<PAGE>
As filed with the Securities and Exchange Commission on , 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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Inspire Pharmaceuticals, Inc.
(Exact Name of Registrant as Specified in its Charter)
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Delaware 2834 04-3209022
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
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4222 Emperor Boulevard Gregory J. Mossinghoff
Suite 470 4222 Emperor Boulevard
Durham, North Carolina 27703-8466 Suite 470
(919) 941-9777 Durham, North Carolina 27703-8466
(Address, including zip code, and (919) 941-9777
telephone number, including area (Name, address, including zip code,
code, of registrant's principal and telephone number, including area
executive office) code, of agent for service)
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Copies to:
Diane M. Frenier, Esq. Jeffrey E. Cohen, Esq.
Edward P. Bromley III, Esq. Carol B. Stubblefield, Esq.
Smith, Stratton, Wise, Heher & Coudert Brothers
Brennan 1114 Avenue of the Americas
600 College Road East New York, NY 10036-7703
Princeton, NJ 08540 (212) 626-4400
(609) 924-6000
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Approximate date of commencement of proposed sale to the public: As soon as
possible after the effective date of this Registration Statement
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Proposed
Title of each Class of Maximum Maximum Amount of
Securites Amount to be Offering Price Aggregate Registration
to be Registered Registered Per Share(1) Offering Price Fee
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 per
share (2)............. shares $ $80,000,000 $21,120
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- --------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended.
(2) Includes shares that the underwriters have the option to purchase
to cover over-allotments, if any.
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The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell these securities and it is not +
+soliciting an offer to buy these securities in any jurisdiction where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY , 2000
PRELIMINARY PROSPECTUS
Shares
[LOGO]
[LOGO OF INSPIRE]
Common Stock
--------------
This is an initial public offering of shares of common stock of Inspire
Pharmaceuticals, Inc. We are selling all of the shares of common stock offered
under this prospectus.
We expect the public offering price for our common stock to be between and
per share. There is currently no public market for our common stock. We
have applied to have our common stock approved for listing on the Nasdaq
National Market under the symbol "ISPH."
See "Risk Factors" beginning on page 6 to read about risks that you should
consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved these securities or passed on the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
--------------
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public offering price.............................................. $ $
Underwriting discounts and commissions............................. $ $
Proceeds to Inspire................................................ $ $
</TABLE>
--------------
We have granted the underwriters a 30-day option to purchase up to an
additional shares of common stock from us at the initial public offering
price less the underwriting discount.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares in New York, New York, on
, 2000.
--------------
Bear, Stearns & Co. Inc.
Deutsche Banc Alex. Brown
U.S. Bancorp Piper Jaffray
The date of this prospectus is , 2000
<PAGE>
Inside Front Cover:
The Inspire logo is followed by three diagrams:
Description of the first diagram: The upper left portion of the page
contains a diagram showing a P2Y\\2\\ receptor agonist binding to a P2Y\\2\\
receptor and depicting Inspire's therapeutic product opportunities in the
respiratory tract, the eyes and other areas containing epithelial cell targets.
The diagram is followed by a caption reading "Our products are based on our
proprietary technology platform relating to P2Y receptors. Our lead products
target respiratory and ophthalmic diseases. We are also exploring other target
diseases where we believe P2Y receptors play important biological roles."
Description of the second diagram (located to the right of the first
diagram): The upper right portion of the page contains a diagram depicting
lungs with normal mucus clearance (top) and lungs with impaired mucus clearance
(bottom). The diagram contains captions entitled "P2Y\\2\\ agonist restores the
normal process of mucosal hydration and mucociliary clearance in the lungs" and
"Decreased mucosal hydration and mucociliary clearance in patients with chronic
bronchitis and cystic fibrosis." The diagram is followed by a caption reading
"The innate defense mechanisms of the lungs rely on proper mucosal hydration
and a normal mucociliary clearance of the lung surface (top). Defects in these
mechanisms are components of lung diseases such as chronic bronchitis and
cystic fibrosis (bottom). Administration of a P2Y\\2\\ agonist, such as INS365,
restores the body's innate defense mechanisms of mucosal hydration and
mucociliary clearance in the lungs."
Description of the third diagram (located under the first and second
diagrams): A bar chart setting forth information regarding the products in
development as follows:
Inspire Product Development Chart
<TABLE>
<CAPTION>
Clinical Trials
--------------------------
Products Preclinical Phase I Phase II Phase III
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INS365 Respiratory for Chronic XXXXXXXXX
Bronchitis XXXXXXX OOO
INS37217 Respiratory for Cystic Fibro- XXXOOOOOO
sis OOO
INS316 Diagnostic Adjunct for Lung
Disease XXXXXXXXX XXXXXXX XXXOO OO
INS365 Ophthalmic for Dry Eye XXXXXXXXX XXXXXXX XXXOO
INS37217 Ophthalmic for Retinal Detach- XXXOOOOOO
ment OOOOOOO OOO
</TABLE>
XXX Current Development as of February 25, 2000
OOO Expected Stage of Development in 2000
The expected stage of development in 2000 is based on our current plans for
development and is subject to change based on a variety of factors. None of our
products have been approved for marketing by any regulatory authority. See
"Risk Factors."
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and our common stock being sold in this
offering and our financial statements and the notes to our financial statements
appearing elsewhere in this prospectus before making an investment decision.
You should also consider the information discussed in "Risk Factors."
We discover and develop novel pharmaceutical products to treat diseases
characterized by deficiencies in the body's innate defense mechanisms of
mucosal hydration and mucociliary clearance. Our products are based on our
proprietary technology platform relating to P2Y receptors. Studies indicate
that a subtype of this family, the P2Y\\2\\ receptor, coordinates the
mechanisms of mucosal hydration and mucociliary clearance. These complex
mechanisms, which involve fluid transport, mucin and ciliary action, can be
regulated therapeutically through the binding and activation of this receptor.
Our lead products target respiratory and ophthalmic diseases with inadequate
current treatments and which represent large therapeutic market opportunities.
We currently have three product candidates in advanced clinical development,
and we have entered into development and commercialization alliances with
Genentech, Inc., Kissei Pharmaceutical Co., Ltd. and Santen Pharmaceutical Co.,
Ltd. We are also exploring other target diseases where we believe P2Y receptors
play important biological roles.
Our Products
INS365 Respiratory for Chronic Bronchitis: We are developing INS365
Respiratory in an inhaled formulation for the treatment of chronic bronchitis
and expect this product to enter Phase IIa clinical trials later this year. In
double-blind, placebo-controlled Phase I clinical trials, INS365 Respiratory
was well tolerated and significantly enhanced the clearance of retained airway
secretions. Chronic bronchitis, which affects approximately 31 million patients
in the major international pharmaceutical markets, is a serious and potentially
life-threatening lung condition characterized by airway inflammation and
obstruction and a mucus-producing cough. Therapeutics used in the treatment of
chronic bronchitis are primarily palliative and generated approximately $1.3
billion of annual sales in 1996, and sales of these products have been
estimated to reach approximately $2 billion in 2001. Currently, there is no FDA
approved pharmaceutical agent that effectively clears the retained mucous
secretions which contribute to lung infections in patients with chronic
bronchitis. We expect that our product will address this need and may therefore
reduce the use of antibiotics, steroids and bronchodilators, and may reduce the
frequency and length of exacerbations and hospitalizations.
In December 1999, we entered into a comprehensive strategic alliance with
Genentech to develop treatments for respiratory disorders, including chronic
bronchitis and cystic fibrosis, worldwide outside of Japan. Upon signing, we
received $15 million comprised of license fees and an equity investment. We may
receive future payments based on the attainment of development milestones,
which could total up to an additional $63 million, as well as royalties on net
sales of licensed products. We have also retained joint development and
commercialization rights for cystic fibrosis in the United States. In September
1998, we entered into an agreement with Kissei for INS365 Respiratory in Japan.
We received an upfront payment of $4.5 million, which included an equity
investment. In addition, if milestones are met, we could receive additional
payments of up to $13 million, as well as royalties on net sales of licensed
products.
INS365 Ophthalmic for Dry Eye Disease: We are developing INS365 Ophthalmic
in an eye drop formulation for dry eye disease, and are currently conducting
Phase IIb clinical trials. In preclinical studies conducted by us and our
corporate partner, Santen, INS365 Ophthalmic was well tolerated and produced a
statistically significant increase in tear secretion. In early clinical
testing, the product was well tolerated in healthy subjects and patients with
dry eye disease. We estimate, based on an extrapolation from United States
data, that moderate to severe cases of dry eye affect approximately nine
million people in the major international pharmaceutical markets. Dry eye
disease is the general term for a condition in which abnormalities in the eye's
tear film lead to red, irritated and dry eyes.These abnormalities are typically
characterized by a decrease in tear production, an increase in tear evaporation
or an improper mixture of the
1
<PAGE>
eye's tear film components. If left untreated, dry eye disease can result in
permanent corneal damage and visual impairment. Treatments in these markets
consist primarily of artificial tear replacement therapy. There are currently
no FDA approved pharmacological treatments for dry eye disease. We expect that
by promoting natural mucosal hydration and mucin production on the ocular
surface, our product will be the first pharmacologically active agent to treat
the symptoms of dry eye disease, restore a natural corneal tear film and help
prevent long-term corneal damage.
In December 1998, we entered into an agreement with Santen for INS365
Ophthalmic for the treatment of dry eye disease in Japan and Asia, under which
we received an up-front equity investment of $1.5 million and we could receive
development milestone payments of up to $4.75 million, as well as royalties on
net sales of licensed products.
INS316 Diagnostic Adjunct for Lung Disease: We are developing INS316
Diagnostic as an inhaled diagnostic adjunct and we expect this product to enter
Phase III clinical trials in 2000. INS316 Diagnostic is designed to assist a
patient in expectorating a sputum sample containing adequate deep-lung
material. These sputum samples are frequently used for diagnosing lung cancer
and lung infections. In a double-blind, placebo-controlled, cross-over trial in
patients at risk of developing lung cancer, INS316 Diagnostic significantly
enhanced the expectoration of an adequate sputum sample over placebo. Many
patients have difficulty producing adequate sputum samples spontaneously, and
there are no FDA approved agents to enhance the production of a sputum sample.
To obtain deep-lung specimens, physicians sometimes use a costly and invasive
bronchoscopy or non-approved inhaled agents that are generally ineffective and
can cause irritation. We expect our product to be the first approved agent to
address the need to enhance the production of an adequate deep-lung sputum
sample, which may facilitate the diagnosis of lung cancer or lung infection.
Other Products: In addition to our clinical-stage products, we have several
preclinical products, two of which we expect to enter clinical trials later
this year: INS37217 Respiratory to treat cystic fibrosis, a life-threatening
hereditary respiratory disease, and INS37217 Ophthalmic to treat retinal
detachment, an ophthalmic disorder that can lead to serious visual impairment.
Our Technology
Our discovery efforts are broadly focused on our P2Y receptor technology
platform. The P2Y receptor family plays an important role in a number of
biological processes and we are currently studying a number of P2Y receptor
subtypes for potential therapeutic targets. Our initial focus has been on the
P2Y\\2\\ receptor subtype, which coordinates mucosal hydration and mucociliary
clearance, the body's natural mechanisms for cleansing and protecting mucosal
surfaces. We believe our P2Y\\2\\ receptor agonists can regulate these
processes and represent a novel pharmacological approach to the treatment of
diseases characterized by deficiencies in these mechanisms. Importantly, our
lead product candidates are applied directly to mucosal surfaces in a topical
formulation such as inhaled aerosols or eye drops where they are rapidly
metabolized. This minimizes the potential for systemic side effects.
Our Strategy
Our objective is to become a leading biopharmaceutical company focused on
developing novel treatments primarily for diseases involving impaired mucosal
hydration or inadequate mucociliary clearance. The principal elements of our
strategy include:
. Agressively advance our lead products;
. Establish collaborative relationships with market leaders while
selectively retaining marketing rights;
. Use our proprietary technology platform relating to P2Y receptors to
develop novel products; and
. Protect and enhance our technology leadership position.
Inspire was incorporated in Delaware in October 1993. Our principal office
is located at 4222 Emperor Boulevard, Suite 470, Durham, North Carolina, and
our telephone number is (919) 941-9777.
2
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock to be offered by Inspire............... shares
Common stock to be outstanding after this offering.. shares
Use of proceeds..................................... We plan to use the net
proceeds from this
offering for clinical
development, product
commercialization,
discovery research,
preclinical activities,
working capital, general
corporate purposes and
possible future
acquisitions
Proposed Nasdaq National Market symbol.............. ISPH
</TABLE>
The share amounts in this table are based on shares outstanding as of
February 24, 2000. This table excludes:
. 3,490,906 shares of our common stock that are reserved for issuance upon
exercise of options granted to executive officers, employees and
consultants under our stock plan with a weighted average exercise price
of $ per share;
. 464,444 shares of our common stock issuable upon exercise of outstanding
warrants with a weighted average exercise price of $4.41 per share; and
. 208,170 shares of our preferred stock issuable upon exercise of
outstanding warrants for preferred stock that will convert into warrants
to purchase our common stock at the time of the closing of this offering
with a weighted average exercise price of $1.20 per share.
The information in this prospectus is based on the following assumptions:
. the issuance of 27,070,932 shares of our common stock upon the automatic
conversion of the outstanding shares of our Series A, B, C, D and E
preferred stock at the time of the closing of this offering;
. a -for- reverse-split in our common stock that will take effect
prior to the closing date of this offering;
. the issuance of shares of common stock upon the automatic
conversion of the outstanding shares of our Series G preferred stock
owned by Genentech at the time of the closing of this offering, which
assumes a conversion ratio based on an initial public offering price of
$ per share; provided, however, the actual number of shares of common
stock issued to Genentech will be the number obtained by dividing the
aggregate purchase price, plus accrued dividends, by the initial public
offering price of our common stock in this offering; and
. no exercise of the underwriters' over-allotment option to purchase up to
shares.
3
<PAGE>
SUMMARY FINANCIAL DATA
The following table presents summary financial and operating data for our
company. The data presented in this table are derived from "Selected Financial
Data," and the financial statements and notes thereto included elsewhere in
this prospectus. You should read those sections for a further explanation of
the financial data summarized here. You should also read "Management's
Discussion and Analysis of Financial Condition and Results of Operations," on
page 23 which describes a number of factors which have affected our financial
results.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(in thousands, except per share
amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue.......................... $ -- $ -- $ -- $ 3,600 $ 600
------- ------- ------- ------- -------
Operating Expenses:
Research and development....... 1,539 4,207 6,569 5,438 7,179
General and administrative..... 1,050 1,531 1,494 1,921 1,887
Stock based compensation....... -- -- -- 14 90
------- ------- ------- ------- -------
Total operating expenses......... 2,589 5,738 8,063 7,373 9,156
------- ------- ------- ------- -------
Operating loss................... (2,589) (5,738) (8,063) (3,773) (8,556)
Other income (expense), net...... (115) (44) 116 35 142
------- ------- ------- ------- -------
Loss before provision for income
taxes........................... $(2,704) $(5,782) $(7,947) $(3,738) $(8,414)
Provision for income taxes....... -- -- -- 360 60
------- ------- ------- ------- -------
Net loss......................... $(2,704) $(5,782) $(7,947) $(4,098) $(8,474)
Preferred stock dividends........ -- -- -- -- (62)
------- ------- ------- ------- -------
Net loss available to common
stockholders.................... $(2,704) $(5,782) $(7,947) $(4,098) $(8,536)
======= ======= ======= ======= =======
Net loss per common share--basic
and diluted..................... $ (0.99) $ (1.84) $ (2.29) $ (1.14) $ (2.02)
======= ======= ======= ======= =======
Weighted average common shares
outstanding--basic and diluted.. 2,742 3,146 3,466 3,607 4,202
Pro forma net loss per common
share--basic and diluted........ $
=======
Pro forma weighted average common
shares outstanding
--basic and diluted.............
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....................... $ 22,728 $ $
Total assets.................................... 23,930
Convertible preferred stock..................... 45,895
Common stock.................................... 4
Additional paid-in capital...................... 906
Accumulated deficit............................. (29,396)
Total stockholders' equity...................... 17,080
</TABLE>
See the financial statements and notes thereto included elsewhere in this
prospectus for a description of the computation of the historical and pro forma
net loss per share and the number of shares used in the historical and pro
forma per share calculations in the statement of operations data above.
4
<PAGE>
The pro forma column of the balance sheet data gives effect to the issuance
of shares of our common stock upon the automatic conversion, at the time
of the closing of this offering, of all of our outstanding shares of preferred
stock.
The pro forma as adjusted column of the balance sheet data gives effect to
the issuance of shares of our common stock upon the automatic conversion,
at the time of the closing of this offering, of all of our outstanding shares
of preferred stock and our receipt of the net proceeds from the sale of the
shares of our common stock offered hereby at an assumed initial public
offering price of $ per share. See "Use of Proceeds" and "Capitalization"
for a discussion about how we intend to use the net proceeds from this offering
and about our capitalization.
5
<PAGE>
RISK FACTORS
The shares of common stock offered by this prospectus involve a substantial
risk of loss. Before making an investment in our common stock, you should
carefully read this entire prospectus and should give particular attention to
the following risk factors. You should recognize that other significant risks
may arise in the future, which we cannot foresee at this time. Also, the risks
that we now foresee might affect us to a greater or different degree than
expected. There are a number of important factors that could cause our actual
results to differ materially from those indicated by any forward-looking
statements in this prospectus. These factors include, without limitation, the
risk factors listed below and other factors presented throughout this
prospectus.
If our products fail in clinical studies, we will be unable to obtain FDA
approval and will not be able to sell those products.
To achieve profitable operations, we must, alone or with others,
successfully identify, develop, introduce and market proprietary products. Even
if potential products are identified, they will require significant additional
development, preclinical and clinical testing, regulatory approval and
additional investment prior to their commercialization. Product candidates that
may appear to be promising at early stages of development may not successfully
reach the market for a number of reasons. Product candidates may be found to be
ineffective or cause harmful side effects during clinical trials, may take
longer to progress through clinical trials than had been anticipated or may
fail to receive necessary regulatory approvals. None of our prospective
products has been submitted for marketing approval by the United States Food
and Drug Administration (FDA) nor any other regulatory body.
Generally, all of our product candidates are in research or preclinical
development, with only three, INS365 Respiratory, INS365 Ophthalmic and INS316
Diagnostic, currently in clinical trials. The results of initial preclinical
and clinical testing of our products under development are not necessarily
indicative of results that will be obtained from subsequent or more extensive
preclinical studies and clinical testing. Our ongoing clinical studies might be
delayed or halted for various reasons, including:
. the drug is not effective, or physicians think that the drug is not
effective;
. patients experience severe side effects during treatment;
. patients die during the clinical study because their disease is too
advanced or because they experience medical problems that may or may not
relate to the drug being studied;
. patients do not enroll in the studies at the rate we expect;
. drug supplies are not sufficient to treat the patients in the studies;
or
. we decide to modify the drug during testing.
Substantial additional development and clinical testing and investment will
be required prior to seeking any regulatory approval for commercialization of
our potential products. There can be no assurance that our clinical trials will
demonstrate the safety and efficacy of our product candidates to the extent
necessary to obtain regulatory approvals for the indications being studied.
Companies in the pharmaceutical and biotechnology industries have suffered
significant setbacks in advanced clinical trials, even after obtaining
promising results in earlier trials. The failure to demonstrate adequately the
safety and efficacy of our product candidates under development could delay or
prevent regulatory approval of the product and have a material adverse effect
on our business, financial condition and results of operations.
Furthermore, the timing and completion of clinical trials are dependent
upon, among other factors, the rate at which patients are enrolled. Patient
enrollment is a function of many factors, including the size of the patient
population, the proximity of patients to the clinical sites, the eligibility
criteria for the study and the existence of competing clinical trials. There
can be no assurance that delays in patient enrollment in clinical trials will
not occur, and any such delays may result in increased costs, program delays or
both, which could have a material adverse effect on our business, financial
condition and results of operations.
6
<PAGE>
Our product candidates utilize a novel mechanism of action, which may affect
our ability to obtain timely regulatory approval.
We will not be able to market our product candidates until we receive
regulatory approval. We cannot apply for regulatory approval to market a
product candidate until we successfully complete pivotal clinical trials with
respect to the product. The effectiveness of a product candidate is determined
on the basis of a product candidate's ability to meet the endpoints we
establish for the product in the clinical study. These endpoints are generally
determined in consultation with the regulatory authorities, in accordance with
design guidelines on the efficacy and safety endpoints required for approval of
products.
Because our existing product candidates utilize a novel, pharmacological
approach to the treatment of respiratory and eye diseases it may prove
difficult to establish endpoints that the regulatory authorities agree
sufficiently evaluate the effectiveness of each product candidate. As a result,
delays in our clinical trials could result if the regulatory authorities
determine that the endpoints established for a clinical trial do not predict a
clinical benefit, and the regulatory authorities will not approve a product for
marketing without further clinical trials. If we need to conduct further
clinical trials with respect to a product it would significantly increase our
expenses and delay marketing of our product. Furthermore, the regulatory
authorities could change their view on clinical trial design and the
establishment of appropriate efficacy and safety endpoints and require a change
in study design, additional data or even further clinical trials prior to
approval of a product candidate.
If we cannot achieve and maintain regulatory approvals for our product
candidates, we will not be able to sell those products and our revenues will
suffer.
Any new drug that we develop must be approved by government agencies in the
countries in which we or our collaborators wish to market the drug. We cannot
be certain that we will obtain regulatory approval for any drugs or diagnostic
products we develop. The regulatory process can take many years and require the
expenditure of substantial resources. Because certain of the products likely to
result from our disease research programs involve the application of new
technologies and may be based upon a new therapeutic approach, they may be
subject to substantial additional review by various government regulatory
authorities. This is because there may not be existing clinical endpoint
precedents clearly established for regulatory approval. As a result, these
authorities may grant regulatory approvals for our products more slowly than
for products using more conventional technologies. Furthermore, regulatory
approval may impose limitations on the use of a drug.
After initial regulatory approval, a marketed product and its manufacturer
are subject to continuing review. We may be required to conduct long-term
safety studies after approval. Discovery of previously unknown problems through
adverse event reporting may result in restrictions on the product, including
withdrawal from the market, which may have adverse effects on our business,
financial condition and results of operations. Additionally, we and our
officers and directors could be subject to civil and criminal penalties.
Our product candidates may not be commercially successful because physicians
and patients may not accept them.
Even if regulatory authorities approve certain product candidates, those
products may not be commercially successful. Acceptance of and demand for our
products by physicians and patients will depend largely on the following
factors:
. acceptance by physicians and patients of our products as safe and
effective therapies;
. reimbursement of drug and treatment costs by third-party payors;
. safety, effectiveness and pricing of alternative products;
. convenience and ease of administration of our products; and
. prevalence and severity of side effects associated with our products.
