table sets forth the number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company, and the
average price paid per share by the existing stockholders and by investors
purchasing shares of Common Stock offered hereby (at the initial public offering
price of $8.50 per share):
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ ------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 8,005,255 78.4% $32,143,198 63.2% $ 4.02
New investors................ 2,200,000 21.6 18,700,000 36.8 8.50
---------- ----- ----------- -----
Total................... 10,205,255 100.0% $50,843,198 100.0%
========== ===== =========== =====
</TABLE>
The above computations assume no exercise of options or warrants since
March 31, 1996. As of March 31, 1996 there were options and warrants outstanding
to purchase 770,472 shares of Common Stock at a weighted average exercise price
of $1.12 per share. The exercise of such options or warrants would result in
further dilution to new investors. In addition, effective upon the closing of
this offering, there will be 2,056,813 shares of Common Stock reserved for
future issuance under the Company's stock plans. See "Capitalization,"
"Management -- Employee Benefit Plans" and "Description of Capital Stock."
19
<PAGE> 20
SELECTED FINANCIAL DATA
<TABLE>
The selected financial data presented below as of December 31, 1994 and
1995, and for each of the three years in the period ended December 31, 1995, are
derived from the Company's Financial Statements, included elsewhere in this
Prospectus, which have been audited by Ernst & Young LLP, independent auditors.
The selected financial data presented below as of December 31, 1991, 1992, and
1993 and for each of the two years in the period ended December 31, 1992 are
derived from the Company's Financial Statements, not included in this
Prospectus, which have been audited by Ernst & Young LLP, independent auditors.
The selected financial data as of March 31, 1996 and for the three months ended
March 31, 1995 and 1996 have been derived from the Company's unaudited Financial
Statements. In the opinion of the management of the Company, the unaudited
Financial Statements include all adjustments of a normal recurring nature
necessary for a fair presentation of the financial position and the results of
operations for these periods. The results of operations for the three months
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the entire year. This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and the Notes included elsewhere in
this Prospectus.
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... $ -- $ -- $ 301 $ 208 $ 1,519 $ -- $ 500
Costs and expenses:
Research and
development.......... 1,430 2,600 2,989 4,445 6,556 1,107 2,529
General and
administrative....... 365 838 1,217 1,714 1,636 407 439
------- ------- ------- ------- ------- ------- -------
Loss from operations....... (1,795) (3,438) (3,905) (5,951) (6,673) (1,514) (2,468)
Interest income............ 31 102 33 199 306 15 117
Interest expense........... (48) (13) (107) (7) (46) (10) (10)
------- ------- ------- ------- ------- ------- -------
Net loss................... $(1,812) $(3,349) $(3,979) $(5,759) $(6,413) $(1,509) $(2,361)
======= ======= ======= ======= ======= ======= =======
Pro forma net loss per
share(1)................. $ (0.90) $ (0.29)
======= =======
Shares used in computing
pro forma net loss per
share(1)................. 7,149 8,196
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
marketable securities.... $ 4,157 $ 1,088 $ 7,997 $ 2,710 $ 9,078 $ 6,897
Working capital............ 3,981 615 7,553 1,899 8,227 5,666
Total assets............... 4,455 1,716 8,489 3,696 10,652 8,547
Long-term debt, net of
current portion.......... 47 138 60 286 89 37
Deficit accumulated during
the development stage.... (2,847) (6,196) (10,175) (15,934) (22,347) (24,709)
Total stockholders'
equity................... 4,218 974 7,866 2,492 9,281 7,006
<FN>
- ---------------
(1) See Note 2 to Notes to Financial Statements for information concerning the computation of pro forma net loss per share and
shares used in computing pro forma net loss per share.
</TABLE>
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<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is 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 March 31, 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 option exercise payment from 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 March 31, 1996 of $24,708,639. See "Risk Factors -- History of Operating
Losses and Accumulated Deficit" and " -- Future Capital Needs; Uncertainty of
Additional Funding."
This Prospectus contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," "intends" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by such forwarding-looking statements.
These factors include, without limitation, those set forth under the caption
"Risk Factors."
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995
Revenues. The Company had revenues of $500,000 and $0 in the three months
ended March 31, 1996 and 1995, respectively. Revenues in the three months ended
March 31, 1996 were comprised of $500,000 received by the Company under its
collaborative agreements with Nycomed.
Research and Development. During the three months ended March 31, 1996 and
1995, the Company expended $2,528,603 and $1,106,862, respectively, on research
and development activities. The $1,421,741 increase in the three months ended
March 31, 1996 resulted from additional expenses associated with ongoing
clinical trials of P280 and P829, preclinical studies of additional compounds,
increased salaries and additional staffing in clinical and regulatory areas and
costs and consulting fees associated with the higher level of research and
development activities.
In 1995, the Company recorded deferred compensation of $1,663,000 related
to the grant of stock options to employees involved in research and development,
which is being amortized over the vesting periods of such options (generally
five years). Research and development expenses in the three months ended March
31, 1996 included $85,565 of amortization expense related to such deferred
compensation.
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<PAGE> 22
General and Administrative. The Company's general and administrative
expenses were $439,012 and $407,188 in the three months ended March 31, 1996 and
1995, respectively. In the three months ended March 31, 1996, increases in
staffing and related costs associated with the Company's growth were
substantially offset by a decrease in outside services and other expenses.
Interest. Interest expense in the three months ended March 31, 1996 and
1995 was $10,034 and $10,378, respectively, and was comprised primarily of
interest incurred on borrowings to finance the purchase of equipment and
leasehold improvements. Interest income was $116,389 in the three months ended
March 31, 1996 compared with $14,938 in the three months ended March 31, 1995,
reflecting the Company's increased cash balances in 1996.
Net Loss. As a result of the above factors, the Company incurred net
losses of $2,361,260 and $1,509,490 in the three months ended March 31, 1996 and
1995, respectively.
Years Ended December 31, 1995 and 1994
Revenues. The Company had revenues of $1,519,061 in 1995 and $207,546 in
1994. Revenues in 1995 were comprised of $1,278,388 received by the Company
under its collaborative agreements with Nycomed and $240,673 of contract
revenues under the Research Grants. Revenues in 1994 were comprised of $100,000
received by the Company under an option agreement with a pharmaceutical company
and $107,546 of contract revenues under the Research Grants.
Research and development. During 1995 and 1994, the Company expended
$6,555,628 and $4,444,662, respectively, on research and development activities.
The $2,110,966 increase in 1995 resulted from additional expenses associated
with ongoing clinical trials of P280, P829 and P748, preclinical studies of
additional compounds and increased salaries and related costs and consulting
fees associated with the higher level of research and development activities.
The Company expects to invest significant resources during 1996 in connection
with ongoing clinical trials of P280, P829, P748, P483H and Sn-117m DTPA, the
performance of preclinical studies and the preparation of regulatory
applications. Research and development expenses in 1995 included $44,000 of
amortization expense related to the deferred compensation recorded in 1995.
General and administrative. The Company's general and administrative
expenses were $1,636,486 in 1995 and $1,714,366 in 1994. In 1995, increases in
staffing and related costs associated with increases in personnel required to
manage the Company's growth were offset by a decrease in outside services and
other expenses.
Interest. Interest expense was $45,768 in 1995 and $6,607 in 1994
reflecting the higher level of long-term debt that was outstanding throughout
1995. Interest expense in 1995 and 1994 was comprised primarily of interest
incurred on borrowings to finance the purchase of equipment and leasehold
improvements. Interest income was $305,629 in 1995 compared with $199,197 in
1994, reflecting the Company's increased cash balances in 1995.
Net loss. As a result of the above factors, the Company incurred net
losses of $6,413,192 and $5,758,892 in 1995 and 1994, respectively.
Years Ended December 31, 1994 and 1993
Revenues. The Company had revenues of $207,546 in 1994 and $301,206 in
1993. Revenues in 1994 were comprised of $100,000 received by the Company for
entering into an option agreement with a pharmaceutical company and $107,546 of
contract revenues under the Research Grants. Revenues in 1993 were comprised of
$200,000 received by the Company for entering into option agreements with a
pharmaceutical company and $101,206 of contract revenues under the Research
Grants.
Research and development. During 1994 and 1993, the Company expended
$4,444,662 and $2,988,798, respectively, on research and development activities.
The increase in research and development expenses in 1994 resulted from
increased activity in the Company's clinical trials of P280 and preclinical
studies and pilot studies of other compounds. Due to the increased activity in
preclinical
22
<PAGE> 23
studies and the initiation of clinical trials, expenditures for outside testing
services, laboratory supplies and consulting services increased significantly in
1994. Patent costs also increased significantly in 1994 as the Company increased
its emphasis on developing a patent portfolio and prosecuting its patent
applications.
General and administrative. The Company's general and administrative
expenses were $1,714,366 in 1994 and $1,217,082 in 1993. The increase in 1994
was attributable primarily to increases in costs of recruiting, hiring and
relocating personnel, travel expenses associated with business development,
legal and patent expenses and consulting service expenses.
Interest. Interest expense was $6,607 in 1994 and $107,605 in 1993.
Interest expense in 1994 was incurred primarily on borrowings to finance the
purchase of equipment and leasehold improvements. Interest expense in 1993 also
included interest on borrowings used to finance the purchase of equipment and
leasehold improvements, but consisted primarily of $82,000 of interest expense
in connection with the Company's convertible subordinated notes. The principal
amount of and accrued interest on these notes were converted into shares of
Series C Convertible Preferred Stock or were repaid in November 1993. Interest
income was $199,197 in 1994 and $33,174 in 1993. Proceeds from the November 1993
sale of the Company's Series C Convertible Preferred Stock created increased
average daily cash balances throughout 1994.
Net loss. As a result of the above factors, the Company incurred net
losses of $5,758,892 and $3,979,105 for 1994 and 1993, respectively.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations and capital
expenditures primarily through private placements of equity securities totaling
approximately $31,585,000, net of issuance costs. Additionally, the Company has
borrowed a total of $900,518 through a series of secured notes payable to an
institutional lender to finance the purchase of certain equipment and leasehold
improvements. The Company has also received total revenues through March 31,
1996 of $2,527,813, which were primarily payments pursuant to collaborative
agreements and under the Research Grants.
The proceeds of private placements, notes payable and the cash generated
from third-party revenue sources have been used to fund operating losses of
$24,708,639 and the investment of $1,874,405 in property and equipment through
March 31, 1996. As of March 31, 1996, the Company had cash, cash equivalents and
marketable securities of $6,896,878 and working capital of $5,666,217.
During the three months ended March 31, 1996 and during 1995 and 1994, the
Company's capital expenditures totaled $128,575, $369,135 and $708,583,
respectively, primarily for the acquisition of certain equipment and leasehold
improvements. The Company expects that its capital expenditures for the
remainder of the year ending December 31, 1996 will be approximately $625,000,
primarily for the same purposes.
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. 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.
23
<PAGE> 24
The Company intends to seek additional equity, debt and lease financing to
fund future operations, depending upon the terms on which such sources of
funding 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-117m DTPA.
Except for research and development funding from Nycomed 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 programs
or commercialization efforts or license to third parties certain technologies
which the Company would otherwise pursue on its own.
As of December 31, 1995, the Company had approximately $21,200,000 and
$814,000 of net operating loss and tax credit carryforwards, respectively, which
expire at various dates through 2010. The Tax Reform Act of 1986 (the "Tax Act")
contains certain provisions that may limit the Company's ability to utilize net
operating loss and tax credit carryforwards in any given year if certain events
occur, including cumulative changes in ownership interests in excess of 50% over
a three year period. The Company believes that it has experienced changes in
ownership interests in excess of 50% as defined under the Tax Act and that it
may experience an additional change in ownership in excess of 50% upon
completion of the proposed initial public offering. The Company does not believe
that these changes in ownership will significantly impact the Company's ability
to utilize its net operating loss and tax credit carryforwards on an aggregate
basis. There can be no assurance that ownership changes in future periods will
not significantly limit the Company's use of net operating loss and tax credit
carryforwards.
24
<PAGE> 25
BUSINESS
Diatide is engaged in the discovery and development of proprietary
radiopharmaceuticals for use in nuclear medicine imaging procedures. The Company
is applying its proprietary peptide and radiolabelling technologies to the
development of Techtides as medical imaging agents for life-threatening and
chronic diseases and conditions. Because Techtides are designed to bind
selectively with molecular targets that localize or proliferate as disease is
developing, the Company believes that Techtides have the potential to produce
images based on the process of disease rather than the anatomical result of
disease, which may alter patient treatment protocols. The Company believes that
its Techtides will permit a number of clinically important new diagnostic
procedures to be performed using the large installed base of nuclear medicine
imaging equipment and that nuclear medicine imaging with Techtides may be more
accurate, more cost-effective, less invasive and/or safer than alternative
imaging modalities for certain diseases or conditions. In August 1995, the
Company entered into a comprehensive strategic alliance relating to its
Techtides with Nycomed, one of the world's leading producers of medical imaging
agents.
The Company has four Techtides currently undergoing clinical trials for
multiple indications: (i) P280 is in Phase III clinical trials for imaging DVT
and was the subject of a recently completed Phase II clinical trial for imaging
carotid thrombus; (ii) P829 is in Phase III clinical trials for imaging
neuroendocrine tumors and is expected to undergo additional clinical trials for
imaging of other tumors that overexpress the receptor for the hormone
somatostatin (particularly melanomas and lung and certain breast tumors); (iii)
P748 Phase II clinical trials are being initiated for imaging pulmonary emboli;
and (iv) P483H is in Phase I clinical trials for imaging inflammation due to
infection. The Company is conducting preclinical studies of additional Techtides
for imaging atherosclerotic plaque and colorectal and breast tumors. In addition
to its Techtide programs, Diatide has exclusively licensed Sn-117m DTPA, a
non-peptide-based radiopharmaceutical for the reduction of pain due to
metastatic cancer to the bone, from BNL, which completed a Phase II clinical
trial of Sn-117m DTPA.
MEDICAL IMAGING INDUSTRY BACKGROUND
Overview
Medical imaging encompasses a broad range of technologies, including x-ray,
CT, MRI, ultrasound and nuclear medicine, and is widely used to diagnose a
variety of diseases and conditions. Medical imaging plays a critical role in
patient treatment protocols, from initial screening of diseases and conditions
to confirmatory diagnosis, treatment monitoring and post-treatment patient
assessment. Images are produced by combining specialized instruments that detect
various forms of energy, such as radiation or sound waves, with a means to
visualize the effect of that energy on the structures, tissues or area being
imaged. The selection of imaging modality is based on a variety of factors,
including the amount and type of information which can be obtained regarding the
suspected disease or condition, how fast and conveniently the information can be
obtained, the side effects, image quality and cost effectiveness.
Contrast agents. Contrast agents are substances that are administered to
patients in medical imaging procedures to enhance the contrast of images by
effecting differential energy absorption in the body. Contrast agents generally
are administered orally or by intravenous injection. The use of contrast agents
has improved the utility of some imaging modalities by providing physicians with
additional diagnostic information and, as a result, has increased the
applications of medical imaging. Contrast agents are evaluated based on their
ability to enhance images, toxicity, biodistribution, circulation and clearance
from the body.
X-Ray. The oldest and most widely used diagnostic imaging modality is the
conventional x-ray. X-ray equipment consists of a cathode ray tube that projects
an x-ray beam through the patient to create shadows of contrast from
differential tissue absorption of the x-rays. These shadows are reproduced in
two dimensions on specialized films. X-rays are generally inexpensive to perform
and are most commonly used to diagnose relatively straightforward conditions,
such as bone fractures, or to
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<PAGE> 26
visualize gross lesions and abnormalities in large organs, such as the lung,
liver or breast. The principal limitations of x-ray technology are that it
permits only two-dimensional images and provides only simple anatomical
information about large tissue. Advances in x-ray equipment technology and the
development of contrast agents have enabled radiologists to expand the use of
standard x-ray equipment to include a number of specialized procedures, such as
angiography and contrast venography. These procedures involve the infusion of a
large volume of contrast agents into the patient, and angiography requires the
use of a catheter. The invasive nature of these procedures often results in
patient discomfort and occasionally causes serious adverse side effects. In
1994, approximately 160,000,000 medical images were taken in the United States
using x-rays.
Computerized tomography. CT was developed during the 1970s and represented
a significant improvement over conventional x-ray technology because it allowed
physicians to view structures in finer detail and in three-dimensional form. In
CT imaging, the patient is exposed to x-ray radiation from multiple directions.
Computerized images are created from x-ray absorption patterns of the imaged
soft tissues and bone. CT frequently is used to diagnose and monitor diseases of
the head and body, such as solid tumors. Contrast agents are often used in CT
procedures to enhance images. The principal limitations of CT images are that
they provide only anatomical information, not information concerning the
physiology of cells, tissues and organs, and that they often cannot provide
information about very small structures, such as metastasizing tumor cells. In
1994, approximately 21,000,000 CT procedures were performed in the United
States.
Magnetic resonance imaging. MRI was introduced during the 1980s. In MRI,
the patient is placed within the core of a large magnet and radio frequency
radiation is transmitted into the patient's body. The interaction of the radio
frequency radiation with the patient's body in the magnetic field produces
signals that are processed by a computer to create two-dimensional
cross-sectional images. MRI provides clear anatomical images and is used
primarily to image tumors, lesions, spinal cord injuries and other soft tissue
disorders. In certain instances, MRI images can be enhanced by contrast agents
that contain magnetic or paramagnetic materials. In 1994, approximately
7,600,000 MRI procedures were performed in the United States.
Ultrasound. Ultrasound for medical imaging was introduced in the late
1950s and uses low-power, high-frequency sound waves to produce real-time
images. The sound waves are emitted by an ultrasound transducer and are
reflected by tissues and fluids. Ultrasound is generally non-invasive and is
routinely used to visualize certain organs where conventional
radiation-intensive modalities could prove harmful, such as in obstetrics, and
certain anatomical structures and dynamic functions, such as the flow of blood
through the valves of the heart. Application of the Doppler effect, which
recognizes that the frequency of sound waves is altered in proportion to the
velocity of moving objects, and color mapping techniques have enhanced the
effectiveness of ultrasound. However, ultrasound images are highly
technique-dependent and frequently are poorly defined. In addition, ultrasound
is unable to provide information about cell physiology. To date, contrast agents
have not been widely used in ultrasound procedures, although such use is
increasing and a number of new ultrasound contrast agents are under development.
In 1994, over 28,000,000 ultrasound procedures were performed by hospital
radiology departments, hospital cardiology departments, free-standing imaging
centers and private cardiologists' offices in the United States.
Nuclear Medicine Imaging
Background. Nuclear medicine imaging was first introduced in the late
1940s and involves injecting trace amounts of a radioisotope into the patient's
body, detecting the signal emitted by the radioisotope with a gamma camera and
then creating an image of the target area, usually through the use of a
computer. The radioisotope, such as technetium, iodine-123 or indium-111, is
sometimes coupled with a carrier molecule that binds on a selective basis with
targeted tissues. Technetium is inexpensive, widely available and provides good
image quality. It is used in approximately 65% of all nuclear medicine imaging
procedures in the United States. To date, nuclear medicine imaging has been used
primarily to diagnose cardiovascular disease and bone cancer. There is an
installed base of
26
<PAGE> 27
approximately 9,600 gamma cameras in hospitals and other clinical facilities in
the United States. In 1994, approximately 9,100,000 nuclear medicine imaging
examinations were performed in the United States, which involved the use of
radiopharmaceuticals. Nuclear medicine imaging procedures are generally
considered to be safe because they typically entail the administration of trace
amounts of a particular radioisotope, exposing the patient to approximately the
same radiation level as a CT procedure, and because the radiopharmaceuticals
used in these procedures are typically administered to the patient only once or
a very limited number of times.
Nuclear medicine imaging is distinguishable from other imaging modalities
in two significant respects. First, other modalities use the imaging device as
the principal component of the procedure, employing contrast agents to improve
image quality. Nuclear medicine imaging uses radiopharmaceuticals as the
principal component of the procedure; the gamma camera is only a means to record
the signal emitted by the radiopharmaceutical. Second, other modalities
generally only provide a visualization of the anatomy of an organ or other
tissue, while nuclear medicine imaging can provide important information about
the physiology of cells, tissues and other organs. Although nuclear medicine
images are not as anatomically clear as images from other modalities, such as
MRI or CT, the Company believes that nuclear medicine imaging currently is the
only modality that permits imaging of pathology at the microscopic level.
In traditional nuclear medicine imaging, the imaging agent is administered
to the patient and the agent's path through the body, including areas of the
body where the radioisotope tends to localize, is traced through the use of a
gamma camera. In these procedures, the radioisotopes often are combined with
carrier molecules designed to improve biodistribution. These compounds generally
have been identified through random screening programs similar to the methods
traditionally used to develop therapeutic pharmaceuticals. Although many
traditional radiopharmaceuticals are generic in nature, a number of new
proprietary radiopharmaceuticals have been introduced into the nuclear medicine
market, including Cardiolite(R) and Metastron(R).
Targeted imaging agents. Over the past decade, significant research and
development efforts have been undertaken to develop new targeting agents for
radiopharmaceuticals by coupling radioisotopes with carrier vehicles that
specifically target tissues of interest for nuclear medicine imaging. Initially,
such efforts focused on the use of monoclonal antibodies ("MAbs"). However, the
use of MAbs for this purpose has entailed a number of difficulties resulting
from the large molecular size of MAbs and the adverse immune responses caused by
some MAbs because of their derivation from mouse-derived proteins. To date, only
one MAb-based imaging radiopharmaceutical has been introduced into the United
States market. As a result, more recent research and development efforts have
focused on the use of peptides as targeted carrier vehicles. The Company
believes that nuclear medicine imaging using targeted radiopharmaceuticals that
combine peptides as the carrier vehicle and technetium as the radiolabel may be
more accurate, more cost-effective, less invasive and/or safer than alternative
imaging modalities for certain diseases or conditions.
NUCLEAR MEDICINE THERAPEUTICS
Certain radioisotopes are used as cancer therapies. Examples include
iodine-131 for thyroid cancer treatment and strontium-89 for the reduction of
pain due to metastatic cancer to the bone. These radioisotopes localize in
certain areas of the body or on certain body tissues and emit beta particles
that are lethal to tumors. Recent research and development efforts involving
nuclear medicine therapeutics have focused on coupling radioisotopes with
carrier molecules that specifically target certain types of tumors. The use of
these carrier molecules enables physicians to target diseased tissue that
previously could not be treated with radiopharmaceuticals. Both MAbs and
peptides currently are being developed as carrier molecules for this purpose.
