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FILED PURSUANT TO RULE 424(B)(1)
REGISTRATION STATEMENT NO. 333-52081
PROSPECTUS
ARADIGM CORPORATION
1,111,100 SHARES OF COMMON STOCK
This Prospectus relates to up to 1,111,100 shares (the "Shares") of common
stock, no par value (the "Common Stock"), of Aradigm Corporation, a California
corporation ("Aradigm" or the "Company"), which may be offered for sale by
certain shareholders of the Company named in this Prospectus (the "Selling
Shareholders"). Such sales may be effected from time to time by the Selling
Shareholders through one or more underwriters, brokers, dealers or agents, and
directly to one or more purchasers, in one or more transactions on the Nasdaq
National Market pursuant to and in accordance with the rules of the Nasdaq
National Market, in negotiated transactions or otherwise, at prices related to
the prevailing market prices or at negotiated prices. The Company will not
receive any of the proceeds from the sale of the Shares by the Selling
Shareholders. See "Selling Shareholders" and "Plan of Distribution."
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "ARDM." On June 30, 1998 the last reported sale price for the Common
Stock of the Company as reported on the Nasdaq National Market was $13.563 per
share.
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THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Company will bear substantially all expenses of the offering of the
Shares, except that the Selling Shareholders will pay any applicable
underwriting fees, discounts or commissions and transfer taxes. Estimated
expenses payable by the Company in connection with this offering are estimated
to be $20,000. The aggregate proceeds to the Selling Shareholders from the
Common Stock will be the purchase price of the Common Stock sold less the
aggregate agents' commissions and underwriters' discounts, if any, and other
expenses of issuance and distribution not borne by the Company. See "Plan of
Distribution."
The Selling Shareholders and any agents, broker-dealers or underwriters
that participate in the distribution of the Common Stock may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and any commission received by them and any profit on the
resale of the Common Stock purchased by them may be deemed to be underwriting
discounts or commission under the Securities Act. The Company has agreed to
indemnify the Selling Shareholders and certain other persons against certain
liabilities, including liabilities under the Securities Act.
July 1, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the Commission's Public Reference Section located at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at 7 World Trade Center, Suite 1300, New York, New York, 10048, and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
also can be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
also makes electronic filings publicly available on the Internet. The
Commission's Internet address is http://www.sec.gov. The Commission's web site
also contains reports, proxy and information statements and other information
regarding the Company that has been filed with the Commission. The Common Stock
of the Company is quoted on the Nasdaq National Market. Reports, proxy
statements and other information concerning the Company may be inspected at the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
This Prospectus constitutes a part of a Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act, including
amendments thereto, (the "Registration Statement") relating to the Common Stock
offered hereby with the Commission. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted pursuant to the
rules and regulations of the Commission. Statements contained in this Prospectus
as to the contents of any contract or other document referred to are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement, or
otherwise filed with the Commission, each such statement being qualified in all
respects by such reference. The Registration Statement, including exhibits
thereto, may be inspected without charge at the Commission's principal office in
Washington, D.C., and copies of all or any part thereof may be obtained from the
Public Reference Section, Securities and Exchange Commission, Washington, D.C.,
20549, upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed with the Commission under the Exchange Act
are hereby incorporated by reference into this Prospectus:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, filed on or about March 24, 1998, as amended, including
all material incorporated by reference therein;
(b) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1998, including all material incorporated by reference
therein;
(c) The Company's Proxy Statement for its 1998 Annual Meeting of
Shareholders; and
(d) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in this Prospectus or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently-filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any and all of the documents
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that have been incorporated by reference herein (not including exhibits to such
documents, unless such exhibits are specifically incorporated by reference
herein or into such documents). Such request may be directed to: Investor
Relations Department, Aradigm Corporation, 26219 Eden Landing Road, Hayward,
California 94545, telephone number (510) 783-0100.
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THE COMPANY
Aradigm Corporation ("Aradigm" or the "Company") is engaged in the
development of novel pulmonary drug delivery systems designed to enhance the
delivery and effectiveness of a number of existing and development stage drugs
and reduce the need for injectable drug therapy. Aradigm's principal product
development programs are based on its AERx system, which uses proprietary
technologies to create aerosols from liquid drug formulations for delivery
systemically via the lung or locally to the lung. The Company believes that its
systems can potentially be used to deliver a number of existing drugs for a
variety of applications and may also offer a promising means of delivery for
many new drugs being developed by pharmaceutical and biotechnology companies.
The Company was incorporated in California in January 1991. The Company's
principal executive offices are located at 26219 Eden Landing Road, Hayward, CA
94545, and its telephone number is (510) 783-0100. For a more detailed
discussion of the business of the Company, see the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, which is incorporated by
reference herein.