In addition, to achieve broad market acceptance of our product candidates,
in many cases we will need to develop, alone or with others, convenient methods
for administering product candidates. Our current product
7
<PAGE>
candidates for the treatment or diagnosis of respiratory disorders, INS365
Respiratory and INS316 Diagnostic, have been administered using a jet nebulizer
in their respective clinical studies. Although the use of a jet nebulizer is an
effective and well accepted means for administering products for inhalation
with respect to acute use and, to a lesser degree, chronic use, we believe more
convenient methods of delivery and administration, such as a hand-held
inhalation device, will be necessary, in the case of INS365 Respiratory, to
more fully address chronic use. Although we have successfully completed a test
of a prototype hand-held inhalation device in 12 healthy patients, our testing
of such devices is at an early stage and there can be no assurance that we will
be able to develop or find a convenient hand-held device that works in patients
with chronic bronchitis. Our current product candidate for the treatment of dry
eye disease, INS365 Ophthalmic, has been administered using a single dose
administrator. Patients may prefer a multi-dose formulation. We have not yet
established a plan to develop a multi-dose formulation. Similar challenges
exist in identifying and perfecting convenient methods of administration for
many of our other product candidates.
We intend to rely on third parties to develop, market, distribute and sell our
product candidates and those third parties may not perform.
We do not have the ability to independently conduct clinical studies, obtain
regulatory approvals, market, distribute or sell our products and intend to
rely on experienced third parties to perform, or assist us in the performance
of, all of those functions. We may not identify acceptable partners or enter
into favorable agreements with them. If third parties do not successfully carry
out their contractual duties or meet expected deadlines, we will be unable to
obtain required governmental marketing approvals and will be unable to sell our
products.
Our dependence on collaborative relationships may lead to delays in product
development and disputes over rights to technology.
Our business strategy depends upon the formation of research collaborations,
licensing and/or marketing arrangements. We currently have development
collaborations with three collaborators, Genentech, Kissei and Santen. The
termination of any collaboration could have a material adverse effect on our
business, financial condition and results of operations. Genentech has the
right, by giving us 150 days prior notice, to terminate our collaboration.
There can be no assurance that we will be able to maintain the Genentech,
Kissei or Santen collaborations or establish additional research and
development collaborations or licensing arrangements necessary to develop and
commercialize therapeutic or diagnostic products using our technology. It is
also uncertain whether any future collaborations or licensing arrangements will
be on terms favorable to us or that the current or any future collaborations or
licensing arrangements ultimately will be successful. Under our current
strategy, and for the foreseeable future, we do not expect to develop or market
therapeutic or diagnostic products on our own. As a result, we will continue to
depend on collaborators and contractors for the preclinical study and clinical
development of therapeutic products and for regulatory approval, manufacturing
and marketing of therapeutic and diagnostic products which result from our
technology. The agreements with collaborators typically will allow them a
certain level of discretion in electing whether to pursue such activities. If
any collaborator were to breach or terminate its agreement with us or otherwise
fail to conduct collaborative activities in a timely and successful manner, the
preclinical or clinical development or commercialization of product candidates
or research programs would be delayed or terminated. Any such delay or
termination could have a material adverse effect on our business, financial
condition and results of operations.
We intend to rely on Genentech, Kissei, Santen and any future collaborators
for significant funding in support of our development efforts. If Genentech,
Kissei or Santen reduces or terminates its funding, we will need to devote
additional internal resources to product development, scale back or terminate
certain research and development programs or seek alternative collaborators.
See "--We may not be able to obtain sufficient additional funding to meet our
expanding capital requirements" and "Business--Corporate Collaborations."
Disputes may arise in the future over the ownership of rights to any technology
developed with collaborators.
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These and other possible disagreements between us and our collaborators could
lead to delays in the collaborative development or commercialization of certain
therapeutic or diagnostic products. Such disagreement could also result in
litigation or require arbitration to resolve. Any such event could have a
material adverse effect on our business, financial condition and results of
operations.
We depend on third parties to synthesize and manufacture our product candidates
for preclinical testing and clinical trials and will rely on third parties for
large scale manufacturing of any of our drug candidates.
We have no experience or capabilities in large scale commercial
manufacturing of any of our product candidates or any experience or
capabilities in the manufacturing of pharmaceutical products generally. We do
not generally expect to engage directly in the manufacturing of products, but
instead intend to contract with others for these services. To date, we have
relied upon supply agreements with third parties for the manufacture and supply
of our product candidates for purposes of preclinical testing and clinical
trials. Although we have previously received preclinical and clinical supplies
of our product candidates from several suppliers, we are presently dependent
upon a single supplier for our supply of product candidates. If we are unable
to obtain or retain third party manufacturing on commercially acceptable terms,
we may not be able to commercialize products as planned.
We are currently a party to a development, license and supply agreement with
each of Kissei and Santen pursuant to which we granted each a license to
develop and market INS365 Respiratory and INS365 Ophthalmic, respectively. See
"Business--Corporate Collaborations." Generally, the agreements with Kissei and
Santen will require us to supply such partners with either sufficient
quantities of materials or finished products, as applicable, for the purpose of
commercial distribution. We will need to establish, alone or with third
parties, a manufacturing process in relation to each product. Our dependence
upon third parties for the manufacture of products may adversely affect our
ability to develop and deliver products on a timely and competitive basis. Our
manufacturing strategy presents the following risks:
. the manufacturing processes for most of our product candidates have not
been tested in quantities needed for commercial sales;
. delays in scale-up to commercial quantities could delay clinical
studies, regulatory submissions and commercialization of our products;
. manufacturers of our products are subject to the FDA's good
manufacturing practices regulations and similar foreign standards, and
we do not have control over compliance with these regulations by the
third-party manufacturers;
. if we need to change to other manufacturers, FDA and comparable foreign
regulators would require new testing and compliance inspections and the
new manufacturers would have to be educated in the processes necessary
for the production of our product candidates;
. without satisfactory long-term agreements with manufacturers, we will
not be able to develop or commercialize our product candidates as
planned or at all;
. we may not have intellectual property rights, or may have to share
intellectual property rights, to any improvements in the manufacturing
processes or new manufacturing processes for our product candidates; and
. any inability to successfully manufacture commercial products could
result in our breach of the terms of our agreements with Kissei and
Santen. Any of these factors could delay our preclinical studies,
clinical trials or commercialization of our product candidates, entail
higher costs and result in our inability to effectively sell our product
candidates.
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If our patent and other intellectual property protection is inadequate, the
development and any possible sales of our product candidates could suffer or
competitors could force our products completely out of the market.
Our business and competitive position depends upon our ability to protect
our products and processes, proprietary methods and technology. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
obtain and use information that we regard as proprietary. Furthermore, there
can be no assurance that others will not independently develop similar or
alternative technologies, duplicate any of our technologies, or, if patents are
issued to us, design around our patented technologies. In addition, if we are
required to either initiate or defend a patent suit, we could incur substantial
costs in litigation. We rely on a combination of patent applications, the laws
of trade secrets and non-disclosure agreements and other contractual
arrangements to protect our proprietary compounds, methods and devices. In
addition, we will continue to file patent applications for our proprietary
composition of matter, methods and devices as we believe appropriate.
Our current technologies, discoveries and our original patents are based in
part on two exclusive licenses and one non-exclusive license from The
University of North Carolina at Chapel Hill. See "Business--Patents and
Proprietary Rights." Changes in or termination of these third party agreements
could materially adversely affect our research and development activities.
Generally, if we fail to meet certain milestones under the respective UNC
licenses, UNC may terminate the applicable license. We also hold several
additional patents and patent applications with respect to technologies
developed by our scientists. There can be no assurance that the patents
licensed pursuant to any agreement or developed internally will enable us to
prevent infringement or that competitors will not develop competitive products
outside the protection that may be afforded by these patents. There can be no
assurance that we will be able to acquire or develop new technologies, either
alone or with others. Failure to license or otherwise acquire necessary
technologies could have a material adverse effect on our business, financial
condition and results of operations. If we breach any such license or otherwise
fail to maintain rights to such technology, our business, financial condition
and results of operations could be materially adversely affected. See
"Business--Patents and Proprietary Rights."
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies are generally uncertain and involve complex legal and factual
questions. It is uncertain whether we will continue to develop proprietary
technologies that are patentable and we cannot be certain that any future
patent applications we may submit will result in issued patents. Any patents
issued to us or our collaborative customers may not provide a basis for
commercially viable products or may not provide us with any competitive
advantages. Our future patents or patent applications could be challenged or
circumvented or invalidated by third parties, and the patents of others may
have an adverse effect on our ability to do business. In addition, patent law
relating to the scope of claims in the technology fields in which we operate is
still evolving. The degree of future protection for our proprietary rights is
uncertain.
There can be no assurance that our current patents or any future issued
patents will provide substantial protection or be of commercial benefit to us.
The mere issuance of a patent does not guaranty that it is valid or
enforceable. Except with respect to a single composition of matter patent, our
patents are use patents containing claims covering therapeutic methods of the
use, processes and/or formulations for specific compounds. Some of the
compounds in our formulations and methods are in the public domain. Competitors
may be able to commercialize products, using the same compounds used by us, for
indications outside of the protection provided by the claims of our use
patents. In such an event, physicians, pharmacies and wholesalers could then
substitute third party products for our products. Substitution of our products
could have a material adverse effect on our business, financial condition and
results of operations. Similarly, in the event that we, through research and
development efforts, determine additional uses for such a compound, we will be
required to file an additional patent for protection of such uses. Use patents
may afford a lesser degree of protection in certain foreign countries due to
their patent laws, for example, Europe.
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Further, a patent does not provide the patent holder with freedom to operate
in a way that infringes the patent rights of others. A patent could also be
challenged by litigation. To settle any such litigation, the patent holder may
license the patent to the party challenging the patent. In the event of any
adverse outcome of any such litigation, competitors could be free to use the
technology covered by the patent. Our inability to gain patent protection for
our products and methods could increase competition, and result in a material
adverse effect on our business, financial condition and results of operations.
In addition, it is uncertain whether the development or use of our technology
will infringe patents or proprietary rights of others. If so, it is uncertain
whether licenses we might be required to obtain as a result of such
infringement would be available on fair business terms, if at all.
We cannot predict whether our competitors' patent applications will result
in the issuance of valid and enforceable patents that may cover our product,
formulations or uses. We may need to initiate litigation to enforce our
proprietary rights, or to determine the scope and validity of others'
proprietary rights. Litigation of this kind could result in substantial costs.
We may also incur substantial costs if we participate in interference
proceedings that the United States Patent and Trademark Office (USPTO) may
declare to determine priority of invention. There can be no assurance that the
outcome of any such litigation or interference proceedings will be favorable to
us, or that we will be able to obtain licenses to technology that we may
require. If licenses to technology that we need are obtainable, there can be no
assurance that we will obtain the licenses at a reasonable cost.
There can be no assurance that our patent applications will have priority
over others' patent applications. A lawsuit against us could cause us to pay
monetary damages, require us to obtain licenses, or prevent us from
manufacturing or marketing the affected products. There can be no assurance
that we would prevail in a patent infringement action, or that any license we
may need will be available on acceptable terms, if at all. We believe that
there may be significant litigation in the industry regarding patent and other
intellectual property rights. If we become involved in such litigation, it
could consume a substantial portion of our managerial and financial resources.
The amount of supportive data required for issuance of patents for human
therapeutics is highly uncertain. If more data than we have available is
required, our ability to obtain patent protection could be delayed or otherwise
adversely affected. In July 1998, the USPTO issued its current utility
guidelines addressing the requirements for demonstrating utility for
biotechnology inventions, particularly for inventions relating to human
therapeutics. In December 1999, the USPTO issued further revised guidelines
regarding utility and the written description requirements for patent
applications involving biotechnology and pharmaceutical inventions. However,
there can be no assurance that the USPTO examiners will follow these guidelines
or that the USPTO's position regarding utility and written description
requirements will remain the same in the future.
We rely upon trade secret protection for some of our confidential and
proprietary information for which we are not seeking patent protection. We have
taken security measures to protect our proprietary technologies, processes,
information systems and data and we continue to explore ways to enhance
security. There can be no assurance, however, that such measures will provide
adequate protection for our trade secrets or other proprietary information. We
require employees, academic collaborators and consultants to enter into
confidentiality and/or non-disclosure agreements, where appropriate. However,
there can be no assurance that proprietary information will not be disclosed,
that others will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets or
disclose such technology, or that we can meaningfully protect our trade
secrets.
Because we are in an early state of development, there is a high risk of
failure.
We were founded in 1993 and, accordingly, have only a limited operating
history upon which our business and prospects can be evaluated. All of our
product candidates are in the early developmental stage and must satisfy
rigorous standards of safety and efficacy before they can be approved by the
FDA and international regulatory authorities for commercial use. We have not
generated any revenues from product sales. To achieve profitable operations, we
must, alone or with others, successfully develop, clinically test, receive
regulatory approvals for, market and sell our products.
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We will need to conduct significant additional research, animal testing,
referred to as preclinical testing, and human testing, referred to as clinical
trials, before we can file applications with the FDA or international
regulatory authorities for product approval. Clinical trials are expensive and
have a high risk of failure. Typically, there is a high rate of attrition for
products in preclinical testing and clinical trials. Only three of our product
candidates are in clinical trials and we only expect to enter Phase III
clinical trials in the United States with respect to our most advanced product
candidate in late 2000.
Any products resulting from our product development efforts are not expected
to be available for sale for a number of years, if at all. Two of our product
candidates, INS365 Respiratory and INS37217 Respiratory, operate in a similar
manner. If the clinical results of one of the compounds is not favorable, the
results of the other compound may not be favorable. Moreover, all of our
product candidates are being designed to utilize related mechanisms of action.
If these mechanisms of action are not effective, we may not be able to
commercialize any of our product candidates. Even if all of our product
candidates prove effective, we may choose not to commercialize all of them.
There can be no assurance that we, alone or with our collaborators, will
successfully develop, commercialize, manufacture or market any products.
We have a history of operating losses and expect to incur additional losses for
at least several years.
We have experienced significant losses since inception. We incurred net
losses of $8.5 million for the year ended December 31, 1999, $4.1 million for
the year ended December 31, 1998 and $7.9 million for the year ended December
31, 1997. As of December 31, 1999, our accumulated deficit was approximately
$29.4 million. We expect to incur significant additional operating losses over
the next several years and expect cumulative losses to increase substantially
in the near term due to expanded research and development efforts, preclinical
studies and clinical trials. We expect that losses will fluctuate from quarter
to quarter and that such fluctuations may be substantial. Such fluctuations
will be affected by the following:
. timing of regulatory approvals and commercial sales of our product
candidates;
. the level of patient demand for our products;
. timing of payments to and from licensors and corporate partners; and
. timing of investments in new technologies.
None of our product candidates are currently approved for marketing, and
therefore no revenues are being generated from product sales. To achieve and
sustain profitable operations, we must, alone or with others, develop
successfully, obtain regulatory approval for, manufacture, introduce, market
and sell our products. The time frame necessary to achieve market success is
long and uncertain. We do not expect to generate product revenues for at least
the next few years. There can be no assurance that we will ever generate
sufficient product revenues to become profitable or to sustain profitability.
We may not be able to obtain sufficient additional funding to meet our
expanding capital requirements.
We have used substantial amounts of cash to fund our research and
development activities. We expect our capital and operating expenditures to
increase over the next several years as we expand our research and development
activities, address possible difficulties with clinical studies and prepare for
commercial sales. Many factors will influence our future capital needs. These
factors include:
. the progress of our research programs;
. the number and breadth of these programs;
. our ability to attract collaborators for our products;
. achievement of milestones under our existing collaborations with
Genentech, Kissei and Santen;
. our ability to establish and maintain additional collaborations;
. progress by our collaborators: Genentech, Kissei and Santen;
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. the level of our activities relating to commercialization rights we
retain in our collaborations;
. competing technological and market developments;
. the costs involved in enforcing patent claims and other intellectual
property rights; and
. the costs and timing of regulatory approvals.
We intend to rely on Genentech, Kissei, Santen and future collaborators for
significant funding in support of our development efforts. In addition, we may
seek additional funding through public or private equity offerings and debt
financings. Additional financing may not be available when needed. If
available, such financing may not be on terms favorable to us or our
stockholders. Stockholders' ownership will be diluted if we raise additional
capital by issuing equity securities. If we raise additional funds through
collaborations and licensing arrangements, we may have to relinquish rights to
certain of our technologies or product candidates or grant licenses on
unfavorable terms. Either of these situations could have a material adverse
effect on us. If adequate funds are not available, we would have to scale back
or terminate research programs and product development.
We may not be able to successfully compete with biotechnology companies and
established pharmaceutical companies.
The biotechnology and pharmaceutical industries are intensely competitive
and subject to rapid and significant technological change. Our competitors in
the United States and elsewhere are numerous and include, among others, major
multinational pharmaceutical and chemical companies, specialized biotechnology
firms and universities and other research institutions. Many of these
competitors employ greater financial and other resources, including larger
research and development staffs and more effective marketing and manufacturing
organizations, than we or our collaborative partners. Acquisitions of competing
companies and potential competitors by large pharmaceutical companies or others
could enhance financial, marketing and other resources available to such
competitors. As a result of academic and government institutions becoming
increasingly aware of the commercial value of their research findings, such
institutions are more likely to enter into exclusive licensing agreements with
commercial enterprises, including our competitors, to market commercial
products. There can be no assurance that our competitors will not succeed in
developing technologies and drugs that are safer, more effective or less costly
than any which are being developed by us or which would render our technology
and future drugs obsolete and non-competitive. In addition, alternative
approaches to treating certain diseases, such as gene therapy, may make our
product candidates obsolete. Such competitors may also be more successful in
production and marketing.
In addition, some of our competitors have greater experience than we do in
conducting preclinical and clinical trials and obtaining FDA and other
regulatory approvals. Accordingly, our competitors may succeed in obtaining FDA
or other regulatory approvals for drug candidates more rapidly than we do.
Companies that complete clinical trials, obtain required regulatory approvals
and commence commercial sale of their drugs before we do may achieve a
significant competitive advantage, including certain patent and FDA marketing
exclusivity rights that would delay our ability to market certain products.
There can be no assurance that drugs resulting from our research and
development efforts, or from our joint efforts with our collaborative partners,
will be able to compete successfully with competitors' existing products or
products under development or that they will obtain regulatory approval in the
United States or elsewhere.
We may be unable to hire and retain the key personnel upon whom our success
depends.
We depend on the principal members of our management and scientific staff,
including Christy L. Shaffer, Ph.D., our President, Chief Executive Officer and
director; and Gregory J. Mossinghoff, our Chief Business Officer. If any of
these people leaves us, our ability to conduct our operations may be negatively
affected. We have not entered into agreements with any of the above principal
members of our management and scientific staff that bind any of them to a
specific period of employment. We do not maintain key person life insurance.
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Our future success also will depend in part on our ability to attract, hire and
retain additional personnel skilled or experienced in the pharmaceutical
industry. There is intense competition for such qualified personnel and we
cannot be certain that we will be able to continue to attract and retain such
personnel.
Our operations involve a risk of injury from hazardous materials.
Our research and development activities involve the controlled use of
hazardous materials and chemicals. We cannot completely eliminate the risk of
accidental contamination or injury from these materials. If such an accident
were to occur, we could be held liable for any damages that result and any such
liability could exceed our resources. In addition, we are subject to laws and
regulations governing the use, storage, handling and disposal of these
materials and certain waste products. The costs of compliance with these laws
and regulations could be substantial.
Use of our products may result in product liability claims for which we may not
have adequate insurance coverage.
Clinical trials or manufacturing, marketing and sale of our potential
products by our collaborative partners may expose us to liability claims from
the use of such pharmaceutical products. Although we carry clinical trial
liability insurance, we currently do not carry product liability insurance.
There can be no assurance that we or our collaborators will be able to obtain
or maintain such insurance, as appropriate, or, if we can, that we can obtain
sufficient coverage at a reasonable cost. If we cannot or are unable otherwise
to protect against potential product liability claims, we may find it difficult
or impossible to commercialize pharmaceutical products we or our collaborators
develop. If claims or losses exceed our liability insurance coverage, we may go
out of business.
Efforts to reduce health care costs may affect our operations.
Our success will depend in part on the extent to which government and health
administration authorities, private health insurers and other third party
payors will pay for our products. Reimbursement for newly approved health care
products is uncertain. In the United States and elsewhere, third party payors,
such as Medicare, are increasingly challenging the prices charged for medical
products and services. Government and other third party payors are increasingly
attempting to contain health care costs by limiting both coverage and the level
of reimbursement for new therapeutic products. In the United States, a number
of legislative and regulatory proposals aimed at changing the health care
system have been proposed in recent years. In addition, an increasing emphasis
on managed care in the United States has and will continue to increase pressure
on pharmaceutical pricing. While we cannot predict whether legislative or
regulatory proposals will be adopted or what effect those proposals or managed
care efforts, including those relating to Medicare payments, may have on our
business, the announcement and/or adoption of such proposals or efforts could
have a material adverse effect on us. We cannot be certain that any third party
insurance coverage will be available to patients for any products we discover
or develop. If government and other third party payors do not provide adequate
coverage and reimbursement levels for our products, the market acceptance of
these products may be reduced. In various foreign markets, pricing or
profitability of medical products is subject to government control.
Because our management will have broad discretion over the use of the proceeds
from this offering, the offering proceeds may be used in ways stockholders do
not deem to be advisable.
The net proceeds of this offering are estimated to be approximately $
million, or about $ million if the underwriters exercise their over-
allotment option in full. This calculation assumes that the initial public
offering price is $ per share and the underwriting discounts and
commissions and our estimated offering expenses are $ million. Our
management will retain broad discretion as to the allocation of the proceeds of
this offering, including the timing and conditions of the use of the proceeds.
Consequently, our management may allocate the proceeds to uses that
stockholders do not deem advisable. If management spends the funds unwisely, we
may not have sufficient working capital to become profitable.
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Our existing directors, executive officers and principal stockholders will
retain a substantial amount of our common stock even after this offering and
may be able to direct the outcome of matters requiring stockholder approval.
After this offering, our directors, executive officers and current 5%
stockholders and certain of their affiliates will beneficially own
approximately % of the common stock. These stockholders, if they all act
together, may be able to direct the outcome of matters requiring approval of
the stockholders, including the election of our directors and other corporate
actions such as our merger with or into another company, a sale of
substantially all of our assets and amendments to our amended and restated
certificate of incorporation. The decisions of these stockholders may conflict
with our interests or those of our other stockholders.
Anti-takeover provisions in our amended and restated certificate of
incorporation and bylaws, and our right to issue preferred stock, may
discourage a third party from making a take-over offer that could be beneficial
to us and our stockholders.