DIATIDE TECHNOLOGY
Techtides are proprietary nuclear medicine imaging agents that combine
technetium and peptide carrier molecules to target particular tissues. Diatide
believes that it was the first company to engage in
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<PAGE> 28
the development of receptor-binding peptides that can be easily labelled with
technetium. The Company's technology builds on recent advances in molecular
biology and peptide chemistry that have led to the characterization of cell
receptors associated with various active disease states and the structure of
peptides that bind to these cell receptors.
[A schematic showing the components of Diatide's Techtides appears here]
Diatide's Techtides contain the following elements: (i) a peptide sequence that
binds to a target, such as a cell receptor; (ii) a peptide-based unit linking
the receptor-binding region of the Techtide to the technetium-binding group;
(iii) a technetium-binding group, called a chelate, composed of specialized
proprietary peptides that bind to the technetium (Tc); and (iv) additional
peptide or amino acid units that improve biodistribution and clearance from the
body. A gamma ray (v) is emitted from the technetium to produce an image through
a gamma camera.
The Company develops Techtides by applying its proprietary technologies in
the areas of peptide engineering and radiolabelling chemistry. After Diatide
identifies a medical imaging need relating to a selected disease, the Company
uses rational drug design principles to develop a peptide carrier vehicle that
it believes will bind with high affinity to a molecular target that localizes or
proliferates as disease is developing. These molecular targets typically involve
cell receptors that are implicated in the disease process. Using proprietary
methods of peptide synthesis, the Company combines linkers and chelating agents
to engineer its peptides so that these peptides may be easily labelled with
technetium in a manner that preserves their selectivity and binding
characteristics. The Company also incorporates into these compounds additional
peptide or amino acid units to improve biodistribution and clearance from the
body of excess Techtides that do not bind with targeted receptors. The Company
uses its medicinal chemistry expertise to optimize the pharmacokinetic
characteristics of these compounds.
Because the synthetic peptides designed by Diatide bind with technetium in
a very efficient manner, the amount of peptide required to produce Techtides is
relatively low, which reduces development and manufacturing costs. The Company's
technology for coupling technetium with synthetic peptides is the subject of
three issued United States patents.
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<PAGE> 29
The synthetic peptides used by Diatide in its Techtides are relatively
small molecules composed of approximately 10 to 30 amino acids. These amino
acids are readily available and inexpensive to synthesize. The relatively small
size and design of these synthetic peptide molecules permits them to diffuse
quickly to target sites in the body and to be removed quickly from the
bloodstream, facilitating rapid imaging of areas of interest.
The Company recently acquired a patent and related technology that involve
a method of generating a synthetic peptide library and simultaneously screening
peptides in the library for high binding affinity with specific receptors. The
Company believes that this technology will significantly enhance its ability to
generate new peptides as carrier molecule candidates.
The Company designs its Techtides to be administered to patients by
intravenous injection. The Company believes that it will be possible to obtain a
nuclear medicine image using Techtides within several minutes to two hours after
administration, with the precise time varying depending on the type of
procedure. Accordingly, the Company expects that nuclear medicine imaging with
Techtides will be performed in a single procedure in a one-day hospital visit.
ADVANTAGES OF TECHTIDES
Diatide believes that nuclear medicine imaging with Techtides may provide
the following advantages in comparison with other imaging modalities and other
nuclear medicine imaging agents:
- Improved Diagnostic Information. Nuclear medicine imaging with Techtides
provides images by targeting molecular sites that localize or proliferate
as disease is developing, such as activated platelets in clots and
somatostatin receptors on tumors. This approach is fundamentally
different from the approach used in other medical imaging modalities and
may provide physiological information which is not available through
other modalities. This information may affect patient management and
clinical outcomes by permitting nuclear medicine physicians to make a
more definitive diagnosis of disease, thereby avoiding the costs and
delays incident to additional diagnostic tests or an inappropriate course
of therapy, or by facilitating diagnosis at an earlier stage of disease
development, when therapy can more favorably alter the outcome.
- Low Cost Manufacturing. The components of the synthetic peptides used by
the Company are readily available and inexpensive to synthesize with
established techniques. Technetium also is widely available and
inexpensive. The efficient manner in which the Company's synthetic
peptides bind with technetium limits the amount of peptide required in
the production process.
- Faster Imaging. Techtides are designed to diffuse rapidly to, and bind
tightly with, their molecular targets and for the portion of the dose
that does not bind with the target to quickly clear the circulatory
system. The Company believes that these attributes, along with the
favorable characteristics of technetium, will permit Techtides to produce
high quality images within a short time (typically a few minutes to two
hours) after administration. Accordingly, the Company believes that
imaging procedures with Techtides may be performed in a single procedure,
avoiding the need for an overnight hospital stay or multiple hospital
visits.
- Safety and Ease of Administration. Because Techtides are relatively
small molecules that contain only trace amounts of technetium and
peptide, the Company does not believe that Techtides will be administered
at doses that will be pharmacologically active. While clinical trials to
ascertain the safety of Techtides at various dosing levels are still
underway, no clinically significant adverse side effects have been
identified in the more than 500 patients imaged to date. Moreover,
imaging procedures with Techtides do not involve discomfort or serious
adverse side effect risks that accompany certain competing modalities,
such as angiography and contrast venography.
- Comparison with MAbs. Diatide believes that peptides offer several
significant advantages in comparison with MAbs as carrier molecules for
radiopharmaceutical imaging agents. Radiolabelled MAbs are large
molecules that are relatively difficult to produce, typically require a
long period of time after administration for imaging (four to forty-eight
hours) and clear the body
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<PAGE> 30
slowly, which can adversely affect image quality in some cases. In
addition, some MAbs have engendered adverse immune responses caused by
their derivation from mouse-derived proteins. MAbs are currently made
primarily through cell fermentation techniques, which may expose them to
biological contaminants. Moreover, it is significantly easier to modify
peptides to optimize their pharmacokinetic properties than to modify MAbs
for such purpose.
DIATIDE STRATEGY
Diatide is applying its proprietary technology in the areas of peptide
engineering and radiolabelling chemistry to develop novel nuclear medicine
products. The Company is directing its development programs at large existing
markets which it believes are not adequately served by existing products or
modalities. The key elements of Diatide's business strategy include:
- Establish Clinical Utility and Advantages of Techtides. The Company
plans to develop Techtides for application to a broad range of diseases
and conditions for which nuclear medicine imaging with Techtides
demonstrates advantages in comparison with competing imaging modalities.
Techtides are targeted imaging agents that combine the low cost and high
image quality associated with technetium with the specific binding
properties of peptides. The Company believes that nuclear medicine
imaging using its Techtides may lead to a more rapid diagnosis and may be
more accurate, more cost-effective, less invasive and/or safer than
alternative imaging modalities for certain diseases or conditions.
- Exploit Large Installed Base of Nuclear Medicine Equipment and
Know-how. The Company is designing Techtides to be used in nuclear
medicine imaging procedures that employ the large installed base of
nuclear medicine imaging equipment in hospitals and clinical facilities
and that are based on well-known imaging techniques and protocols. As a
result, nuclear medicine imaging with Techtides is not expected to
require the purchase of additional equipment or substantial additional
training of nuclear medicine physicians and technicians.
- Leverage Strong Marketing Collaborations. The Company is currently a
party to a comprehensive strategic collaboration with Nycomed with
respect to its Techtides. The Company plans to leverage this relationship
in the development and marketing of Techtides and, where appropriate, to
seek to enter into additional strategic corporate collaborations to
secure additional financial support for its research and development
activities and to enhance the sales and marketing, distribution and
promotion of its products on a worldwide basis.
The Company plans to further exploit its proprietary peptide technology and
understanding of radiolabelling by developing therapeutic radiopharmaceuticals
that specifically target certain types of tumors. The Company has licensed and
is developing Sn-117m DTPA as a therapy for the reduction of pain due to
metastatic cancer to the bone because the technology of this compound is related
to the Company's technology. The Company expects to distribute this compound
through the same channels as the Company's other products.
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PRODUCTS UNDER DEVELOPMENT
The Company believes that its clinical development programs have benefited
from the minimally invasive nature of nuclear medicine imaging, the small doses
of Techtides used in these procedures and the rapid visibility of results from
the use of Techtides in these procedures. These attributes have made it
relatively easy to evaluate Techtides in humans for correct biodistribution and
ability to visualize the disease or condition of interest, thereby enabling the
Company to conduct pilot studies of Techtides in limited patient populations to
obtain preliminary information as to efficacy and determine whether full
clinical trials are warranted. Thus, through the use of these pilot studies, the
Company has been able to eliminate certain compounds as product candidates
without incurring a high level of related development costs.
<TABLE>
The table below summarizes Diatide's principal products under development.
This table is qualified in its entirety by reference to the more detailed
descriptions elsewhere in this Prospectus.
<CAPTION>
- -----------------------------------------------------------------------------------------------
PRODUCT CLINICAL
NAME INDICATION STATUS(1) COLLABORATOR(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Imaging Products (Techtides)
P280 Deep Vein Phase III Nycomed
Thrombosis (options exercised)
Carotid Thrombus Phase II Nycomed
(options exercised)
P829 Neuroendocrine Phase III Nycomed
Tumors (options exercised)
Other Tumors
Lung and Certain Phase II Nycomed
Breast Tumors (options exercised)
Melanomas Completed Pilot Study Nycomed
(options exercised)
P748 Pulmonary Embolism Phase II Nycomed
P483H Inflammation due Phase I Nycomed
to Infection
P773 Atherosclerotic Preclinical Nycomed
Plaque
Therapeutic Product
Sn-117m Reduction of Pain Phase II --
DTPA due to Metastatic
Cancer to the Bone
- -----------------------------------------------------------------------------------------------
<FN>
(1) Phase III Clinical Trial. The product is administered to an expanded patient
population to (i) further test the product for safety, (ii) further evaluate
clinical effectiveness and (iii) obtain additional information for
labelling.
Phase II Clinical Trial. The product is administered to a limited patient
population to (i) evaluate the effectiveness for specific indications, (ii)
determine dose response and optimal dosage and (iii) identify possible
adverse effects and safety risks.
Pilot Study. The product is administered to a limited patient population to
determine whether further clinical trials are warranted based on preliminary
indications of efficacy.
Phase I Clinical Trial. The product is administered to healthy human
subjects and tested for safety, dosimetry, tolerance, metabolism,
distribution, excretion and pharmacokinetics.
Preclinical. A compound is undergoing testing and being evaluated by the
Company in relevant assays and/or animal models to assess potential product
characteristics, safety and utility.
(2) Nycomed is providing research and development support and has an option to
co-market Techtides in the United States and to license and distribute
Techtides in Europe, South Africa and certain countries in the Middle East.
Nycomed has exercised its co-promotion and licensing options with respect to
P280 and P829. See "Business -- Corporate Collaborations."
</TABLE>
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<PAGE> 32
IMAGING PRODUCTS
P280 for Deep Vein Thrombosis
The Company is conducting Phase III clinical trials of the Techtide P280
for medical imaging of DVT. P280 targets the GP IIb/IIIa receptor on platelets
involved in blood clot formation. A number of pharmaceutical and biotechnology
companies have targeted the GP IIb/IIIa receptor for therapeutic cardiovascular
products. One such product, ReoPro(R), has been approved by the FDA and a number
of other product candidates are in various phases of clinical trials. In DVT, a
thick fibrous blood clot, known as a thrombus, forms in the veins of the lower
legs, thighs, pelvic areas or, less frequently, in the upper extremities of
humans, typically as a result of trauma, surgery or stasis due to inactivity.
Patients with DVT are at risk of pulmonary embolism, which occurs when a clot
associated with DVT breaks free and travels to the lungs and blocks blood flow
to the lungs.
Clots in the venous system can be characterized as either acute (recently
formed) or chronic (older). Physicians generally believe that acute clots
present the highest risk of producing a pulmonary embolus and therefore require
aggressive treatment. Chronic clots may be in a dormant state, posing little or
no risk of producing a pulmonary embolus, and, as a result would not normally
require aggressive treatment. No existing imaging modality is able to accurately
differentiate chronic clots from acute clots.
There are approximately 5,000,000 episodes of DVT in the United States each
year, of which approximately 500,000 to 600,000 result in pulmonary embolism.
Approximately 200,000 deaths occur each year in the United States as a result of
pulmonary emboli. It is important to accurately diagnose and treat patients with
DVT in a timely fashion to prevent them from developing pulmonary embolism.
Doppler ultrasound and contrast venography are the primary modalities used
to diagnose DVT. In the United States, Doppler ultrasound imaging, an operator
dependent technique which is not FDA-validated for the diagnosis of DVT, is
increasingly used for this purpose because it is relatively inexpensive and
non-invasive. In 1994, approximately 990,000 ultrasound procedures for imaging
of DVT were performed in the United States. Although Doppler ultrasound is
considered reasonably accurate in identifying DVT in the thigh and behind the
knee, it is less efficacious in the area below the knee, in the pelvis and, in
some patients, in the upper extremities of the body. Doppler ultrasound also is
of limited effectiveness in imaging obese patients, patients with swelling and
post-surgical orthopedic patients.
Contrast venography is used to diagnose DVT both as a primary imaging
modality, particularly in Europe, and when the results of ultrasound are
indeterminate. Contrast venography is currently recognized as the most accurate
imaging modality used to identify DVT. In a contrast venography procedure, a
contrast agent is infused into the patient's vein and imaged by x-ray. Although
this procedure produces high quality images in a high percentage of cases, it is
painful, more expensive than ultrasound and can result in serious adverse side
effects, including the triggering of thrombosis. In 1994, approximately 310,000
contrast venography procedures for imaging of DVT were performed in the United
States.
The Company believes that nuclear medicine imaging with P280 may permit
diagnosis of DVT without the pain, degree of invasiveness and risk of serious
adverse side effects associated with contrast venography. The Company also
believes that P280 may be an alternative to Doppler ultrasound in diagnosing DVT
in certain areas, such as below the knee and in the pelvis, and in certain
patients, such as obese patients and patients with swelling, where ultrasound is
less efficacious. Moreover, because the peptide in P280 targets the GP IIb/IIIa
receptor on activated platelets, which are present in higher concentrations in
acute clots than in chronic clots, Diatide believes that nuclear medicine
imaging with P280 may enable physicians to distinguish between chronic clots and
acute clots. Such information may be critical to management of DVT patients,
especially patients who previously have experienced DVT. An anticoagulant most
likely would be prescribed in the case of an acute clot, while it is possible
that no intervention would be taken in the case of a chronic clot. If P280 is
shown to differentiate acute clots
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<PAGE> 33
from chronic clots, nuclear medicine imaging with this Techtide also might be
useful to monitor the effect of anticoagulant therapy, which carries a risk of
bleeding.
The Company initiated a Phase III clinical trial program of P280 for the
diagnosis of DVT in 1995. This program will consist of a non-pivotal clinical
trial of P280, which was completed in December 1995 and which compared P280 with
ultrasound, and two pivotal Phase III clinical trials, which compare P280 with
contrast venography and which are currently in progress. The non-pivotal study
was conducted at 14 sites in the United States and involved 137 patients.
Although widely used to diagnose DVT, ultrasound is operator dependent and not
FDA-validated for the diagnosis of DVT. Thus, data comparing P280 with
ultrasound may not be used for FDA purposes to demonstrate efficacy. In
addition, ultrasound is unable to reliably differentiate between acute and
chronic DVT. In the non-pivotal study of P280, the test results with P280 showed
only moderate correlation with ultrasound. The Company performed subsequent
analyses of the non-pivotal Phase III DVT results. In a subgroup consisting of
87 patients with "acute DVT symptoms," the correlation of P280 with ultrasound
was higher than in the overall (137 patient) group. The Company defines "acute
DVT symptoms" as clear signs and symptoms of DVT within 10 days of diagnosis
with no prior history of DVT or pulmonary emboli. The Company believes that
these results may reflect the detection by P280 of activated platelets
associated with acute clots and the inability of ultrasound to differentiate
accurately between acute and chronic clots. There can be no assurance that the
Company's interpretation of these results reflects the ability of P280 to detect
acute clots or that efficacy will be demonstrated in the pivotal Phase III
clinical trials. See "Risk Factors -- Unproven Safety and Effectiveness of
Potential Products; Uncertainties Related to Clinical Trials."
Each of the two pivotal Phase III clinical trials of P280 for the diagnosis
of DVT is being conducted at approximately 16 sites in the United States, Canada
and Europe, will involve approximately 130 to 160 patients and compares P280
with contrast venography. The protocols and monitoring of these Phase III
clinical trials are designed to limit enrollment to patients who have
experienced acute DVT symptoms in order to study only patients who are likely to
have acute clots. The Company expects that these pivotal Phase III clinical
trials will be completed in the first half of 1997.
The Company completed a Phase II randomized dose ranging study of P280 for
the diagnosis of DVT in patients with acute DVT symptoms in May 1996. This study
was conducted at four sites in the United States, involved 27 patients and
compared P280 with ultrasound. The Company believes that the test results of
this study support the dose being used in the pivotal Phase III clinical trials.
P280 for Carotid Thrombus
The Company completed a Phase II clinical trial in December 1995 of the
Techtide P280 for medical imaging of carotid thrombus. Carotid thrombi are blood
clots that are attached to the inside wall of the carotids, the major arteries
supplying blood to the brain. Carotid thrombi pose a two-fold threat to a
patient. First, it indicates the presence of unstable plaque underlying the
thrombi because stable plaque does not cause thrombus to form on its surface.
The unstable plaque may rupture without warning and cause a stroke, either by
blocking the vessel or by releasing debris into the vessel which is then carried
into the brain, causing a blockage. Secondly, carotid thrombi often break off
and are carried into the brain, where they block blood vessels and cause stroke.
Stroke accounts for approximately one-half of all patients hospitalized for
acute neurological diseases in the United States. In 1994 there were
approximately 400,000 to 500,000 incidents of stroke in the United States.
Carotid disease is primarily diagnosed by ultrasound and carotid
angiography, with angiography currently recognized as the most accurate imaging
modality for this purpose. Carotid angiography is an invasive procedure
involving the placement of a catheter in the artery and the injection of a
contrast agent. In 1994, approximately 310,000 carotid angiography procedures
for imaging of carotid disease were performed in the United States. Ultrasound
is less invasive and less expensive than carotid angiography for imaging of
carotid disease. In 1994, approximately 1,700,000 ultrasound procedures for
imaging of carotid disease were performed in the United States. When used for
the diagnosis of carotid thrombus, both carotid angiography and ultrasound
detect only the degree of blockage of the
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<PAGE> 34
artery; neither procedure is able to detect reliably the presence or absence of
thrombi in an artery as opposed to some other form of blockage, such as
arteriosclerosis.
Diatide initiated the Phase II clinical trial of P280 for imaging of
carotid thrombus because clots located in arteries have substantially more
activated platelets than clots formed in the venous system. As described above,
P280 is designed to bind to the GP IIb/IIIa receptor on activated platelets,
which are found in thrombi. Diatide believes that nuclear medicine imaging of
carotid thrombus with P280 may provide a more valuable diagnosis than existing
modalities if this procedure can be shown to enable physicians to identify the
presence or absence of thrombi, as opposed to arteriosclerosis, in the artery.
If thrombi are present, immediate carotid surgery (endarterectomy) or immediate
administration of an anticoagulant may be required. If both carotid arteries are
severely narrowed, determining the location of thrombi is important since such a
determination would mandate that, if only one side has thrombus, that side be
operated on first in order to avoid a stroke, which would have a high likelihood
of occurring if the opposite side were operated on first.
The Company completed the Phase II clinical trial of P280 for the diagnosis
of carotid thrombus in December 1995. This study was conducted at one site in
the United States, involved ten patients and compared P280 with ultrasound and
pathology. The compound was well tolerated by all of the patients with no
clinically significant adverse side effects. Moreover, the results of this Phase
II clinical trial indicated on a preliminary basis that P280 may be able to
identify both thrombi on carotid plaque and intra-arterial thrombi associated
with atherosclerotic plaque. The Company plans to initiate additional Phase II
clinical trials of P280 for imaging of carotid thrombus in mid-1996.
P829 for Neuroendocrine and Other Tumors
The Company is conducting Phase II and III clinical trials of the Techtide
P829 for medical imaging of certain cancerous tumors that overexpress the
receptor for the hormone somatostatin. P829 targets and binds to the
somatostatin receptor. Detection of overexpression of the somatostatin receptor
has been found to be useful for locating certain cancerous tumors, staging these
tumors to determine the extent of disease involvement and monitoring treatment.
Such information is important for determining the appropriate patient therapy
and the effectiveness of such therapy. Tumors associated with the overexpression
of the somatostatin receptor include neuroendocrine tumors, melanomas and lung
and certain breast tumors. Neuroendocrine tumors include certain tumors of the
thyroid gland, pituitary gland, pancreas, gastrointestinal tract and central
nervous system.
Cancer is often manifested in tissue masses called tumors. Cancer often
causes death, particularly when tumor cells metastasize and spread to other
parts of the body. The detection of metastases, or small secondary tumors, is
often difficult. In addition, certain primary tumors, including several types of
neuroendocrine tumors, are difficult to identify with conventional imaging
technology.
The detection and staging of cancer and monitoring of its treatment rely on
all major imaging modalities. Once localized, imaging procedures are usually
followed by a surgical biopsy and, possibly, removal of the tumor and/or
chemotherapy or radiation therapy. In June 1994, a peptide-based
radiopharmaceutical labelled with indium-111, OctreoScan, was introduced into
the market as a nuclear medicine imaging agent for neuroendocrine tumors. As
with P829, OctreoScan targets and binds with neuroendocrine tumors that
overexpress the somatostatin receptor.
The Company believes that P829 may compare favorably with OctreoScan
because P829 is radiolabelled with technetium, which is less expensive than
indium-111, is more readily available, provides better image quality and permits
imaging more quickly following administration. The Company further believes that
P829 may be more sensitive than a CT procedure in detecting metastases and small
neuroendocrine tumors. If P829 demonstrates such sensitivity in these
applications, the additional information that it would provide would affect the
physician's decision as to the appropriate course of therapy, such as whether or
not to perform surgery.
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<PAGE> 35
The Company completed two Phase II clinical trials of P829 for the
diagnosis of tumors that overexpress the somatostatin receptor in September
1995. One of these trials was a non-randomized dose ranging study, which was
conducted at six sites in the United States, involved 43 patients with
neuroendocrine tumors or lymphomas and compared P829 with CT, MRI, biopsy and
other standard institutional procedures. The second of these trials was
conducted at three sites in the United States, involved 44 patients with
non-neuroendocrine tumors that overexpress the somatostatin receptor, primarily
lung and certain breast tumors and lymphomas, and compared P829 with CT, MRI,
biopsy and other standard institutional procedures. P829 was well tolerated by
all patients in both clinical trials, with no clinically significant adverse
side effects, and demonstrated good image quality in imaging both neuroendocrine
and non-neuroendocrine tumors, and the test results with P829 correlated
sufficiently with the test results with CT, MRI, biopsy and other standard
institutional procedures to justify proceeding with Phase III clinical trials.