Aradigm(TM), AERx(TM) and SmartMist(R) are trademarks of the Company. Trade
names and trademarks of other companies appearing in this Prospectus are the
property of their respective holders.
RECENT DEVELOPMENTS
In June 1998, the Company entered into a product development and
commercialization agreement with Novo Nordisk A/S ("Novo Nordisk") covering the
use of the AERx Diabetes Management System to deliver blood glucose regulating
medicines. The initial focus of the development will be on insulin and the
parties expect to evaluate at least one additional compound as a candidate for
clinical development. Under the terms of the agreement, Novo Nordisk has been
granted worldwide sales and marketing rights to the AERx Diabetes Management
System.
Pursuant to the Novo Nordisk agreement, Aradigm could receive up to $50
million in milestones and equity investments by the time the insulin product is
commercialized. Of these amounts, the Company to date has received $5 million
resulting from the purchase of Aradigm Common Stock by Novo Nordisk. Additional
milestone and product development payments will be paid if the Company and Novo
Nordisk decide to jointly develop additional AERx products incorporating blood
glucose regulating medicines. In addition, Novo Nordisk will fund all product
development costs incurred by the Company, while the Company and Novo Nordisk
will co-fund final development of the AERx device to be used in the system. The
Company will be the initial manufacturer of all the products covered by the
agreement, and will receive a share of the overall gross profits resulting from
Novo Nordisk's sales of the systems.
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RISK FACTORS
In addition to the other information in this Prospectus and in the
documents incorporated by reference herein, the following Risk Factors should be
carefully considered in evaluating the Company and its business before
purchasing the Common Stock offered by this Prospectus. Except for historical
information contained herein, the discussion in this section contains
forward-looking statements, including, without limitation, statements regarding
timing and results of clinical trials, the establishment of corporate partnering
arrangements, the anticipated commercial introduction of the Company's products
and the timing of the Company's cash requirements. These forward-looking
statements involve certain risks and uncertainties that could cause actual
results to differ materially from those in such forward-looking statements.
EARLY STAGE OF COMPANY
Aradigm, incorporated in January 1991, is in an early stage of development,
has a limited history of operations and has generated only limited revenues to
date. The Company has only one product, the SmartMist Respiratory Management
System, cleared for commercial sale, and virtually all of its potential products
are in an early stage of research or development. There can be no assurance that
the Company's research and development efforts will be successful, that any
potential products will be proven safe and effective, that regulatory clearance
or approval for the sale of any of its potential products will be obtained or
that the SmartMist system or any of the Company's potential products can be
manufactured in commercial quantities or at an acceptable cost or marketed
successfully.
HISTORY OF LOSSES; ANTICIPATED FUTURE LOSSES
The Company has not been profitable since inception and, through March 31,
1998, has incurred a cumulative deficit of approximately $39.6 million. The
Company expects to continue to incur substantial losses over at least the next
several years as the Company's research and development efforts, preclinical and
clinical testing activities, marketing and manufacturing scale-up efforts expand
and as the Company plans and builds its late stage clinical and early commercial
production capabilities. To achieve and sustain profitable operations, the
Company must successfully partner with third parties to market and sell the
SmartMist Respiratory Management System and develop, obtain regulatory approval
for, manufacture, introduce, and partner with third parties to market and sell
products utilizing the Company's AERx technologies. There can be no assurance
that the Company's partners can generate sufficient product revenue to become
profitable or to sustain profitability.
UNCERTAINTY OF SUCCESSFUL PRODUCT DEVELOPMENT
The Company's AERx systems are at an early stage of development and are
being tested using patient-operated prototypes. The AERx systems will require
substantial additional development, preclinical and clinical testing and
investment before they can be commercialized. To further develop its AERx
systems, the Company must address many engineering and design issues, including
ensuring that the device has the ability to deliver a reproducible amount of
drug into the bloodstream and can be manufactured successfully as a hand-held
system. No assurance can be made that the Company will be successful in
addressing these design, engineering and manufacturing issues. Additionally, the
Company may need to formulate and will need to package drugs for delivery by its
AERx systems. There can be no assurance that the Company will be able to
successfully formulate and package such drugs. The Company will need to
demonstrate that drugs delivered by its AERx systems remain safe and efficacious
and that over time and under differing storage conditions, such drugs will not
be subject to physical or chemical instability or other problems that would
prohibit the AERx systems from being commercially viable. While development
efforts are at different stages for different products, there can be no
assurance that the Company will be successful in any of its product development
efforts, or that the Company will not abandon some or all of its proposed
products. Failure by the Company to successfully develop its potential products
in a timely manner would have a material adverse effect on the Company.