Certain provisions of our amended and restated certificate of incorporation
and bylaws could delay or prevent a third party from acquiring shares of our
common stock or replacing members of our board of directors. In addition, our
board of directors is authorized to issue shares of preferred stock. The Board
can determine the price, rights, preferences and privileges of those shares
without any further vote or action by the stockholders. As a result, it could
make it more difficult for a third party to acquire a majority of our
outstanding voting stock.
Further, we are subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law. Under this law, if anyone becomes an
"interested stockholder" in the company, we may not enter a "business
combination" with that person for three years without special approval. These
provisions could delay or prevent a change of control. Certain other provisions
of the amended and restated certificate of incorporation and our bylaws could
also delay or prevent changes of control or management. These provisions could
adversely affect the market price of the common stock.
Our common stock has never been publicly traded and we cannot predict the
extent to which a trading market will develop.
Before this offering, there has been no public market for the common stock.
We cannot predict the extent to which an active public market for the common
stock will develop or be sustained after this offering. We will negotiate the
initial public offering price with the representatives of the underwriters. The
price we determine may not be indicative of future market prices.
Our common stock price is likely to be highly volatile and may decline.
The market price of our common stock is likely to be highly volatile. In
addition to various risks described elsewhere in this prospectus, the following
factors could also cause volatility and could result in declines in the market
price of our common stock:
. announcements made by us or our competitors concerning the results of
research activities, technological innovations or new commercial
products;
. changes in government regulations;
. regulatory actions;
. changes in patent laws;
. developments concerning proprietary rights;
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. variations in our operating results; and
. litigation.
Extreme price and volume fluctuations occur in the stock market from time to
time and that can particularly affect the prices of biotechnology companies.
These extreme fluctuations are often unrelated to the actual performance of the
affected companies. These broad market fluctuations may adversely affect the
market price of the common stock.
Future sale by our current stockholders may adversely affect our stock price
and our ability to raise funds in new stock offerings.
Sales of our common stock by our current stockholders in the public market
after this offering could cause the market price of our stock to fall. Sales
may also make it more difficult for us to sell equity securities or equity-
related securities in the future at a time and price that our management deems
acceptable, or at all. Upon the completion of this offering, we will have
shares of common stock outstanding, assuming no exercise of options or warrants
and assuming no exercise of the underwriters' over-allotment option. Of these
outstanding shares of common stock, the shares sold in this offering will
be freely tradable, without restriction under the Securities Act of 1933, as
amended, unless purchased by our "affiliates." The remaining shares of
common stock held by existing stockholders are "restricted securities" and may
be resold in the public market only if registered or pursuant to an exemption
from registration, such as Rule 144 under the Securities Act.
Immediately following the completion of this offering, holders of
shares of common stock and options and warrants to purchase shares
of common stock will be entitled to certain registration rights. Upon
registration, these shares may be freely sold in the public market.
All of our officers, directors and holders of preferred stock have agreed,
pursuant to certain lock-up agreements, that they will not, directly or
indirectly, offer, sell or agree to sell, or otherwise dispose of any shares of
our common stock or convertible securities in the public market without the
prior written consent of Bear, Stearns & Co. Inc. for a period of 180 days
after the effective date of the registration statement of which this prospectus
is a part. Upon expiration of the lock-up agreements shares of common
stock currently outstanding will be immediately eligible for resale, subject to
the requirements of Rule 144.
We may issue additional shares:
. to employees, directors and consultants;
. in connection with corporate alliances;
. in connection with acquisitions; and
. to raise capital.
As a result of these factors, a substantial number of shares of our common
stock could be sold in the public market at any time.
Purchasers in this offering will suffer immediate dilution in the net tangible
book value of the common stock that is purchased.
If you purchase common stock in this offering, the value of your shares
based upon the actual book value of the company will immediately be less than
the offering price you paid. This is known as "dilution." Based upon the net
tangible book value of the common stock at December 31, 1999, your shares will
be worth $ less per share than the price you paid in the offering. If
options and warrants we previously granted are exercised, additional dilution
is likely to occur.
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We do not expect to pay dividends in the foreseeable future and stockholders
must rely on stock appreciation for any return on their investment.
We have never paid dividends on our common stock and we do not intend to pay
any cash dividends on our common stock for the foreseeable future. As a result,
only the appreciation, if any, of the price of the common stock will provide
investors a return in this offering.
Year 2000 issues could result in the interruption of our business and
negatively impact our operating results.
We have completed our assessment of the year 2000 readiness of our core
information technology systems. Through this process, we contacted key external
suppliers of software applications and computer systems to coordinate the
evaluation of potential year 2000 issues. To date, we have not encountered any
material year 2000 problems with software and information systems provided to
us by third parties. We completed minor remediation with regard to software
programs, hardware and microprocessor-controlled equipment. We did not
experience any year 2000 problems. However, we believe that it is not possible
to determine with complete certainty that all year 2000 problems affecting us
have been identified or will be corrected. The number of devices and systems
that could be affected and the interactions among these devices and systems are
too numerous to address.
No one can accurately predict which year 2000 problem-related failures will
still occur, or the severity, timing, duration or financial consequences of
these potential failures. If year 2000 problems significantly impact our
strategic partners, it could delay our research programs and the
commercialization of products, if any. Business disputes alleging that we
failed to comply with the terms of contracts or industry standards of
performance could result in litigation or contract termination. We could also
lose future revenue as a result of network, software or hardware failures. We
also could be materially adversely affected if third parties, upon whom we
depend in order to run our day-to-day business, experience year 2000 problems.
For example, if our supplier of electricity has not made appropriate year 2000
corrections, we could experience a power outage and, consequently an
interruption of our research and development.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "could,"
"will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "intend," "potential," or "continue," the negative of such terms or
other comparable terminology. These statements are only predictions. Actual
events or results may differ materially. In evaluating these statements, you
should specifically consider various factors, including the risks outlined
under "Risk Factors." These factors may cause our actual results to differ
materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of the forward-
looking statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus, to conform such statements to
actual results or to note any changes or exceptions.
Statistical market data contained in "Prospectus Summary" and in "Business"
come from or are based on estimates prepared by us using data from various
sources. In certain cases we have made assumptions based on such data and our
knowledge of the specific diseases, which assumptions we believe to be
reasonable. References to prevalence and market size in the major international
pharmaceutical markets refer to the U.S., Canada, Japan, Germany, France,
Italy, Spain and the U.K., except that figures for chronic bronchitis exclude
Canada. With respect to chronic bronchitis, we have relied on data from a
Decision Resources report published in 1998, reporting 1996 prevalence and
market size and estimated 2001 market size. With respect to cystic fibrosis,
prevalence data is based, in the case of the U.S., on a Cystic Fibrosis
Foundation report published in 1999 and, in the case of the major international
pharmaceutical markets, on a 1994 Decision Resources report; market size solely
for the U.S. was estimated from patient usage data from a Cystic Fibrosis
Foundation report published in 1998. With respect to sinusitis, we estimated
prevalence solely in the U.S., based on data contained in a 1998 report from
the Centers for Disease Control and Prevention projected for the U.S.
population as a whole. With respect to dry eye disease, we have estimated
market size based on 1996 data published in a 1997 IMS report and we estimated
prevalence in the major international pharmaceutical markets by extrapolating,
based on population, from U.S. figures set forth in Lacrimal Gland, Tear Film,
and Dry Eye Syndrome (New York, 1998). With respect to retinal detachment, we
have estimated prevalence in the major international pharmaceutical markets by
extrapolating, based on population, from a twenty year study ending in 1995
conducted by the Department of Ophthalmology, Mayo Clinic in a metropolitan
area in the U.S.
18
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of
approximately $ million, or approximately $ million if the underwriters
exercise their over-allotment option in full. For purposes of this calculation,
we have assumed an initial public offering price of $ per share. We have
estimated that the underwriting discounts and commissions and our offering
expenses will be approximately $ million.
We expect to use the net proceeds of this offering for the clinical
development of our product candidates, product commercialization, discovery
research, preclinical activities and working capital and general corporate
purposes. We may also use a portion of the net proceeds to acquire businesses,
technologies, or products complementary to our business even though we do not
currently have any specific plans.
The information above represents our best estimate of our use of the net
proceeds of this offering based upon the current state of our business
operations, our current business plan and strategy, and current economic and
industry conditions. The amount and timing of our expenditures will vary
depending on the following:
. the progress of our clinical and preclinical development projects;
. signing of new corporate partners and the attainment of milestones with
our existing corporate partners;
. the progress of our research and development activities;
. technological changes;
. competitive conditions; and
. general industry and economic conditions.
The actual allocation of the net proceeds from this offering to any
particular use cannot be predicted with any degree of certainty. Pending use of
the net proceeds for the purposes described above, we intend to invest the net
proceeds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. Following
this offering, our dividend practices with respect to our common stock will be
determined and may be changed from time to time by our board of directors. Any
payment of dividends will be based upon our earnings, financial condition,
capital requirements and other factors considered important by our board of
directors. Under Delaware law and our amended and restated certificate of
incorporation, our board of directors is not required to declare dividends on
our common stock. We expect to retain all earnings, if any, generated by our
operations for the development and growth of our business and do not anticipate
paying any dividends to our stockholders in the foreseeable future.
Since December 17, 1999, dividends have been accruing on our Series G
preferred stock at prime rate plus 1%. Such accrued dividends will be paid to
the holders of Series G preferred stock in shares of common stock upon the
automatic conversion of the Series G preferred stock into common stock upon the
closing of this offering.
19
<PAGE>
CAPITALIZATION
You should read the following table in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and the notes thereto included elsewhere in this
prospectus. The table shows as of December 31, 1999:
. our actual capitalization;
. our pro forma capitalization after giving effect to the automatic
conversion, at the time of the closing of this offering, of our
outstanding shares of preferred stock and a -for- reverse-split of
our common stock that will take effect prior to the closing date of this
offering; and
. our pro forma as adjusted capitalization, adjusted to give effect to the
sale of shares of common stock pursuant to this offering at an
assumed initial public offering price of $ per share after deducting
underwriting discounts and commissions and our estimated offering
expenses.
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------
Pro forma
Actual Pro forma As Adjusted
-------- --------- -----------
(in thousands, except share
data)
<S> <C> <C> <C>
Cash and cash equivalents...................... $ 22,728 $ $
======== ==== ====
Notes payable and capital leases, excluding
current portion............................... $ 357 $ $
Stockholders' equity:
Convertible preferred stock, $0.001 par
value; 52,000,000 shares authorized;
28,059,666 shares issued and outstanding
(actual); no shares issued or outstanding
(pro forma and pro forma as adjusted)....... 45,895
Common stock, $0.001 par value; 56,000,000
shares authorized;
4,315,250 shares issued and outstanding
(actual); [ ] shares issued and
outstanding (pro forma); [ ] shares issued
and outstanding (pro forma as adjusted)..... 4
Additional paid in capital................... 906
Accumulated deficit.......................... (29,396)
Deferred compensation........................ (329)
-------- ---- ----
Total stockholders' equity................. 17,080
-------- ---- ----
Total capitalization........................... $ 17,437 $ $
======== ==== ====
</TABLE>
This table assumes no exercise of stock options or warrants outstanding as
of December 31, 1999. As of December 31, 1999, there were options outstanding
under our stock plan to purchase a total of 2,580,406 shares of common stock,
with a weighted average exercise price of $0.20 per share, 464,444 shares of
common stock issuable upon the exercise of outstanding warrants, with a
weighted average exercise price of $4.41 per share, and 208,170 shares of
preferred stock issuable upon the exercise of outstanding warrants, with a
weighted average exercise price of $1.20 per share.
20
<PAGE>
DILUTION
Our historical net tangible book value as of December 31, 1999 was
approximately $16.9 million, or $3.92 per share, based on the number of common
shares outstanding as of December 31, 1999. Historical net tangible book value
per share is equal to the amount of our total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding as of
December 31, 1999.
As of December 31, 1999, our pro forma net tangible book value was
approximately $ or $ per share after taking into account the
issuance of shares of common stock upon the automatic conversion,
at the time of the closing of this offering, of our outstanding shares of
preferred stock. Without taking into account any other changes in our net
tangible book value after December 31, 1999, other than to give effect to this
offering at an assumed initial offering price of $ per share and our
receipt of the estimated net proceeds from the offering, our net tangible book
value, as adjusted at December 31, 1999, would have been approximately
$ or $ per share. This represents an immediate increase in the
net tangible book value of $ per share of our common stock to present
stockholders and an immediate dilution of $ or % per share to
new investors. The following table shows this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $
Historical net tangible book value per share at December 31, 1999.. $
Decrease per share attributed to the conversion of preferred
stock.............................................................
----
Pro Forma net tangible book value per share before this offering...
----
Increase per share attributable to new investors...................
Pro forma net tangible book value per share after this offering......
----
Dilution per share to new investors.................................. $
====
</TABLE>
If the underwriters exercise their over-allotment in full, there will be an
increase in pro forma net tangible book value to $ per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$ to new stockholders. Our existing stockholders would own % and our
new public investors would own % of the total number of shares of our
common stock outstanding after this offering.
The following table summarizes, on a pro forma basis as of December 31,
1999, the differences between existing stockholders and investors in this
offering with respect to the number and percentage of shares of our common
stock purchased from us, the amount and percentage of consideration paid, and
the average price paid per share of our common stock, before deduction of
underwriting discounts and commissions and our estimated offering expenses:
<TABLE>
<CAPTION>
Shares Owned Consideration
----------------- ----------------- Average Price
Number Percentage Amount Percentage Per Share
------ ---------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... % $ % $
New investors.................
--- --- ---- ---
Total....................... % $ %
=== === ==== ===
</TABLE>
The discussion and tables above assume no exercise of stock options or
warrants outstanding as of December 31, 1999. As of December 31, 1999, there
were options outstanding under our stock plan to purchase a total of 2,580,406
shares of common stock, with a weighted average exercise price of $0.20 per
share, 464,444 shares of common stock issuable upon the exercise of outstanding
warrants, with a weighted average exercise price of $4.41 per share and 208,170
shares of preferred stock issuable upon the exercise of outstanding warrants,
with a weighted average exercise price of $1.20 per share. To the extent that
any of these options or warrants are exercised, there will be further dilution
to new investors.
21
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
financial statements and related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus. The statement of operations data for the years ended
December 31, 1997, 1998 and 1999, and the balance sheet data at December 31,
1998 and 1999 are derived from financial statements included elsewhere in this
prospectus that have been audited by PricewaterhouseCoopers LLP, independent
auditors. The statement of operations data for the fiscal years ended December
31, 1995 and 1996 and the balance sheet data at December 31, 1995, 1996 and
1997 are derived from our audited financial statements that are not included in
this prospectus. Historical results are not necessarily indicative of future
results.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue........................ $ -- $ -- $ -- $ 3,600 $ 600
------- ------- ------- -------- --------
Operating Expenses:
Research and development..... 1,539 4,207 6,569 5,438 7,179
General and administrative... 1,050 1,531 1,494 1,921 1,887
Stock based compensation..... -- -- -- 14 90
------- ------- ------- -------- --------
Total operating expenses....... 2,589 5,738 8,063 7,373 9,156
------- ------- ------- -------- --------
Operating loss................. (2,589) (5,738) (8,063) (3,773) (8,556)
Other income (expense), net.... (115) (44) 116 35 142
------- ------- ------- -------- --------
Loss before provision for
income taxes.................. (2,704) (5,782) (7,947) (3,738) (8,414)
Provision for income taxes..... -- -- -- 360 60
------- ------- ------- -------- --------
Net loss....................... (2,704) (5,782) (7,947) (4,098) (8,474)
Preferred stock dividends...... -- -- -- -- (62)
------- ------- ------- -------- --------
Net loss available to common
stockholders.................. $(2,704) $(5,782) $(7,947) $ (4,098) $ (8,536)
======= ======= ======= ======== ========
Net loss per common share--
basic and diluted............. $ (0.99) $ (1.84) $ (2.29) $ (1.14) $ (2.02)
======= ======= ======= ======== ========
Weighted average common shares
outstanding--basic and
diluted....................... 2,742 3,146 3,466 3,607 4,202
Pro forma net loss per common
share--basic and
diluted....................... $
========
Pro forma weighted average
common shares outstanding--
basic and diluted.............
<CAPTION>
As of December 31,
---------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...... $ 6,537 $ 843 $ 5,826 $ 4,138 $ 22,728
Total assets................... 7,953 2,568 7,229 5,446 23,930
Convertible preferred stock.... 9,100 9,100 22,067 24,467 45,895
Common stock................... 3 3 3 4 4
Additional paid-in capital..... 207 220 238 569 906
Accumulated deficit............ (3,033) (8,815) (16,762) (20,860) (29,396)
Total stockholders' equity
(deficit)..................... 6,277 508 5,546 3,904 17,080
</TABLE>
See the financial statements and notes thereto included elsewhere in this
prospectus for a description of the computation of the historical and pro forma
net loss per share and the number of shares used in the historical and pro
forma per share calculations in the statement of operations data above.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this section in conjunction with the financial statements
and notes thereto included elsewhere in this prospectus.
Overview
We discover and develop novel pharmaceutical products to treat diseases
characterized by deficiencies in the body's innate defense mechanisms of
mucosal hydration and mucociliary clearance. Our products are based on our
proprietary technology platform relating to P2Y receptors. Studies indicate
that a subtype of this family, the P2Y\\2\\ receptor, coordinates the
mechanisms of mucosal hydration and mucociliary clearance and that these
processes can be regulated therapeutically through the binding and activation
of this receptor. Our lead products target respiratory and ophthalmic diseases
with inadequate current treatments. We currently have three product candidates
in advanced clinical development:
. INS365 Respiratory for the treatment of chronic bronchitis;
. INS365 Ophthalmic for the treatment of dry eye disease; and
. INS316 Diagnostic to aid in the diagnosis of lung cancer and lung
infection.
To date, we have devoted substantially all of our efforts to research,
clinical development and establishing strategic partnerships for the
development and potential marketing of our product candidates when they are
approved. We have not derived any commercial revenues from product sales and we
do not expect to receive sales revenues for at least the next several years. We
recognized revenues from a collaborative research and development agreement
with Kissei in 1998 and 1999 and expect to recognize revenues in 2000 from our
collaborative research and development agreements with Kissei and Genentech. We
have incurred significant operating losses since our inception in 1993 and, as
of December 31, 1999, we had an accumulated deficit of $29.4 million. We have
primarily funded our losses by raising $45.9 million in private sales of equity
securities. There can be no assurance if or when we will become profitable. We
expect that our losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial. Our achieving profitability depends upon our
ability, alone and with others, to successfully complete the development of our
product candidates, obtain required regulatory clearances and successfully
manufacture and market our products.
We recognize revenue under our collaborative research and development
agreements when we have performed services under such agreements, or when we or
our collaborative partner has met a contractual milestone triggering a payment
to us. Non-refundable fees received at the initiation of collaborative
agreements for which we have an ongoing research and development commitment are
deferred and recognized ratably over the period of the ongoing research and
clinical development commitment. License fees received under collaborative
research and development agreements for which we have no future research or
clinical development commitment are recognized when received. We are also
entitled to receive milestone payments under our collaborative research and
development agreements based upon achievement of development milestones by us
or our collaborative partners. We recognize milestone payments at the date the
milestone is achieved and acknowledged by the collaborative partner, which is
generally at the date payment is received from the collaborative partner.
Results of Operations
Year Ended December 31, 1999 and 1998
Revenues
Revenues are primarily derived from collaborative research and development
agreements with strategic partners. We receive milestone payments under these
collaborative research and development agreements based both on achievement by
us and our partners of defined development milestones.
23
<PAGE>
Our revenues decreased $3.0 million to $600,000 in 1999 from $3.6 million in
1998. Revenue for 1998 included the receipt of a non-refundable license fee
from Kissei for which we have no ongoing research and development commitment.
In December 1999, we received a $5.0 million payment from Genentech in
connection with the signing of our collaborative research agreement. This
amount was deferred and will be recognized ratably as revenue over the period
of our research commitment for our development of INS365 Respiratory, which is
expected to occur in 2000 and 2001. Revenue for 1999 is comprised of a $600,000
milestone payment received under our collaborative research and development
agreement with Kissei which is related to a development milestone reached by us
on behalf of Kissei.
Research and Development
Research and development expenses are primarily comprised of personnel and
related costs and costs of contract research organizations that are performing
research and development activities, including clinical studies, for us, and
costs of filing and maintaining our patent portfolio.
Research and development expense increased by approximately $1.8 million to
$7.2 million in 1999 from $5.4 million in 1998. This increase was due to an
increase of approximately $500,000 in contract research costs related to
clinical studies, an increase of $245,000 in patent related costs, $275,000 in
increased personnel and related costs as we added personnel to support the
expansion of our clinical study activities and an increase of $810,000 in costs
related to preclinical activities as we added research personnel to support our
increased discovery activity related to new compounds and potential new
indications for existing compounds.
General and Administrative
General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including finance, accounting,
legal, human resources, facilities and information systems expenses.
General and administrative expenses increased by approximately $34,000 to
$1.9 million in 1999. The increase in general and administrative expense is
primarily due to increased facilities and equipment costs in 1999 as a result
of the increase in our business activities.
Stock Based Compensation
Stock based compensation expense consists of the amortization of deferred
compensation, related to stock options granted to employees with an exercise
price below the estimated fair market value of our common stock at the date of
the grant. We recorded deferred compensation of approximately $290,000 in 1998
and $144,000 in 1999. Deferred compensation is amortized to operating expense
over the vesting period of the related stock options which is generally four
years. Stock based compensation expense increased to $90,000 in 1999 as
compared to $14,000 in 1998.
Other Income (Expense), Net
Other income (expense), net consists of interest income earned on cash
deposits and short-term investments, reduced by interest expense on notes
payable and capital lease obligations and gains and losses on sales of property
and equipment. Other income (expense), net increased by approximately $107,000
to income of $142,000 in 1999 as compared to income of $35,000 in 1998. The
increase is primarily due to an increase in interest income of $70,000 due to
higher average cash and investment balances in 1999 as compared to 1998 and a
decrease in interest expense of approximately $25,000 resulting from the lower
average notes payable balance in 1999 as compared to 1998.
Income Tax Expense
Provision for income taxes decreased by approximately $300,000 to $60,000 in
1999 from $360,000 in 1998. Income taxes in 1999 and 1998 are comprised of
Japanese withholding taxes on license payments received from Kissei. The
decrease in income tax expense is due to the reduction in license payments
received from Kissei in 1999 as compared to 1998.
24
<PAGE>
Year Ended December 31, 1998 and 1997
Revenues
Our revenues increased to $3.6 million in 1998 from zero in 1997. This
increase was the result of the receipt of a non-refundable license fee from
Kissei in 1998 for which we have no ongoing research and development
commitment.