In addition, in the non-randomized dose ranging study, there were no significant
differences in image quality or accuracy as a result of differences in the
dosages studied.
The Company completed a pilot study of P829 for the diagnosis of melanomas
in January 1996. Based on the results of this study and other research by the
Company, the Company intends to conduct additional clinical trials of P829 for
this indication.
The Company currently is conducting a randomized dose ranging Phase II
clinical trial of P829 for imaging of neuroendocrine tumors. This study is being
conducted at five sites in the United States, will involve at least 36 patients,
22 of whom have been imaged to date, and compares P829 with OctreoScan. The
Company expects that this study will be completed in the third quarter of 1996.
The Company initiated Phase III clinical trials of P829 for the diagnosis
of neuroendocrine tumors in February 1996. These trials will be conducted at
approximately 20 sites in the United States and Europe and will compare P829 and
OctreoScan with CT, MRI, biopsy and other standard institutional procedures. The
Company also plans to conduct additional clinical trials of P829 for the
diagnosis of additional types of cancer that overexpress the somatostatin
receptor, particularly melanomas and lung and certain breast tumors.
P748 for Pulmonary Embolism
The Company is initiating Phase II clinical trials of the Techtide P748 for
medical imaging of pulmonary emboli. Like P280, P748 targets the GP IIb/IIIa
receptor on platelets involved in blood clot formation. A pulmonary embolus is a
blood clot that blocks blood flow to the lungs and often is fatal. There are
approximately 500,000 to 600,000 annual episodes of pulmonary emboli in the
United States. Approximately 200,000 deaths occur each year in the United States
as a result of pulmonary emboli.
To diagnose pulmonary emboli, physicians generally first x-ray the patient
to rule out other causes of the patient's symptoms. Next, physicians typically
perform perfusion and ventilation scans, a two-step nuclear medicine imaging
procedure involving the use of technetium-labelled albumin and a radio-labelled
gas, typically xenon-133. This dual procedure is minimally invasive, but
frequently gives inconclusive results. In 1994, approximately 840,000 perfusion
studies for imaging of pulmonary emboli were performed in the United States. If
the results of the perfusion and ventilation scans are inconclusive, physicians
often perform a pulmonary angiogram, which is currently recognized as the most
accurate imaging modality used to identify pulmonary emboli. A pulmonary
angiogram is an invasive procedure involving the placement of a catheter near
the pulmonary artery and the injection of a contrast agent. In 1994,
approximately 55,000 pulmonary angiograms for imaging of pulmonary emboli were
performed in the United States.
Based on the results of preclinical tests and pilot studies of P748, the
Company believes that diagnosis with P748 may provide significant improvements
in accuracy in comparison with perfusion and ventilation studies. The Company
further believes that nuclear medicine imaging with P748 will be significantly
less invasive than a pulmonary angiogram, while potentially providing the same
quality of diagnosis. As a result, P748 may be particularly attractive in
situations in which the patient is
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repeatedly imaged over time to monitor the effects of thrombolytic agents which
are administered as therapies for this disease. Optimizing dosage of
thrombolytic agents is important to minimize the serious side effects associated
with the bleeding that may be caused by these agents, including ulcer or
gastrointestinal bleeding, and cerebral hemorrhage, which may cause stroke and
death.
The Company completed two pilot studies of P748 in 1995. One of these
studies was conducted at one site in Europe and involved seven patients, and the
other was conducted at four sites in the United States and involved 17 patients.
Both studies compared P748 to perfusion and ventilation scans. In these studies,
P748 was well tolerated by all patients with no clinically significant adverse
side effects, and the test results with P748 correlated sufficiently with the
test results with perfusion and ventilation scans to justify proceeding with
Phase II clinical trials. In December 1995, the Company completed a Phase I
clinical trial of P748. This clinical trial was conducted at two sites in the
United States and involved ten normal volunteers. P748 was well tolerated by all
subjects with no clinically significant adverse side effects.
The Company is initiating a Phase II randomized dose ranging study of P748
for the diagnosis of pulmonary embolism. The Company expects that this study
will be conducted at six sites in the United States and Canada and will involve
approximately 30 patients. It will compare P748 with pulmonary angiography.
P483H for Inflammation Due to Infection
The Company is conducting Phase I clinical trials of the Techtide P483H for
medical imaging of inflammation due to infection, such as post-surgical
infection, osteomyelitis (bone infection), the location of white blood cells
associated with fevers of unknown origin and occult (hidden) infections. Each
year in the United States there are over 2,000,000 cases of inflammation due to
infection.
The most specific current procedure for medical imaging of inflammation due
to infection involves removing blood from the patient, isolating white blood
cells in the patient's blood, radiolabelling the white blood cells with
indium-111 or with technetium coupled to a carrier molecule and then injecting
the white blood cells back into the patient where they localize around the site
of the infection and emit radiation which can be detected using a gamma camera.
Although radiolabelled white blood cells are highly specific, this imaging
procedure is expensive, difficult to administer and often fails to yield good
image quality quickly.
P483H is being designed to bind in vivo with white blood cells present at
localized sites of infection. In addition, it is being designed to be
administered by injection and, therefore, not to require handling of the
patient's blood, which entails exposure to blood-borne diseases such as HIV.
In January 1996, the Company initiated Phase I clinical trials of P483H in
the United States. These trials are being conducted at two sites and will
involve ten normal volunteers. The Company expects that these Phase I clinical
trials will be completed in mid-1996.
The Company previously conducted a Phase I clinical trial of an earlier
formulation of P483H. This clinical trial was conducted at one site in the
United States and involved ten normal volunteers. Although the compound was well
tolerated by all subjects with no clinically significant adverse side effects,
the compound concentrated in subjects' stomachs at unexpectedly high levels,
which the Company believed could result in lower sensitivity of the compound in
abdominal imaging.
P773 for Atherosclerotic Plaque
The Company is conducting preclinical studies of the Techtide P773 for
medical imaging of unstable atherosclerotic plaque. Atherosclerosis is caused by
the accumulation of cholesterol in the walls of arteries. Continued accumulation
leads to the formation of plaque. There are two types of atherosclerotic plaque,
stable and unstable. Stable plaque may not require aggressive treatment.
Unstable plaque grows rapidly and can easily rupture leading to thrombus
formation that may block an
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artery. Common sites of atherosclerosis are the coronary and carotid arteries.
Obstruction of blood flow in these sites may result in transient ischemic
attacks ("TIA"), stroke, angina and heart attack.
Each year approximately 400,000 to 500,000 persons in the United States
suffer a stroke, which is the third leading cause of death in the United States.
TIA is a warning sign of stroke and occurs in about 10% of stroke victims. Each
year approximately 1,500,000 persons have heart attacks in the United States,
which is the leading cause of death in the United States. Angina is caused by
partial blockage of a coronary artery from thrombosis. Angina causes some muscle
damage and limits the amount of work that the affected portion of the heart can
do. There are an estimated 5,600,000 persons in the United States who suffer
from angina, with 350,000 new cases occurring each year. Atherosclerosis is the
leading cause of these diseases.
Several imaging modalities are currently used to detect the sites of
atherosclerosis, including angiography, ultrasound and nuclear medicine imaging
procedures with thallium-201. However, none of these procedures permit accurate
determination of whether atherosclerotic plaque is stable or unstable. The
Company believes that an imaging product that is able to detect sites of
unstable atherosclerotic plaque may provide early detection of cardiovascular
disease that might enable physicians to manage treatment of this disease before
costly interventional measures become necessary.
The Company completed a pilot study of an earlier generation Techtide for
nuclear medicine imaging of unstable atherosclerotic plaque in May 1995. The
study was conducted at four sites in the United States, involved 21 patients and
three normal volunteers and compared the Techtide with pathology reports from
surgical tissue specimens. Although the compound was well tolerated with no
clinically significant adverse side effects, the Techtide did not exhibit
sufficient sensitivity to warrant further development.
Other Imaging Programs
In addition to its more advanced imaging product candidates described
above, Diatide is conducting research and development activities with respect to
Techtides for medical imaging of colorectal and breast tumors as well as
additional thrombus and inflammation imaging agents. In each of these programs,
the Company has identified active compounds and is evaluating these compounds in
relevant assays and/or animal models. In addition, the Company believes that
several of Diatide's products described above have the potential to address
additional indications. For example, based on preclinical and clinical results
to date, the Company believes that, because they target the GP IIb/IIIa platelet
receptor, P280 and P748 may be useful in detecting thrombi in other
circumstances, such as the monitoring of thrombi associated with coronary heart
disease, angioplasty, vascular stents and stroke. The Company plans to evaluate
P280 for imaging of coronary thrombosis in a Phase II clinical trial in 1996.
THERAPEUTIC PRODUCT
Sn-117m DTPA for Reduction of Pain Due to Metastatic Cancer to the Bone
The Company is developing Sn-117m DTPA as a therapy for the reduction of
pain due to metastatic cancer to the bone. Diatide has licensed the exclusive
worldwide rights to Sn-117m DTPA (which includes an issued United States
composition of matter patent) under a royalty-bearing license from Associated
Universities Inc., the operator of BNL. This compound is comprised of the
radioisotope Sn-117m, which has an affinity for bone, combined with DTPA, a
common chelating agent (an organic compound used to make Sn-117m soluble so that
it will remain in the circulatory system until it reaches the bone).
The three most prevalent cancers, prostate, breast and lung, metastasize to
the bone in approximately 50% to 80% of patients. In 1994, there were
approximately 240,000 new cases of prostate cancer, 180,000 new cases of breast
cancer and 170,000 new cases of lung cancer in the United States. The normal
course of treatment for the bone pain associated with these cancers has been
external beam radiation, chemotherapy, analgesics and opiates. These methods are
costly and lead to a poor quality of life in late-stage patients.
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In 1993, the first therapeutic radiopharmaceutical for this indication,
Metastron, was approved for routine use by the FDA. Metastron has been shown to
significantly reduce metastatic bone pain for up to six months with a single
injection. The Company believes that radiopharmaceuticals are well suited for
this type of therapy because they can deliver a high level of radiation to
multiple metastases. However, Metastron and certain other radioisotopes for the
reduction of pain due to metastatic cancer to the bone that are under
development are dose limited due to myelosuppression, the destruction of bone
marrow, which is the source of white blood cells and platelets. Myelosuppression
is a particular problem for patients suffering from breast cancer, who already
have suppressed bone marrow due to chemotherapy. Because of the radiation
characteristics of Sn-117m and based on published data for other radioisotopes,
the Company believes that Sn-117m will result in less myelosuppression than
other radioisotopes.
A dose-escalating Phase II clinical trial of Sn-117m DTPA was completed by
BNL in 1995. This Phase II clinical study was conducted at four sites in the
United States and involved 47 patients. Sn-117m DTPA was well tolerated by all
patients with no clinically significant adverse side effects. Approximately 70%
of the patients in this study were noted to experience complete or partial pain
relief. In February 1996, the Company met with the FDA to review the results of
BNL's Phase II clinical trial. The Company is currently writing a protocol for
Phase II/III clinical trials of Sn-117m DTPA and may initiate these Phase II/III
clinical trials in mid-1996, although 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.
Other Potential Therapeutic Applications
The Company believes that combinations of its synthetic peptides with
certain radioisotopes may have potential applications as tumor therapies. The
Company may initiate research and development programs in this area in the
future, particularly if it can secure funding from a collaborator. The Company
may also license additional therapeutic radiopharmaceuticals if the technology
is related to the Company's technology and the distribution channels for the
product overlap with the distribution channels of the Company's other products.
The Company's research and development expenses in 1993, 1994 and 1995 were
approximately $2,988,798, $4,444,662 and $6,555,628, respectively.
CORPORATE COLLABORATIONS
A key element of Diatide's business strategy is to enter into
collaborations with pharmaceutical companies to secure financial support for its
research and development activities and to enhance the sales and marketing,
distribution and promotion of the Company's products worldwide upon receipt of
requisite regulatory approvals. See "Business -- Marketing and Distribution" and
"Risk Factors -- Need to Establish Collaborative Commercial Relationships;
Dependence on Partners."
In August 1995, the Company entered into a comprehensive strategic alliance
relating to its Techtides with Nycomed. The strategic alliance provides for
research and development support and a marketing collaboration. At the time the
alliance was established, Nycomed made a $10 million equity investment in the
Company. Nycomed is one of the world's leading producers of medical imaging
agents, with worldwide revenues from medical imaging operations of approximately
$800 million in 1995. Nycomed does not currently offer any products for use in
nuclear medicine imaging procedures. The collaboration with Diatide represents
the commencement of Nycomed's nuclear medicine imaging activities.
Under the Company's agreements with Nycomed, the Company granted Nycomed an
option to obtain exclusive co-promotion rights with respect to the Company's
Techtides in the United States and an option to obtain exclusive distribution
and license rights with respect to the Company's Techtides in Europe, South
Africa and certain countries in the Middle East. The options apply to each
Techtide which becomes the subject of an IND submission with the FDA during the
five-year period ending August 2000 (the "Research and Development Period"). As
to each such Techtide, the options are exercisable by Nycomed at any time prior
to the expiration of the 60-day period following the date on
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<PAGE> 39
which Diatide enrolls its first patient in a Phase III clinical trial with
respect to such Techtide, even if such 60-day period expires later than the
expiration of the Research and Development Period. Nycomed has exercised its
co-promotion and licensing options with respect to P280 and P829. There can be
no assurance that Nycomed will exercise its options as to any other Techtide.
During the Research and Development Period, Nycomed is required to make
quarterly research and development payments to Diatide as well as additional
payments upon the exercise of any option with respect to a Techtide. The
Research and Development Period is subject to termination prior to August 2000
in certain circumstances, although Nycomed may not shorten such period to
earlier than August 1998 without Diatide's consent, except in the case of a
breach by Diatide or in the event that Dr. Dean is not employed by Diatide
through August 11, 1997 other than as a result of death, disability or
termination for cause.
Under the United States co-promotion agreement, Nycomed is required to
market and promote, on a joint basis with Diatide, Techtides as to which Nycomed
has exercised its co-promotion right. Nycomed will have primary responsibility
for promoting products to group purchasing organizations, hospital pharmacies
and other relevant departments at hospitals, and Diatide will have primary
responsibility for promotion to commercial radiopharmacies. Nycomed's United
States co-promotion rights with respect to each Techtide that it elects to
co-promote will expire on the fifth anniversary of the first sale of the product
in the United States, subject to certain extension rights of up to three
additional years. In certain limited cases involving additions to the
indications of a previously optioned product, Nycomed may extend the term of its
co-promotion rights up to an additional five years by agreeing to fund 50% of
the Company's costs of conducting the Phase III clinical trials required with
respect to such additional indications. Diatide retains the right to manufacture
Techtides which are subject to this co-promotion arrangement. In consideration
of Nycomed's co-promotional efforts, Diatide is required to pay Nycomed a
specified percentage of United States adjusted net sales (as defined in the
agreement) of each co-promoted Techtide. Diatide has agreed that generally it
will not market or sell in the licensed territory any substantially similar
product that is targeted at the same receptor and has substantially the same
clinical indications as any Techtide for which Nycomed has exercised its option
to distribute and license.
Under the distribution and license agreement, Nycomed is required to make
certain milestone payments to Diatide upon the achievement of specified
regulatory objectives in respect of Techtides that Nycomed exercises its option
to distribute and license. In addition, Nycomed is required to pay running
royalties as to such Techtides based on a percentage of Nycomed's net sales (as
defined in the agreement) in the licensed territory. Diatide generally is
responsible for conducting all required clinical trials of Techtides licensed by
Nycomed, and Nycomed is responsible for prosecuting the marketing approval
applications in the licensed territory and the funding of additional market
studies to support the marketing of licensed products. Nycomed is required to
purchase from Diatide, and Diatide is required to supply to Nycomed, Nycomed's
requirements of licensed products at specified transfer prices.
MARKETING AND DISTRIBUTION
Diatide plans to market products for which it obtains regulatory approval
through co-marketing, licensing and distribution arrangements with
pharmaceutical company collaborators and through its own small, specialized
sales force. The Company believes that this approach will both increase market
penetration and commercial acceptance of its products and enable the Company to
avoid the need to expend significant funds to develop a large sales force. See
"Risk Factors -- Absence of Sales and Marketing Experience."
The Company expects to market and distribute its imaging products outside
of the United States, including in Japan and the balance of the Far East (which
are not covered by Nycomed's options to
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<PAGE> 40
license), primarily or exclusively through co-marketing, licensing and
distribution arrangements with pharmaceutical company collaborators. The Company
plans to market and distribute any therapeutic products that it develops
worldwide on a similar basis. In February 1996, the Company entered into a
distribution arrangement with Syncor Global Holdings Ltd. with respect to the
sale of P829 in Hong Kong and Taiwan.
In the United States, the Company expects that its in-house sales force
primarily will market the Company's products to commercial radiopharmacies,
which currently serve as the distribution channel for approximately 75% of all
radiopharmaceuticals sold in the United States. The Company anticipates that its
marketing organization initially will consist of a small number of sales
representatives, coordinated by a sales manager and assisted by a small
marketing and technical support group. The Company plans to establish this sales
capability when the first of its products approaches marketing approval.
Because the Company's Techtides are being designed for imaging of some
disease states that have not previously been diagnosed with
radiopharmaceuticals, the Company believes that a successful marketing program
will require significant efforts to familiarize attending physicians with the
availability and attributes of these products. The Company expects to look to
its pharmaceutical company partners, which typically have large sales forces, to
detail the Company's products with hospital physicians, such as nuclear medicine
physicians and radiologists, as well as referring physicians, such as
oncologists, cardiologists and vascular surgeons.
MANUFACTURING
The principal components of Diatide's Techtides are synthetic peptides and
technetium. The peptides are synthesized from readily available amino acids, and
the production process involves an inexpensive and well-established solid phase
peptide synthesis technology. Technetium is available from a variety of
commercial suppliers and is inexpensive.
To date, the Company has synthesized the peptides required for its research
activities. The Company has purchased the peptides required for clinical trials
of its Techtides from a large pharmaceutical manufacturer which produces
synthetic peptides in accordance with the FDA's requirements for GMP. The
Company currently intends to continue to contract with third-party manufacturers
for the manufacture, assembly and shipment of its Techtide products.
The Company plans to package and ship its Techtides in the form of
non-radioactive ("cold") kits consisting only of the Diatide-engineered peptide.
The Company plans to sell Techtides as cold kits because such cold kits possess
a long shelf life and require no special storage procedures. Prior to
administration, a commercial or hospital radiopharmacy would combine technetium
with the peptide, which is designed to permit this coupling to occur in a simple
process. In some cases, heating of the synthetic peptide/technetium mixture is
expected to be required for a short period of time to facilitate coupling. This
heating process is customary in the preparation of radiopharmaceuticals.
The manufacturing process for Sn-117m DTPA is more complicated than that
used for Techtides. The Company expects that Sn-117m DTPA will be radiolabelled
when supplied and will have approximately a 30-day shelf life. The Company has
entered into an arrangement with a third-party manufacturer to supply the
Company with the Sn-117m DTPA required for clinical trials of this compound and
currently expects to enter into a similar arrangement for the supply of
commercial quantities of this compound if it obtains regulatory clearance for
commercial sale.
Any manufacturing operations by the Company will be subject to federal,
state and local laws and regulations governing the use, manufacture, storage,
handling and disposal of certain materials and waste products. See "Risk Factors
- -- No Assurance of Regulatory Approval; Extensive Government Regulation," "--
Limited Manufacturing Capability; Dependence on Sole Source Supplier" and "--
Hazardous Materials."
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PATENTS, TRADE SECRETS AND LICENSES
Proprietary protection for the Company's product candidates, processes and
know-how is very important to Diatide's business. The Company's policy is to
file patent applications to protect technology, inventions and improvements that
are considered important to the development of its business. The Company also
relies upon trade secrets, know-how, continuing technological innovation and
licensing opportunities to develop and maintain its competitive position.
The Company owns five United States patents. Three of these patents cover
technology relating to labelling peptides with technetium. The fourth was
acquired from Receptor Laboratories and covers a method of generating and
screening peptide libraries, and the fifth covers the composition of matter of
P280. The Company also has over 50 pending United States patent applications for
a wide variety of technologies relating to labelling peptides with technetium,
as well as specific compositions of matter useful for nuclear medicine imaging
of thrombosis, tumors and inflammation due to infection. The Company has also
sought corresponding foreign patent protection in other major industrial
countries in respect of its most commercially important technologies, and to
date has been granted nine patents in South Africa and one patent in Australia.
All of the Company's United States and foreign patents expire between 2011 and
2014.
The Company has licensed various patents and other technology from third
parties pursuant to license agreements, including exclusive licenses from the
NIH, New England Deaconess Hospital and Associated Universities Inc., the
operator of BNL, and non-exclusive licenses from Centocor, Inc. and Merck & Co.,
Inc. Among other things, these licenses cover the products that the Company is
developing for nuclear medicine imaging of atherosclerotic plaque, the treatment
of bone pain associated with metastatic cancer and technology related to a
component of P280. See "Business -- Products Under Development." These third
party licenses 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 termination of the applicable
license, which could have a material adverse effect on the Company's business.
The patent positions of pharmaceutical and biotechnology firms, including
Diatide, are generally uncertain and involve complex legal and factual
questions. Consequently, even though Diatide currently is prosecuting its patent
applications with the United States Patent and Trademark Office and certain
foreign patent authorities, the Company does not know whether any of its
remaining applications will result in the issuance of any patents or, if any
patents are issued, whether they will provide significant proprietary protection
or will be circumvented or invalidated. Since patent applications in the United
States are maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature tend to lag behind actual
discoveries by several months, Diatide cannot be certain that it was the first
creator of inventions claimed by pending patent applications or that it was the
first to file patent applications for such inventions.
Competitors of the Company and other third parties hold issued patents and
pending patent applications relating to aspects of the Company's technology, 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. 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. Dr. Volker Vossius, European patent
counsel to the Company, has advised the Company that in his opinion, the claims
of the patent that would be infringed by P748 are invalid for lack of an
inventive step and for insufficiency of disclosure. An opinion of counsel only
represents such counsel's view of applicable law and is not binding on any court
or governmental agency.