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UNCERTAINTY OF SUCCESSFUL PRODUCT COMMERCIALIZATION
The Company's success in commercializing its products will be dependent
upon many factors, including acceptance by health care professionals and
patients. Acceptance of the Company's products will largely depend on
demonstrating that the Company's products are competitive with alternate
delivery systems with respect to safety, efficacy, ease of use and price. The
Company believes that market acceptance of its SmartMist system will depend
largely upon health care professionals and third-party payors determining that
the SmartMist system offers medical and economic benefits over existing asthma
therapies. In addition, the SmartMist system is specifically designed for the
canisters currently used by some of the leading manufacturers of MDIs. If, among
other things, manufacturers decide to change the dimensions of their canisters,
the Company could be adversely affected. Moreover, MDIs use chlorofluorocarbons
("CFCs") as a propellant for the medication. The Company is aware of initiatives
and international agreements to ban CFCs, which could have an adverse effect on
the Company. In order to commercialize the SmartMist system, the Company is
pursuing collaborations with pharmaceutical firms, disease management companies
and managed care organizations in order to develop the market for this product
and to realize its potential as a part of a broader pulmonary disease management
program. There can be no assurance that the SmartMist system or the Company's
products in development will prove competitive or that the Company will be
successful in taking products from their current state of development to
commercial introduction or success. Failure by the Company to successfully
commercialize its potential products in a timely manner would have a material
adverse effect on the Company.
DEPENDENCE UPON COLLABORATIVE PARTNERS AND NEED FOR ADDITIONAL COLLABORATIVE
PARTNERS
The Company's commercialization strategy is dependent on the Company's
ability to enter into agreements with collaborative partners. The Company's
ability to successfully develop and commercialize its first AERx system, the
AERx Pain Management System, is dependent on the Company's corporate partnership
with SmithKline Beecham. SmithKline Beecham has agreed to undertake certain
collaborative activities with the Company, fund research and development
activities with the Company, make certain payments to the Company upon
achievement of certain milestones and pay royalties to the Company if and when a
product is commercialized. If SmithKline Beecham fails to conduct these
collaborative activities in a timely manner or at all, the preclinical or
clinical development or commercialization of the AERx Pain Management System
will be delayed. In addition, the agreement may be terminated by SmithKline
Beecham and there can be no assurance that development and milestone payments
will be received. Should the Company fail to receive development funds or
achieve milestones set forth in the agreement, or should SmithKline Beecham
breach or terminate the agreement, the Company's business, financial condition
and results of operations would be materially adversely affected.
The Company will need to enter into additional agreements with corporate
partners to conduct the clinical trials, manufacturing, marketing and sales
necessary to commercialize its other potential products. In addition, the
Company's ability to apply the AERx system to any proprietary drugs, including
new drugs, biotechnology drugs or established drugs in proprietary formulations,
will depend on the Company's ability to establish and maintain corporate
partnerships or other collaborative arrangements with the holders of proprietary
rights to such drugs. There can be no assurance that the Company will be able to
establish such additional corporate partnerships or collaborative arrangements
on favorable terms or at all, or that its existing or any future corporate
partnerships or collaborative arrangements will be successful. In addition,
there can be no assurance that existing or future corporate partners or
collaborators will not pursue alternative technologies or develop alternative
products either on their own or in collaboration with others, including the
Company's competitors. There can be no assurance that disputes will not arise in
the future with the Company's existing or future corporate partners or
collaborators, and any such disagreements could lead to delays in the research,
development or commercialization of any potential products or result in
litigation or arbitration which would be time consuming and expensive. Should
any corporate partner or collaborator fail to develop or commercialize
successfully any product to which it has obtained rights from the Company, the
Company's business, financial condition and results of operations may be
materially adversely affected.