Research and Development
Research and development expense decreased by approximately $1.2 million to
$5.4 million in 1998 from $6.6 million in 1997. This decrease was due primarily
to the fact that in 1997, we were required to make milestone payments of
$500,000 to the entities from which we licensed certain of our drug compounds
while we made only $30,000 of such license payments in 1998. In addition, in
1998 we had a decline of approximately $600,000 in costs related to clinical
and preclinical studies as compared to 1997.
General and Administrative
General and administrative expenses increased by approximately $400,000 to
$1.9 million in 1998 from $1.5 million in 1997. The increase in general and
administrative expense is primarily due to an increase in personnel costs as we
added administrative and finance staff in 1998 to support the growth in our
business.
Stock Based Compensation
Stock based compensation expense increased to $14,000 in 1998 as compared to
zero in 1997 as prior to 1998 all stock option grants had been made with an
exercise price equal to the fair value of our common stock at the date of the
grant.
Other Income (Expense), Net
Other income (expense), net decreased by $81,000 to income of $35,000 in
1998 as compared to income of $116,000 in 1997. The decrease is primarily due
to a decrease in interest income of $112,000 due to lower average cash and
investment balances in 1998 as compared to 1997 partially offset by a decrease
in interest expense on capital leases of $49,000.
Income Tax Expense
Provision for income taxes increased to $360,000 in 1998 from zero in 1997.
Income taxes in 1998 are comprised of Japanese withholding taxes on a license
payment received from Kissei. No such license payments were received in 1997.
Liquidity and Capital Resources
We have historically derived a significant portion of our liquidity and
operating capital from the private placements of preferred stock and from
payments received under collaboration or license agreements related to our
technologies. At December 31, 1999, cash and cash equivalents totaled $22.7
million, an increase of $18.6 million as compared to December 31, 1998. The
increase in cash and cash equivalents resulted from our receipt of $21.4
million in net proceeds from the private placement of our Series E and Series G
preferred stock in July, October and December 1999. In addition, we received a
non-refundable license fee of $5.0 million upon the signing of a collaboration
agreement with Genentech on December 17, 1999, which was recorded as deferred
revenue, and a milestone payment of $600,000 from Kissei in 1999. Cash used for
operating expenses was $7.9 million, excluding the license fees received from
Genentech and Kissei for our operating expenses, cash used by investing
activities of $151,000 and payments on capital lease obligations of $457,000.
Cash used by operations of $2.3 million during 1999 represented our net loss
of $8.5 million partially offset by the $5.0 million license fee received upon
the signing of the Genentech agreement in December 1999, non-cash charges to
our net loss of $741,000 and an increase in accounts payable and accrued
liabilities of $472,000. The increase in accounts payable and accrued
liabilities is primarily due to the increase in spending in our clinical and
preclinical activities in 1999 as compared to 1998.
25
<PAGE>
Cash used in investing activities of $151,000 was comprised of purchases of
property and equipment. Cash provided by financing activities of $21.0 million
resulted from the receipt of $11.4 million in net proceeds from the sale of our
Series E preferred stock in July and October 1999 and net proceeds of $10.0
million from the sale of our Series G preferred stock in December 1999
partially offset by payments of $457,000 on our capital lease obligations.
At December 31, 1998, cash and cash equivalents totaled $4.1 million, a
decrease of $1.7 million as compared to December 31, 1997. The decrease in cash
and cash equivalents resulted from cash used in operations of $3.6 million,
which was primarily due to our net loss, and $462,000 in payments on our notes
payable and capital lease obligations partially offset by $2.4 million in
proceeds received from the sale of our Series C and Series D preferred stock in
September and December 1998.
Cash used by operations in 1998 of $3.6 million reflects our net loss of
$4.1 million partially offset by non-cash charges of $607,000 and a decrease in
accounts payable and accrued liabilities of $107,000. The decrease in accounts
payable and accrued liabilities resulted primarily from timing of the receipt
of invoices related to our clinical and preclinical activities.
Cash used by investing activities in 1998 of $43,000 represented the
purchase of property and equipment partially offset by the proceeds from
disposal of property and equipment.
Cash provided by financing activities of $2.0 million resulted from the
receipt of $900,000 in proceeds from the sale of our Series C preferred stock
in September 1998 and the receipt of $1.5 million in proceeds from the sale of
our Series D preferred stock in December 1998 partially offset by $462,000 in
payments on our notes payable and capital lease obligations.
We have experienced a substantial increase in our operating expenses since
our inception in connection with the increase in the number of compounds in
both preclinical and clinical development. Our capital requirements are
expected to continue to increase as we expect to move more compounds into
clinical trials during 2000. The timing and amount of these expenditures will
depend upon numerous factors, including:
. timing of initiation of clinical trials;
. design and duration of clinical trials;
. our ability to negotiate favorable terms with contract research
organizations to perform these clinical trials;
. number of compounds and level of our preclinical activities; and
. timing of achievement by us or our partners of development milestones
and resulting receipt by us of milestone payments under our
collaborative research agreements.
We expect that the proceeds from this offering, combined with our current
cash and cash equivalents, short-term investments and funding from existing
collaborative arrangements will be sufficient to fund our operations for at
least the next two years. This estimate is a forward-looking statement that
involves risks and uncertainties as set forth under the caption "Risk Factors"
in this prospectus.
Recently Enacted Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued the Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Standard establishes accounting and
reporting standards for derivatives and hedging activities and supersedes and
amends a number of existing standards. The Standard, as amended by Statement of
Financial Accounting Standard No. 137, is effective for all fiscal quarters in
all fiscal years beginning after June 15, 2000, but earlier application is
encouraged. Upon the Standard's application, all derivatives are required to be
recognized in the statement of financial position as either assets or
liabilities and to be measured at fair value. In addition, all hedging
relationships must be designated, reassessed and documented. The Company does
not currently, nor does it intend in the future, to use derivative instruments
and therefore does not expect that the adoption of SFAS 133 will have any
impact on its financial position or results of operations.
26
<PAGE>
Impact Of Year 2000
Many currently installed computer systems and software products were unable
to distinguish between twentieth century dates and twenty-first century dates.
As a result, many companies had to upgrade or replace their software and
computer systems to comply with year 2000 requirements or risk system failure
or miscalculations causing disruptions of normal business activities.
State of Readiness
The majority of the computer programs and hardware we currently use in our
own internal operations did not require replacement or modification as a result
of the year 2000 issue. We have not, to date, experienced any material year
2000 problem. We believe that our significant vendors and service providers are
year 2000 compliant and we have not, to date, been made aware that any of our
significant vendors or service providers have suffered disruptions in their
systems.
Costs
To date, we have incurred some expenses, which have not been material,
related to the operating costs associated with time spent by employees in the
evaluation process and year 2000 compliance testing generally. We presently do
not anticipate that future expenditures will be material.
Risks
We completed internal assessments of our year 2000 readiness prior to
December 31, 1999, with emphasis on our operating and administrative systems
and are not aware of any year 2000 problems that could reasonably be expected
to have a material adverse effect on our business. Our assessment plans
consisted of internal testing of our systems, contacting third party vendors of
hardware, software and services, assessing and implementing repairs or
replacements as required and developing contingency plans if year 2000 problems
still arise. We contacted our major vendors for software, hardware and related
services. These vendors indicated that they are year 2000 compliant. To date,
we have not experienced any material year 2000 problems. However, we can not
guarantee that we have identified all year 2000 compliance problems in our
infrastructure that may require substantial revisions and repairs. Also,
despite our testing and reviews, we may experience year 2000 problems related
to the third party software, hardware or other systems on which we are reliant,
and any of these problems may be time consuming or expensive to fix.
Contingency Plan
We have been engaged in an ongoing assessment of our readiness and have
developed contingency plans to address year 2000 problems that may arise. The
results of our analyses and the responses received from third party vendors and
service providers were taken into account in developing these plans.
Quantitative and Qualitative Disclosures about Market Risk
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
investment portfolio and on the increase or decrease in the amount of interest
expense we must pay with respect to our various outstanding debt instruments.
Our risk associated with fluctuating interest expense is limited, however, to
our capital lease obligations, the interest rates are closely tied to market
rates, and our investments in interest rate sensitive financial instruments.
Under our current policies, we do not use interest rate derivative instruments
to manage exposure to interest rate changes. We ensure the safety and
preservation of our invested principal funds by limiting default risks, market
risk and reinvestment risk. We mitigate default risk by investing in investment
grade securities. A hypothetical 100 basis point adverse move in interest rates
along the entire interest rate yield curve would not materially affect the fair
value of our interest sensitive financial instruments at December 31, 1998 or
December 31, 1999. Declines in interest rates over time will, however, reduce
our interest income while increases in interest rates over time will increase
our interest expense.
27
<PAGE>
BUSINESS
Overview
We discover and develop novel pharmaceutical products to treat diseases
characterized by deficiencies in the body's innate defense mechanisms of
mucosal hydration and mucociliary clearance. Our products are based on our
proprietary technology platform relating to P2Y receptors. Studies indicate
that a subtype of this family, the P2Y\\2\\ receptor, coordinates the
mechanisms of mucosal hydration and mucociliary clearance. These complex
mechanisms, which involve fluid transport, mucin and ciliary action can be
regulated therapeutically through the binding and activation of this receptor.
Our lead products target respiratory and ophthalmic diseases with inadequate
current treatments. We currently have three product candidates in advanced
clinical development:
. INS365 Respiratory for the treatment of chronic bronchitis;
. INS365 Ophthalmic for the treatment of dry eye disease; and
. INS316 Diagnostic to aid in the diagnosis of lung cancer and lung
infection.
In addition, we have two products that are scheduled to enter clinical
trials later this year: INS37217 Respiratory for the treatment of cystic
fibrosis and INS37217 Ophthalmic for the treatment of retinal detachment. We
have entered into development and commercialization alliances with Genentech,
Kissei and Santen. We are also exploring other target diseases where we believe
P2Y receptors play important biological roles.
Background
Mucosal hydration and mucociliary clearance processes are observed at a
number of human mucosal surfaces including those in the respiratory tract, eyes
and sinuses. Mucosal hydration and mucociliary clearance are natural mechanisms
for cleansing and protecting mucosal surfaces and require a coordinated balance
of salt, water and mucus. Studies indicate that P2Y\\2\\ receptors regulate
these mechanisms on epithelial cells that line mucosal surfaces. Diseases that
are characterized by impairment of mucosal hydration and mucociliary clearance
include chronic bronchitis, sinusitis, cystic fibrosis and dry eye disease.
Respiratory
For lungs to function normally, airway surfaces must be kept properly
hydrated and clear of particles. Airway liquid, including salt and water, is
secreted through channels in the membranes of respiratory epithelial cells.
Mucus, secreted by goblet cells, traps microorganisms and particulates.
Specialized epithelial cells containing hair-like projections known as cilia
beat synchronously to propel the overlying "mucociliary blanket" of salt, water
and mucus to the mouth and throat where secretions are swallowed or expelled.
This process is the principal mechanism by which the body keeps airway surfaces
free of dust, pollutants, bacteria and viruses. Genetic and environmental
factors can lead to a breakdown in the normal process of mucosal hydration and
mucociliary clearance that is observed in many debilitating respiratory
diseases, including chronic bronchitis and cystic fibrosis. Studies indicate
that activating P2Y\\2\\ receptors with effective agonists can help restore the
respiratory system's innate defense mechanisms.
Chronic Bronchitis
Chronic bronchitis is a serious and potentially life-threatening lung
condition characterized by acute and chronic airway inflammation, chronic
obstruction of airflow and a mucus-producing cough. Patients with chronic
bronchitis experience shortness of breath, labored breathing, excessive and
chronic coughing and production and retention of excessive mucus. Chronic
bronchitis can be caused by smoking, environmental toxins, and viral or
bacterial infections. Chronic bronchitis is defined by the American Thoracic
Society as the presence of a mucus-producing cough most days of the month,
three months of the year, for at least two successive years without obvious
alternative explanation. Patients with chronic bronchitis experience acute
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exacerbations during which their respiratory symptoms worsen, their medication
usage increases and they may require hospitalization. If left untreated, these
patients experience progressive deterioration in lung function, which can
eventually result in respiratory failure and death.
The American Thoracic Society guidelines for the treatment of chronic
bronchitis recommend three main objectives to pharmaceutical intervention:
dilation of the airways, reduction of airway inflammation, and clearance of
retained respiratory secretions. Current management of chronic bronchitis is
palliative in nature and is based on the degree of airflow obstruction and the
extent of the patient's disability. Physicians generally prescribe
bronchodilators, which act to open airways in the lungs. These are usually
inhaled medications such as Serevent(R), Ventolin(R), Atrovent(R), or
Combivent(R). Physicians may also prescribe inhaled steroids such as
Beclovent(R) and Azmacort(R) to reduce the inflammation in the airways.
Additionally, physicians often use antibiotics during acute exacerbations if
they diagnose or suspect bacterial infections. There is currently no FDA
approved pharmaceutical agent that effectively clears retained mucous
secretions in this disease.
Approximately 31 million patients have been diagnosed with chronic
bronchitis in the eight major international prescription pharmaceutical
markets, including 14 million in the United States, making it more prevalent
than asthma. Chronic bronchitis is estimated to account for approximately $14
billion in direct costs annually. In the United States, there are estimated to
be 500,000 hospitalizations per year due to acute exacerbations of chronic
bronchitis and it is the fourth leading cause of death. In the eight major
international prescription pharmaceutical markets, sales of ethical/proprietary
pharmaceutical products to treat chronic bronchitis were approximately $1.3
billion in 1996 and have been estimated to reach approximately $2 billion in
2001.
Cystic Fibrosis
Cystic fibrosis is a life-threatening disease involving a genetic mutation
that disrupts the cystic fibrosis transmembrane regulator protein. In healthy
individuals, this protein acts as an ion-specific channel that modulates salt
and water transport. In cystic fibrosis patients, a defect in this channel
leads to poorly hydrated, thickened mucous secretions in the airways and
severely impaired mucociliary clearance. Impairments in these vital lung
defense mechanisms typically begin in early childhood. Chronic secondary
infections invariably occur, resulting in progressive lung dysfunction and
deterioration. Cystic fibrosis-induced damage to the respiratory tract accounts
for more than 95% of the morbidity and mortality associated with this disease.
According to the U.S. Cystic Fibrosis Foundation, the average life expectancy
for patients is 32 years.
The current therapeutic approaches to address cystic fibrosis are mainly
palliative and are aimed primarily at reducing respiratory infections and
breaking up thickened mucous secretions that cause airflow obstruction and
harbor bacteria. For example, TOBI(R) is an inhaled antibiotic that treats the
infection, and Pulmozyme(R) is an inhaled protein that breaks up excessive DNA
in cystic fibrosis mucus thereby reducing the viscoelasticity of the
respiratory secretions. While both products are approved for the treatment of
cystic fibrosis, neither product is designed to address the underlying ion-
transport defect, which results in dehydrated mucus and severely impaired
mucociliary clearance.
There are approximately 30,000 diagnosed cystic fibrosis patients in the
United States and approximately 75,000 in the eight major international
prescription pharmaceutical markets. The average annual cost of treating a
cystic fibrosis patient in the United States exceeds $45,000, and the annual
cost for patients in the United States is over $1 billion. We estimate that in
the United States sales of ethical/proprietary pharmaceutical products to treat
cystic fibrosis currently are in excess of $200 million annually.
Respiratory Diagnostics
Physicians use microscopic examination of lung cells to diagnose lung cancer
and lung infections, including pneumonia and tuberculosis. Effective diagnosis
requires the collection of an adequate specimen, one which is enriched with
deep-lung material. Bronchoscopy, an invasive medical procedure, is sometimes
performed to obtain a specimen; however it is a procedure that costs over
$1,000 and poses some risk to
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patients with impaired lung function. The induction of sputum, either
spontaneously or with inhaled solutions, is a less invasive and less costly
alternative for obtaining a deep-lung specimen. Once the specimens are
collected, they are tested for the presence of malignant cells or pathogens
associated with lung infections. However, many patients have difficulty
producing adequate sputum samples spontaneously, which is a key barrier to
early and effective diagnosis and treatment.
There are no FDA approved agents currently available to enhance the
production of an adequate sputum sample. In an effort to produce a quality
sputum sample, non-approved agents are frequently used, including inhaled
solutions such as hypertonic saline and propylene glycol, which cause
irritation and excessive coughing. Because these agents have limited utility
and are often poorly tolerated, pulmonologists and respiratory therapists have
expressed a strong interest in a better tolerated and more efficacious
adjunctive therapy, which if effective could reduce the need for
bronchoscopies.
Market research conducted by us, including interviews with pulmonologists
and oncologists, indicates that sputum samples are frequently collected for the
diagnosis of lung cancer and lung infections. The testing of sputum samples is
a recommended component of annual physical examinations in Japan.
Ophthalmic
The eyes and inner eyelids are surrounded by a mucosal surface which serves
as an important innate defense mechanism, keeping the eye surface moist, clear
and free from infection. Tears produced by the mucosal hydration process and
the lacrimal glands help maintain eye moisture and in response to physical
stimuli can be greatly increased to flush out irritants. This tear film is a
complex mixture of fluid, ions, mucin and proteins that, when mixed in the
proper proportions, coats the cornea with a protective film. The mucosal
hydration process and the lacrimal glands maintain an optimal balance of salt,
water, mucin and proteins in people with a healthy ocular surface. Studies
indicate that activating P2Y\\2\\ receptors with effective agonists can help
restore the eye's innate mucosal defense mechanism on the ocular surface.
Dry Eye Disease
Dry eye, an ocular surface disease, is the general term for a condition in
which abnormalities in the eye's tear film lead to red, irritated and dry eyes.
These abnormalities are typically characterized by a decrease in tear
production, an increase in tear evaporation or the improper mixture of the
eye's tear film components. If left untreated, dry eye disease can result in
permanent corneal damage and visual impairment.
The current treatments for dry eye disorders in the major markets consist
primarily of artificial tear solutions and lubricant drops. In some cases,
small plugs are inserted by physicians in the corner of the eyes to slow tear
drainage. Artificial tears, which are available as over-the-counter and, in
some countries, as prescription products, provide temporary relief of symptoms,
but also wash out the natural proteins and other components that keep an eye
healthy. There are currently no approved pharmacologically active treatments
for dry eye disease.
We estimate, based on an extrapolation from United States data, that
moderate to severe dry eye affects approximately nine million people in the
eight major international prescription pharmaceutical markets and can be caused
by eye stress, aging, environmental factors, autoimmune disorders and various
medications. The market for dry eye treatments consists of both prescription
and over-the-counter products. Because dry eye disease is more prevalent among
the elderly and post-menopausal women, this market is expected to grow as
populations age. We estimate that, in the eight major international
prescription pharmaceutical markets, sales of ethical/proprietary
pharmaceutical products for dry eye treatments exceed $230 million annually.
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Inspire's Solution
Mucosal hydration and mucociliary clearance are natural mechanisms for
cleansing and protecting epithelial surfaces and require a coordinated balance
of salt, water and mucus. Studies indicate that P2Y\\2\\ receptors coordinate
these processes that can be regulated therapeutically by the local delivery of
molecules that bind to and activate these receptors. We have focused our
technology platform on developing P2Y\\2\\ receptor agonists to treat diseases
by activating natural processes of mucosal hydration and mucociliary clearance.
We believe that P2Y\\2\\ agonists represent a novel, pharmacological
approach to the treatment of respiratory and eye diseases. We also believe that
a P2Y\\2\\ agonist may be effective as a diagnostic adjunct to enhance the
production of deep-lung sputum samples. Importantly, our product candidates can
be applied directly to these mucosal surfaces in a topical formulation such as
inhaled aerosols and eye drops. These products act and are metabolized locally,
thereby minimizing the potential for systemic side effects. Our current
products are designed to address the medical need for effective new products
for chronic bronchitis, cystic fibrosis, respiratory diagnostics, dry eye
disease and other diseases that involve impairment of mucosal hydration and
mucociliary clearance on epithelial surfaces. Our principal products are:
INS365 Respiratory: We are developing INS365 Respiratory as an inhaled
product for the treatment of chronic bronchitis. We believe our product will be
the first FDA approved product that addresses the need for an effective agent
to clear the build-up of mucus in the airways of bronchitis sufferers. Thus, we
believe our product will reduce the need for antibiotics, steroids and
bronchodilators, and may reduce the frequency and length of exacerbations and
hospitalizations. In many cases, we believe that our product will be
complementary to existing treatments.
INS37217 Respiratory: We are developing INS37217 Respiratory as an inhaled
product for the treatment of cystic fibrosis. We believe our product will be
the first FDA approved product that mitigates the underlying ion-transport
defect in the airways of patients with cystic fibrosis. We believe our product
will improve respiratory symptoms, reduce infections and enhance the health
status of patients with this disease and will be complementary to other
currently approved products.
INS316 Diagnostic: We are developing INS316 Diagnostic as an inhaled
diagnostic adjunct to aid in the detection of lung cancer and lung infection.
We believe that INS316 Diagnostic will be an effective acute-use product to
enhance the production of adequate deep-lung sputum samples for diagnostic
purposes. As such, we believe our product will facilitate the diagnosis of lung
cancer and lung infection and potentially reduce the need for costly and
invasive bronchoscopies.
INS365 Ophthalmic: We are developing INS365 Ophthalmic in an eye drop
formulation for dry eye disease. We believe that, by promoting the eyes'
natural defense mechanism, INS365 Ophthalmic will be one of the first FDA
approved pharmacologically effective agents to treat the symptoms of dry eye,
and the first one with this mechanism of action. We believe our product will
help restore a natural corneal tear film, reduce dry eye symptoms and help
prevent long-term corneal damage in dry eye sufferers.
Business Strategy
Our objective is to become a leading biopharmaceutical company focused on
developing novel treatments primarily for diseases involving impaired mucosal
hydration or inadequate mucociliary clearance. The principal elements of our
strategy include:
Aggressively Advance Our Lead Products. Our focus is on discovering and
developing therapies where current treatments are ineffective and where large
therapeutic market opportunities exist. By the end of 2000, we expect to have
five products in clinical development that target chronic bronchitis, cystic
fibrosis,
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respiratory diagnostics, dry eye disease and retinal detachment. We intend to
continue to develop and commercialize rapidly these products and to advance
other preclinical product candidates toward clinical development.
Establish Collaborative Relationships with Market Leaders while Selectively
Retaining Marketing Rights. In order to minimize the costs to us of certain
late-stage clinical trials and in order to more effectively market our
products, we will continue to establish and expand strategic alliances with
leading corporations in our target markets. In general, we seek to advance our
compounds into later-stage clinical trials prior to partnering such compounds
so as to retain maximum economic benefit to us. Additionally, we may
selectively retain partial or full commercialization rights to our products in
some limited indications. An example is our co-development and co-promotion
options under the Genentech agreement for cystic fibrosis that enable us to
retain additional economic benefit in this opportunity.