Diatide's practice is to require its employees, consultants, members of its
Scientific Advisory Board, outside scientific collaborators and sponsored
researchers and other advisors to execute confidentiality agreements upon the
commencement of employment or consulting relationships with the Company. These
agreements provide that all confidential information developed or made known to
the
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<PAGE> 42
individual during the course of the individual's relationship with Diatide is to
be kept confidential and not disclosed to third parties, subject to a right to
publish certain information in the scientific literature in certain
circumstances and subject to other specific exceptions. In the case of
employees, the agreements provide that all inventions conceived by the
individual shall be the exclusive property of the Company. There can be no
assurance, however, that these agreements will provide meaningful protection for
the Company's trade secrets or adequate remedies in the event of unauthorized
use or disclosure of such information.
Diatide engages in collaborations and sponsored research agreements and
enters into preclinical and clinical testing agreements with academic and
research institutions and United States government agencies to take advantage of
their technical expertise and staff and to gain access to clinical evaluation
models, patients, and related technology. Consistent with pharmaceutical
industry and academic standards, and the rules and regulations under the Federal
Technology Transfer Act of 1986, these agreements may provide that developments
and results will be freely published, that information or materials supplied by
Diatide will not be treated as confidential and that Diatide may be required to
negotiate a license to any such developments and results in order to
commercialize products incorporating them. There can be no assurance that the
Company will be able successfully to obtain any such license at a reasonable
cost or that such developments and results will not be made available to
competitors of the Company on an exclusive or nonexclusive basis. See "Risk
Factors -- Uncertainty Regarding Patents and Proprietary Rights."
GOVERNMENT REGULATION
The research, testing, manufacture, labelling, distribution, sale,
marketing, promotion and advertising of the Company's products and its ongoing
research and development activities are subject to extensive and rigorous
regulation by governmental authorities in the United States and other countries.
FDA Approval
In the United States, pharmaceutical products intended for therapeutic or
diagnostic use in humans are subject to rigorous and extensive FDA regulation
before and after approval. The process of completing preclinical studies and
clinical trials and obtaining FDA approvals for a new drug can take a number of
years and requires the expenditure of substantial resources. There can be no
assurance that any product will receive such approval on a timely basis, if at
all. See "Risk Factors -- No Assurance of Regulatory Approval; Extensive
Government Regulation."
The steps required before a new pharmaceutical product for human use may be
marketed in the United States include (i) preclinical tests, (ii) submission to
the FDA of an IND application, which must become effective before human clinical
trials may commence, (iii) adequate and well-controlled human clinical trials to
establish the safety and effectiveness of the product, (iv) submission of a New
Drug Application ("NDA") to the FDA, which application is not automatically
accepted for consideration by the FDA, and (v) FDA approval of the NDA prior to
any commercial sale or shipment of the product. These required steps apply to
products intended for diagnostic as well as therapeutic use, but the clinical
testing of diagnostic products can take less time to complete than that of
therapeutic products, which must be shown to cure, mitigate, treat, or prevent
disease. There can be no assurance, however, that the possibility of clinical
testing of shorter duration will be borne out for any of the Company's current
or future diagnostic products.
The Company has not completed clinical trials nor submitted an NDA, and no
assurance can be given that the Company's clinical trials with respect to any of
its products will be completed on a timely basis, if at all, that the clinical
results will demonstrate safety or effectiveness, that the clinical results will
be accepted for consideration by the FDA, that the FDA will find the data
submitted adequate or that an NDA will be ultimately approved. See "Risk Factors
- -- Unproven Safety and Effectiveness of Potential Products; Uncertainties
Related to Clinical Trials."
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to gain preliminary information of a product's pharmacology and
toxicology and to identify any safety problems that would preclude testing in
humans. Products must generally be manufactured according
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to GMP and preclinical safety tests must be conducted by laboratories that
comply with FDA regulations regarding GLP. See "Business -- Manufacturing." The
results of the preclinical tests are submitted to the FDA as part of an IND
application and are reviewed by the FDA prior to the commencement of human
clinical trials. Unless the FDA objects to, or makes comments or raises
questions concerning, an IND, the IND will become effective 30 days following
its receipt by the FDA and initial clinical studies may begin, although
companies often obtain affirmative FDA approval before beginning such studies.
There can be no assurance that submission of an IND will result in FDA
authorization to commence clinical trials. See "Risk Factors -- Early Stage of
Development; Technological Uncertainty."
Clinical trials involve the administration of the investigational new drug
to healthy volunteers and to patients under the supervision of a qualified
principal investigator. Clinical trials must be conducted in accordance with the
FDA's Good Clinical Practice requirements under protocols that detail, among
other things, the objectives of the study, the parameters to be used to monitor
safety, and the effectiveness criteria to be evaluated. Each protocol must be
submitted to the FDA as part of the IND. Further, each clinical study must be
conducted under the auspices of an Institutional Review Board ("IRB"). The IRB
will consider, among other things, ethical factors, the safety of human
subjects, the possible liability of the institution and the informed consent
disclosure which must be made to participants in the clinical trial.
Clinical trials are typically conducted in sequential phases, although the
phases may overlap. In Phase I, the investigational new drug usually is
administered to healthy human subjects (10 to 50 persons) and is tested for
safety (adverse effects), dosimetry, tolerance, metabolism, distribution,
excretion and pharmacokinetics (clinical pharmacology). Phase II involves
studies in a limited patient population (approximately 10 to 70 persons) to (i)
evaluate the effectiveness of the investigational new drug for specific
indications, (ii) determine dose response and optimal dosage and (iii) identify
possible adverse effects and safety risks. When an investigational new drug is
found to have an effect and to have an acceptable safety profile in Phase II
evaluation, Phase III trials are undertaken to further test for safety, further
evaluate clinical effectiveness and to obtain additional information for
labelling within an expanded patient population at geographically dispersed
clinical study sites. There can be no assurance that Phase I, Phase II or Phase
III testing will be completed successfully within any specified time period, if
at all, with respect to any of the Company's products subject to such testing.
Furthermore, the FDA may at any time impose a clinical hold on ongoing clinical
trials or the Company may suspend clinical trials at any time if it is felt that
the participants are being exposed to an unanticipated or unacceptable health
risk. If the FDA imposes a clinical hold, clinical trials may not recommence
without prior FDA authorization and then only under terms authorized by the FDA.
It is customary in the nuclear medicine imaging industry to conduct pilot
studies in a limited patient population (approximately 3 to 25 persons) to
determine whether the product candidate warrants further clinical trials based
on preliminary indications of efficacy. These pilot studies may be performed in
the United States after an IND has become effective or outside of the United
States prior to the filing of an IND in the United States in accordance with
government regulations and institutional procedures.
The results of the pharmaceutical development, preclinical studies and
clinical studies, the chemistry and manufacturing data, and the proposed
labelling, among other things, are submitted to the FDA in the form of an NDA
for approval of the marketing and commercial shipment of the product. The FDA
may refuse to accept the NDA for filing if certain administrative and NDA
content criteria are not satisfied, and even after accepting the NDA for review,
the FDA may require additional testing or information before approving the NDA.
In any event, the FDA must deny an NDA if applicable regulatory requirements are
not ultimately satisfied. Moreover, if regulatory approval of a product is
granted, such approval may require post-marketing testing and surveillance to
monitor the safety of the product or may entail limitations on the indicated
uses for which it may be marketed. Finally, product approvals may be withdrawn
if compliance with regulatory standards is not maintained or if problems occur
following initial marketing.
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In addition to product approval, the Company will be required to obtain a
satisfactory inspection by the FDA covering manufacturing facilities of the
Company or of the Company's suppliers before a product of the Company can be
marketed in the United States. The FDA will review the manufacturing procedures
and inspect the manufacturer's facilities and equipment for compliance with GMP
and other requirements. Any material change in the manufacturing process,
equipment or location would necessitate additional preclinical and/or clinical
data, then FDA review and approval before marketing.
Certain imaging products of the Company's competitors, such as nuclear
medicine imaging products using MAbs, may be regulated as biologics by the FDA.
As a result, instead of submitting an NDA to the FDA, the sponsors of such
products will have to submit to the FDA and obtain its approval of a Product
License Application for the product and an Establishment License Application for
the manufacturing facilities used to produce the biologic product before
marketing may begin.
Foreign Regulatory Approval
Whether or not FDA approval has been obtained, approval of a pharmaceutical
product by comparable governmental regulatory authorities in foreign countries
must be obtained prior to the commencement of clinical trials and subsequent
marketing of such product in such countries. The approval procedure varies from
country to country, and the time required may be longer or shorter than that
required for FDA approval. Although there are some procedures for unified filing
for certain European countries, in general, each country has its own procedures
and requirements.
At present, pharmaceutical products generally may not be freely exported
from the United States until the FDA has approved the product for marketing in
the United States. However, a company may apply to the FDA for permission to
export finished products to a limited number of countries prior to obtaining FDA
approval for marketing in the United States where the products are covered by an
effective IND or a pending NDA and certain other requirements are met.
Other Regulation
In addition to regulations enforced by the FDA, the Company also is subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and potential future federal, state or local
regulations. The Company's research and development involves the controlled use
of hazardous materials, chemicals, viruses and various radioactive compounds.
Although the Company believes that its safety procedures for storing, handling,
using and disposing of such materials comply with the standards prescribed by
applicable 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 any damages that result and any
such liability could have a material adverse effect on the Company. See "Risk
Factors -- No Assurance of Regulatory Approval; Extensive Government Regulation"
and "-- Hazardous Materials."
COMPETITION
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 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. 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, a
peptide-based radiopharmaceutical, is available for the diagnosis of
neuroendocrine tumors, Ceretec, a radiopharmaceutical labelled with technetium,
is available for imaging of inflammation due to infection, and Metastron is
available for the reduction of pain due to metastatic cancer to the bone.
With respect to the Company's diagnostic products, there are several
well-established medical imaging modalities that currently, and will continue
to, compete against nuclear medicine imaging,
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including x-rays, CT, MRI, ultrasound and other nuclear medicine imaging
approaches, and the Company is aware of a number of companies which are
developing and testing peptide based radiopharmaceuticals for diagnostic
purposes. Furthermore, there are alternative therapeutics available for the
treatment of cancer indications that are the subject of the Company's
therapeutic programs.
Competition among these technologies and products is and will be based,
among other things, on effectiveness, safety, reliability, availability, price
and patent position. Another important factor will be the timing of market
introduction of the Company's or competitive products. Accordingly, the relative
speed with which Diatide can develop products, complete the clinical trials and
approval processes and supply commercial quantities of the products to the
market is expected to be an important competitive factor. The Company's
competitive position will also depend upon its ability to attract and retain
qualified personnel, to obtain patent protection or otherwise develop
proprietary products or processes, and to secure sufficient capital resources
for the often substantial period between technological conception and commercial
sales.
There can be no assurance that the Company's competitors will not succeed
in developing products based on nuclear medicine technology or other existing or
novel technologies that are more effective than any which are being developed by
the Company or which would render the Company's technology and products obsolete
and noncompetitive.
Competitors of the Company engaged in all areas of biotechnology and drug
discovery and development in the United States and other countries are numerous
and include, among others, major pharmaceutical and chemical companies,
biotechnology firms, universities and other research institutions. Many of these
competitors have substantially greater financial, technical and human resources
than the Company. In addition, many of these competitors, including large
pharmaceutical companies such as Du Pont Merck, Mallinckrodt and Amersham, have
significantly greater experience than the Company in researching and developing
new products, undertaking preclinical studies and human clinical trials of new
pharmaceutical products, obtaining FDA and other regulatory approvals of
products for use in health care and marketing and manufacturing medical imaging
products. 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 -- Intense Competition and Risk of Technological Obsolescence."
EMPLOYEES
As of March 31, 1996, Diatide had 42 full-time employees, of whom eight
hold Ph.D. degrees and three hold other advanced degrees. Twenty-seven of these
employees are engaged in research and development activities and 15 are employed
in finance and general and administrative activities. Many of the Company's
management and professional employees have had prior experience with
pharmaceutical, biotechnology or medical products companies, particularly in the
imaging field. None of the Company's employees is covered by a collective
bargaining agreement, and management considers relations with its employees to
be good. See "Risk Factors -- Attraction and Retention of Key Management and
Qualified Personnel."
FACILITIES
Diatide leases approximately 20,000 square feet of laboratory and office
space in a single facility in Londonderry, New Hampshire. The lease expires in
December 1998.
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MANAGEMENT
EXECUTIVE OFFICERS, SIGNIFICANT EMPLOYEES AND DIRECTORS
<TABLE>
The following table provides information concerning the executive officers,
significant employees and Directors of the Company:
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Executive Officers
Richard T. Dean, Ph.D. ...................... 48 President, Chief Executive Officer,
Treasurer and Director
Ronald B. Kinder............................. 47 Executive Vice President, Marketing,
Sales and Business Development and
Secretary
Mark A. Attarian............................. 38 Chief Financial Officer
Edward M. Aten, M.D. ........................ 48 Vice President of Medical Affairs
Significant Employees
John Lister-James, Ph.D. .................... 43 Senior Director of Research and
Development
John Kris Piper.............................. 47 Senior Director of Clinical and
Regulatory Affairs
Victor J. Becker............................. 49 Director of Operations
Other Directors
Gustav A. Christensen(2)..................... 48 Director
Robert E. Curry, Ph.D.(1).................... 49 Director
Jean Deleage, Ph.D. ......................... 55 Director
Trond Jacobsen, Ph.D. ....................... 50 Director
Robert S. Lees, M.D. ........................ 61 Director
Joseph F. Lovett(1).......................... 47 Director
Donald L. Murfin(2).......................... 52 Director
<FN>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
</TABLE>
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any executive officers or Directors of the
Company. A brief biography of each executive officer, significant employee and
Director follows:
Richard T. Dean, Ph.D., President, Chief Executive Officer, Treasurer and a
Director since April 1990, is a founder of the Company. Prior to joining the
Company, Dr. Dean served as Director of Radiopharmaceutical Research and
Development at Centocor, Inc., a pharmaceutical company ("Centocor"), from 1986
to 1990, where he was responsible for cardiovascular radiopharmaceutical imaging
agent research and development. From 1981 to 1986, Dr. Dean served in a variety
of positions at Mallinckrodt, a pharmaceutical and surgical instruments company,
most recently as Associate Director, Diagnostic Chemistry Research and
Development. Dr. Dean received a B.S. in chemical engineering from Cornell
University, an M.S. in chemistry from the University of Michigan and a Ph.D. in
organic chemistry from the University of California, Berkeley.
Ronald B. Kinder, Executive Vice President, Marketing, Sales and Business
Development and Secretary, joined the Company in April 1994. Prior to joining
the Company, Mr. Kinder served as Vice President and General Manager of Teledyne
Waterpik, Inc., a medical products company, from 1989 to 1994. From 1986 to
1989, Mr. Kinder served as Director of Marketing and Sales for Gambro, Inc., a
medical technology products company, and from 1970 to 1986, Mr. Kinder served in
a variety of positions at Mallinckrodt, most recently as Director of Marketing,
Diagnostic Products Division. Mr.
46
<PAGE> 47
Kinder received a B.A. in zoology from the University of Missouri and an M.B.A.
from St. Louis University.
Mark A. Attarian, Chief Financial Officer, joined the Company in July 1994.
Prior to joining the Company, Mr. Attarian served as an independent financial
consultant to various companies from 1993 to 1994. From 1991 to 1993, Mr.
Attarian served as Chief Financial Officer and Treasurer of Shields Health Care
Group, a medical diagnostic company, and from 1985 to 1991, served in a variety
of positions at Bankers Trust New York Corporation, most recently as Vice
President, Corporate Finance. Mr. Attarian received a B.A. in English literature
from St. Lawrence University.
Edward M. Aten, M.D., Vice President of Medical Affairs, joined the Company
in January 1996. Prior to joining the Company, Dr. Aten served as President of
Certus, Inc. ("Certus"), a clinical and regulatory consulting company (formerly
known as The Aten Group), from 1995 to 1996, and as President of Medical
MicroSystems, Inc., a research and development company, from 1990 to 1996. From
1985 to 1995, Dr. Aten served in a variety of positions at Mallinckrodt, most
recently as Vice President, Medical and Regulatory Affairs from 1988 to 1995.
Dr. Aten received a B.S. in business administration/accounting from the
University of Kansas and an M.D. from University of Health Sciences, Chicago
Medical School.
John Lister-James, Ph.D., Senior Director of Research and Development,
joined the Company in May 1990. Prior to joining the Company, Dr. Lister-James
served in a variety of positions at Centocor, most recently as Associate
Director of Radiopharmaceutical Research and Development from 1987 to 1990. Dr.
Lister-James received a B.S. (Honors) in chemistry from Imperial College,
University of London and a Ph.D. in organic chemistry from the University of
London.
John Kris Piper, Senior Director of Clinical and Regulatory Affairs, joined
the Company in August 1995. Prior to joining the Company, Mr. Piper served as
Director of Regulatory Affairs at Mallinckrodt from 1986 to 1995. Mr. Piper
received a B.S. in animal science and chemistry and an M.S. in physiology from
the University of California, Davis.
Victor J. Becker, Director of Operations, joined the Company in February
1995. Prior to joining the Company, Mr. Becker served as Operations Manager of
Secure Medical, Inc., a medical products company, from 1990 to 1993. From 1985
to 1990, Mr. Becker served as Manager of Technical Operations at Amersham and
from 1978 to 1985 was Plant Manager at Medi-Physics, Inc., a radiopharmaceutical
manufacturer. Mr. Becker received a B.S. and an M.S. in nuclear inorganic
chemistry from the University of Missouri.
Gustav A. Christensen, a Director of the Company since April 1990, has
served as Chairman of the Board of Directors of Alpha-Beta Technologies, Inc., a
biotechnology company, since 1991. From 1988 to 1990, Mr. Christensen served as
President and Chief Executive Officer of Immulogic Pharmaceutical Corporation, a
biotechnology company, and from 1983 to 1988, as Senior Vice President of
Commercial Affairs and Vice President of Marketing and Business Development for
Genetics Institute, Inc., a biotechnology company. Mr. Christensen received an
M.B.A. from Harvard Business School and an M.S. in economics from the University
of Aarhus in Denmark.
Robert E. Curry, Ph.D., a Director of the Company since December 1992, has
served as a General Partner of the Sprout Group, a venture capital firm, since
1991. From 1984 to 1991, Dr. Curry served in a variety of positions at Merrill
Lynch R&D Management Inc. and Merrill Lynch Venture Capital, Inc. most recently
as General Partner and President of ML Venture Partners II, L.P., a venture
capital firm ("ML Ventures") and as General Partner and President of ML
Technology Ventures. Dr. Curry is currently a director of Biocircuits, Corp., a
physicians office diagnostic company, Connective Therapeutics, Inc., a
biotechnology company, and Photon Technology International, Inc., a company
engaged in the research and development of electro-optical systems. Dr. Curry
received a B.S. in analytical chemistry from the University of Illinois and an
M.S. in chemistry and a Ph.D. in chemistry from Purdue University.
47
<PAGE> 48
Jean Deleage, Ph.D., a Director of the Company since April 1990, has served
as Managing General Partner of Burr, Egan, Deleage & Co., a venture capital firm
("Burr, Egan"), since he co-founded the firm in 1979. Burr, Egan serves as the
investment advisor to Alta IV Limited Partnership ("Alta IV") and C.V. Sofinnova
Partners Five ("C.V. Sofinnova"). Dr. Deleage is currently a director of
DepoTech Corporation, a drug delivery company, and OraVax, Inc., a biotechnology
company. Dr. Deleage received an M.S. in electrical engineering from the Ecole
Superieure d'Electricite and a Doctorate in economics from the Sorbonne.
Trond Jacobsen, Ph.D., a Director of the Company since August 1995, has
served in a variety of positions at Hafslund Nycomed ASA, the parent company of
Nycomed, since 1972, including Executive Vice President of Corporate Product
Sourcing since 1992. Since 1993, Dr. Jacobsen has served as a Director of the
Board of the Norwegian Research Council for Medicine and Health. Dr. Jacobsen
received a Ph.D. in chemistry from the University of Oslo.
Robert S. Lees, M.D., a Director of the Company since April 1990 and a
founder of the Company, has served as Professor of Health Sciences and
Technology in the Harvard-Massachusetts Institute of Technology Division of
Health Sciences and Technology and as President of the Boston Heart Foundation
since 1988. Since 1973, he has served as Director of the Arteriosclerosis Center
at the Massachusetts Institute of Technology ("MIT"), of which he was the
founder. He has also served as Director of the Noninvasive Diagnostic Laboratory
at the Massachusetts General Hospital and as Chairman of the Metabolism Study
Section at the National Institutes of Health. Dr. Lees has been a professor at
MIT since 1968 and Harvard University since 1988. He is also a director of
Financing Science International Inc., a technical and medical equipment leasing
company. Dr. Lees received an A.B. in chemistry from Harvard College and an M.D.
from Harvard Medical School.
Joseph F. Lovett, a Director of the Company since February 1990, has served
as a General Partner of Medical Science Ventures, L.P., the general partner of
Medical Science Partners, L.P. ("MSP"), a venture capital firm, since 1988. From
1985 to 1988, Mr. Lovett served as Senior Vice President of Damon Biotech, a
biotechnology company. From 1980 to 1985, Mr. Lovett served in a variety of
positions at Mallinckrodt, most recently as Vice President and General Manager
of in vivo imaging. Mr. Lovett received a B.A. in economics from the University
of Vermont and an M.B.A. from California State Polytechnic University.
Donald L. Murfin, a Director of the Company since November 1993, has served
as a General Partner of Chemicals and Materials Enterprise Associates, L.P.
("CMEA"), a venture capital firm affiliated with New Enterprise Associates V,
L.P. ("NEA"), of which he is a Special Partner, since 1989. From 1979 to 1988,
Mr. Murfin served as President and a Director of Lubrizol Enterprises, Inc., a
venture development company, and from 1985 to 1988, as Vice President of The
Lubrizol Corporation, its parent company. Mr. Murfin is currently a Trustee of
the Edison Biotechnology Center, a director of Genentech, Inc., a biotechnology
company, and a director of Corvita Corporation, a medical device company. Mr.
Murfin received a B.S. in organic chemistry from the University of Iowa.
Following this offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. The
Board will consist of two Class I Directors (Mr. Christensen and Mr. Murfin),
three Class II Directors (Dr. Curry, Dr. Deleage and Mr. Lovett) and three Class
III Directors (Dr. Dean, Dr. Jacobsen and Dr. Lees). At each annual meeting of
stockholders, a class of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then expiring. The terms
of the Class I Directors, Class II Directors and Class III Directors will expire
upon the election and qualification of successor directors at the annual meeting
of stockholders held during the calendar years 1997, 1998 and 1999,
respectively.
Messrs. Lovett and Murfin and Drs. Curry, Dean, Deleage and Jacobsen have
been nominated and elected to the Board of Directors pursuant to a voting
agreement among certain of the Company's stockholders. This agreement will
terminate upon the consummation of this offering.