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LIMITED MANUFACTURING EXPERIENCE
The Company has only limited experience in manufacturing. In the event the
SmartMist system achieves market acceptance, the Company will need to further
increase its current manufacturing capacity or enter into an agreement with a
collaborative partner to provide such manufacturing capacity. In addition, the
Company is in the process of increasing the production of disposable drug
packets for the AERx system for later stage clinical trials. The Company
anticipates making significant expenditures to attempt to provide for the high
volume manufacturing required for multiple AERx products, if such products are
successfully developed. There can be no assurance that manufacturing and quality
control problems will not arise as the Company attempts to scale-up, or that any
such scale-up can be achieved in a timely manner or at a commercially reasonable
cost. Any failure to surmount such problems could delay or prevent late stage
clinical testing and commercialization of the Company's products. The Company's
manufacturing facilities and those of its contract manufacturers will be subject
to periodic regulatory inspections by the FDA and other federal and state
regulatory agencies and such facilities must comply with the good manufacturing
practice ("GMP") requirements of the FDA, which outline the appropriate
practices for methods used in, and the facilities and controls used for, the
manufacture, packaging and storage of all finished devices intended for human
use. The Company is also subject to the Medical Device Reporting regulations,
which provide mechanisms for the FDA and manufacturers to identify and monitor
significant adverse events involving medical devices such that problems may be
detected and corrected in a timely manner. These regulations require the Company
to, among other things, report adverse device-related events, submit annual
baseline reports to the FDA using specified forms, and certify, on an annual
basis, the number of medical device reports submitted to the FDA using
prescribed FDA forms. Further, the Reports of Corrections and Removals require a
manufacturer of a device to establish procedures for implementing the reports of
corrections and removals provisions of the Safe Medical Devices Act of 1990.
Under this regulation, a manufacturer must promptly report to the FDA any
corrections or removals of a device undertaken to reduce a health risk posed by
the device or to remedy a violation of the Federal Food, Drug and Cosmetic Act.
There can be no assurance the Company will satisfy such regulatory requirements
and any failure to satisfy GMP and other requirements could have a material
adverse effect on the Company.
The Company uses contract manufacturers to produce key components,
assemblies and subassemblies for its SmartMist devices and intends to use
contract manufacturers in a similar way in connection with clinical and
commercial manufacturing of its AERx devices. There can be no assurance that
Aradigm will be able to enter into or maintain satisfactory contract
manufacturing arrangements. Certain components of Aradigm's current and
potential products are or will be available initially only from single sources.
While the Company has contingency plans for alternate suppliers, there can be no
assurance that the Company could find alternate suppliers for such components.
Even if new suppliers are secured, there can be no assurance that this would not
significantly reduce or eliminate the Company's ability to supply product during
any transition. A delay of or interruption in production could have a material
adverse effect on the Company's business, financial condition and results of
operations.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's operations to date have consumed substantial and increasing
amounts of cash. The negative cash flow from operations is expected to continue
in the foreseeable future. The development of the Company's technology and
proposed products will require a commitment of substantial funds. In addition,
costly and time-consuming research and preclinical and clinical testing
activities must be conducted to develop, refine and commercialize such
technology and proposed products. The Company's future capital requirements will
depend on many factors, including continued progress in the research and
development of the Company's technology and drug delivery systems, the ability
of the Company to establish and maintain favorable collaborative arrangements
with others, progress with preclinical studies and clinical trials, the time and
costs involved in obtaining regulatory approvals, the cost of development and
the rate of scale-up of the Company's production technologies, the cost involved
in preparing, filing, prosecuting, maintaining and enforcing patent claims and
the need to acquire licenses or other rights to new technology.
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The Company has financed its operations since inception primarily through
$42.3 million in private placements and $24.7 million in public offerings of its
capital stock, $7.4 million in contract research revenue, $3.3 million in
proceeds from financings of equipment acquisitions, and $3.1 million in interest
earned on investments. The Company anticipates that its existing resources,
anticipated payments from its existing corporate partners and projected interest
income, will enable the Company to maintain its current and planned operations
through 1998. However, there can be no assurance that the Company will not need
to raise substantial additional capital to fund its operations prior to such
time. There can be no assurance that additional financing will be available on
acceptable terms or at all. If additional funds are raised by issuing equity
securities, substantial dilution to shareholders may result. If adequate funds
are not available, the Company may be required to delay, reduce the scope of, or
eliminate one or more of its research or 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 that the Company would not otherwise relinquish.
DEPENDENCE UPON PROPRIETARY TECHNOLOGY; UNCERTAINTY OF PATENTS AND PROPRIETARY
TECHNOLOGY
The field of aerosolized drug delivery is crowded and a substantial number
of patents have been issued in this field. Competitors and institutions may have
applied for other patents and may obtain additional patents and proprietary
rights relating to products or processes competitive with those of the Company.
Patents or other publications may hinder or prevent the Company from obtaining
patent protection being sought or draw into question the validity of patents
already issued to the Company. In addition, patents issued to others might
provide competitors with the ability to prevent the Company from making its
products or carrying out processes necessary for use of its products. The
Company may not be able to obtain a license under any such patent and may
thereby be prevented from making products or carrying out processes which are
important or essential to the business of the Company. Although issued patents
are presumed valid under federal law, none of the patents of the Company has
been challenged in litigation. There can be no assurance that any of such
patents will be found valid if challenged. There also can be no assurance that
any of the applications will issue or if issued will later be found valid if
challenged. Further, there can be no assurance that any issued patents or
applications which might later issue as patents will provide the Company with a
degree of market exclusivity sufficient for the Company to profitably compete
against its competitors. Pending United States applications are maintained in
secret until they are issued as patents and as such can not be searched by the
Company. There may be pending applications which will later issue as patents
which will create infringement issues for the Company. Further, patents already
issued to the Company or applications of the Company which are pending may
become involved in interferences that could be resolved in favor of competitors
of the Company and involve the expenditure of substantial financial and human
resources of the Company.