Use Our Proprietary Technology Platform Relating to P2Y Receptors to Develop
Novel Products. Our research focus is to discover novel pharmaceutical products
based on our P2Y receptor technology platform. Studies indicate that a subtype
of this family, the P2Y\\2\\ receptor, has broad applicability as regulators of
the body's innate defense mechanisms of mucosal hydration and mucociliary
clearance. One of our key strengths is our ability to understand the role and
importance of P2Y\\2\\ receptors and, through research, high-throughput
screening techniques and pharmacology models, develop compounds that target a
patient's impaired mucosal hydration and clearance mechanisms. Our discovery
group is pursuing opportunities to expand our base of compounds and therapeutic
targets for P2Y\\2\\ agonists and the biological role of other P2Y receptor
subtypes. This group generates opportunities internally and through
collaborative relationships with academic and governmental organizations and
private enterprises.
Protect and Enhance Our Technology Leadership Position. We have a
substantial intellectual property position related to our technology platform.
We intend to continue to pursue an aggressive patent strategy to protect our
expanding proprietary discoveries.
Product Development Programs
The following table provides a summary of our development programs by
indication, development status and corporate partners.
<TABLE>
<CAPTION>
Indication Product Candidate Development Status Corporate Partners
- ---------------------------------------------------------------------------------------
<C> <C> <C> <S>
Respiratory:
Chronic bronchitis INS365 Respiratory Phase IIa planned in Genentech (ex-Japan)
2000 Kissei (Japan)
Cystic fibrosis INS37217 Phase I planned in Genentech (ex-Japan)
Respiratory 2000 Kissei (Japan)
Sinusitis Unnamed P2Y\\2\\ Preclinical Genentech
agonist (worldwide)
Diagnostic Adjunct INS316 Diagnostic Phase III planned in Uncommitted
for Lung Disease 2000
- ---------------------------------------------------------------------------------------
Ophthalmic:
Dry eye INS365 Ophthalmic Phase IIb ongoing Santen (Asia)
Uncommitted
outside Asia
Retinal detachment INS37217 Ophthalmic Phase I planned in Uncommitted
2000
</TABLE>
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INS365 Respiratory for Chronic Bronchitis
INS365 Respiratory is being developed in an inhaled formulation for the
treatment of chronic bronchitis. We have conducted three Phase I clinical
trials of INS365 Respiratory, and one is ongoing. These double-blind, placebo-
controlled trials have evaluated the safety and preliminary efficacy of INS365
Respiratory in healthy volunteers, chronic smokers who are at a high risk for
developing chronic bronchitis and cystic fibrosis patients with airflow
obstruction. In total, these studies enrolled approximately 200 subjects. These
studies have indicated that INS365 Respiratory was well tolerated and
significantly enhanced mucus clearance when compared to placebo. One of these
studies, conducted in 35 chronic smokers, indicated that INS365 Respiratory in
single inhaled doses significantly enhanced sputum expectoration, which
occurred rapidly following dosing. This effect was dose-related and was
significantly greater than sputum expectorated following inhalation of a saline
placebo; the results were statistically significant. We have conducted a series
of good laboratory practice toxicology studies, including 28-day inhalation
studies, which, together with the Phase I data, will allow us to progress
INS365 Respiratory into a Phase II program.
We are planning, in consultation with our strategic partner, Genentech, to
initiate a Phase IIa clinical study in patients with chronic bronchitis in the
second half of 2000. This trial is being designed to be a multi-center, double-
blind, placebo-controlled study and would enroll patients with mild to moderate
chronic bronchitis. We intend to dose patients for up to one month using
standard air-jet nebulizers. The clinical endpoints in this study are intended
to include respiratory symptoms, health status, quality of life using a
validated respiratory questionnaire, lung function and adverse events. Kissei,
our partner in Japan, filed a Japanese investigational new drug application
(IND) for INS365 Respiratory in December 1999 and initiated a Phase I clinical
trial in smokers and non-smokers.
We have developed a drug delivery strategy for INS365 Respiratory based on
segmenting the chronic bronchitis patient population by severity of disease--
mild, moderate and severe. We anticipate that each segment may have different
drug delivery needs based on convenience, ease of use, and degree of patient
mobility, such as whether the patient is working, homebound or hospitalized. In
recognizing this variety of needs, we are exploring various delivery options
which will allow for flexibility in dosing across the various segments of the
chronic bronchitis market. One option will be plastic unit-dose vials that are
used with a standard air-jet nebulizer system. Another approach, a novel, hand-
held, portable delivery system, has been evaluated in a radio-labeled lung
deposition study in 12 healthy volunteers. Results from this study suggest that
this novel system can be used to deliver a small volume of concentrated INS365
Respiratory in one to two breaths providing rapid delivery in a convenient
manner to patients. We have recently initiated an additional study of this
hand-held delivery system in 12 chronic smokers to evaluate the lung deposition
profile of INS365 Respiratory and its effect on mucociliary clearance. This
study is expected to be completed in the first half of 2000. These studies are
being conducted to assist our strategic partners to demonstrate that this
product can be delivered in a more convenient device.
In September 1998, we entered into a joint development, license and supply
agreement with Kissei pursuant to which Kissei received exclusive rights to
develop and market INS365 Respiratory for respiratory therapeutic indications
in Japan. In December 1999, we entered into a development, supply and license
agreement with Genentech to develop P2Y\\2\\ agonists, including INS365
Respiratory, for respiratory diseases, including chronic bronchitis, throughout
the world outside Japan. See "--Corporate Collaborations."
INS37217 Respiratory for Cystic Fibrosis
INS37217 Respiratory is a second-generation P2Y\\2\\ agonist with an
extended duration of action. This product is highly stable in the sputum of
cystic fibrosis patients making it an attractive product candidate for this
disease. The previous studies we have conducted with INS365 Respiratory provide
the scientific rationale for the use of INS37217 Respiratory for cystic
fibrosis. We have completed a number of key preclinical studies and we intend
to initiate an inhalation toxicology program in March 2000. Pending the
toxicology study results, all of these preclinical studies will provide support
for the filing of an IND and the initiation of clinical studies. We intend to
initiate a Phase I clinical trial for the development of INS37217 Respiratory
for cystic fibrosis in
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the second half of 2000. We intend to develop INS37217 Respiratory for cystic
fibrosis as a chronic use agent in an inhaled formulation using both a standard
air-jet nebulizer and a novel, portable inhaler.
INS37217 Respiratory is designed to enhance the lung's innate mucosal
hydration and mucociliary clearance mechanisms, which in cystic fibrosis
patients are impaired by a genetic defect. By hydrating airways and stimulating
mucociliary clearance through P2Y\\2\\ receptor activation, we expect that
INS37217 Respiratory will help keep the lungs of cystic fibrosis patients clear
of thickened mucus, thereby reducing infections and the damage that occurs as a
consequence of the retention of viscous infected secretions. We further believe
that these effects may result in reduced frequency and length of
hospitalizations, reduced need for antibiotics and other medications, reduced
deterioration of pulmonary function, and improved respiratory symptoms and
quality of life. In addition, this product is expected to be complementary with
the two approved products, Pulmozyme(R) and TOBI(R), neither of which affects
the underlying ion-transport defects in cystic fibrosis airways.
We expect to receive orphan drug status and an accelerated regulatory
approval process for INS37217 Respiratory for the treatment of cystic fibrosis.
In December 1999, we entered into a co-development partnership with Genentech
to develop P2Y\\2\\ agonists for respiratory diseases, including cystic
fibrosis, throughout the world outside Japan. See "--Corporate Collaborations."
P2Y\\2\\ Agonist for Sinusitis
We plan to select, in collaboration with Genentech, an existing P2Y\\2\\
agonist for development to treat sinusitis, an infectious and inflammatory
condition of the nose and sinuses that often results in painful exacerbations.
We believe that increasing mucociliary clearance in the nose and sinuses with a
P2Y\\2\\ receptor agonist may be beneficial for treating this condition.
Clinical studies with other P2Y\\2\\ agonists such as INS316 have already shown
that these agents open ion channels in the nasal mucosa thus hydrating this
surface. It is expected that P2Y\\2\\ agonists will also stimulate mucociliary
clearance in the sinuses. We estimate that sinusitis affects approximately 12%
of the U.S. adult population, or approximately 25 million adults. The current
market consists of both over-the-counter and prescription treatments. Our
research and development of drug candidates in this area is subject to our
collaboration with Genentech. See "--Corporate Collaborations."
INS316 for Respiratory Diagnostics
INS316 Diagnostic, a P2Y\\2\\ agonist with a short duration of action, is
being developed as an acute-use inhaled solution to stimulate sputum
expectoration and serve as an adjunct for diagnosing lung diseases and lung
infections. We have conducted four double-blind, placebo-controlled clinical
trials to evaluate INS316 Diagnostic's utility as an acute use agent. These
clinical studies have demonstrated that INS316 Diagnostic is well tolerated and
appears to enhance the ability of patients to produce rapidly an adequate
sputum specimen. These studies were conducted in healthy volunteers, as well as
chronic smokers and patients with chronic bronchitis who are at a high risk for
developing lung cancer and lung infections.
INS316 Diagnostic has been administered by inhalation to more than 300
patients during such clinical trials, and has been well tolerated in these
trials. INS316 Diagnostic's safety profile is based on studies including non-
smokers, smokers and patients with obstructive lung diseases, and on the
results of good laboratory practice, genotoxicity and 28-day inhalation
toxicology studies. We believe that INS316 Diagnostic is rapidly degraded in
blood and plasma and, thus has minimal systemic absorption. Therefore, the
potential for unwanted side effects is minimized.
These studies have also demonstrated that single inhaled doses of INS316
Diagnostic significantly enhance sputum expectoration relative to that
following administration of normal saline solution. These effects occurred
within a few minutes following dosing and were dose-related. Sputum samples
obtained from individuals exposed to INS316 Diagnostic were found to be highly
enriched with cell types characteristic of deep lung secretions, including
alveolar macrophages and ciliated epithelial cells, when compared to samples
from
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individuals exposed to a placebo. These findings were statistically
significant. In a double-blind, placebo-controlled, cross-over trial in 25
patients with chronic bronchitis who are at high risk for lung cancer, 90% of
the patients produced an adequate sputum sample following INS316 Diagnostic
inhalation versus only 25% following inhalation of a placebo. These study
results were statistically significant. Based on these encouraging results, we
have discussed our Phase III plans with the pulmonary division of the FDA. We
plan to initiate a Phase III clinical trial program to evaluate the efficacy of
INS316 Diagnostic to improve the diagnostic outcome in lung cancer in the
second half of 2000.
INS365 Ophthalmic for Dry Eye Disease
INS365 Ophthalmic is being developed in a topical eye drop formulation for
the treatment of dry eye disease. A series of good laboratory practice ocular
toxicology studies have been completed to support the ongoing clinical program.
In preclinical testing, topically applied INS365 Ophthalmic produced a
consistent, statistically significant increase in tear secretion, relative to
that produced by normal saline controls. INS365 Ophthalmic has also enhanced
mucin secretion on the ocular surface in several preclinical models. Many of
these studies were conducted by our Asian partner, Santen. The preclinical
study results were statistically significant in multiple relevant dry eye
models.
We have completed one Phase I clinical trial in 50 healthy subjects and
demonstrated good ocular safety and tolerability. We have completed the safety
portion of a Phase IIa study in 35 patients with mild to moderate dry eye. This
study also showed the product to be well tolerated. A double-masked, placebo-
controlled, multi-center Phase IIb clinical trial was initiated in the United
States in January 2000 and will enroll up to 150 patients with dry eye disease.
Patients will be treated with multiple-daily doses of placebo (saline drops) or
INS365 Ophthalmic for up to four weeks. Clinical endpoints include ocular
comfort, patient diary cards, rescue with artificial tears, corneal staining
and tear-secretion. We anticipate that this study will be completed in the
second half of 2000.
In December 1998, we entered into a joint development, license and supply
agreement with Santen in Asia. Santen is a premier ophthalmic company and
markets the only approved prescription product for dry eye disease in Japan.
Santen intends to file an IND with Japanese regulatory authorities and begin
clinical trials in late 2000. See "--Corporate Collaborations."
INS37217 Ophthalmic for Retinal Detachment
INS37217 Ophthalmic, a second-generation proprietary P2Y\\2\\ receptor
agonist, is being developed as a sterile intravitreal injection for the
treatment of retinal detachment. Retinal detachment occurs when fluid
accumulates between the retina and the underlying retinal epithelium. We
estimate, based on an extrapolation from United States data, that retinal
detachment affects approximately 200,000 people in the eight major
international prescription pharmaceutical markets. This condition leads to loss
of vision, and when left untreated, often results in permanent damage to the
retina and irreversible blindness. Previous work conducted in vitro has shown
that the retinal pigment epithelium contains P2Y\\2\\ receptors at the retinal-
facing membrane, which can be activated by appropriate agonists to stimulate
fluid absorption across the retinal pigment epithelium. Subsequent work
conducted in vivo has demonstrated the ability of INS37217 Ophthalmic to
facilitate the reattachment of the retina to the retinal pigment epithelium in
various animal models of retinal detachment. Retinal detachment in humans may
result from several ophthalmic diseases, ocular trauma, or side-effects from
invasive intraocular surgery. There is currently no pharmaceutical treatment
for retinal detachment.
We have completed a series of preclinical studies with INS37217 Ophthalmic
and have initiated intravitreal toxicology to support initiation of clinical
studies in 2000. We intend to file an IND with the FDA and initiate clinical
testing in patients in the second half of 2000.
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<PAGE>
Corporate Collaborations
Genentech, Inc.
In December 1999, we entered into a collaboration with Genentech to develop
treatments for respiratory disorders, including chronic bronchitis, cystic
fibrosis and sinusitis. Under the terms of the agreement, we granted an
exclusive license to Genentech for the use of INS365 Respiratory and our other
related P2Y\\2\\ agonists existing on the date of the agreement for all human
therapeutic uses for the treatment of respiratory tract disorders throughout
the world, excluding Japan. In addition, Genentech has an exclusive license for
the use of INS365 Respiratory and such existing P2Y\\2\\ agonists for all human
therapeutic uses for the treatment of sinusitis and middle ear infection
worldwide. Finally, Genentech has the right to use related P2Y\\2\\ agonists we
discover and develop during the term of the agreement upon reimbursing us for
discovery costs or funding our discovery efforts leading to such compounds.
However, even if Genentech does not reimburse or fund our discovery efforts, we
have agreed not to develop any such P2Y\\2\\ agonist for use in the therapeutic
respiratory field during the term of our agreement.
We have established joint project teams to oversee and coordinate the joint
development programs and a joint steering committee to establish the strategy
and manage the relationship. Under the terms of the agreement, we provide bulk
active drug substance to Genentech for its requirements, at an agreed-upon
price, through the end of Phase II. Thereafter, Genentech is responsible for
obtaining or manufacturing all of its bulk active drug substance requirements.
We received an up-front payment of $15 million, comprising a non-refundable
cash license fee, funding for the Phase IIa clinical trials for chronic
bronchitis and the purchase of our Series G preferred stock. In addition,
depending on whether all milestones in each of the chronic bronchitis, cystic
fibrosis and sinusitis development programs are met, we could receive
additional payments of up to $63 million. Genentech is required to pay us
royalties on net sales of products licensed under the agreement.
In the United States, we will lead the early clinical development of
INS37217 Respiratory for the treatment of cystic fibrosis through the end of
Phase II clinical trials. We then have the option to continue to co-fund the
development of the product in the United States in exchange for a share of
United States operating profits in lieu of royalties. In addition, we have the
option, any time before Genentech initiates pre-launch activities, to elect to
co-promote the product in the United States at our own expense.
We are responsible for conducting, in collaboration with Genentech, the
Phase IIa clinical trials for INS365 Respiratory for chronic bronchitis. We
will also lead the preclinical program for a P2Y\\2\\ agonist selected by the
joint steering committee for the treatment of sinusitis, and will be
responsible for filing the IND for such compound.
Genentech is responsible for all other development conducted under the
agreement, including all development outside the United States, and for all
other regulatory submissions, filings and approvals relating to products.
Genentech is required to use commercially reasonable efforts to conduct
development, seek regulatory approvals and market and sell the products.
Either Genentech or we may terminate the agreement if the other materially
breaches the agreement. In addition, Genentech has the right, by giving us 150
days prior notice, to terminate the agreement at any time. If Genentech
breaches the agreement or terminates the agreement early other than for our
breach, Genentech's license will terminate, Genentech must provide us with all
data and information relating to our products, and Genentech must assign or
permit us to cross-reference all regulatory filings and approvals.
Kissei Pharmaceutical Co., Ltd.
In September 1998, we entered into a Joint Development, License and Supply
Agreement with Kissei for the development of INS365 Respiratory for all
therapeutic respiratory applications, excluding sinusitis and middle ear
infection, in Japan. We granted Kissei an exclusive license to INS365
Respiratory in the field in
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Japan and a first right to negotiate a license to certain P2Y\\2\\ agonists
that show utility as inhalation products for respiratory uses in Japan.
We established a joint development committee with Kissei to oversee the
development program, approve development plans, protocols and studies, and
review and approve all regulatory submissions and filings. In consultation with
Kissei, we are responsible for formulation of the compound and the design of
the delivery system to be used. We are also responsible, through the use of
development and manufacturing liaisons, for coordinating and facilitating
communications among our corporate partners for the worldwide development and
manufacture of INS365 Respiratory. Kissei is responsible for all development of
the compound and all regulatory filings.
We received an up-front payment of $4.5 million, which included the purchase
of our Series C preferred stock. In addition, depending on whether all
milestones are met, we could receive additional payments of up to $13 million,
as well as royalties on net sales of licensed products. To date, we have
received $2.1 million in milestone payments. We also are receiving funding for
development and manufacturing liaison staff positions.
We are obligated to supply Kissei with its requirements of INS365
Respiratory in bulk drug substance and in an inhalation formulation for all
preclinical trials conducted by Kissei. In addition, we are obligated to supply
Kissei with its requirements of finished product contained in a vial or nebule
and in a delivery system approved by the joint development committee for all
clinical trials to be conducted by Kissei. Kissei will pay us an agreed-upon
transfer price for all such supplies. We have also agreed to negotiate a
commercial supply arrangement with Kissei at the appropriate time to supply
Kissei's requirements of finished product and the delivery system.
Either Kissei or we may terminate the agreement if the other materially
breaches the agreement. In addition, Kissei has the right, by giving us three
months' prior notice, to terminate the agreement at any time if Kissei
determines that continued development or marketing of the product is
scientifically or economically infeasible. If Kissei breaches the agreement or
terminates the agreement early other than for our breach, Kissei's license will
terminate, Kissei will provide us with all data and information relating to our
products, and Kissei will assign or permit us to cross-reference all regulatory
filings and approvals.
Santen Pharmaceutical Co., Ltd.
In December 1998, we entered into a Development, License and Supply
Agreement with Santen for the development of INS365 Ophthalmic for the
therapeutic treatment of ocular surface diseases, such as dry eye disease, in
Asia. Under the agreement, we granted Santen an exclusive license to market
INS365 Ophthalmic for ocular surface diseases in Japan, China, South Korea, the
Philippines, Thailand, Vietnam, Taiwan, Singapore, Malaysia and Indonesia.
We established a coordinating committee to review and evaluate Santen's
progress in the development and commercialization of products and to provide
input and recommendations regarding the development of the products. Santen is
responsible for all development, regulatory submissions, filings and approvals,
and all marketing of products. We are obligated to supply Santen with its
requirements of INS365 Ophthalmic in bulk drug substance form for all
preclinical studies, clinical trials and commercial requirements at agreed-upon
prices.
Under the terms of the agreement, we received an up-front equity investment
of $1.5 million in our Series D preferred stock. In addition, depending on
whether all milestones are met, we could receive additional payments of up to
$4.75 million, as well as royalties on net sales of licensed products.
Either Santen or we may terminate the agreement if the other materially
breaches the agreement. In addition, we have the right to terminate the
agreement at any time if we determine, subject to the coordinating committee's
review and arbitration, that Santen has not made reasonably sufficient progress
in the development
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or commercialization of products. If Santen breaches the agreement, or if we
terminate the agreement because Santen has not made sufficient progress,
Santen's license will terminate, and Santen will provide us with all data and
information relating to our products, and will assign or permit us to cross-
reference all regulatory filings and approvals.
Discovery
Our scientists have specific expertise and proprietary knowledge relating to
the design and synthesis of P2Y receptor agonists, and we have invested heavily
in state-of-the-art equipment and laboratory space for performing synthetic
chemistry, determination of compound structure and molecular modeling. We have
acquired, by licenses and/or material transfer agreements, rights to three of
the five unique human P2Y receptors that have been functionally expressed. We
have cloned and expressed the other two receptors in-house.
Our discovery effort is primarily focused on conducting studies using our
proprietary cell-based MUCOSA(TM) assay system to identify novel compounds that
specifically and selectively bind to members of the P2Y receptor family. The
MUCOSA high-throughput assay enables us to identify agonists and antagonists
that act at specific receptor subtypes and have demonstrated a level of
specificity and activity that merits further investigation. We use data from
the assays to design and synthesize compounds specific to each P2Y receptor
subtype which can be advanced to clinical trials.
By screening against several P2Y receptor subtypes, we have been able to
identify agonists and/or antagonists that interact preferentially with a
specific receptor subtype. Several proprietary discovery compounds, including
new chemical entities, with promising stability and metabolic profiles, are
being actively explored. We intend to conduct further preclinical development
studies to advance such proprietary compounds to project status, if
appropriate. These compounds will then be targeted to the treatment of new
disease areas, as identified through our strategic planning process.
We obtain access to chemical libraries through our own proprietary
combinatorial chemistry, commercial sources, and corporate agreements. The
chemicals are screened for both agonist and antagonist activity. Our chemistry
department also assists in the development of analytical protocols used by
contract service organizations for analysis of a drug substance, clinical
trials material, and drug stability studies which will be incorporated into IND
and new drug application (NDA) filings.
We use sponsored research agreements to investigate specific biological
processes to augment our technology platform. We are currently sponsoring
research at major universities, including The University of North Carolina at
Chapel Hill, the University of California at Berkeley, Columbia University, the
University of Southern California, Duke University, Schepens Eye Research
Institute and Brigham and Women's Hospital.
Patents and Proprietary Rights
We believe that the proprietary protection of our product candidates,
processes and know-how is important to the success of our business. We
aggressively file and prosecute patents covering our proprietary technology,
and, if warranted, will defend our patents and proprietary technology. As of
December 31, 1999, our patent estate of owned or licensed patent rights
consisted of 17 issued United States patents, none of which expire prior to
2011, and thirteen pending applications in the United States and numerous
corresponding patents and patent applications in foreign jurisdictions. We seek
patent protection for our proprietary technology and products in the United
States and Canada and in key commercial European and Asia/Pacific countries and
other major commercial sectors of the world, as appropriate. We intend to seek
protection in the United States and foreign countries with respect to certain
trademarks from time to time. We also rely upon trade secrets, know-how,
continuing technological innovation and licensing opportunities to develop and
maintain our competitive position.