48
<PAGE> 49
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees of
and consultants to the Company, establishes and approves salaries and incentive
compensation for certain senior officers and employees and administers and
grants stock options pursuant to the Company's stock option plans, and an Audit
Committee, which reviews the results and scope of the audit and other services
provided by the Company's independent public accountants.
COMPENSATION OF DIRECTORS
Each non-employee director is paid $1,500 for personal or telephonic
attendance at a Board or committee meeting. Other directors are not entitled to
compensation in their capacities as directors. All of the directors are
reimbursed for their expenses incurred in connection with their attendance at
Board and committee meetings.
In addition, Dr. Lees and Mr. Christensen received compensation in the
amount of $40,000 and $19,500, respectively, in 1995 in connection with the
provision of certain consulting services to the Company. Dr. Lees received such
compensation pursuant to a consulting agreement with the Company. On April 18,
1995, pursuant to the Company's 1992 Stock Option Plan, as amended (the "1992
Option Plan"), Dr. Lees was granted non-statutory stock options to purchase an
aggregate of 6,000 shares of Common Stock at an exercise price of $0.67 per
share. These stock options become exercisable in five equal annual installments
commencing on the first anniversary of the date of grant. On June 14, 1994,
pursuant to the 1992 Option Plan, Mr. Christensen was granted non-statutory
stock options to purchase 7,200 shares of Common Stock at an exercise price of
$0.42 per share. These stock options become exercisable in three equal annual
installments commencing on the first anniversary of the date of grant. No other
non-employee directors have received options to purchase Common Stock under the
1992 Option Plan. See "Management -- Employee Benefit Plans -- 1992 Stock Option
Plan."
In January 1996, the Company adopted the 1996 Director Stock Option Plan
(the "Director Plan"). Under the terms of the Director Plan, options to purchase
5,000 shares of Common Stock will be granted to non-employee directors upon the
date on which the initial public offering price is determined at the initial
public offering price. Thereafter, options to purchase 5,000 shares of Common
Stock will be granted to each new director upon his or her initial election to
the Board of Directors. Annual options to purchase 2,500 shares of Common Stock
will be granted to each non-employee director on May 1 of each year commencing
in 1997. All options will vest on the first anniversary of the date of grant.
However, the exercisability of these options will be accelerated upon the
occurrence of a change in control of the Company (as defined in the Director
Plan). A total of 250,000 shares of Common Stock may be issued upon the exercise
of stock options granted under the Director Plan. With the exception of the
options granted on the closing of this offering, the exercise price of all
options granted under the Director Plan will equal the closing price of the
Common Stock on the date of grant.
49
<PAGE> 50
SCIENTIFIC ADVISORS
The Company has a number of scientific advisors with recognized expertise
in nuclear medicine, radiopharmaceuticals, biochemistry and related fields who
advise the Company on an as-needed basis. These scientific advisors are employed
by employers other than the Company, primarily academic institutions, and may
have commitments to or consulting or advisory agreements with other entities
that may limit their availability to the Company. These entities may also be
competitors of Diatide. The Company's scientific advisors are compensated for
their services pursuant to consulting agreements between the individuals and the
Company. The Company's scientific advisors, as of March 31, 1996, were:
Robert S. Lees, M.D. See Dr. Lees' biographical information above.
Henry Rapoport, Ph.D. has served as Professor of Chemistry at the
University of California, Berkeley since 1954. In addition, since 1989, he has
served as Senior Editor, Journal of Organic Chemistry at the University of
California, Berkeley and on the editorial board of the Journal of Natural
Products. Dr. Rapoport has served on advisory boards to the National Institutes
of Health, the United States Army and the National Institute of Drug Abuse. Dr.
Rapoport received a Ph.D. from MIT.
Hirsch Handmaker, M.D. has served as Executive Director of the Arizona
Institute of Nuclear Medicine and as Medical Director of Papago Imaging, an
imaging company, since 1994. From 1972 to 1994, he served as Director of Nuclear
Medicine at the Children's Hospital of San Francisco and its successor, the
California Pacific Medical Center. From 1974 to 1982, Dr. Handmaker served as
President and Chairman of RadPharm, Inc., a healthcare company subsequently sold
to Mallinkrodt, and from 1983 to 1987, as President and Chairman of Diagnostic
Networks, Inc., a healthcare company. Dr. Handmaker is a diplomate of the
American Boards of Radiology and Nuclear Medicine and a Fellow of the American
College of Nuclear Physicians. Dr. Handmaker received an M.D. from the
University of Southern California.
Stanley J. Goldsmith, M.D. has served as the Director of the Division of
Nuclear Medicine, Department of Radiology at the New York Hospital-Cornell
Medical Center since 1995 and Professor of Radiology and Medicine at the Cornell
University Medical College since 1992. He is the Editor-in-Chief of the Journal
of Nuclear Medicine, Treasurer and diplomate of the American Board of Nuclear
Medicine and a diplomate of the American Board of Internal Medicine in the
subspecialty of Endocrinology and Metabolism. Dr. Goldsmith received an M.D.
from the State University of New York Downstate Medical Center.
H. William Strauss, M.D. has served as Professor of Radiology and Chief of
the Division of Nuclear Medicine at Stanford University School of Medicine since
1994. He is Vice President Elect for the Society of Nuclear Medicine, a Board
Member of the American Society of Nuclear Cardiology and a member of the
editorial board of the American Journal of Cardiac Imaging, European Journal of
Nuclear Medicine, The Journal of Nuclear Medicine, and Investigative Radiology.
Dr. Strauss received an M.D. from the State University of New York.
Richard L. Wahl, M.D. has served as Professor of Internal Medicine and
Radiology at the University of Michigan, where he is Director of General Nuclear
Imaging and Director of the Radiopharmaceutical Program of the Comprehensive
Cancer Center, since 1983. Dr. Wahl serves on the editorial board of the Journal
of Nuclear Medicine and is a diplomate of the American Boards of Radiology
(Diagnostic and Nuclear Radiology) and a diplomate and member of the American
Board of Nuclear Medicine. Dr. Wahl received an M.D. from Washington University.
Suresh C. Srivastava, Ph.D. has served as a Senior Scientist since 1990 and
as the Head of the Radionuclide and Radiopharmaceutical Research Division of the
Medical Department at BNL since 1983. Dr. Srivastava serves on the Department of
Energy, Office of Health and Environmental Research, Advisory Committee, as
Vice-Chairman of the Scientific Program Committee and as a director of the
Therapy Council, Society of Nuclear Medicine. Dr. Srivastava received a Ph.D. in
inorganic/analytical chemistry from the University of Allahabad.
50
<PAGE> 51
EXECUTIVE COMPENSATION
<TABLE>
The following table summarizes the compensation paid to or earned by the
following individuals for services rendered to the Company in all capacities
during the year ended December 31, 1995: (i) the Chief Executive Officer (the
"CEO") of the Company as of December 31, 1995 and (ii) each of the most highly
compensated executive officers (other than the CEO) as of December 31, 1995
whose salary and bonus earned during fiscal 1995 exceeded $100,000 (the CEO and
such other executive officers are hereinafter referred to as the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(3)
ANNUAL -------------
COMPENSATION OTHER SECURITIES
NAME AND PRINCIPAL ------------------ ANNUAL UNDERLYING ALL OTHER
POSITION(1) SALARY BONUS COMPENSATION(2) OPTIONS COMPENSATION(4)
- --------------------------- -------- ------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Richard T. Dean............ $197,125 $47,125 $7,033 60,000 $ 957
President, Chief
Executive Officer
and Treasurer
Ronald B. Kinder........... 144,930 0 600 15,000 2,210
Executive Vice
President,
Marketing, Sales and
Business Development
and Secretary
Mark A. Attarian........... 125,000 0 312 0 1,875
Chief Financial
Officer
<FN>
- ---------------
(1) In accordance with the rules of the SEC, this table and the stock option
grant table and the stock option exercise table which follow present
information concerning the Company's CEO and its four other most highly
compensated executive officers whose total annual salary and bonus exceed
$100,000 (determined by reference to total annual salary and bonus earned by
such officers) for fiscal 1995. Edward M. Aten, who joined the Company as
Vice President of Medical Affairs in January 1996, currently receives an
annual salary of $170,000 per year. On December 11, 1995, pursuant to the
1992 Option Plan, Dr. Aten was granted non-statutory stock options to
purchase an aggregate of 60,000 shares of Common Stock at an exercise price
of $1.67 per share. These stock options become exercisable in five equal
annual installments commencing on January 15, 1997. The exercisability of
these stock options may be accelerated in the event of a change in control
of the Company.
(2) Reflects the dollar value of insurance premiums paid by the Company with
respect to life insurance for the benefit of the Named Executive Officers.
(3) As of December 31, 1995, Dr. Dean held 160,087 shares of restricted Common
Stock with a value at year-end of $1,492,811 based on the fair market value
of the Common Stock as of December 31, 1995 ($9.33 per share), as determined
by the Board of Directors, less the purchase price per share paid for such
shares ($0.005 per share).
(4) Reflect amounts contributed by the Company pursuant to its 401(k) Plan.
</TABLE>
51
<PAGE> 52
Option Grants
<TABLE>
The following table sets forth certain information concerning grants of
stock options made during fiscal 1995 to each of the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT
------------------------------------------------------- ASSUMED ANNUAL
PERCENT RATES OF STOCK
OF TOTAL PRICE
NUMBER OF OPTIONS APPRECIATION
SECURITIES GRANTED FOR OPTIONS
UNDERLYING TO EMPLOYEES TERM(2)
OPTIONS IN FISCAL EXERCISE PRICE EXPIRATION --------------
NUMBER GRANTED YEAR PER SHARE DATE(1) 5% 10%
------ ---------- ------------- --------------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Richard T. Dean...... 60,000(3) 29.7% $0.67 4/18/05 $25,200 $64,200
Ronald B. Kinder..... 15,000(4) 7.4% 0.67 4/18/05 6,300 16,050
Mark A. Attarian..... 0 -- -- -- -- --
<FN>
- ---------------
(1) The expiration date of an option is the tenth anniversary of the date on
which the option was originally granted. These options are intended to
qualify as incentive stock options.
(2) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5% and
10%, compounded annually from the date the respective options were granted
to their expiration date. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses associated
with the exercise. Actual gains, if any, on stock option exercises will
depend on the future performance of the Common Stock, the option holder's
continued employment through the option period, and the date on which the
options are exercised.
(3) These stock options are exercisable in five equal annual installments
commencing on April 2, 1996. The exercisability of these stock options may
be accelerated in the event of a change in control of the Company.
(4) These stock options are exercisable in five equal annual installments
commencing on April 18, 1996. The exercisability of these stock options may
be accelerated in the event of a change in control of the Company.
</TABLE>
<TABLE>
The following table sets forth certain information concerning the number
and value of unexercised options held by each of these Named Executive Officers
on December 31, 1995. No options were exercised by these individuals during
fiscal 1995.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Richard T. Dean(2).............. 160,087 60,000 $1,440,250 $519,800
Ronald B. Kinder(2)............. 14,400 72,600 128,352 643,358
Mark A. Attarian(2)............. 12,000 48,000 106,960 427,840
<FN>
- ---------------
(1) The value of the unexercised, in-the-money options on December 31, 1995 is
based on the difference between the fair market value of the shares as of
such date ($9.33), and the per share option exercise price, multiplied by
the number of shares of Common Stock underlying the options.
(2) The exercisability of the options granted to Dr. Dean, Mr. Kinder and Mr.
Attarian may be accelerated in the event of a change in control of the
Company.
</TABLE>
52
<PAGE> 53
Employment Agreement
The Company is a party to an employment agreement with Dr. Dean for the
period commencing April 2, 1990 and ending 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 of the employment period. Under this agreement, Dr. Dean
is currently entitled to receive an annual base salary of $200,000, as it may be
adjusted, and an annual cash bonus equal to up to 25% of his annual base salary
based on the attainment of management objectives. In the event Dr. Dean's
employment is terminated (i) by the Company without cause, (ii) due to
nonrenewal of the employment agreement by the Company or (iii) by Dr. Dean
following a change in control of the Company or the significant diminution in
his authority or responsibility, he will continue to receive his annual base
salary during the one-year period commencing on the date of termination. In the
event of a change in control of the Company (as defined in his option
agreements), all outstanding unvested options held by Dr. Dean will become
immediately vested.
The Company has also entered into a registration rights agreement with Dr.
Dean that provides that in the event the Company proposes to register any of its
securities under the Securities Act at any time, with certain exceptions, Dr.
Dean shall be entitled to include the shares of Common Stock held by him in such
registration, subject to the right of the managing underwriter of any
underwritten offering to exclude from such registration for marketing reasons
some or all of such shares.
EMPLOYEE BENEFIT PLANS
1992 Stock Option Plan
The Company's 1992 Option Plan was adopted by the Company in April 1992.
The 1992 Option Plan provides for the grant of stock options to employees,
officers and directors of, and consultants or advisors to, the Company and its
subsidiaries. Under the 1992 Option Plan, the Company may grant options that are
intended to qualify as incentive stock options within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code") ("incentive stock
options"), or options not intended to qualify as incentive stock options
("non-statutory options"). Incentive stock options may be granted only to
employees of the Company. A total of 2,000,000 shares of Common Stock may be
issued upon the exercise of options granted under the 1992 Option Plan. The
maximum number of shares with respect to which options may be granted to any
employee under the 1992 Option Plan shall not exceed 500,000 shares of Common
Stock during any calendar year. As of March 31, 1996, options to purchase a
total of 628,807 shares of Common Stock were outstanding under the 1992 Option
Plan and options to purchase a total of 64,380 of Common Stock had been
exercised.
The 1992 Option Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the 1992 Option Plan, the
Compensation Committee has the authority to select the employees to whom options
are granted and determine the terms of each option, including (i) the number of
shares of Common Stock subject to the option, (ii) when the option becomes
exercisable, (iii) the option exercise price, which, in the case of incentive
stock options, must be at least 100% (110% in the case of incentive stock
options granted to a stockholder owning in excess of 10% of the Company's Common
Stock) of the fair market value of the Common Stock as of the date of grant, and
(iv) the duration of the option (which, in the case of incentive stock options,
may not exceed ten years).
Payment of the option exercise price may be made in cash, shares of Common
Stock, a combination of cash or stock or by any other method (including delivery
of a promissory note payable on terms specified by the Compensation Committee)
approved by the Compensation Committee consistent with Section 422 of the Code
and Rule 16b-3 ("Rule "16b-3") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Options are not assignable or transferable except
by will or the laws of descent and distribution and, in the case of nonstatutory
options, pursuant to a qualified domestic relations order (as defined in the
Code).
53
<PAGE> 54
As of March 31, 1996, the Company had 42 full-time employees, all of whom
were eligible to participate in the 1992 Option Plan. The number of individuals
receiving stock options varies from year to year depending on various factors,
such as the number of promotions and the Company's hiring needs during the year,
and thus the Company cannot now determine award recipients.
The Compensation Committee may, in its sole discretion, include additional
provisions in any option or award granted or made under the 1992 Option Plan,
including without limitation restrictions on transfer, repurchase rights,
commitments to pay cash bonuses, to make, arrange for or guaranty loans or to
transfer other property to optionees upon exercise of options, or such other
provisions as shall be determined by the Compensation Committee, so long as not
inconsistent with the 1992 Option Plan or with applicable law. The Compensation
Committee may also, in its sole discretion, accelerate or extend the date or
dates on which all or any particular option or options granted under the 1992
Option Plan may be exercised.
1996 Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company in January 1996 and becomes effective upon the closing of
this offering. The Purchase Plan authorizes the issuance of up to a total of
500,000 shares of Common Stock to participating employees.
All employees of the Company, including directors of the Company who are
employees, and all employees of any participating subsidiaries whose customary
employment is more than 20 hours per week and for more than five months in any
calendar year are eligible to participate in the Purchase Plan. Employees who
would immediately after the grant own 5% or more of the total combined voting
power or value of the stock of the Company or any subsidiary are not eligible to
participate. As of March 31, 1996, all of the Company's full-time employees
would have been eligible to participate in the Purchase Plan.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock as
follows: the employee may authorize an amount (a whole percentage from 1% to 10%
of such employee's regular pay) to be deducted by the Company from such pay
during the Offering Period. On the last day of the Offering Period, the employee
is deemed to have exercised the option, at the option exercise price, to the
extent of accumulated payroll deductions. Under the terms of the Purchase Plan,
the option price is an amount equal to 85% of the fair market value per share of
the Common Stock on either the first day or the last day of the Offering Period,
whichever is lower. In no event may an employee purchase in any one Offering
Period a number of shares which is more than 15% of the employee's annualized
base pay divided by 85% of the market value of a share of Common Stock on the
commencement date of the Offering Period. The Compensation Committee may, in its
discretion, choose an Offering Period of 12 months or less for each of the
Offerings and choose a different Offering Period for each Offering.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's rights
under the Purchase Plan terminate upon voluntary withdrawal from the Purchase
Plan at any time, or when such employee ceases employment for any reason, except
that upon termination of employment because of death, the employee's beneficiary
has certain rights to elect to exercise the option to purchase the shares which
the accumulated payroll deductions in the participant's account would purchase
at the date of death.
401(k) Savings and Retirement Plan
In March 1992, the Company adopted a 401(k) Savings and Retirement Plan
(the "401(k) Plan"), a tax-qualified plan covering all of its employees who are
at least 21 years of age. Each employee may elect to reduce his or her current
compensation by up to 15%, subject to the statutory limit (a maximum of $9,500
in 1996) and have the amount of the reduction contributed to the 401(k)
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<PAGE> 55
Plan. The 401(k) Plan provides that the Company may, as determined from time to
time by the Board of Directors, provide a matching cash contribution. In
addition, the Company may contribute an additional amount to the 401(k) Plan, as
determined by the Board of Directors, which will be allocated based on the
proportion of the employee's compensation for the plan year to the aggregate
compensation for the plan year for all eligible employees.
All employee contributions to the 401(k) Plan are fully vested at all
times. All Company contributions become fully vested after five years of service
with the Company. Upon termination of employment, a participant may elect a lump
sum distribution or, if his or her total amount in the 401(k) Plan is greater
than $3,500, may elect to receive benefits as retirement income.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Company's Compensation Committee are Dr. Curry
and Mr. Lovett. See "Certain Transactions."
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<PAGE> 56
CERTAIN TRANSACTIONS
Since January 1, 1993, the Company has engaged in the following
transactions with the following directors, officers and stockholders who
beneficially own more than 5% of the outstanding Common Stock of the Company
("5% Stockholders"), and affiliates of such directors, officers and 5%
Stockholders (collectively, the "Affiliates").
On February 19, 1993, the Company issued a series of notes known as the 10%
Convertible Subordinated Notes Due August 1, 1993 (the "February 1993 Notes") in
the aggregate original principal amount of $946,000, and on June 24, 1993, the
Company issued a series of notes known as the 10% Convertible Subordinated Notes
Due December 1, 1993 (the "June 1993 Notes") in the aggregate original principal
amount of $968,000. On September 9, 1993 and October 20, 1993, the Company
issued additional 10% notes (the "Burr, Egan Notes" and together with the
February 1993 Notes and the June 1993 Notes, the "Notes") in the aggregate
original principal amount of $211,425 to Alta IV and $38,575 to C.V. Sofinnova.
The principal amount of all of these Notes (other than the February 1993 Notes
issued to MSP) together with all accrued interest thereon was subsequently
converted into shares of Series C Convertible Preferred Stock at a price of
$2.50 per share. On November 12, 1993 and on January 14, 1994, the Company
issued and sold 4,589,655 shares of its Series C Convertible Preferred Stock for
a purchase price of $2.50 per share (including shares issued upon conversion of
the Notes). On May 17, 1995, the Company issued and sold 860,054 units (each
unit (a "Series D Unit") consisting of one share of Series D Convertible
Preferred Stock and one warrant to purchase 0.60 of one share of Series D
Convertible Preferred Stock (the "Unit Warrants")) for a purchase price of $4.00
per unit. The Unit Warrants have since been cancelled and are not exercisable.
<TABLE>
The purchasers of these February 1993 Notes, June 1993 Notes, shares of
Series C Convertible Preferred Stock and Series D Units included, among others,
the following Affiliates:
<CAPTION>
JUNE SHARES
FEBRUARY 1993 1993 OF SERIES D TOTAL
NAME NOTES NOTES SERIES C UNITS CONSIDERATION(1)
---- ------------- ----- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Alta IV Limited Partnership........ $266,395 $310,371 625,818 139,746 $2,123,529(2)
C.V. Sofinnova Partners Five....... 48,605 56,629 114,182 25,496 387,439(2)
Medical Science Partners, L.P. .... 315,000(3) -- -- -- --
Medical Science Partners II,
L.P. ............................ -- -- 66,000 117,151 633,604
Andre L. Lamotte................... -- -- 6,400 -- 16,000
Joseph F. Lovett................... -- -- 6,400 -- 16,000
ML Venture Partners II, L.P. ...... 228,000 266,000 208,006 91,502 886,023
Sprout Capital VI, L.P. ........... -- -- 437,586 31,828 1,221,277
DLJ Capital Corporation............ -- -- 69,296 5,040 193,400
Chemical Venture Capital
Associates, L.P. ................ -- -- 960,000 125,000 2,900,000
New Enterprise Associates V,
Limited Partnership.............. -- -- 560,000 40,732 1,562,928
Chemicals and Materials Enterprise
Associates, Limited
Partnership...................... -- -- 400,000 29,094 1,116,376
Commonwealth BioVentures, Inc.
Profit Sharing Plan UAD FBO
Gustav Christensen............... -- -- 12,000 -- 30,000
Richard T. Dean.................... -- -- 10,000 2,500 35,000
Robert S. Lees..................... -- -- 4,000 1,000 14,000
Ronald B. Kinder................... -- -- -- 2,500 10,000
Mark A. Attarian................... -- -- -- 1,000 4,000
<FN>
- ---------------
(1) Reflects the aggregate purchase price paid by the purchasers for shares of
Series C Convertible Preferred Stock and Series D Units. Holders of Notes
converted the principal amount of such Notes as set forth in the table,
together with all accrued interest thereon (which is not reflected in the
table), into shares of Series C Convertible Preferred Stock.
(2) Includes the conversion of the principal amount of the Burr, Egan Notes and
the accrued interest thereon.
(3) The principal amount of the February 1993 Note held by MSP, and the accrued
interest thereon, was repaid by Diatide.