Company policy is to require its officers, employees, consultants and
advisors to execute proprietary information and invention assignment agreements
upon commencement of their relationships with the Company. There can be no
assurance, however, that these agreements will provide meaningful protection for
the Company's inventions, trade secrets or other proprietary information in the
event of unauthorized use or disclosure of such information. Violations of such
agreements are difficult to police.
GOVERNMENT REGULATION; UNCERTAINTY WITH PRECLINICAL AND CLINICAL TESTING
All medical devices and new drugs, including the Company's products under
development, are subject to extensive and rigorous regulation by the federal
government, principally the FDA, and by state and local governments. Such
regulations govern the development, testing, manufacture, labeling, storage,
premarket clearance or approval, advertising, promotion, sale and distribution
of such products. If medical devices or drug products are marketed abroad, they
also are subject to regulation by foreign governments.
The regulatory process for obtaining FDA premarket clearances or approvals
for medical devices and drug products is generally lengthy, expensive and
uncertain. Securing FDA marketing clearances and approvals often requires the
submission of extensive clinical data and supporting information to the FDA.
Product clearances and approvals, if granted, can be withdrawn for failure to
comply with regulatory requirements or upon the occurrence of unforeseen
problems following initial marketing.
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There can be no assurance that the Company will be able to obtain necessary
regulatory clearances or approvals on a timely basis, if at all, for any of its
products under development, and delays in receipt or failure to receive such
clearances or approvals or failure to comply with existing or future regulatory
requirements could have a material adverse effect on the Company. Moreover,
regulatory clearances or approvals for products such as medical devices and new
drugs, even if granted, may include significant limitations on the uses for
which such products may be marketed. Certain changes to marketed medical devices
and new drugs are subject to additional FDA review and clearance or approval.
There can be no assurance that any clearances or approvals that are required,
once obtained, will not be withdrawn or that compliance with other regulatory
requirements can be maintained. Further, failure to comply with applicable FDA
and other regulatory requirements can result in sanctions being imposed on the
Company or the manufacturers of its products, including warning letters, fines,
product recalls or seizures, injunctions, refusals to permit products to be
imported into or exported out of the United States, refusals of FDA to grant
premarket clearance or premarket approval of medical devices and drugs or to
allow the Company to enter into government supply contracts, withdrawals of
previously approved marketing applications and criminal prosecutions.
The Company received 510(k) clearance from the FDA in 1996 for the
SmartMist system. The Company has made modifications to the SmartMist system
since receiving clearance, which the Company believes do not require the
submission of new 510(k) notifications to the FDA. There can be no assurance,
however, that the FDA would agree with any of the Company's determinations not
to submit a new 510(k) notice for any of these changes or would not require the
Company to submit a new 510(k) notice for any of the changes made to the device.
If the FDA requires the Company to submit a new 510(k) notice for any
modification to the SmartMist system, the Company and any potential partners may
be prohibited from marketing the modified device until the 510(k) notice is
cleared by the FDA, which could have a material adverse effect on the Company.
The Company may also be subject to certain user fees that the FDA is
authorized to collect under the Prescription Drug User Fees Act of 1992 for
certain drugs, including insulin and morphine. This act expired on September 30,
1997, and legislation to reauthorize it has been passed by the House and Senate.
It must be reconciled in a House-Senate conference and signed by the President
to become law.
Before the Company can file for regulatory approvals for the commercial
sale of the Company's potential AERx products, the FDA will require extensive
preclinical and clinical testing to demonstrate the safety and efficacy of such
potential products. To date, the Company has tested an early prototype
patient-operated version of the AERx Pain Management System with morphine on a
limited number of healthy volunteers in Phase I and Phase II clinical trials in
the United States. Failure of the Company to complete or progress to more
advanced clinical trials would have a material adverse effect on the Company.
There can be no assurance that the Company will be able to manufacture
sufficient quantifies of the disposable unit-dose packets to support any future
clinical trials of the AERx system, or that the design requirements of the AERx
system will make it feasible for development beyond the prototype currently
being used.