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In March 1995 and September 1998, we entered into two agreements with The
University of North Carolina at Chapel Hill granting us exclusive worldwide
licenses to develop, make, use and sell products based on certain UNC patented
technology relating to the use of P2Y\\2\\ receptor agonists for respiratory
therapeutics, such as INS365 Respiratory, and respiratory diagnostics, such as
INS316 Diagnostic. The United States government may have limited rights in some
of this UNC patented technology. We also entered into a third agreement that
granted us a non-exclusive worldwide license to use certain other UNC patented
technology as a research tool to identify agonists and antagonists for P2Y
receptors. The agreements require us to pay certain licensing fees upon the
attainment of development milestones and royalties on net sales or a share of
sublicensing income on products covered by the patents. We are also required to
meet due diligence milestones and UNC may terminate the licenses if we fail to
do so. In connection with the licenses, we issued to UNC an aggregate of
571,000 shares of our common stock, of which 225,068 shares have been
transferred to the inventors of the licensed UNC patented technology. We have
also entered into consulting agreements with some of the inventors of these
technologies, all of whom are from The University of North Carolina at Chapel
Hill, including Dr. Richard C. Boucher, one of our founders and a member of our
Board of Directors, M. Jackson Stutts, Kendall Harden and Michael Knowles,
pursuant to which such people have agreed to consult with us regarding their
respective fields of knowledge.
Additional patent applications have since been filed on discoveries made in
support of such technologies, from research conducted at The University of
North Carolina at Chapel Hill or in our own laboratories. Certain sponsored
research agreements, material transfer agreements, and other collaborations
have the potential to result in license agreements with universities,
institutes, and businesses. We believe that our patents and licensed patents
provide a substantial proprietary base that will allow us, and our
collaborative partners, to exclude others from conducting our business as
described in this prospectus and as encompassed by our issued patents and
issued patents licensed to us. There can be no assurance, however, that pending
or future applications will issue, that the claims of any patents which do
issue will provide any significant protection of our technology, or that our
directed discovery research will yield compounds and products of therapeutic
and commercial value.
Our competitors or potential competitors may have filed for or have received
U.S. and foreign patents and may obtain additional patents and proprietary
rights relating to compounds or processes which may compete with our product
candidates. Accordingly, there can be no assurance that our patent applications
will result in patents being issued or that, if issued, the claims of the
patents will afford protection against competitors with similar technology; nor
can there be any assurance that others will not obtain patents that we would
need to license or circumvent.
Manufacturing and Supply
We do not engage in, and do not expect to engage in, the manufacture of bulk
active pharmaceutical ingredient for preclinical, clinical or commercial
purposes. We rely on a contract manufacturing supply agreement with a single
manufacturer for the development stage production of INS316 and INS365. We have
identified an alternative supplier as a backup. We have already obtained
clinical trial grade material of both products from both the lead and backup
supplier. In addition, we expect the same lead manufacturer will supply
commercial quantities of INS316 and INS365 for both respiratory and ophthalmic
applications. We believe this lead manufacturer is capable of producing
sufficient quantities for commercial purposes in accordance with current good
manufacturing practices. In addition, we have obtained preclinical supplies of
INS37217 for both respiratory and ophthalmic applications from the same lead
manufacturer and we have discussed entering into an agreement for the clinical
supply of INS37217. See "Risk Factors--We depend on third parties to synthesize
and manufacture our product candidates for preclinical testing and clinical
trials and will rely on third parties for large scale manufacturing of any of
our drug candidates."
Competition
Many drug companies engage in research and development to commercialize
products to treat chronic bronchitis, cystic fibrosis, dry eye disease and
other diseases that we are researching. We compete with these
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companies for funding, access to licenses, personnel, third-party collaborators
and product development. Almost all of these companies have substantially
greater financial, marketing, sales, distribution and technical resources, and
more experience in research and development, clinical trials and regulatory
matters, than we do. We are aware of existing palliative treatments that will
compete with our products.
We believe that several major pharmaceutical companies have initiated
research programs to design P2Y receptor agonists or antagonists; however, we
are not aware of any competing P2Y\\2\\ receptor agonists that have entered
clinical testing. If successfully developed and commercialized, our products
will compete with existing therapeutics and improved versions of these
treatments.
The current therapeutic approaches used in the treatment of chronic
bronchitis are palliative and are aimed primarily at reducing airway
inflammation, respiratory infections and airflow obstruction. These approaches
include corticosteroids and other anti-inflammatory agents, bronchodilators and
antibiotics. We are aware of many anti-inflammatory agents, including
Azmacort(R), Beclovent(R) and antibiotics such as Biaxin(R), and Zithromax(R).
We believe that other anti-inflammatory agents are in development. Numerous
bronchodilators are also on the market, including among others generic
albuterol, Alupent(R), Proventil(R), Ventolin(R), Serevent(R), and Theo-Dur(R).
Outside of the United States, mucolytics, agents that liquefy or reduce the
viscoelastic consistency of mucus, are widely used even though they have shown
minimal efficacy in well-controlled trials.
Although we believe that none of the therapeutic approaches described above
address the underlying problem of excessive retained mucus and impaired
mucociliary clearance, drugs based on other therapeutic mechanisms may be
efficacious in treating respiratory diseases. The development by others of
treatments that are not related to our mucociliary clearance approach could
render our product candidates non-competitive or obsolete.
There are two products approved in the United States specifically for the
treatment of cystic fibrosis: Pulmozyme(R), an agent designed to break up
thickened airway secretions, and TOBI(R), an inhaled antibiotic. Pulmozyme(R)
is marketed by Genentech, which is one of our collaborative partners.
The current prescription and non-prescription treatments for dry eye disease
include primarily artificial tear replacement therapy or lubricant drops. The
only prescription pharmacological agent in late-stage clinical trials for dry
eye is Restasis(R) from Allergan. We are aware of early clinical trials with
various other potential products as possible alternative modes of therapy.
Governmental Regulation
The research, development, testing, manufacture, promotion, marketing and
distribution of human therapeutic and diagnostic products are extensively
regulated by government authorities in the United States and other countries.
In the United States, the FDA regulates drugs and diagnostic products and
similar regulatory bodies exist in other countries. The steps ordinarily
required before a new drug may be marketed in the United States, which are
similar to steps required in most other countries, include:
. Preclinical laboratory tests, preclinical studies in animals and
formulation studies and the submission to the FDA of an IND for a new
drug;
. Adequate and well-controlled clinical trials to establish the safety and
efficacy of the drug for each indication;
. The submission of an NDA to the FDA; and
. FDA review and approval of the NDA prior to any commercial sale or
shipment of the drug.
Preclinical tests include laboratory evaluation of product toxicity and
formulation, as well as animal studies. The results of preclinical testing are
submitted to the FDA as part of an IND. A 30-day waiting period after the
filing of each IND is required prior to the commencement of clinical testing in
humans. At any time during this 30-day period or at any time thereafter, the
FDA may halt proposed or ongoing clinical trials until
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the FDA authorizes trials under specified terms. The IND process may be
extremely costly and substantially delay development of our products. Moreover,
positive results of preclinical tests will not necessarily indicate positive
results in clinical trials.
Clinical trials to support NDAs are typically conducted in three sequential
phases, but the phases may overlap. During Phase I, the initial introduction of
the drug into healthy human subjects or patients, the drug is tested to assess
metabolism, pharmacokinetics and pharmacological actions and safety, including
side effects associated with increasing doses. Phase II usually involves
studies in a limited patient population to:
. Assess the efficacy of the drug in specific, targeted indications;
. Assess dosage tolerance and optimal dosage; and
. Identify possible adverse effects and safety risks.
If a compound is found to be potentially effective and to have an acceptable
safety profile in Phase II evaluations, Phase III trials, also called pivotal
studies, major studies or advanced clinical trials, are undertaken to further
demonstrate clinical efficacy and to further test for safety within an expanded
patient population at geographically dispersed clinical study sites.
After successful completion of the required clinical testing, generally a
NDA is submitted. The FDA may request additional information before accepting a
NDA for filing, in which case the application must be resubmitted with the
additional information. Once the submission has been accepted for filing, the
FDA has 180 days to review the application and respond to the applicant. The
review process is often significantly extended by FDA requests for additional
information or clarification. The FDA may refer the NDA to an appropriate
advisory committee for review, evaluation and recommendation as to whether the
application should be approved, but the FDA is not bound by the recommendation
of an advisory committee.
If FDA evaluations of the NDA and the manufacturing facilities are
favorable, the FDA may issue either an approval letter or an approvable letter.
An approvable letter will usually contain a number of conditions that must be
met in order to secure final approval of the NDA and authorization of
commercial marketing of the drug for certain indications. The FDA may refuse to
approve the NDA or issue a non-approvable letter, outlining the deficiencies in
the submission and often requiring additional testing or information. If
regulatory approval of a product is granted, it will be limited to certain
disease states or conditions.
We and any of our contract manufacturers are also required to comply with
the applicable FDA current good manufacturing practice regulations. Good
manufacturing practice regulations include requirements relating to quality
control and quality assurance as well as the corresponding maintenance of
records and documentation. Manufacturing facilities are subject to inspection
by the FDA. These facilities must be approved before we can use them in
commercial manufacturing of our products. Our contract manufacturers or we may
not be able to comply with the applicable good manufacturing practice
requirements and other FDA regulatory requirements.
Outside the United States, our ability to market our products will also be
contingent upon receiving marketing authorizations from the appropriate
regulatory authorities. The requirements governing the conduct of clinical
trials and marketing authorization vary widely from country to country. At
present, foreign marketing authorizations are applied for at a national level,
although within Europe procedures are available to companies wishing to market
a product in more than one European Union member state. If the regulatory
authority is satisfied that adequate evidence of safety, quality and efficacy
has been presented, a marketing authorization will be granted. This foreign
regulatory approval process, including those in Europe and Japan, involves all
of the risks associated with FDA clearance discussed above.
Employees
As of the date of this prospectus, we have 30 full-time employees, 16 of
whom are involved in our drug discovery and preclinical programs, eight of whom
are engaged in development programs, and six of whom are
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involved in administrative activities. Thirteen of our employees hold a Ph.D.,
Pharm.D. or M.D. degree. In addition, we utilize part-time employees and
outside contractors and consultants as needed. Employees are required to
execute a confidentiality and assignment of trade secrets agreement. Our
employees are not represented by a labor union and we believe that our
relations with employees are good.
Facilities
We lease facilities that comprise approximately 17,500 square feet in
Durham, North Carolina adjacent to the Research Triangle Park, pursuant to
several leases. The leases expire in August 2003, May 2003 and December 2003
and are renewable. We anticipate having sufficient space to allow for all
potential expansionary needs over the next two years.
Legal Proceedings
We are not a party to any material legal proceedings.
Scientific Advisory Board
We are advised by an international scientific advisory board currently
composed of eight members with expertise in the fields of statistics, molecular
biology, genetic research and medicine. We meet periodically with our
scientific advisory board to review and discuss specific projects with those
members who are experts in the subjects being discussed. In addition, we may
consult individual board members as to matters in their respective areas of
expertise. Our scientific advisory board currently is composed of the following
individuals:
Richard Boucher, M.D. is the Chairman of the Scientific Advisory Board. See
"Management--Executive Officers and Directors."
Dennis Ausiello, M.D. is Chief of Medicine at Massachusetts General
Hospital, and Professor of Medicine at Harvard Medical School. He is an
internationally recognized expert in the cell biology of ATP receptors, sodium
ion channels and water channels.
Carol Basbaum, Ph.D. is Professor of Anatomy at the University of California
at San Francisco and is an expert in lung mucin production. Her interests focus
on both the biology of the mucin secretory cell in the lung and the regulation
of mucin gene expression. A particular interest has been bacterial pathogen-
mucin gene regulatory interactions.
Geoffrey Burnstock, D.Sc. is Director, Autonomic Neuroscience Institute, and
Professor, Department of Anatomy and Developmental Biology, Royal Free Hospital
School of Medicine. He originally conceived the idea of purinergic nerves and
receptors for extracellular adenine nucleotides. He is the leader of the
purinergic receptor field. He is the recipient of many international awards and
is a fellow of the Royal Society.
Jeffrey Drazen, M.D. is Chief of the Pulmonary and Critical Care Division of
the Brigham and Women's Hospital and the Parker B. Francis Professor of
Medicine, Harvard Medical School. He is an expert in the field of lung
diseases, with particular expertise in the pathogenesis/genetics of asthma and
clinical trial design.
Mark Leppert, Ph.D. is Associate Professor, Eccles Institute of Human
Genetics, University of Utah. He is a geneticist/molecular biologist. He is a
central figure in the internationally recognized University of Utah human
genome effort. His particular interest is mapping human diseases to define the
molecular basis of human disease.
Lee Limbird, Ph.D. is Associate Vice Chancellor for Research, Vanderbilt
University Medical Center, Professor of Pharmacology and Chair, Department of
Pharmacology Vanderbilt University. Her research has focused on the structure
and function of G-protein coupled receptors with particular emphasis on
adrenergic receptors. A current interest is delineation of the molecular basis
of membrane targeting of receptors in
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polarized cells. She was awarded the John Jacob Abel Award given to the most
outstanding young pharmacologist in 1987.
David Westfall, Ph.D. is Vice President, Academic Affairs, University of
Nevada-Reno and Professor of Pharmacology, University of Nevada School of
Medicine. He has been a leader in physiological and pharmacological studies of
purinergic receptors for the last two decades. His research includes a major
interest in purinergic receptors in the nervous system and on smooth muscle of
the urinary tract.
Other Advisory Committees
In addition to our scientific advisory board, we have a chronic bronchitis
advisory board, a cystic fibrosis advisory board and a critical care advisory
board. These committees consist of clinical experts in their respective fields.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors as of the date of this prospectus are
as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Christy L. Shaffer, Ph.D................ 41 President, Chief Executive
Officer and Director
Gregory J. Mossinghoff.................. 39 Chief Business Officer
Donald J. Kellerman, Pharm.D. .......... 45 Vice President, Development
Benjamin R. Yerxa, Ph.D................. 34 Vice President, Discovery
Janet L. Rideout, Ph.D(1)............... 61 Senior Vice President, Discovery
Terrance G. McGuire..................... 43 Chairman of the Board
Richard Boucher, M.D. .................. 55 Director
Andre L. Lamotte, Sc.D. ................ 51 Director
H. Jefferson Leighton, Ph.D. ........... 54 Director
W. Leigh Thompson, M.D., Ph.D., D.Sc. .. 61 Director
Jesse I. Treu, Ph.D. ................... 52 Director
</TABLE>
- --------
(1) Dr. Rideout has informed us that she will retire following this offering.
However, Dr. Rideout has agreed to serve as a consultant for a period of
at least a year.
Following are brief descriptions of our current executive officers and
directors:
Christy L. Shaffer, Ph.D. has served as our President, Chief Executive
Officer and as a director since January 1999. Dr. Shaffer joined us in June
1995 as our first full time employee, Director, Clinical Operations, was
promoted to Senior Director, Development in June 1996 and to Vice President,
Development and Chief Operating Officer in January 1998. Dr. Shaffer has over
ten years of experience in drug development within the pharmaceutical industry.
She previously served in a variety of positions in the clinical research
division of Burroughs Wellcome Co. including associate director of pulmonary
research in the department of pulmonary/critical care medicine. Dr. Shaffer
coordinated several IND submissions and one NDA submission at Burroughs
Wellcome. Dr. Shaffer received a Ph.D. in pharmacology from the University of
Tennessee and completed two years of postdoctoral training in cardiovascular
research in the Biochemistry Department at the Chicago Medical School prior to
her postdoctoral appointment at UNC.
Gregory J. Mossinghoff has served as our Chief Business Officer since
December 1999. Mr. Mossinghoff joined us in June 1998 as our Senior Director of
Strategic Planning and Operations and was promoted to Vice President, Corporate
Development in January 1999. Mr. Mossinghoff has also served as our Secretary
since October 1998. In his current role he helps us develop and realize
strategic objectives, expand our corporate partnerships in the United States
and abroad, and oversee all business-related activities including operations
and finance. Prior to joining us, from February 1996 to June 1998, Mr.
Mossinghoff was worldwide Director of Business Analysis at Glaxo Wellcome plc,
with specific responsibility for the CNS therapeutic area. Before joining Glaxo
Wellcome, Mr. Mossinghoff held various roles with increasing responsibility at
Hoffmann LaRoche Inc., from June 1988 to February 1996, including Manager,
Business Development and Strategic Planning from 1994 to 1996. Mr. Mossinghoff
received a BA degree in Economics from the University of Virginia,
Charlottesville, VA and an MBA in Financial Management & Analysis from George
Mason University, Fairfax, VA.
Donald J. Kellerman, Pharm.D. has served as our Vice President, Development
since July 1999. He is responsible for all of our clinical development programs
and regulatory affairs. Prior to joining us, Dr. Kellerman spent 11 years with
Glaxo Wellcome, from August 1997 to July 1999 and from April 1988 to August
1996, where he was Director of various groups, including International OTC,
U.S. Infectious Diseases, and the Inhaled Corticosteroid Group. He was clinical
project leader for Flovent(R) from first U.S. clinical studies in 1989 to
approval in 1996. From September 1996 to August 1997, he was Vice President of
Clinical
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Research at Sepracor, where he was project leader for the Xopenex(R) NDA team.
Prior to Glaxo Wellcome, Dr. Kellerman worked at E.R. Squibb and Sons and Ciba-
Geigy on several cardiovascular products. Dr. Kellerman holds a Doctor of
Pharmacy and Bachelor of Science degree from the University of Minnesota.
Benjamin R. Yerxa, Ph.D. has served as our Vice President, Discovery since
February 2000. Dr. Yerxa joined us in August 1995 and previously held several
positions, including Senior Director of Preclinical Programs. He supervises
both the Biology and the Chemistry Discovery teams and all early preclinical
drug development activities. He created a novel strategic opportunity for us by
developing the concept of ophthalmic uses for our core P2Y\\2\\ technology.
Prior to being promoted to the position of Senior Director of Preclinical
Programs in December 1999, Dr. Yerxa was Director of Preclinical Programs and,
prior to that, Senior Research Chemist. While in chemistry, he served as the
preclinical project leader for INS365. As a Senior Research Chemist his work
focused on designing and synthesizing novel P2Y receptor agonists. Prior to
joining us, Dr. Yerxa was a Research Scientist at Burroughs Wellcome Co. Dr.
Yerxa worked at Biophysica, Inc. for over two years, synthesizing radiocontrast
agents. He developed scale-up procedures for the industrial production of
Oxilan, a marketed imaging product. Dr. Yerxa received his Ph.D. in Organic
Chemistry from UC Irvine in 1993.
Janet Rideout, Ph.D. has served as our Senior Vice President, Discovery
since February 2000. Dr. Rideout joined us in 1995 as Director of Chemistry and
was promoted to Senior Director, Discovery, in June 1996 and Vice President,
Discovery in January 1998. Prior to joining us, Dr. Rideout spent more than 26
years at Burroughs Wellcome Co., ultimately serving as associate division
director of organic chemistry. Dr. Rideout holds more than 40 patents, most
notably as co-inventor for AZT (Retrovir(R)). She is a member of three
divisions of the American Chemical Society, the New York Academy of Sciences,
the American Association for the Advancement of Science, and a Life Fellow and
past member of the board of directors of the American Institute of Chemists.
She received the Distinguished Chemist Award from the North Carolina Institute
of Chemists in 1994. Dr. Rideout received her Ph.D. in organic chemistry from
the State University of New York at Buffalo.
Terrance G. McGuire has served as our Chairman of the Board, Treasurer and a
director since October 1993, and is one of our four founders. He currently
serves as chairman of the compensation and audit committees of the board and as
a member of the nominating committee of the board. Since March 1996, he has
been a founding general partner of Polaris Venture Partners L.P. Since 1992, he
has served as a general partner of Alta V Management Partners L.P., which is
the general partner of Alta V Limited Partnership, a fund associated with Burr,
Egan, Deleage & Co. He is a director of Akamai Technologies, Inc., Aspect
Medical Systems, Inc., Wrenchead.com, Inc., Paradigm Genetics, Inc. and several
other private healthcare and information technology companies. Mr. McGuire
received his B.S. in Physics and Economics from Hobart College, his M.S. in
Engineering from Dartmouth College and his MBA from the Harvard Business
School.
Richard Boucher, M.D. has served as a director since March 1995, and is a
member of our nominating committee. One of our four founders, Dr. Boucher is
the William Rand Kenan Professor of Medicine, Chief of Pulmonary Medicine and
Director of the Cystic Fibrosis/Pulmonary Research and Treatment Center at The
University of North Carolina at Chapel Hill School of Medicine. Dr. Boucher
obtained his M.D. degree from Columbia University College of Physicians and
Surgeons. Following residency training, he joined the Faculty of Medicine at
The University of North Carolina at Chapel Hill in 1977. Dr. Boucher has
authored or co-authored more than 200 original research articles and more than
100 additional publications including book chapters. He received the Doris
Tulcin and Paul Di Sant'Agnese CF Research Awards and the Julius Comroe Award
from The American Physiology Society. He is an established principal
investigator with the National Institutes of Health, and is a member of the
American College of Physicians and the Association of American Physicians. In
recent years, Dr. Boucher has pioneered novel approaches for the treatment of
cystic fibrosis.
Andre L. Lamotte, Sc.D. has served as a director since October 1993 and is
one of our four founders. Dr. Lamotte also currently serves as a member of our
nominating committee. In 1989, Dr. Lamotte founded Medical Science Partners,
which specializes in early stage life sciences investments in affiliation with
Harvard
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University and has served as the managing general partner since such time.
Before founding Medical Science Partners, Dr. Lamotte served as a general
manager at Pasteur Merieux from April 1983 to April 1988. He also serves as the
managing general partner of Medical Science Partners II, L.P. and Medical
Science II Co-Investment, L.P. Dr. Lamotte is a director of Ascent Pediatrics,
Inc. Dr. Lamotte holds a Ph.D. in chemistry from the Massachusetts Institute of
Technology and an M.B.A. from Harvard University.
H. Jefferson Leighton, Ph.D. has served as a director since October 1993 and
is one of our four founders. He served as our President and Chief Executive
Officer from October 1993 until December 1995. Dr. Leighton also serves as a
member of our audit committee. Dr. Leighton has more than 20 years of
experience in large pharmaceutical companies in various research and
development positions. More recently, he has founded, reorganized, and merged
several small pharmaceutical companies including ICAgen, Exogen, Biodesign,
Sphinx, SemaCo. and AdipoGenix.
W. Leigh Thompson, M.D., Ph.D., D.Sc. has served as a director since April
1996. In December 1994 Dr. Thompson retired from Eli Lilly and Co. where he
served as chief scientific officer and a member of the management committee.