</TABLE>
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<PAGE> 57
In August 1995, the Company and Nycomed entered into a strategic alliance
relating to the Company's Techtides. The strategic alliance contemplates
research and development support and a marketing collaboration. Under the
strategic alliance, Diatide granted Nycomed options to co-promote Techtides in
the United States and to distribute and license Techtides in Europe, South
Africa and certain countries in the Middle East. In December 1995 and May 1996,
Nycomed exercised its co-promotion and licensing options with respect to P280
and P829, respectively. At the time the alliance was established, Nycomed
purchased 2,500,000 shares of the Company's Series E Convertible Preferred Stock
for a purchase price of $4.00 per share (or an aggregate of $10,000,000). See
"Business -- Corporate Collaborations."
In September 1995, the Company entered into a Clinical Services Agreement
with Certus, an affiliate of Dr. Aten, pursuant to which Certus has agreed to
supervise the Company's clinical trials of P829. Under the terms of this
agreement, the Company has agreed to pay Certus up to a total of $629,000 upon
the achievement of certain milestones in connection with the clinical trials,
plus a bonus of up to $62,900 depending on how promptly such milestones are
achieved. This agreement terminates upon the delivery and acceptance by the
Company of the final clinical study report. The Company may terminate the
agreement for any reason upon 30 days' written notice to Certus and the payment
of a termination fee. In February 1996, the Company entered into a Data
Management Agreement with Certus pursuant to which Certus has agreed to provide
data management services with respect to the Company's clinical trials of P280.
Under the terms of this agreement, the Company has agreed to pay Certus up to a
total of $364,800 upon the achievement of certain milestones in connection with
the data management. This agreement terminates upon the completion of the
services provided by Certus, but is terminable by Certus upon 30 days' prior
written notice in certain circumstances and by the Company immediately upon
written notice at any time. In April 1996, the Company entered into a second
Clinical Services Agreement with Certus pursuant to which Certus has agreed to
supervise and provide data management services with respect to the Company's
clinical trials of Sn-117m DTPA. Under the terms of this agreement, the Company
has agreed to pay Certus up to $1,780,500 upon the achievement of certain
milestones in connection with the clinical trials. This agreement terminates
upon the delivery and acceptance by the Company of the final clinical study
reports. The Company may terminate the agreement for any reason upon 30 days'
written notice to Certus and the payment of a termination fee. The Company has
also retained Certus to perform certain other consulting services, including
review of clinical trial protocols, in connection with certain of the Company's
other clinical trials. As of April 15, 1996, the Company had paid to Certus a
total of $858,563.
Certain persons and entities, including the purchasers of the Company's
Convertible Preferred Stock listed above, are entitled to certain rights with
respect to the registration under the Securities Act of certain shares of the
Company's Common Stock, including shares of Common Stock that may be acquired
pursuant to the conversion of Convertible Preferred Stock or the exercise of
certain options or warrants, under the terms of agreements among the Company and
such persons and entities. For a description of such rights, see "Shares
Eligible for Future Sale."
For a description of the employment arrangement between the Company and its
Chief Executive Officer, see "Management -- Executive Compensation." For a
description of stock options granted to certain directors of the Company, see
"Management -- Board Compensation." For a description of the relationship
between certain directors of the Company and certain of the Affiliates, see
"Management -- Directors and Officers."
The Company believes that the securities issued in the transactions
described above were sold at their then fair market value and that the terms of
the transactions described above were no less favorable than the Company could
have obtained from unaffiliated third parties. With respect to the Company's
agreements with Certus, the Company obtained competitive bids from unaffiliated
clinical research organizations.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
<TABLE>
The following table sets forth certain information regarding the beneficial ownership of the
Common Stock of the Company as of March 31, 1996 (assuming the conversion of all outstanding shares
of Convertible Preferred Stock into an aggregate of 7,531,140 of Common Stock), and as adjusted to
reflect the sale of the shares of Common Stock offered hereby, by (i) each person or entity known to
the Company to own beneficially more than 5% of the Company's Common Stock, (ii) each of the
Company's directors, (iii) each of the Named Executive Officers, and (iv) all directors and
executive officers as a group.
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED(1)
NAME AND ADDRESS OF NUMBER OF SHARES ----------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING
------------------- --------------------- --------------- --------------
<S> <C> <C> <C>
5% Stockholders
Nycomed Imaging ASA................. 1,500,000 18.7% 14.7%
Nycoveien 1-2
N-0401 Oslo, Norway
Trond Jacobsen...................... 1,500,000(2) 18.7% 14.7%
c/o Nycomed Imaging ASA
Nycoveien 1-2
N-0401 Oslo, Norway
Funds Managed by
Burr, Egan, Deleage & Company..... 1,462,230(3) 18.2% 14.3%
One Embarcadaro Center
Suite 4050
San Francisco, CA 94111
Jean Deleage........................ 1,462,230(4) 18.2% 14.3%
c/o Burr, Egan, Deleage & Company
One Embarcadaro Center
Suite 4050
San Francisco, CA 94111
Entities affiliated with
DLJ Capital Corporation........... 1,135,952(5) 14.2% 11.1%
c/o ML Ventures II, L.P.
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025-7114
Robert E. Curry..................... 1,135,952(6) 14.2% 11.1%
c/o ML Ventures II, L.P.
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025-7114
Joseph F. Lovett.................... 1,032,669(7) 12.8% 10.1%
c/o Medical Science Partners, L.P.
20 William Street
Suite 250
Wellesley, MA 02181
Medical Science Partners, L.P. ..... 919,089(8) 11.4% 9.0%
20 William Street
Suite 250
Wellesley, MA 02181
</TABLE>
58
<PAGE> 59
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED(1)
NAME AND ADDRESS OF NUMBER OF SHARES ----------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING
------------------- --------------------- --------------- --------------
<S> <C> <C> <C>
Chemical Venture Capital Associates,
L.P............................... 651,000 8.1% 6.4%
270 Park Avenue
5th Floor
New York, NY 10017-2070
Donald T. Murfin.................... 617,895(9) 7.7% 6.1%
c/o Chemicals and Materials
Enterprise Associates
One Cleveland Center, Suite 2700
Cleveland, OH 44114
Other Directors
Gustav Christensen.................. 24,600(10) * *
Richard T. Dean..................... 339,674(11) 4.2% 3.3%
Robert S. Lees...................... 164,287(12) 2.1% 1.6%
Other Named Executive Officers
Ronald B. Kinder.................... 33,300(13) * *
Mark A. Attarian.................... 12,600(14) * *
All directors and executive officers
as a group (11 persons)........... 6,323,207(15) 76.0% 60.1%
<FN>
- ---------------
* Represents less than 1% of the outstanding Common Stock.
</TABLE>
(1) Each stockholder has sole voting and investment power with respect to the
shares listed, except as otherwise noted. Shares of Common Stock which an
individual or group has a right to acquire within the 60-day period
following March 31, 1996 pursuant to the exercise of options or warrants
are deemed to be outstanding for the purposes of computing the percentage
ownership of such individual or group, but are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person
shown in the table.
(2) Consists of 1,500,000 shares held by Nycomed. Dr. Jacobsen is the Executive
Vice President of Corporation Product Sourcing of Hafslund Nycomed ASA,
Nycomed's parent company, and may be considered a beneficial owner of the
shares beneficially owned by Nycomed, although Dr. Jacobsen disclaims
beneficial ownership of such shares.
(3) Consists of (a) 1,195,099 shares held by Alta IV, (b) 41,515 shares
issuable upon exercise of certain warrants held by Alta IV, (c) 218,042
shares held by C.V. Sofinnova and (d) 7,574 shares issuable upon exercise
of certain warrants held by C.V. Sofinnova. Burr, Egan serves as the
investment advisor to Alta IV and C.V. Sofinnova. The respective General
Partners of Alta IV and C.V. Sofinnova exercise sole voting and investment
power with respect to the shares held by each fund.
(4) Consists of (a) 1,195,099 shares held by Alta IV, (b) 41,515 shares
issuable upon exercise of certain warrants held by Alta IV, (c) 218,042
shares held by C.V. Sofinnova and (d) 7,574 shares issuable upon exercise
of certain warrants held by C.V. Sofinnova. Dr. Deleage is the Managing
Partner of Burr, Egan and is a General Partner of Alta IV Management
Partners, L.P., the General Partner of Alta IV, and may be deemed to share
voting and investment powers for the shares held by Alta IV and C.V.
Sofinnova. Burr, Egan serves as the investment advisor to Alta IV and C.V.
Sofinnova. The principals of Burr, Egan disclaim beneficial ownership of
all such shares held by Alta IV and C.V. Sofinnova except to the extent of
their proportionate pecuniary interest therein. Dr. Deleage disclaims
beneficial ownership of all of the shares held by Alta IV and C.V.
Sofinnova except to the extent of his proportionate pecuniary interest
therein.
59
<PAGE> 60
(5) Consists of 809,704 shares held by ML Ventures, 281,647 shares held by
Sprout Capital VI, L.P. ("Sprout Capital") and 44,601 shares held by DLJ
Capital Corporation ("DLJ Capital"). These entities are affiliates that are
under common control.
(6) Consists of 809,704 shares held by ML Ventures, 281,647 shares held by
Sprout Capital and 44,601 shares held by DLJ Capital. Dr. Curry is a
General Partner of Sprout Group, a division of DLJ Capital. ML Ventures is
an affiliate of Sprout Capital, and Dr. Curry may be considered a
beneficial owner of the shares beneficially owned by ML Ventures, Sprout
Capital and DLJ Capital, although Dr. Curry disclaims beneficial ownership
of such shares.
(7) Includes (a) 870,000 shares held by MSP, (b) 49,089 shares issuable upon
exercise of certain warrants held by MSP, (c) 96,153 shares held by Medical
Science Partners II, L.P. ("MSP II") and (d) 13,587 shares held by Medical
Science II Co-Investment, L.P. ("MS Co-Investment"). Mr. Lovett is a
General Partner of the general partner of MSP, MSP II and MS Co-Investment
and may be considered a beneficial owner of the shares beneficially owned
by such entities, although Mr. Lovett disclaims beneficial ownership of
such shares.
(8) Includes 49,089 shares issuable upon exercise of certain warrants held by
MSP. Does not include 96,153 shares held by MSP II and 13,587 shares held
MS Co-Investment. MSP, an affiliate of MSP II and MS Co-Investment, may be
considered a beneficial owner of the shares beneficially owned by MSP II,
although it disclaims beneficial ownership of such shares.
(9) Consists of 257,456 shares held by CMEA and 360,439 shares held by NEA. Mr.
Murfin is a general partner of CMEA and a Special Partner of NEA and may be
considered a beneficial owner of the shares beneficially owned by such
entities, although Mr. Murfin disclaims beneficial ownership of such
shares.
(10) Includes 2,400 shares subject to outstanding non-statutory stock options
held by Mr. Christensen, which are exercisable within the 60-day period
following March 31, 1996 and 7,200 shares held by Commonwealth BioVentures,
Inc. Profit Sharing Plan.
(11) Includes 172,087 shares subject to outstanding incentive stock options held
by Dr. Dean, which are exercisable within the 60-day period following March
31, 1996.
(12) Includes 1,200 shares subject to outstanding non-statutory stock options
held by Dr. Lees, which are exercisable within the 60-day period following
March 31, 1996.
(13) Includes 31,800 shares subject to outstanding incentive stock options held
by Mr. Kinder, which are exercisable within the 60-day period following
March 31, 1996.
(14) Includes 12,000 shares subject to outstanding incentive stock options held
by Mr. Attarian, which are exercisable within the 60-day period following
March 31, 1996.
(15) See Notes (2) through (14) above.
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<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
As of March 31, 1996, there were outstanding an aggregate of 474,115 shares
of Common Stock and 12,551,928 shares of Convertible Preferred Stock of the
Company. Assuming conversion of all of the Company's Convertible Preferred
Stock, as of March 31, 1996, there were 8,005,255 shares of Common Stock
outstanding, held of record by 67 stockholders.
COMMON STOCK
Upon the closing of this offering, the Company's Certificate of
Incorporation will authorize the issuance of up to 50,000,000 shares of Common
Stock, $0.001 par value per share. Holders of Common Stock are entitled to one
vote for each share held on all matters submitted to a vote of stockholders and
do not have cumulative voting rights. Accordingly, holders of a majority of the
shares of Common Stock entitled to vote in any election of directors may elect
all of the directors standing for election. Holders of Common Stock are entitled
to receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor, subject to any preferential
dividend rights of outstanding Preferred Stock. Upon the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive ratably the net assets of the Company available after the
payment of all debts and other liabilities and subject to the prior rights of
any outstanding Preferred Stock. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of Common
Stock are, and the shares offered by the Company in this offering will be, when
issued and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the future.
CONVERTIBLE PREFERRED STOCK, WARRANTS AND CERTAIN STOCK OPTIONS
As of March 31, 1996, a total of 12,551,928 shares of the Company's Series
A, Series B, Series C, Series D and Series E Convertible Preferred Stock
(collectively, the "Convertible Preferred Stock") were outstanding. Upon the
closing of this offering, all of the outstanding shares of Convertible Preferred
Stock will be converted into 7,531,140 shares of Common Stock.
As of March 31, 1996, a total of 141,665 shares of Common Stock (after
giving effect to the conversion of all shares of Convertible Preferred Stock
into Common Stock prior to or upon the closing of this offering) were issuable
upon exercise of outstanding warrants and options (outside of the Company's
stock plans) at exercise prices ranging from $1.88 to $3.75 per share. Such
warrants and options, unless exercised after March 31, 1996, will remain
outstanding after the closing of this offering.
PREFERRED STOCK
Upon the closing of this offering and following the filing of a Certificate
of Retirement, the Company's Certificate of Incorporation will authorize the
issuance of up to 11,174,045 shares of Preferred Stock, $0.01 par value per
share. Under the terms of the Certificate of Incorporation, the Board of
Directors is authorized, subject to any limitations prescribed by law, without
stockholder approval, to issue such shares of Preferred Stock in one or more
series. Each such series of Preferred Stock shall have such rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be determined by the Board of Directors.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
61
<PAGE> 62
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Certificate of Incorporation provides for the division of the Board of
Directors into three classes as nearly equal in size as possible with staggered
three-year terms. See "Management." In addition, the Certificate of
Incorporation provides that directors may be removed only for cause by the
affirmative vote of the holders of two-thirds of the shares of capital stock of
the corporation entitled to vote. Under the Certificate of Incorporation, any
vacancy on the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may only be filled by vote of a
majority of the directors then in office. The classification of the Board of
Directors and the limitations on the removal of directors and filling of
vacancies could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of the
Company.
The Certificate of Incorporation also provides that after the closing of
this offering, any action required or permitted to be taken by the stockholders
of the Company at an annual meeting or special meeting of stockholders may only
be taken if it is properly brought before such meeting and may not be taken by
written action in lieu of a meeting. The Certificate of Incorporation further
provides that special meetings of the stockholders may only be called by the
President of the Company or by the Board of Directors. Under the Company's
Amended and Restated By-Laws (the "By-Laws"), in order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply with
certain requirements regarding advance notice to the Company. The foregoing
provisions could have the effect of delaying until the next stockholders meeting
stockholder actions which are favored by the holders of a majority of the
outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the Company's
Common Stock, because such person or entity, even if it acquired a majority of
the outstanding voting securities of the Company, would be able to take action
as a stockholder (such as electing new directors or approving a merger) only at
a duly called stockholders meeting, and not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's Certificate of Incorporation or By-Laws,
unless a corporation's Certificate of Incorporation or By-Laws, as the case may
be, requires a greater percentage. The Certificate of Incorporation and the
By-Laws require the affirmative vote of the holders of at least 75% of the
shares of capital stock of the Company issued and outstanding and entitled to
vote to amend or repeal any of the provisions described in the prior two
paragraphs.
The Certificate of Incorporation contains certain provisions permitted
under the General Corporation Law of Delaware relating to the liability of
directors. The provisions eliminate a director's liability for monetary damages
for a breach of fiduciary duty, except in certain circumstances involving
wrongful acts, such as the breach of a director's duty of loyalty or acts or
omissions which involve intentional misconduct or a knowing violation of law.
Further, the Certificate of Incorporation contains provisions to indemnify the
Company's directors and officers to the fullest extent permitted by the General
Corporation Law of Delaware. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The First National
Bank of Boston.
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<PAGE> 63
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, based upon the number of shares
outstanding at March 31, 1996, there will be 10,205,255 shares of Common Stock
of the Company outstanding (exclusive of 406,878 shares covered by vested
options and warrants outstanding at March 31, 1996 and including 7,531,140
shares of Common Stock to be issued upon the automatic conversion of the
outstanding shares of Convertible Preferred Stock upon consummation of this
offering). Of these outstanding shares (and without taking into account the
lock-up agreements described below), approximately 2,925,267 shares, including
the 2,200,000 shares of Common Stock sold in this offering, will be immediately
eligible for resale in the public market without restriction under the
Securities Act, except that any shares purchased in this offering by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Affiliates"), may generally only be resold in compliance with
applicable provisions of Rule 144. Beginning approximately 90 days after the
date of this Prospectus (and without taking into account the lock-up agreements
described below), approximately 6,687,222 additional shares of Common Stock
(including approximately 343,228 shares covered by options exercisable within
the 90-day period following the date of this Prospectus) will become eligible
for immediate resale in the public market, subject to compliance as to certain
of such shares with applicable provisions of Rules 144 and 701.
The Company, the executive officers and directors of the Company, and
certain securityholders, which executive officers, directors and securityholders
in the aggregate hold approximately 8,230,866 shares of Common Stock (including
343,320 shares of Common Stock that may be acquired pursuant to the exercise of
vested options or warrants held by them) at March 31, 1996, have agreed pursuant
to certain agreements that they will not, without the prior written consent of
Dillon, Read & Co. Inc., offer, sell or otherwise dispose of the shares of
Common Stock beneficially owned by them for a period of 180 days from the date
of this Prospectus. The shares subject to the lock-up agreements include 685,259
of the shares of Common Stock that would otherwise have become immediately
eligible for resale in the public market upon completion of this offering and
approximately 6,591,346 of the shares of Common Stock (including approximately
239,167 shares of Common Stock covered by options exercisable within the 90-day
period following the date of this Prospectus) that would otherwise have become
eligible for resale in the public market beginning approximately 90 days after
the date of this Prospectus, subject to compliance as to certain of such shares
with the applicable provisions of Rules 144 and 701.
In general, under Rule 144 as currently in effect, beginning approximately
90 days after the effective date of the Registration Statement of which this
Prospectus is a part, a stockholder, including an Affiliate, who has
beneficially owned his or her restricted securities (as that term is defined in
Rule 144) for at least two years from the later of the date such securities were
acquired from the Company or (if applicable) the date they were acquired from an
Affiliate is entitled to sell, within any three-month period, a number of such
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock (approximately 102,052 immediately after this offering) or the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, under Rule 144(k),
if a period of at least three years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate of the Company, a stockholder who is not an
Affiliate of the Company at the time of sale and has not been an Affiliate of
the Company for at least three months prior to the sale is entitled to sell the
shares immediately without compliance with the foregoing requirements under Rule
144. The Securities and Exchange Commission has proposed an amendment to Rule
144 which would reduce the holding period required for shares subject to Rule
144 to become eligible for sale in the public market from two years to one year,
and from three years to two years in the case of Rule 144(k).
Securities issued in reliance on Rule 701 (such as shares of Common Stock
that may be acquired pursuant to the exercise of certain options granted under
the 1992 Option Plan) are also restricted
63
<PAGE> 64
securities and, beginning 90 days after the effective date of the Registration
Statement of which this Prospectus is a part, may be sold by stockholders other
than an Affiliate of the Company subject only to the manner of sale provisions
of Rule 144 and by an Affiliate under Rule 144 without compliance with its
two-year holding period requirement.
At the completion of this offering, certain persons and entities (the
"Rightholders"), will be entitled to certain rights with respect to the
registration under the Securities Act of a total of approximately 7,976,644
shares of Common Stock (the "Registrable Shares"), including 125,330 shares of
Common Stock that may be acquired pursuant to the exercise of outstanding
warrants, under the terms of agreements among the Company and the Rightholders
(the "Registration Agreements"). The Registration Agreements generally provide
that in the event the Company proposes to register any of its securities under
the Securities Act at any time, with certain exceptions, the Rightholders shall
be entitled to include Registrable Shares in such registration, subject to the
right of the managing underwriter of any underwritten offering to exclude from
such registration for marketing reasons some or all of such Registrable Shares.
Certain Rightholders have the additional right under certain Registration
Agreements to require the Company to prepare and file registration statements
under the Securities Act with respect to a total of approximately 7,651,138
Registrable Shares, including shares of Common Stock that may be acquired upon
the exercise of outstanding warrants, if such Rightholders holding specified
percentages of such Registrable Shares so request, and the Company is required
to use its best efforts to effect such registration, subject to certain
conditions and limitations. Under the Registration Agreements, the Company is
not required to file a registration statement within six months of the effective
date of the Registration Statement of which this Prospectus is a part. The
Company is generally required to bear the expense of all such registrations.
Prior to this offering, there has been no public market for the Common
Stock. No precise prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price of the Common Stock prevailing from time to time. The Company is unable to
estimate the number of shares that may be sold in the public market pursuant to
Rule 144, since this will depend on the market price of the Common Stock, the
personal circumstances of the sellers and other factors. Nevertheless, sales of
significant amounts of the Common Stock of the Company in the public market
could adversely affect the market price of the Company's Common Stock and could
impair the Company's ability to raise capital through an offering of its equity
securities.
64
<PAGE> 65
UNDERWRITING
<TABLE>
The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares which each has severally agreed to purchase
from the Company, subject to the terms and conditions specified in the
Underwriting Agreement, are as follows:
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Dillon, Read & Co. Inc................................................... 595,500
Oppenheimer & Co., Inc................................................... 595,500
Auerbach Pollak & Richardson Inc......................................... 13,000
Brean Murray, Foster Securities, Inc..................................... 13,000
Alex. Brown & Sons Incorporated.......................................... 40,000
BT Securities Corporation................................................ 40,000
CS First Boston Corporation.............................................. 40,000
A.G. Edwards & Sons, Inc................................................. 40,000
Fahnestock & Co. Inc..................................................... 22,000
First Albany Corporation................................................. 22,000
Furman Selz LLC.......................................................... 22,000
Hambrecht & Quist LLC.................................................... 40,000
Jefferies & Company...................................................... 22,000
Josephthal Lyon & Ross Incorporated...................................... 22,000
Lazard Freres & Co. LLC.................................................. 40,000
Lehman Brothers Inc...................................................... 40,000
Montgomery Securities.................................................... 40,000
Morgan Stanley & Co. Incorporated........................................ 40,000
Needham & Company, Inc................................................... 22,000
David A. Noyes & Company................................................. 13,000
PaineWebber Incorporated................................................. 40,000
Paribas Corporation...................................................... 40,000
Pennsylvania Merchant Group Ltd.......................................... 13,000
Piper Jaffray Inc........................................................ 22,000
Prudential Securities Incorporated....................................... 40,000
Punk, Ziegel & Knoell.................................................... 22,000
Raymond James & Associates, Inc.......................................... 22,000
Robertson, Stephens & Company LLC........................................ 40,000
Salomon Brothers Inc..................................................... 40,000
Schroder Wertheim & Co. Incorporated..................................... 40,000
Smith Barney Inc......................................................... 40,000
Tucker Anthony Incorporated.............................................. 22,000
UBS Securities LLC....................................................... 40,000
Vector Securities International, Inc..................................... 22,000
Wellington (H.G.) & Co. Inc.............................................. 13,000
Wheat, First Securities, Inc............................................. 22,000
---------
Total.................................................................... 2,200,000
=========
</TABLE>
The Managing Underwriters are Dillon, Read & Co. Inc. and Oppenheimer &
Co., Inc.