The timing of completion of clinical trials is dependent upon, among other
factors, the enrollment of patients. Patient recruitment is a function of many
factors, including the size of the patient population, the proximity of patients
to clinical sites, the eligibility criteria for the study and the existence of
competitive clinical trials. Delays in planned patient enrollment in the
Company's current trials or future clinical trials may result in increased
costs, program delays or both, which could have a material adverse effect on the
Company.
The Company also is developing applications of its AERx system for the
delivery of insulin and other compounds. These applications are in an early
stage of development and the regulatory requirements associated with obtaining
the necessary marketing approvals from the FDA and other regulatory agencies are
not known. There can be no assurance that these applications of the AERx system
will prove to be viable or that any necessary regulatory approvals will be
obtained in a timely manner, if at all. Although the Company believes the data
regarding the Company's potential products is encouraging, the results of
initial preclinical and clinical testing of the products under development by
the Company are not necessarily predictive of results that will be obtained from
subsequent or more extensive preclinical and clinical testing. Furthermore,
there can be no assurance that clinical trials of products under development
will demonstrate the safety and
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efficacy of such products at all or to the extent necessary to obtain regulatory
approvals. Companies in the medical device, pharmaceutical and biotechnology
industries have suffered significant setbacks in advanced clinical trials, even
after promising results in earlier trials. The failure to demonstrate adequately
the safety and efficacy of a therapeutic product under development could delay
or prevent regulatory approval of the product and would have a material adverse
effect on the Company.
In addition, due to limited experience with chronic administration of drugs
delivered via the lung for systemic effect, the FDA may require clinical data to
demonstrate that such chronic administration is safe. There can be no assurance
that the Company will be able to present such data in a timely manner, or at
all.
The FDA and other regulatory agency requirements for manufacturing, product
testing and marketing can vary depending upon whether the product is a medical
device or a drug. Manufacturers of medical devices and drugs also are required
to comply with the applicable GMP requirements, which relate to product testing
and quality assurance as well as the corresponding maintenance of records and
documentation. There can be no assurance that the Company will be able to comply
with the applicable GMP and other FDA regulatory requirements as it scales up
its manufacturing operations. Such failure could have a material adverse effect
on the Company.
In addition, in order for the Company to market its products in Europe and
in certain other foreign jurisdictions, the Company and its distributors and
agents must obtain required regulatory approvals and clearances and otherwise
comply with extensive regulations regarding safety and quality. These
regulations, including the requirements for approvals or clearance to market and
the time required for regulatory review, vary from country to country. There can
be no assurance that the Company will obtain regulatory approvals in such
countries or that it will not be required to incur significant costs in
obtaining or maintaining its foreign regulatory approvals. Delays in receipt of
approvals to market the Company's products, failure to receive these approvals,
or future loss of previously received approvals could have a material adverse
effect on the Company's business, financial condition and results of operations.
Because the Company's AERx Pain Management System clinical studies involve
morphine, the Company is registered with the Drug Enforcement Agency ("DEA") and
its facilities are subject to inspection and DEA export, import, security and
production quota requirements. There can be no assurance that the Company will
not be required to incur significant costs to comply with DEA regulations in the
future or that such regulations will not have a material adverse effect on the
Company.
HIGHLY COMPETITIVE MARKETS; RISK OF ALTERNATIVE THERAPIES
The medical device, pharmaceutical and biotechnology industries are highly
competitive and rapidly evolving. The Company's success will depend on its
ability to successfully develop products and technologies for pulmonary drug
delivery. If a competing company were to develop or acquire rights to a better
pulmonary delivery device, the Company could be materially and adversely
affected.
The Company is in competition with pharmaceutical, biotechnology and drug
delivery companies and other entities engaged in the development of alternative
drug delivery systems or new drug research and testing, as well as with entities
producing and developing injectable drugs. The Company is aware of a number of
companies currently seeking to develop new products and non-invasive
alternatives to injectable drug delivery, including oral, intranasal and
transdermal delivery systems and colonic absorption systems. The Company also is
aware of other companies currently engaged in the development and
commercialization of pulmonary drug delivery systems and enhanced injectable
drug delivery systems. Many of the Company's competitors have greater research
and development capabilities, experience, manufacturing, marketing, sales,
financial and managerial resources than the Company and represent significant
competition for the Company. Acquisitions of competing drug delivery companies
by large pharmaceutical companies or partnering arrangements between such
companies could enhance competitors' financial, marketing and other resources.