Dr. Thompson has enjoyed a distinguished career in both academic medicine and
the pharmaceutical industry and has published extensively, particularly in the
area of critical care medicine. He is a member of numerous corporate, academic,
and civic boards, and consults in the areas of health informatics, enterprise
strategic planning, and related areas. Since 1995, Dr. Thompson has been the
Chief Executive Officer of Profound Quality Resources, Inc., a worldwide
scientific consulting firm. He is currently a director of Guilford
Pharmaceuticals, Inc., Medarex Inc. and Ophidian Pharmaceuticals Inc.
Jesse I. Treu, Ph.D. has served as a director since March 1995 and is a
member of our compensation and audit committees. He is a managing member of
Domain Associates, L.L.C. and has served in this or similar capacities with the
firm since 1986. He has served as a director of over 20 early-stage companies,
eleven of which have so far become public companies. He is currently a director
of Focal, Inc., Geltex Pharmaceuticals, Inc., Trimeris, Inc., OraPharma, Inc.,
and Simione Central Holdings, Inc. Prior to the formation of Domain, Dr. Treu
had 12 years of health care experience at General Electric and Technicon
Corporation in a number of research, marketing management and corporate staff
positions. Dr. Treu received his B.S. from Rensselaer Polytechnic Institute and
his M.A. and Ph.D. degrees in physics from Princeton University.
Director Compensation
Directors do not receive cash compensation for services on the board of
directors or any committee thereof. In 1996, we granted Dr. Thompson an option
to purchase 48,000 shares of our common stock at an exercise price of $0.07 per
share, subject to certain conditions relating to vesting and retention, for his
participation on the board of directors. All directors are reimbursed for
expenses incurred in connection with attendance at board of directors and
committee meetings.
Board Committees
Our board of directors has established an audit committee, a compensation
committee and a nominating committee. Our audit committee, which consists of
Mr. McGuire, as chairperson, Dr. Treu and Dr. Leighton, reviews the results and
scope of our annual audit and the services provided by our independent
auditors. Our compensation committee, which consists of Mr. McGuire, as
chairperson, and Dr. Treu, administers our stock plan and reviews and approves
issues and matters concerning the compensation of employees and consultants in
accordance with the objectives and policies instituted by the board of
directors. Our nominating committee, which consists of Mr. McGuire, Dr. Boucher
and Dr. Lamotte, reviews the qualifications of and proposes candidates for
consideration for election to the board of directors or any committee of the
board.
46
<PAGE>
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 1999, Mr. McGuire and Dr. Treu
served as members of our compensation committee. We have never employed any
member of the compensation committee of our board of directors. None of our
executive officers serves as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving on our
board of directors or our compensation committee of the board of directors. For
information on recent purchases of our capital stock by the members of our
compensation committee or their respective affiliates, please see the
description under the caption "Certain Transactions" included in this
prospectus.
Executive Compensation
The following table provides certain information concerning the annual and
long-term compensation for the fiscal year ended December 31, 1999 of (i) our
chief executive officer, and (ii) our other executive officers as of December
31, 1999 whose salary and bonus earned during the fiscal year ended December
31, 1999 exceeded $100,000. In accordance with the rules of the Securities and
Exchange Commission, the compensation described in the table does not include
medical, group life insurance or some other benefits which are available
generally to all of our salaried employees. These individuals are referred to
as the named officers in other parts of this prospectus.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
---------------- ------------
Securities
Name and Principal Underlying
Position Salary Bonus Options
- ------------------ -------- ------- ------------
<S> <C> <C> <C>
Christy L. Shaffer, $192,800 $40,000 0
Ph.D ..................
President, Chief
Executive Officer and
Director
Gregory J. $139,667 $42,600 125,000
Mossinghoff ...........
Chief Business Officer
Janet L. Rideout, $138,417 $42,600 180,000
Ph.D ..................
Senior Vice President,
Discovery
</TABLE>
The following table sets forth certain information concerning grants of
stock options to the named officers during the fiscal year ended December 31,
1999.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Percentage Realizable Value
of Total at Assumed Rates
Number of Options of Stock Price
Securities Granted to Appreciation for
Underlying Employees Exercise or Option Term
Options in Fiscal Base Price Expiration -------------------
Name Granted 1999 per Share Date 5% 10%
- ---- ---------- ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Christy L. Shaffer,
Ph.D................... 0 -- -- -- -- --
Gregory J. Mossinghoff.. 125,000 18.1% $0.48 10/12/09 [-- ] [-- ]
Janet L. Rideout,
Ph.D................... 180,000 26.0% $0.24 04/06/09 [-- ] [-- ]
</TABLE>
The figures above represent options granted under our stock plan. We granted
options to purchase 691,250 shares of our common stock in 1999. All options
were granted at an exercise price equal to the fair market value of the common
stock on the date of grant as determined by our board of directors.
The options granted to our employees typically vest as to 25% on the first
anniversary of the date of grant and as to the remaining 75% in 36 generally
equal monthly installments commencing on the first month
47
<PAGE>
following the first anniversary of the date of grant. Mr. Mossinghoff's 1999
options vest as to 31,250 shares on October 31, 2000, vest as to an additional
2,605 on the last day of each month thereafter for 35 months, and vest as to
the remaining 2,575 shares on October 31, 2003. Dr. Rideout's 1999 options vest
as to 90,000 shares on April 6, 2000 and as to 90,000 shares on April 6, 2001,
except that the options become fully vested upon the closing of this offering.
Options granted to the named officers expire 10 years from the grant date.
The potential realizable value represents amounts, net of exercise price
before taxes, that may be realized upon exercise of the options immediately
prior to the expiration of their terms assuming appreciation of 5% and 10% over
the option term. The 5% and 10% values are calculated based on rules
promulgated by the Securities and Exchange Commission and are applied to an
assumed initial public offering price of $[ ] per share and do not reflect
our estimate of future stock price growth. The actual value realized may be
greater or less than the potential realizable value set forth in the table.
We have never granted stock appreciation rights.
The following table sets forth information concerning the value and number
of exercisable and unexercisable stock options held by the named officers as of
December 31, 1999. The value of unexercised in-the-money options at December
31, 1999 represents an amount equal to the difference between the assumed
initial public offering price of $ per share and the option exercise
price, multiplied by the number of unexercised options. An option is in-the-
money if the fair market value of the underlying shares exceeds the option's
exercise price.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options of
Options at Fiscal Year-End Fiscal Year-End
------------------------------ -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Christy L. Shaffer,
Ph.D................... 328,905 371,095 $[ ] [ ]
Gregory J. Mossinghoff.. 44,102 205,898 $[ ] [ ]
Janet L. Rideout,
Ph.D................... 124,579 182,520 $[ ] [ ]
</TABLE>
Stock Plan
We established our stock plan, as amended, for the purposes of attracting
and retaining the best available personnel, to provide additional incentive to
our employees, officers, directors and consultants and to promote our success.
The stock plan provides for the grant of incentive stock options to our
employees and the grant of non-qualified stock options and restricted stock to
our employees, directors and consultants on such terms and conditions as may be
determined by our board of directors or a committee thereof which has general
responsibility for the administration of the plan. The powers of our board of
directors or a committee, as the case may be, include the determination of
which employees and consultants are to receive stock option grants or grants of
restricted shares, the exercise price, number of shares, the vesting schedule
of the grants, payment methods, and other terms and conditions applicable to
such grants. The total number of shares of our common stock authorized for
issuance under the stock plan is 6,000,000. As of February 24, 2000, options to
purchase 4,749,156 shares of our common stock were granted (and not
subsequently forfeited), of which options to purchase 3,490,906 shares of our
common stock were outstanding and options to purchase 1,258,250 shares had been
exercised. The exercise prices of the outstanding options range from $0.07 to
$ per share.
The exercise price per share for incentive stock options may not be less
than the fair market value of our common stock on the date of grant as
determined in good faith by the board of directors; provided, however, in the
case of an incentive stock option granted to an individual who owns at least
10% of the total combined voting power of all classes of our capital stock, the
exercise price shall be no less than 110% of the fair market
48
<PAGE>
value per share on the date of grant. The aggregate fair market value of shares
which may be purchased for the first time during any calendar year pursuant to
an incentive stock option granted under the stock plan, or any other incentive
stock option plan of the company, may not exceed $100,000, based on such fair
market value at the time of grant. Under the stock plan, stock options may be
exercisable for up to 11 years, in the case of non-qualified stock options, and
for up to 10 years, in the case of incentive stock options.
If we consolidate or merge with another corporation, sell or exchange
substantially all of our assets, or are reorganized or liquidated, a holder of
an option under the stock plan, upon exercise of the option pursuant to the
terms of the option, will receive the same shares, securities or property that
the optionholder would have received had he or she, immediately prior to the
event described above, held the number of shares of our stock purchasable under
the option. Alternatively, our board of directors can elect to cancel
unexercised options outstanding under the stock plan by providing optionholders
with at least 20 days' advance written notice. Our board of directors also may
in its discretion accelerate or waive any deferred exercise period under the
option.
The board of directors may amend or terminate the stock plan at any time,
subject to any required stockholder approval.
401(k) Profit Sharing Plan
We adopted a 401(k) profit sharing plan for qualified employees, effective
August 1, 1995. Subject to certain maximum contribution limitations,
participants may elect a salary reduction of up to an amount equal to 15% of
their respective work compensation. The plan allows us to match participant
salary reductions of up to 8% of a participant's work compensation or make
other discretionary contributions with respect to participants, neither of
which has been done with respect to any period ending on or before December 31,
1999.
Under the 401(k) plan, a participant's interest in our matching or
discretionary contributions, if any are made, will become 20% vested upon the
participant's completion of two years of service, with such vesting increasing
at the rate of 20% for each additional year of service so that 100% vesting is
achieved when the participant has completed six years of service. A participant
at all times is 100% vested in his interest in the plan attributable to salary
reduction contributions.
Employee Confidentiality, Invention Assignment and Non-Compete Agreements
All of our employees, including each of the named officers, Dr. Kellerman
and Dr. Yerxa, have entered into employee confidentiality, invention assignment
and, with respect to our management-level employees, non-compete agreements
which provide, among other things, that the employee will not disclose any
confidential information or trade secrets in any unauthorized manner. The
agreements also provide that all inventions by the employee relating to our
current or anticipated business which occur during the time of employment will
be our property. Finally, the agreements provide that, with respect to any
management-level employee, the employee will not compete with us during the
time of employment and for one year thereafter.
49
<PAGE>
CERTAIN TRANSACTIONS
We entered into a Consultation and Scientific Advisory Board Agreement with
Dr. Richard Boucher, a member of our board of directors, in March 1995.
Pursuant to the terms of the agreement, Dr. Boucher agreed to serve as the
Chairman of our Scientific Advisory Board for an initial term of three years.
The agreement automatically renews itself thereafter for successive one year
terms unless terminated by either party. Under the agreement, Dr. Boucher also
agreed to consult on the field of airway diseases and the development of low
molecular weight molecules for therapeutic or diagnostic purposes. We are
currently paying Dr. Boucher $4,166.67 a month for his services, and he has
received 700,000 shares of our common stock as partial compensation for his
service. In December, 1998, in recognition of his contributions, we granted Dr.
Boucher an option to purchase 200,000 shares of our common stock at $0.12 per
share. Such shares shall vest pro rata, and be fully vested on June 30, 2002.
In March 1995, we entered into a Sponsored Research Agreement with The
University of North Carolina at Chapel Hill. Under the agreement, we fund a
research program relating to uses of the P2Y receptor family. Drs. Richard C.
Boucher, M. Jackson Stutts and C. William Davis currently serve as the
principal investigators with respect to the research. Pursuant to the terms of
the agreement, we paid approximately $141,120 in 1999 for the research program.
On July 1, 1999 and October 29, 1999 we sold an aggregate of 6,201,985
shares of Series E preferred stock at a purchase price of $2.00 per share. The
following holders of more than 5% of our voting securities purchased Series E
preferred stock in those transactions in the amounts shown below. See
"Principal Stockholders" for more detail on securities held by these
stockholders.
<TABLE>
<CAPTION>
Series E
Purchaser Preferred Stock
--------- ---------------
<S> <C>
Alta V Limited Partnership................................ 395,840
Benefit Capital Management Corporation.................... 500,000
Domain Partners III, L.P.................................. 373,832
InterWest Partners VII, L.P............................... 2,857,843
NMT New Medical Technologies.............................. 1,250,000
</TABLE>
Terrance G. McGuire, a director, is a general partner of Alta V Management
Partners, L.P., which is the general partner of Alta V Limited Partnership.
Jesse I. Treu, Ph.D., a director, is a general partner of One Palmer Square
Associates III, L.P., the general partner of Domain Partners III, L.P.
In connection with our entering into a Development, License and Supply
Agreement with Genentech, Inc., we sold 1,000,000 shares of Series G preferred
stock at $10.00 per share under the terms of a Series G Preferred Stock and
Warrant Purchase Agreement, dated December 17, 1999. The Series G preferred
stock will automatically convert at the time of the closing of this offering
into [ ] shares of our common stock. We also issued Genentech a warrant
to purchase 444,444 shares of our common stock, at an exercise price of $4.50
per share on such date. See "Business--Corporate Collaborations" for a
description of the terms of our collaboration with Genentech.
During 1999, we contracted with a contract research organization to perform
research on behalf of Kissei, one of our collaborative partners and the holder
of 375,000 shares of our Series C preferred stock. We were reimbursed by Kissei
for the cost of the study. The total amount reimbursed by Kissei for this study
in 1999 was $813,000.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of February 24, 2000 on a fully diluted basis,
and as of such date, as adjusted to give effect to this offering, by (i) each
person who is known to own beneficially more than 5% of our common stock and
(ii) each of the named officers and our current directors, and (iii) all of the
directors and executive officers as a group.
Beneficial ownership is determined on a fully diluted basis and includes all
options and warrants which are exercisable within 60 days of February 24, 2000.
The information contained in this table assumes the conversion of all preferred
stock into shares of common stock, assuming a conversion of the Series G
preferred stock into shares of common stock based on an assumed initial
offering price of $ per share. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them. Includes warrants for 165,000 shares
of Series A preferred stock; warrants for 15,000 shares of Series B preferred
stock, warrants for 28,170 shares of Series F preferred stock and warrants for
464,444 shares of common stock.
<TABLE>
<CAPTION>
Number of Shares Percentage Percentage
Beneficially Owned Beneficially Owned Beneficially Owned
Name and Address of Prior to This Prior to This After This
Beneficial Owner Offering Offering Offering
- ------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Terrance G. McGuire(1).. 5,038,566 % %
Polaris Venture
Partners
1000 Winter Street
Suite 3350
Waltham, MA 02154
Alta V Limited
Partnership(2)......... 4,986,164 % %
Polaris Venture
Partners
1000 Winter Street
Suite 3350
Waltham, MA 02154
Jesse I. Treu,
Ph.D.(3)............... 4,541,224 % %
Domain Associates,
L.L.C.
One Palmer Square,
Suite 515
Princeton, N.J. 08542
Domain Partners III,
L.P.(4)................ 4,541,224 % %
DP III Associates, L.P.
One Palmer Square,
Suite 515
Princeton, N.J. 08542
InterWest Partners VII,
L.P.(5)................ 2,987,500 % %
InterWest Investors
VII, LP
3000 Sand Hill Road
Bldg. 3, Suite 255
Menlo Park, CA 94025
Andre L. Lamotte,
Sc.D.(6)............... 2,626,639 % %
Medical Science
Partners
161 Worcester Road,
Suite 301
Framingham, MA 01701
Medical Science Partners
II, L.P.(7)............ 2,343,561 % %
c/o Medical Science
Partners
161 Worcester Road,
Suite 301
Framingham, MA 01701
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Percentage Percentage
Beneficially Beneficially Beneficially
Owned Prior Owned Prior Owned After
to This to This This
Name and Address of Beneficial Owner Offering Offering Offering
- ------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Benefit Capital Management
Corporation(8)......................... 2,166,667 % %
39 Old Ridgebury Road
Danbury, CT 06817
NMT New Medical Technologies(9)......... 1,680,000 % %
Innovation Center
Gewerbestrasse 18
Allschwil, CH-4123
Genentech, Inc.(10)..................... [ ] % %
1 DNA Way
South San Francisco, CA 94080-4990
Christy L. Shaffer, Ph.D.(11)........... 372,219 % %
Gregory J. Mossinghoff(12).............. 54,245 * *
Janet L. Rideout, Ph.D.(13)............. 422,045 % *
Richard Boucher, M.D.(14)............... 971,200 % %
H. Jefferson Leighton, Ph.D.(15)........ 700,000 % %
W. Leigh Thompson, M.D., Ph.D.,
D.Sc.(16).............................. 48,625 * *
All directors and executive officers as
a group (9 people)(1), (3), (6), (11),
(12), (13), (14), (15), (16)........... 14,774,763 % %
</TABLE>
- --------
* Less than one percent
(1) Includes 2,721,400 shares of Series A preferred stock, 1,479,022 shares of
Series B preferred stock, 389,902 shares of common stock and 395,840
shares of Series E preferred stock beneficially owned by Alta V Limited
Partnership, and 28,600 shares of Series A preferred stock, 15,544 shares
of Series B preferred stock, 4,098 shares of common stock and 4,160 shares
of Series E preferred stock beneficially owned by Customs House Partners.
Mr. McGuire is a principal of Burr, Egan, Deleage & Co. The principals of
Burr, Egan, Deleage & Co. are general partners of Alta V Management
Partners, L.P., the general partner of Alta V Limited Partnership, and
Customs House Partners. In his capacity as general partner of Alta V
Management Partners, L.P., Mr. McGuire may be deemed to share voting and
investment powers for the shares held by Alta V Limited Partnership and
Customs House Partners. Mr. McGuire disclaims beneficial ownership of all
such shares held by Alta V Limited Partnership and Customs House Partners
except to the extent of his proportionate pecuniary interests in such
funds. See footnote 2 and the table above.
(2) Alta V Limited Partnership ownership is based on ownership of 2,721,400
shares of Series A preferred stock, 1,479,022 shares of Series B preferred
stock, 389,902 shares of common stock and 395,840 shares of Series E
preferred stock.
(3) Includes 4,400,298 shares beneficially owned by Domain Partners III, L.P.
and 140,926 shares beneficially owned by DP III Associates, L.P. Dr. Treu
is a general partner of One Palmer Square Associates III, L.L.C., the
general partner of Domain Partners III, L.P. and DP III, Associates, L.P.
Dr. Treu shares voting and investment power with respect to these shares
and disclaims beneficial ownership of such shares except to the extent of
his proportionate interest therein. Excludes 900,000 shares of Series A
preferred stock, 489,131 shares of Series B preferred stock and 124,610
shares of Series E preferred stock beneficially owned by Biotechnology
Investments Limited. Dr. Treu is a managing member of Domain Associates,
L.L.C. Pursuant to a contractual agreement, Domain
52
<PAGE>
Associates, L.L.C. is the U.S. Venture Capital Advisor to Biotechnology
Investments Limited. Domain Associates has no voting or investment power
with respect to Biotechnology Investments Limited's shares. Dr. Treu
disclaims beneficial ownership of Biotechnology Investments Limited's
shares. See footnote 4 and the table above.
(4) Jesse I. Treu, Ph.D., a director of Inspire, is a general partner of One
Palmer Square Associates III, L.P., the general partner of Domain
Partners III, L.P. and DP III Associates, L.P. Dr. Treu shares voting and
investment power with respect to these shares and disclaims beneficial
ownership of such shares except to the extent of his proportionate
interest therein. Domain Partners III, L.P.'s ownership is based on
ownership of 2,608,696 shares of Series A preferred stock, 1,417,770
shares of Series B preferred stock and 373,832 shares of Series E
preferred stock. DP III Associates, L.P.'s ownership is based on
ownership of 91,304 shares of Series A preferred stock and 49,622 shares
of Series B preferred stock.
(5) InterWest Partners VII, LP's ownership is based on ownership of
2,857,843 shares of Series E preferred stock. InterWest Investors, VII,
LP's ownership is based on ownership of 129,657 shares of Series E
preferred stock.
(6) Includes 2,343,561 shares held by the Medical Science Partners II, L.P.
and 283,078 shares held by the Medical Science II Co-Investment L.P. Dr.
Lamotte is a managing general partner of Medical Science Partners, the
general partner of Medical Science Partners II, L.P., and the co-manager
of Medical Science II Co-Investment, L.P. which are stockholders. Dr.
Lamotte disclaims beneficial ownership of Medical Science II Co-
Investment, L.P.'s shares. See footnote 7 and the table above.
(7) Medical Science Partners II, L.P.'s ownership is based on 394,000 shares
of common stock, 1,324,561 shares of Series A preferred stock and 625,000
shares of Series B preferred stock.
(8) Benefit Capital Management Corporation's ownership is based on ownership
of 1,666,667 shares of Series B preferred stock and 500,000 shares of
Series E preferred stock.
(9) NMT New Medical Technologies ownership is based on ownership of 430,000
shares of Series B preferred stock, and 1,250,000 shares of Series E
preferred stock.
(10) Genentech, Inc.'s ownership consists of shares of common stock
upon automatic conversion of Series G preferred stock upon the closing
of this offering and a warrant for 444,444 shares of common stock
exercisable for $4.50 per share.
(11) Includes 372,219 shares of common stock underlying stock options granted
to Dr. Shaffer which will have vested within sixty days after February
24, 2000. Does not include 527,781 shares of common stock underlying
stock options granted to Dr. Shaffer which will not have vested within
sixty days after February 24, 2000.
(12) Includes 54,245 shares of common stock underlying stock options granted
to Mr. Mossinghoff which will have vested within sixty days after
February 24, 2000. Does not include 345,755 shares of common stock
underlying stock options granted to Mr. Mossinghoff which will not have
vested within sixty days after February 24, 2000.
(13) Includes 102,901 shares of common stock and 319,144 shares of common
stock underlying stock options granted to Dr. Rideout which will have
vested within sixty days after February 24, 2000. Does not include
90,856 shares of common stock underlying stock options granted to Dr.
Rideout which will not have vested within sixty days after February 24,
2000.
(14) Includes 883,670 shares of common stock and 87,530 shares of common
stock underlying stock options granted to Dr. Boucher which will have
vested within sixty days after February 24, 2000. Does not include
112,470 shares of common stock underlying stock options granted to Dr.
Boucher which will not have vested within sixty days after February 1,
2000.
(15) Includes 700,000 shares of common stock.
(16) Includes 45,625 shares of common stock and 3,000 shares of common stock
underlying stock options granted to Dr. Thompson which will have vested
within sixty days after February 24, 2000.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 108,000,000 shares, of which
56,000,000 shares are common stock, $0.001 par value, and 52,000,000 shares are
preferred stock, which our board of directors has the power and authority to
designate into classes or series. Immediately following this offering, there
will be shares of common stock and no shares of preferred stock
outstanding, assuming an initial public offering price of $[ ]. The
following is a summary of various provisions of our common stock and preferred
stock.