The Underwriters are committed to purchase all of the shares of Common
Stock, if any are so purchased. The Underwriting Agreement contains certain
provisions whereby, if any Underwriter defaults in its obligation to purchase
such shares, and the aggregate obligations of the Underwriters so defaulting do
not exceed 10% of the shares offered hereby, some or all of the remaining
Underwriters must assume such obligations.
The Underwriters propose to offer the shares of Common Stock to the public
initially at the offering price per share set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $0.35 per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $0.10 per share on sales to certain other dealers.
The offering of the shares is made for delivery when, as, and if accepted by the
Underwriters and subject to prior sale and withdrawal, cancellation or
modification of the offer without notice. The Underwriters reserve the
65
<PAGE> 66
right to reject any order for the purchase of the shares. After the public
offering of the Common Stock, the public offering price and the concessions may
be changed by the Managing Underwriters.
The Company has granted to the Underwriters an option for 30 days from the
date of this Prospectus to purchase up to 330,000 additional shares of Common
Stock. The Underwriters may exercise such option only to cover over-allotments
of the Common Stock offered hereby. To the extent the Underwriters exercise this
option, each Underwriter will be obligated, subject to certain conditions, to
purchase the number of additional shares of Common Stock proportionate to such
Underwriter's initial commitment.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
The Company, its directors, executive officers and certain of its
stockholders holding in the aggregate approximately 8,230,866 shares of Common
Stock outstanding prior to this offering, have agreed not to offer, sell,
contract to sell, grant any options to sell or otherwise dispose of, directly or
indirectly, any shares of the Common Stock or securities convertible or
exchangeable for Common Stock or warrants or other rights to purchase Common
Stock for a period of 180 days from the date of this Prospectus without the
prior written consent of Dillon, Read & Co. Inc., except for the Common Stock
sold in this offering and except that the Company may issue, and grant options
to purchase, shares of Common Stock under its stock and option plans described
in this Prospectus and issue shares of Common Stock in certain other
circumstances. See "Shares Eligible for Future Sale."
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock has been determined by negotiation between the Managing
Underwriters and the Company. Factors considered in determining such price were
prevailing market conditions, the state of the Company's development, recent
financial results of the Company, the future prospects of the Company and its
industry, market valuations of securities of companies engaged in activities
deemed by the Managing Underwriters to be similar to those of the Company, and
other factors deemed relevant.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company hereby
will be passed upon for the Company by Hale and Dorr, Boston, Massachusetts.
Brobeck, Phleger & Harrison LLP, New York, New York, have acted as counsel for
the Underwriters in connection with certain legal matters related to this
offering.
EXPERTS
The financial statements of Diatide at December 31, 1994 and 1995, and for
each of the three years in the period ended December 31, 1995, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The statements in this Prospectus set forth under the captions "Risk
Factors -- Uncertainty Regarding Patents and Proprietary Rights" and "Business
- -- Patents, Trade Secrets and Licenses" (other than the statements set forth in
the third, fifth and sixth paragraphs thereof) have been reviewed and approved
by Banner & Allegretti, Ltd., United States patent counsel for the Company, as
experts on such matters, and are included herein in reliance upon such review
and approval. The statements in this Prospectus set forth in the fifth paragraph
under the caption "Business-Patents, Trade Secrets and Licenses" have been
reviewed and approved by Dr. Volker Vossius, European patent counsel for the
Company, as an expert on such matters, and are included herein in reliance upon
such review and approval.
66
<PAGE> 67
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form S-1 under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission, to which Registration Statement reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement and the
exhibits thereto may be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
67
<PAGE> 68
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors....................................................... F-2
Balance Sheets as of December 31, 1994 and 1995, and March 31, 1996 (unaudited)...... F-3
Statements of Operations for the years ended December 31, 1993, 1994 and 1995, and
the three months ended March 31, 1995 and 1996 (unaudited), and the period from
February 6, 1990 (date of inception) to March 31, 1996 (unaudited)................. F-4
Statements of Stockholders' Equity for the period February 6, 1990 (date of
inception) to December 31, 1995 and the period from January 1, 1996 to March 31,
1996 (unaudited)................................................................... F-5
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995, and
the three months ended March 31, 1995 and 1996 (unaudited), and the period from
February 6, 1990 (date of inception) to March 31, 1996 (unaudited)................. F-6
Notes to Financial Statements........................................................ F-7
</TABLE>
F-1
<PAGE> 69
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Diatide, Inc.
We have audited the accompanying balance sheets of Diatide, Inc. (a company
in the development stage) as of December 31, 1994 and 1995, and the related
statements of operations, and cash flows for each of the three years in the
period ended December 31, 1995, and the statement of stockholders' equity for
the period February 6, 1990 (date of inception) to December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Diatide, Inc. (a company in
the development stage) at December 31, 1994 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Manchester, New Hampshire
February 2, 1996,
except for Note 10, and the first paragraphs of Notes 2 and 5, as to which
the dates are May 16, 1996 and June 6, 1996, respectively.
F-2
<PAGE> 70
DIATIDE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (Note 4)
Current assets:
Cash and cash equivalents......................................... $ 2,709,760 $ 5,084,197 $ 4,956,784
Marketable securities (Note 2).................................... -- 3,993,345 1,940,094
Other current assets.............................................. 107,842 431,174 273,703
----------- ----------- ------------
Total current assets.................................................. 2,817,602 9,508,716 7,170,581
Property and equipment, at cost:
Laboratory equipment.............................................. 857,538 1,045,396 1,104,887
Office equipment, furniture and fixtures.......................... 279,565 453,547 486,631
Leasehold improvements............................................ 239,592 246,887 282,887
----------- ----------- ------------
1,376,695 1,745,830 1,874,405
Less accumulated depreciation and amortization.................... 508,021 882,698 967,297
----------- ----------- ------------
868,674 863,132 907,108
Capitalized financing costs (Note 2).................................. -- 263,783 459,066
Other assets.......................................................... 9,629 16,592 9,783
----------- ----------- ------------
Total assets.......................................................... $ 3,695,905 $10,652,223 $ 8,546,538
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses (Note 3).................... $ 643,549 $ 900,709 $ 1,290,078
Deferred revenue.................................................. -- 166,666 --
Current portion of long-term debt (Note 4)........................ 274,759 214,286 214,286
----------- ----------- ------------
Total current liabilities............................................. 918,308 1,281,661 1,504,364
Long-term debt, less current portion (Note 4)......................... 285,714 89,286 36,593
Stockholders' equity (Note 5):
Preferred stock, $0.01 par value:
Authorized shares - 23,725,973 (18,425,973 in 1994)
Series A convertible preferred stock:
Authorized shares - 2,027,225
Issued and outstanding shares - 2,000,000 (liquidation value
of $2,960,000).............................................. 20,000 20,000 20,000
Series B convertible preferred stock:
Authorized shares - 2,617,219
Issued and outstanding shares - 2,602,219 (liquidation value
of $6,947,925).............................................. 26,022 26,022 26,022
Series C convertible preferred stock:
Authorized shares - 4,589,655
Issued and outstanding shares - 4,589,655 (liquidation value
of $26,252,827)............................................. 45,897 45,897 45,897
Series D convertible preferred stock:
Authorized shares - 1,400,000
Issued and outstanding shares - 860,054 (liquidation value of
$3,440,216)................................................. -- 8,601 8,601
Series E convertible preferred stock:
Authorized shares - 2,500,000
Issued and outstanding shares - 2,500,000 (liquidation value
of $10,000,000)............................................. -- 25,000 25,000
Common stock, $0.001 par value:
Authorized shares - 50,000,000 (6,960,000 in 1994)
Issued and outstanding shares - 478,915 (465,265 in 1994)....... 465 479 479
Additional paid-in capital........................................ 18,333,710 33,121,680 33,121,680
Deferred compensation............................................. -- (1,619,000) (1,533,435)
Deficit accumulated during the development stage.................. (15,934,187) (22,347,379) (24,708,639)
----------- ----------- ------------
2,491,907 9,281,300 7,005,605
Less: 4,800 shares of Common Stock in treasury, at cost........... (24) (24) (24)
----------- ----------- ------------
Total stockholders' equity............................................ 2,491,883 9,281,276 7,005,581
----------- ----------- ------------
Total liabilities and stockholders' equity............................ $ 3,695,905 $10,652,223 $ 8,546,538
=========== =========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 71
DIATIDE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>
PERIOD FROM
THREE MONTHS FEB. 6, 1990
YEAR ENDED ENDED (DATE OF
DECEMBER 31, MARCH 31, INCEPTION) TO
------------------------------------------- --------------------------- MARCH 31,
1993 1994 1995 1995 1996 1996
----------- ----------- ----------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License fees............. $ 200,000 $ 100,000 $ 500,000 $ -- $ -- $ 800,000
Research grants.......... 101,206 107,546 240,673 -- -- 449,425
Sponsored research....... -- -- 778,388 -- 500,000 1,278,388
----------- ----------- ----------- ----------- ----------- ------------
Total revenues............... 301,206 207,546 1,519,061 -- 500,000 2,527,813
----------- ----------- ----------- ----------- ----------- ------------
Cost and expenses:
Research and
development............ 2,988,798 4,444,662 6,555,628 1,106,862 2,528,603 21,288,253
General and
administrative......... 1,217,082 1,714,366 1,636,486 407,188 439,012 6,547,586
----------- ----------- ----------- ----------- ----------- ------------
Total costs and expenses..... (4,205,880) (6,159,028) (8,192,114) (1,514,050) (2,967,615) (27,835,839)
----------- ----------- ----------- ----------- ----------- ------------
Loss from operations......... (3,904,674) (5,951,482) (6,673,053) (1,514,050) (2,467,615) (25,308,026)
Other income (expense):
Interest income.......... 33,174 199,197 305,629 14,938 116,389 831,524
Interest expense......... (107,605) (6,607) (45,768) (10,378) (10,034) (232,137)
----------- ----------- ----------- ----------- ----------- ------------
Total other income
(expense).................. (74,431) 192,590 259,861 4,560 106,355 599,387
----------- ----------- ----------- ----------- ----------- -------------
Net loss..................... $(3,979,105) $(5,758,892) $(6,413,192) $(1,509,490) $(2,361,260) $(24,708,639)
=========== =========== =========== =========== =========== ============
Pro forma net loss per share
(unaudited)................ $ (0.90) $ (0.29)
=========== ===========
Shares used in computing pro
forma net loss per share
(unaudited)................ 7,148,593 8,195,603
</TABLE>
See accompanying notes.
F-4
<PAGE> 72
DIATIDE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FEBRUARY 6, 1990 (DATE OF INCEPTION) TO DECEMBER 31, 1995 AND THE
PERIOD JANUARY 1, 1996 TO MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
-----------------------------------------------------------
SERIES A SERIES B SERIES C
--------------------- --------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Sale of preferred stock for cash, April and September
1990 (net of issuance costs of $7,000).............. 2,000,000 $ 20,000 -- $ -- --
Sale of common stock for cash, September and December
1990................................................
Net loss.............................................
--------- -------- --------- -------- ---------
Balance at December 31, 1990......................... 2,000,000 20,000 -- -- --
Sale of common stock for cash, May, July, August,
September and November 1991.........................
Sale of preferred stock for cash, December 1991 (net
of issuance costs of $31,300)....................... 1,861,514 18,615
Conversion of convertible notes and accrued interest
to preferred stock, December 1991................... 688,505 6,885
Net loss.............................................
--------- -------- --------- -------- ---------
Balance at December 31, 1991......................... 2,000,000 20,000 2,550,019 25,500 --
Sale of preferred stock for cash, January 1992....... 52,200 522
Issuance of common stock through exercise of stock
options.............................................
Net loss.............................................
--------- -------- --------- -------- ---------
Balance at December 31, 1992......................... 2,000,000 20,000 2,602,219 26,022 --
Sale of preferred stock for cash, November 1993 (net
of issuance costs of $234,268)...................... 3,669,944
Conversion of convertible notes and accrued interest
to preferred stock, November 1993................... 772,199
Issuance of common stock through exercise of stock
options.............................................
Repurchase of common stock, at cost..................
Net loss.............................................
--------- -------- --------- -------- ---------
Balance at December 31, 1993......................... 2,000,000 20,000 2,602,219 26,022 4,442,143
Sale of preferred stock for cash, January 1994....... 147,512
Issuance of common stock through exercise of stock
options.............................................
Net loss.............................................
--------- -------- --------- -------- ---------
Balance at December 31, 1994......................... 2,000,000 20,000 2,602,219 26,022 4,589,655
Sale of preferred stock for cash, May 1995 (net, of
issuance costs of $17,449)..........................
Sale of preferred stock for cash, August 1995 (net of
issuance costs of $268,740).........................
Issuance of common stock through exercise of stock
options.............................................
Deferred compensation associated with stock option
grants..............................................
Amortization of deferred compensation................
Net loss.............................................
--------- -------- --------- -------- ---------
Balance at December 31, 1995......................... 2,000,000 20,000 2,602,219 26,022 4,589,655
--------- -------- --------- -------- ---------
Amortization of deferred compensation (unaudited)....
Net loss (unaudited).................................
--------- -------- --------- -------- ---------
Balance at March 31, 1996 (unaudited)................ 2,000,000 $ 20,000 2,602,219 $ 26,022 4,589,655
========= ======= ========= ======= =========
<CAPTION>
SERIES D SERIES E
------------------ ---------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- -------- ------ --------- --------
<S> <C> <C> <C> <C> <C>
Sale of preferred stock for cash, April and September
1990 (net of issuance costs of $7,000).............. $ -- -- $ -- -- $ --
Sale of common stock for cash, September and December
1990................................................
Net loss.............................................
-------- -------- ------ --------- --------
Balance at December 31, 1990......................... -- -- -- --
Sale of common stock for cash, May, July, August,
September and November 1991.........................
Sale of preferred stock for cash, December 1991 (net
of issuance costs of $31,300).......................
Conversion of convertible notes and accrued interest
to preferred stock, December 1991...................
Net loss.............................................
-------- -------- ------ --------- --------
Balance at December 31, 1991......................... -- -- -- -- --
Sale of preferred stock for cash, January 1992.......
Issuance of common stock through exercise of stock
options.............................................
Net loss.............................................
-------- -------- ------ --------- --------
Balance at December 31, 1992......................... -- -- -- -- --
Sale of preferred stock for cash, November 1993 (net
of issuance costs of $234,268)...................... 36,699
Conversion of convertible notes and accrued interest
to preferred stock, November 1993................... 7,722
Issuance of common stock through exercise of stock
options.............................................
Repurchase of common stock, at cost..................
Net loss.............................................
-------- -------- ------ --------- --------
Balance at December 31, 1993......................... 44,421 -- -- -- --
Sale of preferred stock for cash, January 1994....... 1,476
Issuance of common stock through exercise of stock
options.............................................
Net loss.............................................
-------- -------- ------ --------- --------
Balance at December 31, 1994......................... 45,897 -- -- -- --
Sale of preferred stock for cash, May 1995 (net, of
issuance costs of $17,449).......................... 860,054 8,601
Sale of preferred stock for cash, August 1995 (net of
issuance costs of $268,740)......................... 2,500,000 25,000
Issuance of common stock through exercise of stock
options.............................................
Deferred compensation associated with stock option
grants..............................................
Amortization of deferred compensation................
Net loss.............................................
-------- -------- ------ --------- --------
Balance at December 31, 1995......................... 45,897 860,054 8,601 2,500,000 25,000
-------- -------- ------ --------- --------
Amortization of deferred compensation (unaudited)....
Net loss (unaudited).................................
-------- -------- ------ --------- --------
Balance at March 31, 1996 (unaudited)................ $ 45,897 860,054 $8,601 2,500,000 $ 25,000
======= ======= ====== ========= =======
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN DEFERRED
SHARES AMOUNT CAPITAL COMPENSATION
-------- ------ ----------- -------------
<S> <C> <C> <C> <C>
Sale of preferred stock for cash, April and September
1990 (net of issuance costs of $7,000).............. -- $ -- $ 1,973,000 $ --
Sale of common stock for cash, September and December
1990................................................ 224,142 224 1,502
Net loss.............................................
-------- ------ ----------- ------------
Balance at December 31, 1990......................... 224,142 224 1,974,502 --
Sale of common stock for cash, May, July, August,
September and November 1991......................... 190,393 190 1,260
Sale of preferred stock for cash, December 1991 (net
of issuance costs of $31,300)....................... 3,675,718
Conversion of convertible notes and accrued interest
to preferred stock, December 1991................... 1,367,520
Net loss.............................................
-------- ------ ----------- ------------
Balance at December 31, 1991......................... 414,535 414 7,019,000 --
Sale of preferred stock for cash, January 1992....... 103,878
Issuance of common stock through exercise of stock
options............................................. 2,400 3 797
Net loss.............................................
-------- ------ ----------- ------------
Balance at December 31, 1992......................... 416,935 417 7,123,675 --
Sale of preferred stock for cash, November 1993 (net
of issuance costs of $234,268)...................... 8,903,893
Conversion of convertible notes and accrued interest
to preferred stock, November 1993................... 1,922,775
Issuance of common stock through exercise of stock
options............................................. 30 10
Repurchase of common stock, at cost..................
Net loss.............................................
-------- ------ ----------- ------------
Balance at December 31, 1993......................... 416,965 417 17,950,353 --
Sale of preferred stock for cash, January 1994....... 367,305
Issuance of common stock through exercise of stock
options............................................. 48,300 48 16,052
Net loss.............................................
-------- ------ ----------- ------------
Balance at December 31, 1994......................... 465,265 465 18,333,710 --
Sale of preferred stock for cash, May 1995 (net, of
issuance costs of $17,449).......................... 3,414,166
Sale of preferred stock for cash, August 1995 (net of
issuance costs of $268,740)......................... 9,706,260
Issuance of common stock through exercise of stock
options............................................. 13,650 14 4,544
Deferred compensation associated with stock option
grants.............................................. 1,663,000 $(1,663,000)
Amortization of deferred compensation................ 44,000
Net loss.............................................
-------- ------ ----------- ------------
Balance at December 31, 1995......................... 478,915 479 33,121,680 (1,619,000)
-------- ------ ----------- ------------
Amortization of deferred compensation (unaudited).... 85,565
Net loss (unaudited).................................
-------- ------ ----------- ------------
Balance at March 31, 1996 (unaudited)................ 478,915 $ 479 $33,121,680 $(1,533,435)
======== ====== =========== ============
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT TREASURY STOCKHOLDERS'
STAGE STOCK EQUITY
------------ --------- -------------
<S> <C> <C> <C>
Sale of preferred stock for cash, April and September
1990 (net of issuance costs of $7,000).............. $ -- $ -- $ 1,993,000
Sale of common stock for cash, September and December
1990................................................ 1,726
Net loss............................................. (1,035,107) (1,035,107)
------------ ----- -----------
Balance at December 31, 1990......................... (1,035,107) -- 959,619
Sale of common stock for cash, May, July, August,
September and November 1991......................... 1,450
Sale of preferred stock for cash, December 1991 (net
of issuance costs of $31,300)....................... 3,694,333
Conversion of convertible notes and accrued interest
to preferred stock, December 1991................... 1,374,405
Net loss............................................. (1,812,256) (1,812,256)
------------ ----- -----------
Balance at December 31, 1991......................... (2,847,363) -- 4,217,551
Sale of preferred stock for cash, January 1992....... 104,400
Issuance of common stock through exercise of stock
options............................................. 800
Net loss............................................. (3,348,827) (3,348,827)
------------ ----- -----------
Balance at December 31, 1992......................... (6,196,190) 973,924
Sale of preferred stock for cash, November 1993 (net
of issuance costs of $234,268)...................... 8,940,592
Conversion of convertible notes and accrued interest
to preferred stock, November 1993................... 1,930,497
Issuance of common stock through exercise of stock
options............................................. 10
Repurchase of common stock, at cost.................. (24) (24)
Net loss............................................. (3,979,105) (3,979,105)
------------ ----- -----------
Balance at December 31, 1993......................... (10,175,295) (24) 7,865,894
Sale of preferred stock for cash, January 1994....... 368,781
Issuance of common stock through exercise of stock
options............................................. 16,100
Net loss............................................. (5,758,892) (5,758,892)
------------ ----- -----------
Balance at December 31, 1994......................... (15,934,187) (24) 2,491,883
Sale of preferred stock for cash, May 1995 (net, of
issuance costs of $17,449).......................... 3,422,767
Sale of preferred stock for cash, August 1995 (net of
issuance costs of $268,740)......................... 9,731,260
Issuance of common stock through exercise of stock
options............................................. 4,558
Deferred compensation associated with stock option
grants.............................................. --
Amortization of deferred compensation................ 44,000
Net loss............................................. (6,413,192) (6,413,192)
------------ ----- -----------
Balance at December 31, 1995......................... (22,347,379) (24) 9,281,276
------------ ----- -----------
Amortization of deferred compensation (unaudited).... 85,565
Net loss (unaudited)................................. (2,361,260) (2,361,260)
------------ ----- -----------
Balance at March 31, 1996 (unaudited)............... $(24,708,639) $ (24) $ 7,005,581
============ ===== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 73
DIATIDE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
PERIOD FROM
THREE MONTHS FEB. 6, 1990
YEAR ENDED ENDED (DATE OF
DECEMBER 31, MARCH 31, INCEPTION) TO
--------------------------------------- ------------------------- MARCH 31,
1993 1994 1995 1995 1996 1996
----------- ----------- ----------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................... $(3,979,105) $(5,758,892) $(6,413,192) $(1,509,490) $(2,361,260) $(24,708,639)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization.......... 145,022 207,886 374,677 84,691 84,599 1,006,152
Cancellation of accrued interest....... 81,508 -- -- -- -- 111,438
Amortization of deferred
compensation......................... -- -- 44,000 -- 85,565 129,565
Changes in operating assets and
liabilities:
Other current assets................. 13,361 9,857 (323,332) (23,834) 157,471 (273,703)
Other assets......................... 20,836 (4,046) (6,963) 2,037 6,809 (48,638)
Accounts payable and accrued
expenses........................... (17,511) 164,487 257,160 375,211 389,369 1,290,078
Deferred revenue..................... -- -- 166,666 -- (166,666) --
----------- ----------- ----------- ----------- ----------- ------------
Cash used in operating activities.......... (3,735,889) (5,380,708) (5,900,984) (1,071,385) (1,804,113) (22,493,747)
INVESTING ACTIVITIES
Additions to property and equipment........ (42,448) (708,583) (369,135) (97,997) (128,575) (1,874,405)
Purchases of marketable securities......... -- -- (4,493,345) -- (1,351,749) (5,845,094)
Sales of marketable securities............. -- -- 500,000 -- 3,405,000 3,905,000
----------- ----------- ----------- ----------- ----------- ------------
Cash used in investing activities.......... (42,448) (708,583) (4,362,480) (97,997) 1,924,676 (3,814,499)
FINANCING ACTIVITIES
Sale of preferred stock.................... 8,940,592 368,781 13,154,027 -- -- 28,255,133
Issuance of convertible notes.............. 2,163,989 -- -- -- -- 3,508,464
Repayment of convertible notes............. (315,000) -- -- -- -- (315,000)
Issuance of long-term debt................. -- 500,000 -- -- -- 900,518
Repayment of long-term debt................ (101,856) (83,109) (256,901) (49,152) (52,693) (649,639)
Sale of common stock....................... 10 16,100 4,558 -- -- 24,644
Repurchase of common stock................. (24) -- -- -- -- (24)
Capitalized financing costs................ -- -- (263,783) -- (195,283) (459,066)
----------- ----------- ----------- ----------- ----------- ------------
Cash provided by (used in) financing
activities............................... 10,687,711 801,772 12,637,901 (49,152) (247,976) 31,265,030
----------- ----------- ----------- ----------- ----------- ------------
Net (decrease) increase in cash and cash
equivalents.............................. 6,909,374 (5,287,519) 2,374,437 (1,218,534) (127,413) 4,956,784
Cash and cash equivalents at beginning
of period................................ 1,087,905 7,997,279 2,709,760 2,709,760 5,084,197 --
----------- ----------- ----------- ----------- ----------- ------------
Cash and cash equivalents at end of
period................................... $ 7,997,279 $ 2,709,760 $ 5,084,197 $ 1,491,226 $ 4,956,784 $ 4,956,784
=========== =========== =========== =========== =========== ============
Noncash transactions:
Conversion of convertible notes and
accrued interest to preferred
stock................................ $ 1,930,497 $ -- $ -- $ -- $ -- $ 3,304,902
Deferred compensation associated with
stock options issued at less than
fair value........................... $ -- $ -- $ 1,663,000 $ -- $ -- $ 1,663,000
</TABLE>
See accompanying notes.