The Company's competitors may succeed in developing competing technologies,
obtaining FDA approval for products more rapidly than the Company and gaining
greater market acceptance of their products than the Company's products. There
can be no assurance that developments by others will not render some or all of
the
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<PAGE> 11
Company's proposed products or technologies uncompetitive or obsolete, which
would have a material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon a limited number of key management and
technical personnel. The loss of the services of one or more of such key
employees could have a material adverse effect on the Company. In addition, the
Company's success will depend upon its ability to attract and retain additional
highly qualified marketing, management, manufacturing, engineering and research
and development personnel. The Company faces intense competition in its
recruiting activities, and there can be no assurance that the Company will be
able to attract or retain qualified personnel.
EXPOSURE TO PRODUCT LIABILITY
The research, development and commercialization of medical devices and
therapeutic products entails significant product liability risks. If the Company
succeeds in commercializing products using the SmartMist system or the AERx
system and if it succeeds in developing additional devices and new products, the
use of such products in clinical trials and the commercial sale of such products
may expose the Company to liability claims. These claims might be made directly
by consumers or by pharmaceutical companies or others selling such products.
Companies often address the exposure of such risk by obtaining product liability
insurance. Although the Company currently maintains $6 million of product
liability insurance, there can be no assurance that the Company will be able to
obtain additional or maintain existing insurance on acceptable terms, or at all,
or in amounts sufficient to protect the Company. A successful claim brought
against the Company in excess of the Company's insurance coverage would have a
material adverse effect on the Company's business.
UNCERTAINTY RELATED TO THIRD-PARTY REIMBURSEMENT
In both domestic and foreign markets, sales of the Company's current and
potential products, if any, will depend in part on the availability of
reimbursement from third-party payors such as government health administration
authorities, private health insurers and other organizations. Third-party payors
are increasingly challenging the price and cost-effectiveness of medical
products and services. Significant uncertainty exists as to the reimbursement
status of newly approved health care products. There can be no assurance that
any of the Company's current and potential products will be reimbursable by
third-party payors. In addition, there can be no assurance that the Company's
current and potential products will be considered cost-effective or that
adequate third-party reimbursement will be available to enable Aradigm to
maintain price levels sufficient to realize a profit. Legislation and
regulations affecting the pricing of pharmaceuticals may change before the
Company's current and potential products are approved for marketing and any such
changes could further limit reimbursement.
HAZARDOUS MATERIALS
The Company's operations involve the controlled use of hazardous materials,
chemicals and various radioactive compounds. Although the Company believes that
its safety procedures for handling and disposing of such materials comply with
the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and such liability could exceed the resources of the
Company.
POSSIBLE VOLATILITY OF STOCK PRICE
The market prices for securities of many companies, including the Company,
engaged in pharmaceutical development activities historically have been highly
volatile and the market from time to time has experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. Prices for the Company's Common Stock may be influenced by
many factors, including investor
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<PAGE> 12
perception of the Company, fluctuations in the Company's operating results and
market conditions relating to the pharmaceutical industry. In addition,
announcements of technological innovations or new commercial products by the
Company or its competitors, delays in the development or approval of the
Company's product candidates, developments or disputes concerning patent or
proprietary rights, publicity regarding actual or potential developments
relating to products under development by the Company or its competitors,
regulatory developments in both the United States and foreign countries, public
concern as to the safety of drug technologies and economic and other external
factors, as well as period-to-period fluctuations in financial results, may have
a significant impact on the market price of the Common Stock. Finally, future
sales of substantial amounts of Common Stock by existing shareholders could also
adversely affect the prevailing price of the Common Stock. In the past,
following periods of volatility in the market price of a company's securities,
class action securities litigation has often been instituted against such a
company. Any such litigation instigated against the Company could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect on the Company's business, financial
condition and operating results.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings to finance
the growth and development of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholders in this offering.
The net proceeds to the Company from the sale of the 1,111,100 shares of
Common Stock privately placed by the Company in April 1998 was approximately $12
million. The Company anticipates that it will use approximately 40% of the net
proceeds for manufacturing process development and to increase manufacturing
capacity and approximately 30% of the net proceeds to fund the Company's
research and development efforts. The Company will use the remaining 30% of the
net proceeds for working capital and general corporate purposes.
SELLING SHAREHOLDERS
In April 1998, Aradigm sold 1,111,100 shares of Common Stock of the Company
to certain purchasers pursuant to the Common Stock Purchase Agreement dated
April 3, 1998 by and among the Company and the Purchasers named therein (the
"Purchase Agreement"). In connection with such sale, the Company agreed to file
a registration statement with the Commission covering the shares issued to each
Selling Shareholder and agreed to indemnify each Selling Shareholder against
claims made against them arising out of, among other things, statements made in
such registration statement. The Company has agreed to cause this registration
statement to remain effective until all the Shares have been re-sold or April 7,
1999, whichever is earlier.
In connection with the Purchase Agreement, the Company has also agreed to
issue warrants to FB Invemed Fund, L.P. and certain affiliates of the general
partner of such fund to purchase an aggregate of 166,665 shares of Common Stock
of the Company. The Company has also agreed to grant registration rights to the
holders of such warrants. Each warrant has a five year term.
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<PAGE> 13
The following table provides certain information with respect to Shares
held and to be offered under this Prospectus from time to time by each Selling
Shareholder. Because the Selling Shareholders may sell all or part of their
Common Stock pursuant to this Prospectus, and this offering is not being
underwritten on a firm commitment basis, no estimate can be given as to the
number and percentage of shares of Common Stock that will be held by each
Selling Shareholder upon termination of this offering. See "Plan of
Distribution."
The Company is unaware of any material relationship between any of the
Selling Shareholders and the Company in the past three years other than as a
result of the ownership of the Shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING AFTER OFFERING(2)
---------------------- NUMBER OF SHARES --------------------
SELLING STOCKHOLDER NUMBER PERCENT(1) BEING OFFERED NUMBER PERCENT(1)
------------------- --------- ---------- ---------------- ------- ----------
<S> <C> <C> <C> <C> <C>
Deutsche
Vermogensbildungsgesellschaft mbH
(DVG)............................ 300,000 2.55% 200,000 100,000 *
FB Invemed Fund, L.P............... 462,900 3.94% 462,900 -- *
GSAM Oracle Fund................... 109,000 * 60,000 49,000 *
Haussmann Holdings, N.V. .......... 27,400 * 17,600 19,800 *
Oracle Institutional Partners,
L.P. ............................ 67,200 * 25,000 45,200 *
Oracle Offshore Limited............ 37,400 * 7,000 30,400 *
Oracle Partners, L.P. ............. 225,600 1.92% 108,600 117,000 *
State of Oregon.................... 246,000 2.09% 230,000 16,000 *
--------- --------- -------
Total.................... 1,475,500 1,111,100 377,400
</TABLE>
- ---------------
* Less than one percent.
(1) Applicable percentage of ownership is based on 11,750,598 shares of Common
Stock outstanding on June 1, 1998.
(2) Assumes the sale of all shares offered hereby.
PLAN OF DISTRIBUTION
The Company is registering the shares of Common Stock offered by the
Selling Shareholders hereunder pursuant to contractual registration rights
contained in the Purchase Agreement. Sales may be made on the Nasdaq National
Market or in private transactions or in a combination of such methods of sale,
at fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Shareholders and any persons who participate in the
distribution of Common Stock hereby may be deemed to be underwriters within the
meaning of the Securities Act, and any discounts, commissions or concessions
received by them and any provided pursuant to the sales of shares by them might
be deemed underwriting discounts and commissions under the Securities Act.
In order to comply with the securities laws of certain states, if
applicable, the Common Stock may be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Common Stock may not be sold unless it has been registered or qualified for sale
or an exemption from registration or qualification requirements is available and
is complied with.
The Company has agreed in the Purchase Agreement to register the shares of
Aradigm Common Stock received by the Selling Shareholders pursuant to the
Purchase Agreement under applicable Federal and state securities laws under
certain circumstances and certain times. Pursuant to the Purchase Agreement, the
Company has filed a Registration Statement related to the Shares offered hereby
and has agreed to keep such Registration Statement effective until the earliest
of (i) April 7, 1999 or (ii) the sale of all the Shares registered thereunder.
The Company will pay substantially all of the expenses incident to the offering
and sale of the Common Stock to the public, other than commissions, concessions
and discounts of underwriters, dealers or agents. Such expenses (excluding such
commissions and discounts), are estimated to be $20,000. The Purchase Agreement
provides for cross-indemnification of the Selling Shareholders and the Company
to
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<PAGE> 14
the extent permitted by law, for losses, claims, damages, liabilities and
expenses arising, under certain circumstances, out of any registration of the
Common Stock.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Cooley Godward LLP, Palo Alto, California.
EXPERTS
The financial statements of the Company appearing in the Company's Annual
Report (Form 10-K) for the year ended December 31, 1997, as amended, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon, included therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
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======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 4
Recent Developments................... 4
Risk Factors.......................... 5
Use of Proceeds....................... 12
Selling Shareholders.................. 12
Plan of Distribution.................. 13
Legal Matters......................... 14
Experts............................... 14
</TABLE>
======================================================
======================================================
1,111,100 SHARES
COMMON STOCK
ARADIGM
CORPORATION
------------------------
PROSPECTUS
JULY 1, 1998
======================================================