F-6
<PAGE> 74
DIATIDE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. NATURE OF BUSINESS AND ORGANIZATION
Diatide, Inc. (the "Company") was founded in February 1990 and is a
development stage company engaged in the discovery and development of
proprietary radiopharmaceuticals for use in nuclear medicine imaging procedures.
Since inception, principal activities have been to develop business plans,
obtain financing, perform research and development, and recruit and train
personnel. Accordingly, the ultimate completion of the Company's planned
operations is contingent upon the successful completion of technology
development, obtaining financing and, ultimately, achieving profitable
operations. Effective January 26, 1996, the Company changed its name from
Diatech, Inc. to Diatide, Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
All common share amounts and per share dollar amounts have been adjusted
for all periods presented to reflect the effect of the anticipated 6-for-10
reverse stock split to be effective prior to the effective date of the Company's
initial public offering.
All convertible preferred share amounts and per share dollar amounts have
not been adjusted to reflect the conversion of the convertible preferred shares
and the effect of the anticipated 6-for-10 reverse common stock split to be
effective prior to the effective date of the Company's initial public offering.
Interim Financial Statements (unaudited)
The balance sheet at March 31, 1996, the statements of operations and
statements of cash flows for the three months ended March 31, 1995 and 1996 and
the period from February 6, 1990 (date of inception) to March 31, 1996, and the
statement of stockholders' equity for the three months ended March 31, 1996 are
unaudited, but, in the opinion of management, 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 months ended March 31,
1996 are not necessarily indicative of results to be expected for the entire
year.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents. Substantially all cash
and cash equivalents at December 31, 1994 and 1995 are invested in money market
investment accounts, short-term government-backed securities, or commercial
paper. These cash and cash equivalents are maintained with high credit quality
financial institutions.
Marketable Securities
The Company adopted Financial Accounting Standards Board Statement No. 115
(FAS 115), "Accounting for Certain Investments in Debt and Equity Securities,"
effective January 1, 1994. The Company's marketable securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with unrealized gains and losses, if any, reported in a separate component of
stockholders' equity.
At December 31, 1995, marketable securities included in cash and cash
equivalents consisted of a single cash management investment fund with a fair
value of $4,969,950. At December 31, 1994, marketable securities, included in
cash and cash equivalents, consisted of two investments in
F-7
<PAGE> 75
DIATIDE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
commercial paper with a fair value of $992,413 and a single cash management
investment fund with a fair value of $989,013. At December 31, 1995, marketable
securities, with a fair value of $3,993,345, consisted of commercial paper with
original maturities of less than a year but greater than three months. The
balance was comprised of four investments ranging in amounts between
approximately $500,000 and $1,250,000.
The fair value of these investments approximates their cost, and therefore,
there are no unrealized gains or losses as of December 31, 1994 and 1995.
Property and Equipment
Property and equipment are stated at cost and are being depreciated using
the straight-line method over the estimated useful lives of three to five years.
Leasehold improvements are stated at cost and are being amortized over the
lesser of the term of the lease or estimated useful life of the asset.
Capitalized Financing Costs
In connection with a pending initial public offering of the Company's
common stock, the Company has capitalized certain professional fees and other
costs related to this offering. These costs will be offset against the proceeds
of the initial public offering upon its completion. If the offering is not
consummated, these amounts will be charged to the results of operations at that
time.
Income Taxes
In fiscal year 1993, the Company adopted Financial Accounting Standards
Board Statement No. 109 (FAS 109), "Accounting for Income Taxes". The adoption
of FAS 109 did not have a material effect on the Company's financial statements.
Under FAS 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
the differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted rates and laws that will be in
effect when the differences are expected to be reversed.
Revenue Recognition
Revenues from license fees are recognized as the fees are earned based upon
the occurrence of certain events or the achievement of specified milestones in
accordance with the underlying license arrangements. Revenues from research
grants are recognized as reimbursable expenses are incurred. Revenue from
sponsored research is recognized ratably over the term of the underlying
research arrangement. For collaborative arrangements which include both revenue
received from license fees and sponsored research and funds received associated
with the purchase of the Company's equity, the Company accounts for the
respective revenue and equity components in accordance with the substance of the
underlying agreements. The Company accounts for the equity component based on
the estimated fair value of the Company's securities issued at the date upon
which the Company reached agreement on the significant terms of the respective
agreements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
The carrying amounts reported in the Company's balance sheets for other
current assets and long-term debt approximate their fair value. The fair values
of the Company's long-term debt are estimated
F-8
<PAGE> 76
DIATIDE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
using discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which establishes criteria for the recognition and measurement of impairment
loss associated with long-lived assets. The Company will be required to adopt
this standard in the first quarter of 1996. Based on the Company's initial
evaluation, adoption is not expected to have a material impact on the Company's
financial position or results of operation.
In October 1995, the FASB issued Statement of Financial Accounting Standard
No. 123, "Accounting for Stock-Based Compensation," (FAS 123) which prescribes
the accounting and reporting standards for all stock-based compensation plans,
including employee stock options, restricted stock, employee stock purchase
plans and stock appreciation rights. Under FAS 123, companies are encouraged,
but not required, to adopt the fair value method of accounting for such plans.
Companies can elect to continue to follow the intrinsic value method of
accounting under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25). If APB 25 is followed, companies are
required to disclose pro forma information regarding net income and earnings per
share as if the company had accounted for its stock-based compensation plans
under the fair value method under FAS 123. The Company will be required to adopt
FAS 123 in 1996. The Company has not yet determined which method of accounting
it will apply under FAS 123, and, therefore, the impact on the Company's
financial position or results of operations, if any, has not been determined.
Pro Forma Net Loss Per Share (unaudited)
Pro forma net loss per share for the year ended December 31, 1995 and the
three months ended March 31, 1996 (unaudited) is computed using the weighted
average number of outstanding shares of Common Stock and Common Stock
equivalents, assuming the conversion of Series A, B, C, D and E Convertible
Preferred Stock into common shares (as of their original date of issuance),
which will occur upon completion of the initial public offering, as contemplated
herein, and the exercise of stock options and warrants (using the treasury stock
method). Common Stock equivalent shares are excluded from the computation if
their effect is anti-dilutive; however, pursuant to the requirements of the
Securities and Exchange Commission, common shares issued by the Company and
common equivalent shares relating to stock options (using the treasury stock
method and the mid-point of the initial public offering range) 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
since such amounts are not deemed meaningful due to the significant change in
the Company's capital structure that will occur in connection with this
offering.
The common share amounts and per share dollar amounts have been adjusted
for all periods presented to reflect the effect of the anticipated 6-for-10
reverse stock split to be effective prior to the effective date of the Company's
initial public offering.
F-9
<PAGE> 77
DIATIDE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
Accounts payable and accrued expenses consist of the following at December
31:
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Accounts payable..................................................... $294,144 $473,272
Accrued research and development expenses............................ 77,000 155,000
Accrued license fees................................................. 90,000 --
Accrued professional fees............................................ 52,307 86,000
Accrued vacation..................................................... 35,700 70,000
Accrued bonus........................................................ 30,659 31,417
Accrued moving and relocation expenses............................... 17,600 18,000
Accrued other........................................................ 46,139 67,020
-------- --------
$643,549 $900,709
======== ========
</TABLE>
4. LONG-TERM DEBT
<TABLE>
Long-term debt consists of the following at December 31:
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Term loan payable to a bank in monthly installments of $17,857 plus
interest, beginning January 1995 through April 1997................ $500,000 $303,572
Term loan payable to a bank in monthly installments of $6,719 plus
interest, beginning May 1993 through September 1995................ 60,473 --
-------- --------
560,473 303,572
Less current portion................................................. 274,759 214,286
-------- --------
$285,714 $ 89,286
======== ========
</TABLE>
The bank term loans above bear interest ranging from the prime rate (8.5%
at December 31, 1995) plus 2% to the prime rate plus 2.5%. The loans are secured
by all assets of the Company.
The term loan agreements contain various covenants which, among other
things, call for the maintenance of a specified minimum net worth, a maximum
total liabilities to net worth ratio, and a minimum liquidity ratio, as defined.
Aggregate maturities on long-term debt are as follows: 1996-$214,286 and
1997-$89,286. Cash paid for interest was approximately $26,000 in 1993, $9,000
in 1994 and $43,000 in 1995.
5. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
The Series A, Series B, Series C, Series D and Series E Convertible
Preferred Stock (collectively, the "Convertible Preferred Stock") may be
converted into the Company's Common Stock on a 6-for-10 basis, adjusted for
certain events. The Convertible Preferred Stock automatically converts in the
event of a public offering of the Company's common stock at an initial public
offering price of not less than $10 per share (post reverse stock split), in
which gross proceeds to the Company exceed $15,000,000. Holders of Convertible
Preferred Stock are entitled to voting rights and dividends, when declared by
the Board of Directors, on a per share basis computed as the number of
equivalent shares of common stock. Series A holders are entitled to priority
liquidation rights of an amount equal to $1 per share, as adjusted for certain
events, plus $0.08 per share on the first anniversary of the Series A issue date
(April 19, 1990), plus $0.10 per share on each subsequent anniversary date.
Series B holders are entitled to priority liquidation rights of an amount equal
to $2 per share, as adjusted for certain events,
F-10
<PAGE> 78
DIATIDE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
plus $0.07 per share on the second anniversary of the Series A issue date, plus
$0.20 per share on each subsequent anniversary date. Series C holders are
entitled to priority liquidation rights of an amount equal to $5 per share, as
adjusted for certain events, plus $0.22 per share on the fourth anniversary of
the Series A issue date, plus $0.50 per share on each subsequent anniversary
date. Series D holders are entitled to liquidation rights, after Series A, B and
C holders have been satisfied at an amount equal to $4 per share, as adjusted
for certain events, plus $0.38 per share on the sixth anniversary of the Series
A issue date, plus $0.40 per share on each subsequent anniversary date. The
Series E holder is entitled to liquidation rights, after Series A, B, C and D
holders have been satisfied, at an amount equal to $4 per share plus any accrued
but unpaid dividends. Any accrued but unpaid dividends are added to the
liquidation amounts for Series A, Series B, Series C, Series D and Series E
holders.
Common Stock
Common stockholders are entitled to one vote per share and to dividends
when declared by the Board of Directors, subject to the preferential rights of
preferred stockholders.
The Company has issued restricted shares of common stock to certain
employees and consultants, at prices equal to the then fair market value as
determined by the Board of Directors. These shares of common stock are
restricted by terms of stock vesting agreements, in which the shares generally
vest at a rate of 20% per year. Upon termination of the services of the employee
or consultant, the Company has the right to repurchase any unvested shares at
the original purchase price of the shares. At December 31, 1995, there were
409,735 vested and 3,867 unvested shares pursuant to these agreements.
Stock Purchase Warrants
In November 1991, the Company issued warrants for 120,000 shares of common
stock to holders of the then outstanding 6.75% convertible subordinated notes.
Each warrant allows the holder to purchase one share of common stock at $3.33,
subject to adjustment. The warrants expire on November 11, 1996.
In August 1992, the Company issued a warrant to purchase 8,888 shares of
Series B convertible preferred stock, at a price of $2.25 per share, subject to
certain adjustments. The warrant expires on August 19, 1997.
Stock Option Agreement
In October 1991, the Company granted a common stockholder and consultant an
option to purchase 27,225 shares of Series A Convertible Preferred Stock at a
price of $1.13 per share. The shares subject to the option are exercisable at a
rate of 20% per year, beginning on October 2, 1992. The entire option can be
exercised on or after October 2, 1996. In 1993, this consultant's relationship
with the Company was terminated. The option agreement was amended to give the
consultant the right to exercise his options exercisable at such date within
three years of the date of termination, which was September 28, 1993.
Stock Option Plan
In April 1992, the Board of Directors established the 1992 Stock Option
Plan (the "Plan"). The Plan provides for the issuance or award of incentive and
nonqualified stock options at prices to be determined by the Board of Directors.
The total shares reserved for issuance under the Plan is 720,000. All employees
and, in the case of awards other than incentive stock options, directors and
consultants to the Company are eligible for awards under the Plan. The term of
all stock options granted may not exceed ten years.
F-11
<PAGE> 79
DIATIDE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
A summary of stock option activity follows:
<CAPTION>
NUMBER OPTION
OF SHARES PRICE
--------- ------------
<S> <C> <C>
Balance at December 31, 1991....................................... --
Granted....................................................... 316,897 $ 0.33
Exercised..................................................... (2,400) 0.33
--------- ------------
Balance at December 31, 1992....................................... 314,497 0.33
Granted....................................................... 48,060 0.33
Exercised..................................................... (30) 0.33
Cancelled..................................................... (180) 0.33
--------- ------------
Balance at December 31, 1993....................................... 362,347 0.33
Granted....................................................... 197,250 0.42
Exercised..................................................... (48,300) 0.33
Cancelled..................................................... (36,900) 0.33
--------- ------------
Balance at December 31, 1994....................................... 474,397 0.33 - 0.42
Granted....................................................... 202,710 0.42 - 9.33
Exercised..................................................... (13,650) 0.33 - 0.42
Cancelled..................................................... (36,210) 0.33 - 0.67
--------- ------------
Balance at December 31, 1995....................................... 627,247 0.33 - 9.33
Granted....................................................... 1,560 9.33
Exercised..................................................... -- --
Cancelled..................................................... -- --
--------- ------------
Balance at March 31, 1996.......................................... 628,807 $0.33 - 9.33
========= ===========
</TABLE>
From August 1995 through December 1995, the Company issued stock options to
purchase shares of common stock at exercise prices ranging from $1.33 to $9.33
per share. The Company recorded an increase to additional paid-in-capital and a
corresponding charge to deferred compensation in the amount of $1,663,000 to
recognize the aggregate difference between the deemed fair value for accounting
purposes of the stock options at the date of grant and the option exercise
price. The deferred compensation is being amortized over the option vesting
period. Amortization expense of $44,000 was recorded in 1995 and $85,565 in the
three months ended March 31, 1996.
At March 31, 1996, 26,813 options were available for grant and 265,213
options were exercisable under the Plan.
Reserved Shares
At March 31, 1996, there were 8,328,445 shares of common stock reserved for
issuance upon conversion of Series A, Series B, Series C, Series D and Series E
Convertible Preferred Stock, exercise of Series A options, Series B warrants and
exercise of common stock options and warrants.
Board of Directors Actions
On January 25, 1996, the Company's Board of Directors approved a number of
actions including, among other things, the declaration of a 6-for-10 reverse
stock split of the Company's common stock, an increase in the number of
authorized shares of common stock to 50,000,000, an increase in the number of
shares of common stock available for grant under the 1992 Stock Option Plan to
2,000,000, and the adoption of the 1996 Employee Stock Purchase Plan and the
1996 Director Stock Option Plan. These actions are subject to stockholder
approval, however, the reverse stock split and the increase in authorized shares
of common stock are reflected in the accompanying financial statements.
F-12
<PAGE> 80
DIATIDE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1996 Director Stock Option Plan
In January 1996, the Company's Board of Directors adopted the 1996
Director Stock Option Plan (the "Director Plan"), which will become
effective upon the closing of an initial public offering of the Company's
common stock. Under the Director Plan, options to purchase 5,000 shares of
common stock will be granted to existing non-employee directors at the
closing of an initial public offering. Thereafter, options to purchase
5,000 shares of common stock will be granted to each new director upon his
or her initial election to the Board of Directors. Annual options to
purchase 2,500 shares of common stock will be granted to each non-employee
director on May 1 of each year commencing in 1997. The exercise price of
options granted under the Director Plan will be the fair market value of
the shares on the date of grant. All options will vest on the first
anniversary of the date of grant, although the exercisability of these
options will be accelerated upon the occurrence of a change of control of
the Company, as defined. A total of 250,000 shares of common stock will be
available for grant under the Director Plan.
1996 Employee Stock Purchase Plan
In January 1996, the Company's Board of Directors adopted the 1996
Employee Stock Purchase Plan (the "Purchase Plan"), which will become
effective upon the closing of an initial public offering of the Company's
common stock. All individuals employed a minimum of 20 hours per week and
five months in any calendar year will be eligible to participate in the
Purchase Plan. Shares will be issuable at the lessor of 85% of the fair
market value of the common stock on either the first or last day of a
designated payroll deduction period. A total of 500,000 shares of common
stock will be available for issuance under the Purchase Plan.
All share amounts noted above in connection with the January 1996 Board
actions reflect the effect of the anticipated 6-for-10 reverse stock split.
6. INCOME TAXES
At December 31, 1995, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $21.2 million and general business
credit carryforwards of approximately $814,000 which expire through 2010. The
future utilization of net operating loss and general business credit
carryforwards may be subject to limitation under the change in stock ownership
rules of the Internal Revenue Code. For financial reporting purposes, a
valuation allowance of $8,099,000 ($5,921,000 in 1994) has been recognized to
offset the deferred tax assets related to these carryforwards since uncertainty
exists with respect to future realization of such carryforwards.
F-13
<PAGE> 81
DIATIDE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the Company's deferred tax liabilities and
assets are as follows at December 31:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $ 5,220,000 $ 7,230,000
General business tax credits.................................. 680,000 814,000
Accrued expenses.............................................. 51,000 117,000
----------- -----------
Total deferred tax assets.................................. 5,951,000 8,161,000
Valuation allowance for deferred tax assets..................... (5,921,000) (8,099,000)
----------- -----------
Net deferred tax assets.................................... 30,000 62,000
Deferred tax liabilities:
Accelerated depreciation...................................... (30,000) (62,000)
----------- -----------
Total deferred tax liabilities............................. (30,000) (62,000)
----------- -----------
Net deferred tax liabilities and assets......................... $ -- $ --
=========== ===========
</TABLE>
7. LEASES
The Company leases its facility under an operating lease which calls for
base monthly rental payments plus a pro-rata share of common area maintenance
costs. The Company's current lease expires July 1996. The Company is currently
negotiating to extend the lease on its current facility, plus add additional
space.
Rent expense was approximately $46,000 in 1993, $41,000 in 1994 and $56,000
in 1995.
8. EMPLOYEE BENEFIT PLAN
During 1992, the Company established a defined contribution plan pursuant
to Section 401(k) of the Internal Revenue Code. The plan covers substantially
all employees of the Company and provides for discretionary Company
contributions. The amount expensed under the plan was $12,200 in 1993, $15,300
in 1994 and $37,200 in 1995.
9. NYCOMED AGREEMENTS
In August 1995, the Company and Nycomed Imaging AS (Nycomed), the Company's
Series E Convertible Preferred Stockholder, entered into a series of agreements
for multiple product development and joint marketing involving certain of the
Company's peptide-based imaging agents for nuclear medicine and giving Nycomed
the option for five years to an exclusive license for such products for Europe,
South Africa and certain countries in the Middle East, as well as an exclusive
co-promotion agreement for products in the United States. Under the terms of the
agreements, Nycomed will pay the Company over the five year term for research
and development support. In addition, Nycomed will pay option fees, milestone
fees for certain achievements and royalties on product sales. During 1995, the
Company received $1,278,388 under these agreements.
10. POTENTIAL CLAIM
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 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
F-14
<PAGE> 82
DIATIDE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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. The accompanying financial statements do not include any amounts
provided for this matter as the outcome cannot be determined at this time.
F-15
<PAGE> 83
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NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, SHARES OF
COMMON STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
The Company........................... 17
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Financial Data............... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 25
Management............................ 46
Certain Transactions.................. 56
Principal Stockholders................ 58
Description of Capital Stock.......... 61
Shares Eligible for Future Sale....... 63
Underwriting.......................... 65
Legal Matters......................... 66
Experts............................... 66
Additional Information................ 67
Index to Financial Statements......... F-1
</TABLE>
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UNTIL JULY 8, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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DIATIDE
---------------------
2,200,000 SHARES
COMMON STOCK
PROSPECTUS
JUNE 13, 1996
---------------------
DILLON, READ & CO. INC.
OPPENHEIMER & CO., INC.
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