Common Stock
As of February 24, 2000, there were 4,342,250 shares of our common stock
issued and outstanding and held of record by 43 stockholders. An additional
[ ] shares of our common stock will be issued upon the automatic conversion
of all outstanding shares of our preferred stock on the closing of this
offering, assuming an initial public offering price of $[ ]. In addition, as
of February 24, 2000, 464,444 shares of our common stock were reserved for
issuance upon the exercise of outstanding warrants, 208,170 shares of our
preferred stock were reserved for issuance upon the exercise of outstanding
warrants and 6,000,000 shares of our common stock were reserved for issuance
upon the exercise of options under our stock plan, of which options to purchase
4,749,156 shares of our common stock were granted (and not subsequently
forfeited). Of these, 3,490,906 shares are reserved for issuance upon the
exercise of outstanding options and 1,258,250 shares have been purchased
pursuant to the exercise of such options.
The following summarizes the rights of the holders of our common stock:
. each holder of shares of common stock is entitled to one vote per share
on all matters to be voted on by stockholders generally, including the
election of directors;
. there are no cumulative voting rights;
. the holders of our common stock are entitled to dividends and other
distributions as may be declared from time to time by the board of
directors out of funds legally available for that purpose, if any,
provided that no cash dividend may be declared or paid on our common
stock until paid on various series of outstanding preferred stock in
accordance with its terms;
. upon our liquidation, dissolution or winding up, the holders of shares
of common stock will be entitled to share ratably in the distribution of
all of our assets remaining available for distribution after
satisfaction of all our liabilities and the payment of the liquidation
preference of any outstanding preferred stock; and
. under the terms of our amended and restated certificate of
incorporation, the holders of common stock have no preemptive or other
subscription rights to purchase shares of our stock, nor are they
entitled to the benefits of any redemption or sinking fund provisions.
Preferred Stock
Upon the closing of this offering, there will be no shares of preferred
stock outstanding. Our amended and restated certificate of incorporation
authorizes our board of directors to create and issue one or more series of
preferred stock and determine the rights and preferences of each series within
the limits set forth in our amended and restated certificate of incorporation
and applicable law. Among other rights, the board of directors may determine,
without further vote or action by our stockholders:
. the number of shares constituting the series and the distinctive
designation of the series;
. the dividend rate on the shares of the series, whether dividends will be
cumulative, and if so, from which date or dates, and the relative rights
of priority, if any, of payment of dividends on shares of the series;
. whether the series will have voting rights in addition to the voting
rights provided by law, and if so, the terms of the voting rights;
. whether the series will have conversion privileges and, if so, the terms
and conditions of conversion;
54
<PAGE>
. whether or not the shares of the series will be redeemable or
exchangeable, and, if so, the dates, terms and conditions of redemption
or exchange, as the case may be;
. whether the series will have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of
the sinking fund; and
. the rights of the shares of the series in the event of our voluntary or
involuntary liquidation, dissolution or winding up and the relative
rights or priority, if any, of payment of shares of the series.
Unless otherwise provided by our board of directors, the shares of all
series of preferred stock will rank on a parity with respect to the payment of
dividends and to the distribution of assets upon liquidation. Although we have
no present plans to issue any shares of preferred stock, any future issuance of
shares of preferred stock, or the issuance of rights to purchase preferred
shares, may have the effect of delaying, deferring or preventing a change in
control in our company or an unsolicited acquisition proposal. The issuance of
preferred stock also could decrease the amount of earnings and assets available
for distribution to the holders of common stock or could adversely affect the
rights and powers, including voting rights, of the holders of the common stock.
Registration Rights
Following the expiration of all applicable lock-up periods, the holders of
at least 50% of the shares of our common stock to be received upon the
automatic conversion of the outstanding shares of Series A preferred stock at
the time of the closing of this offering may request that we file a
registration statement under the Securities Act. At any time after April 8,
2002, the holders of at least 50% of the shares of our common stock to be
received upon the automatic conversion of the outstanding shares of Series A
preferred stock and Series B preferred stock at the time of the closing of this
offering may request that we file a registration statement. At any time after
December 31, 2002, the holders of more than 50% of the shares of our common
stock to be received upon the automatic conversion of the outstanding shares of
any two of the following series of preferred stock may request that we file a
registration statement: Series A preferred stock, Series B preferred stock,
Series E preferred stock or Series G preferred stock. Furthermore, the holders
of at least 50% of the outstanding shares of common stock issued upon
conversion of any of the Series A preferred stock, Series B preferred stock,
Series E preferred stock and Series G preferred stock may request that we file
a registration statement on Form S-3. Upon such a request and subject to
certain minimum size conditions, we generally will be required to use our best
efforts to effect any such registration. In addition, if we propose to register
any of our common stock, either for our own account or for the account of our
stockholders, we are required, with certain exceptions, to notify the holders
described above and, subject to certain limitations, to include in such
registration all of the shares of our common stock received upon conversion of
the shares of our Series A preferred stock, Series B preferred stock, Series E
preferred stock and Series G preferred stock requested to be included by such
holders. We are generally obligated to bear the expenses, other than
underwriting discounts and sales commissions, of these registrations.
Under agreements with the holders of Series C preferred stock and Series D
preferred stock, we have agreed to notify such holders in the event we propose
to register any of our common stock, either for our own account or for the
account of stockholders, and, subject to certain limitations, to include in
such registration all of the shares of common stock issued upon conversion of
the Series C preferred stock and Series D preferred stock at the time of
closing of this offering, as requested to be included by such holders. We are
generally obligated to bear the expenses, other than underwriting discounts and
sales commissions, of these registrations.
All such registration rights terminate five years after the closing of this
offering.
Any exercise of such registration rights may hinder our efforts to arrange
future financings and may have an adverse effect on the market price of our
common stock.
Stockholders' Agreement
The holders of our common stock, our Series A, B and E preferred stock and
we are parties to a stockholders agreement pursuant to which such stockholders
have agreed to vote their shares for the election of directors, as follows: one
person designated by stockholders affiliated with Burr, Egan, Deleage & Co.,
one
55
<PAGE>
designated by stockholders affiliated with Medical Science Partners, one
designated by stockholders affiliated with Domain Associates, one designated by
NMT New Medical Technologies, the Chief Executive Officer and three non-
employees designated by the foregoing four persons. In addition, the holders of
our common stock granted us and our Series A, B and E preferred stockholders a
right of first refusal to purchase their stock. This agreement will terminate
upon the conversion of all shares of Series A, B and E preferred stock into
shares of common stock.
Delaware Law and Certain Charter and By-Law Provisions
We are subject to Section 203 of the Delaware General Corporation Law which
is an anti-takeover provision. In general, the statute 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 a merger, asset sale or other transaction resulting in
financial benefit to the stockholder. An "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three years
prior, did own) 15% or more of a corporation's voting stock.
Our amended and restated certificate of incorporation authorizes our board
of directors to create and issue one or more series of preferred stock and
determine the rights and preferences of each series within the limits set forth
in our amended and restated certificate of incorporation and applicable law.
Use of our preferred stock could have the effect of delaying, deferring or
preventing a change in control, as removal of our board of directors and
management may be rendered more difficult. Further, use of the preferred stock
may have an adverse impact on the ability of our stockholders to participate,
if applicable, in a tender offer or exchange offer for the common stock, which
would diminish the value of the common stock.
The Delaware General Corporation Law authorizes a corporation in its
certificate of incorporation to limit the personal liability of its directors
for violations of their fiduciary duty of care. Accordingly, our amended and
restated certificate of incorporation states that a director will not be
personally liable to us or to our stockholders for monetary damages resulting
from any breach of fiduciary duty as a director, except in certain
circumstances involving wrongful acts, such as the breach of the director's
duty of loyalty to us or our stockholders, acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, or a
transaction from which the director derived an improper personal benefit. The
Delaware General Corporation Law also authorizes a corporation to indemnify its
directors and officers, and our amended and restated certificate of
incorporation requires that we indemnify each director and executive officer to
the fullest extent allowable under the Delaware General Corporation Law. We
believe that these provisions will assist us in attracting and retaining
individuals to serve as directors.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock will be [ ].
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our common stock.
Future sales of substantial amounts of our common stock, or even the
possibility of such sales, could reduce the prevailing market price. As
described below, only a limited number of shares of common stock currently held
by our stockholders will be available for sale shortly after this offering due
to certain contractual and legal restrictions on resale. Sales of substantial
amounts of common stock in the public market after the restrictions lapse could
adversely affect the prevailing market price and our ability to raise equity
capital in the future.
Upon the closing of this offering, shares of our common stock will be
outstanding based on the number of shares of our preferred stock and common
stock outstanding as of December 31, 1999, and assuming no exercise of the
underwriters' over-allotment option. Of these shares, the shares of common
stock being sold in this offering will be freely tradable (unless purchased by
our "affiliate" as such term is defined in the Securities Act) without
restriction or registration under the Securities Act. All remaining shares of
common stock were issued and sold in private transactions and are "restricted
securities" which are eligible for public sale only if registered under the
Securities Act or sold in accordance with Rule 144 promulgated under that Act.
In addition, upon closing of this offering [ ] shares of common stock will
be issuable upon the exercise of warrants and options.
Our officers, directors and holders of preferred stock have agreed that they
will not, directly or indirectly, offer, sell or agree to sell, or otherwise
dispose of any shares of our common stock or convertible securities in the
public market without the prior written consent of Bear, Stearns & Co. Inc. for
a period of 180 days after the effective date of the registration statement of
which this prospectus is a part (the "Lockup Period"). As a result of lockups
with the underwriters and the provisions of Rule 144, the shares
which are restricted securities will be available for sale in the United States
public market as follows:
. shares of common stock will be eligible for sale upon expiration of
the Lockup Period; and
. the remainder of the shares of common stock will be eligible for sale
from time to time thereafter upon expiration of the applicable holding
periods under Rule 144.
Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date of this prospectus a person or persons whose shares are
aggregated, who has beneficially owned restricted securities for at least one
year, including the holding period of any prior owner except an affiliate, will
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of:
. 1% of the number of shares of our common stock then outstanding, which
will equal approximately shares immediately after this offering; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Inspire.
Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is
entitled to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Registration Rights. As described above, holders of shares of our
common stock which are restricted securities and shares of our common
stock issuable upon exercise of outstanding warrants will be entitled to demand
registration of their shares. Registration of their shares under the Securities
Act would result in these shares becoming freely tradable without restriction
under the Securities Act, except for shares purchased by affiliates,
immediately upon the effectiveness of that registration.
57
<PAGE>
Rule 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchases or receives shares from us in connection with our stock plan or
other written agreement will be eligible to resell their shares beginning 90
days after the date of this prospectus, subject only to the manner of sale
provisions of Rule 144, and by affiliates under Rule 144 without compliance
with its holding period requirements.
Stock Options. Following this offering, we intend to file a registration
statement on Form S-8 under the Securities Act covering the shares of common
stock reserved for issuance under our stock plan. The registration statement on
Form S-8 will become effective upon filing with the Securities and Exchange
Commission. Accordingly, shares registered under that registration statement
will, subject to limitations applicable to affiliates, be available for sale in
the open market after the filing, except those shares subject to lock-up
agreements and unvested shares.
Warrants. We have issued various warrants to purchase shares of our
preferred stock which shall, upon the closing of this offering, convert into
warrants to purchase an aggregate of 208,170 shares of our common stock. Each
of the preferred stock warrants will expire on the fifth anniversary of the
date of this offering. On January 29, 1999 we issued a ten-year warrant to a
consultant for 20,000 shares of our common stock as partial consideration under
a consulting agreement. On December 17, 1999 we issued a five-year warrant to
Genentech to purchase 444,444 shares of our common stock.
58
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an agreement among the
underwriters and us, the underwriters named below, through their
representatives Bear, Stearns & Co. Inc., Deutsche Bank Securities Inc. and
U.S. Bancorp Piper Jaffray Inc., have severally agreed to purchase from us the
aggregate number of shares of our common stock set forth opposite their names
below:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Bear, Stearns & Co. Inc.........................................
Deutsche Bank Securities Inc....................................
U.S. Bancorp Piper Jaffray Inc..................................
Total...........................................................
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to approval of various legal matters by their counsel
and to various other conditions, including delivery of legal opinions by our
counsel, the delivery of a letter by our independent auditors and the accuracy
of the representations and warranties made by us in the underwriting agreement.
Under the underwriting agreement, the underwriters are obliged to purchase and
pay for all the above shares of our common stock if any are purchased.
Public Offering Price
The underwriters propose to offer the shares of our common stock directly to
the public at the offering price set forth on the cover page of this prospectus
and at that price less a concession not in excess of $ per share of
common stock to other dealers who are members of the National Association of
Securities Dealers, Inc. The underwriters may allow, and those dealers may
reallow, concessions not in excess of $ per share of common stock to
other underwriters or to other dealers. After this offering, the offering
price, concessions and other selling terms may be changed by the underwriters.
Our common stock is offered subject to receipt and acceptance by the
underwriters and subject to other conditions, including the right to reject
orders in whole or in part. The underwriters have informed us that the
underwriters do not expect to confirm sales of common stock to any accounts
over which they exercise discretionary authority.
The following table summarizes the per share and total public offering price
of the shares of common stock in the offering, the underwriting compensation to
be paid to the underwriters by us and the proceeds of the offering, before
expenses, to us. The information presented assumes either no exercise or full
exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share Allotment Allotment
----- --------- ---------
<S> <C> <C> <C>
Public offering price............................ $ $ $
Underwriting discounts and commissions payable by
us..............................................
Proceeds, before expenses, to us.................
</TABLE>
The underwriting discount and commission per share is equal to the public
offering price per share of our common stock less the amount paid by the
underwriters to us per share of common stock.
We estimate total offering expenses payable by us, other than the
underwriting discounts and commissions referred to above, will be approximately
$ .
59
<PAGE>
Over-Allotment Option to Purchase Additional Shares
We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of additional shares of our common stock
exercisable at the offering price less the underwriting discounts and
commissions, each as set forth on the cover page of this prospectus. If the
underwriters exercise this option in whole or in part, then each of the
underwriters will be obligated to purchase additional shares of common stock in
proportion to their respective purchase commitments as shown in the table set
forth above, subject to various conditions.
Indemnification and Contribution
The underwriting agreement provides that we will indemnify the underwriters
against liabilities specified in the underwriting agreement under the
Securities Act, including liabilities arising from material misstatements or
omissions in connection with disclosure, or will contribute to payments that
the underwriters may be required to make in respect of those liabilities. The
underwriters have agreed to indemnify us against liabilities specified in the
underwriting agreement under the Securities Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to the
underwriters, the underwriters have been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
Lock-Up Agreements
All of our officers, directors and holders of preferred shares have agreed
that they will not, directly or indirectly, offer, sell or agree to sell, or
otherwise dispose of any shares of our common stock or convertible securities
in the public market without the prior written consent of Bear, Stearns & Co.
Inc. for a period of 180 days after the effective date of the registration
statement of which this prospectus is a part.
In addition, we have agreed that for a period of 180 days from the date of
this prospectus, we will not, without the prior written consent of Bear,
Stearns & Co. Inc., directly or indirectly, offer, sell or otherwise dispose of
any shares of common stock, pledge, make any short sale or maintain any short
position, establish or maintain a put position, enter into any swap, derivative
transaction or other arrangement that transfers to another any of the economic
consequences of ownership of common stock, or otherwise dispose of any common
stock or any interest in common stock held by us.
Nasdaq National Market Quotation
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the common stock
will be determined by negotiations between us and the representatives of the
underwriters. Among the factors to be considered in determining the initial
public offering price will be estimates of our prospects in the industry in
which we compete, an assessment of our management, the general state of the
securities markets at the time of this offering, and certain financial and
operating information of companies engaged in similar activities. We have
applied for approval for the quotation of our common stock on the Nasdaq
National Market, under the symbol "ISPH." We cannot assure you, however, that
an active or orderly trading market will develop for the common stock or that
the common stock will trade in the public market subsequent to this offering at
or above the initial offering price.
Stabilization, Syndicate Short Position and Penalty Bids
In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise
affect the price of the common stock during and after this offering.
Specifically, the underwriters may over-allot or otherwise create a short
position in the common stock for their own account by selling more shares of
common stock than we have actually sold to them. The underwriters may elect to
cover any such short position by purchasing shares of common stock in the open
market and may impose penalty bids, under which selling concessions allowed to
syndicate members or other broker-dealers
60
<PAGE>
participating in this offering are reclaimed if shares of common stock
previously distributed in this offering are repurchased in connection with
stabilization transactions or otherwise. The effect of these transactions may
be to stabilize or maintain the market price at a level above that which might
otherwise prevail in the open market. The imposition of a penalty bid may also
affect the price of the common stock to the extent that it discourages resales
thereof. No representation is made as to the magnitude or effect of any such
stabilization or other transactions. Such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
Reserved Share Program
At our request, the underwriters have reserved for sale at the initial
public offering price up to shares of common stock to be sold in this
offering for sale to our directors, officers, employees, business associates,
vendors and related persons. Purchases of reserved shares are to be made
through an account at Bear, Stearns & Co. Inc. in accordance with Bear, Stearns
& Co. Inc.'s procedures for opening an account and transacting in securities.
The number of shares available for sale to the general public will be reduced
to the extent that any reserved shares are purchased. Any reserved shares not
purchased by our directors, officers, employees, business associates, vendors
and related persons will be offered by the underwriters to the general public
on the same terms as the other shares offered by this prospectus.
61
<PAGE>
LEGAL MATTERS
The validity of the common stock offered and some of the legal matters
arising in connection with this offering will be passed upon for us by Smith,
Stratton, Wise, Heher & Brennan, Princeton, New Jersey. Other legal matters in
connection with this offering will be passed upon for the underwriters by
Coudert Brothers, New York, New York.
EXPERTS
The financial statements as of December 31, 1998 and 1999, and for each of
the three years in the period ended December 31, 1999, included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The statements in this prospectus under the captions "Risk Factors--If our
patent and other intellectual property protection is inadequate, the
development and any possible sales of our product candidates could suffer or
competitors could force our products completely out of the market," "Business--
Business Strategy--Protect and Enhance our Technology Leadership Position," and
"Business--Patents and Proprietary Rights" have been reviewed and approved by
Howrey Simon Arnold & White, LLP, our patent counsel, as experts on such
matters, and are included in this prospectus in reliance upon that review and
approval.
CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS
In November 1999, we dismissed KPMG LLP as our independent accountants. The
former independent accountants' report did not contain an adverse opinion, a
disclaimer of opinion or any qualifications or modifications related to
uncertainty, limitation of audit scope or application of accounting principles.
The former independent accountants' report does not cover any of our financial
statements in this registration statement. There were no disagreements with the
former public accountants on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure with respect to
our financial statements up through the time of dismissal that, if not resolved
to the former accountants' satisfaction, would have caused them to make
reference to the subject matter of the disagreement in connection with their
report. In November 1999, we retained PricewaterhouseCoopers LLP as our
independent public accountants. The decision to retain PricewaterhouseCoopers
LLP was approved by resolution of the board of directors. Prior to retaining
PricewaterhouseCoopers LLP, we had not consulted with PricewaterhouseCoopers
LLP regarding accounting principles.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.,
a registration statement on Form S-1 (together with required schedules and
exhibits) under the Securities Act with respect to the shares of common stock
offered. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information provided in the registration
statement, certain terms of which are omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. You can find additional
information with respect to us and the common stock in the registration
statement, which may be inspected without charge, at the public reference
facilities maintained by the Securities and Exchange Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Seven World Trade
Center, 13th Floor, New York, New York 10048; and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of these materials may be obtained
from the public reference section of the Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C., 20549, at prescribed rates. The
registration statement is also publicly available through the Securities and
Exchange Commission's web site located at http://www.sec.gov
62
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Independent Accountants...................................... F-2
Balance Sheets at December 31, 1998 and 1999........................... F-3
Statements of Operations for the years ended December 31, 1997, 1998
and 1999 and the period from inception (October 28, 1993) to December
31, 1999.............................................................. F-4
Statements of Stockholders' Equity (Deficit) for the period from
inception (October 28, 1993) to December 31, 1999..................... F-5
Statements of Cash Flows for the years ended December 31, 1997, 1998
and 1999 and the period from inception (October 28, 1993) to December
31, 1999.............................................................. F-6
Notes to Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Inspire Pharmaceuticals, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Inspire Pharmaceuticals, Inc. (a
development stage company) at December 31, 1998 and 1999, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999 and the period from inception (October 28, 1993) to
December 31, 1999 in conformity with accounting principles generally accepted
in the United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 21, 2000
Raleigh, North Carolina
F-2
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, Pro Forma
-------------------------- December 31,
1998 1999 1999
------------ ------------ ------------
(unaudited)
(Note 2)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........... $ 4,137,628 $ 22,727,687 $
Accounts receivable................. 5,726 19,540
Prepaid expenses.................... 123,372 131,891
------------ ------------ -----------
Total current assets.................. 4,266,726 22,879,118
Property and equipment, net........... 1,046,195 789,028
Other, net............................ 133,114 261,611
------------ ------------ -----------
Total assets.......................... $ 5,446,035 $ 23,929,757 $
============ ============ ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.................... $ 290,473 $ 631,497 $
Accrued expenses.................... 447,835 650,650
Capital leases, current portion..... 441,645 210,259
------------ ------------ -----------
Total current liabilities............. 1,179,953 1,492,406
Capital leases, excluding current
portion.............................. 341,382 333,383
Notes payable......................... 20,825 23,714
Deferred revenue...................... -- 5,000,000
------------ ------------ -----------
Total liabilities................. 1,542,160 6,849,503
Commitments (Note 12)................. -- --
Stockholders' equity:
Convertible preferred stock, $0.001
par value; 52,000,000 shares
authorized; 20,857,681 and
28,059,666 shares issued and
outstanding at December 31, 1998
and 1999, respectively............. 24,466,659 45,895,143
Common stock, $0.001 par value per
share; 56,000,000 shares
authorized; 3,778,393 and 4,315,250
shares issued and outstanding at
December 31, 1998 and 1999,
respectively....................... 3,779 4,315
Additional paid-in capital.......... 569,267 906,123
Deficit accumulated during the
development stage.................. (20,860,276) (29,396,259)
Deferred compensation............... (275,554) (329,068)
------------ ------------ -----------
Total stockholders' equity............ 3,903,875 17,080,254
------------ ------------ -----------
Total liabilities and stockholders'
equity............................... $ 5,446,035 $ 23,929,757 $
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
from
Inception
(October 28,
Year Ended December 31, 1993) to
------------------------------------- December 31,
1997 1998 1999 1999
----------- ----------- ----------- ------------ ---
<S> <C> <C> <C> <C> <C>
Revenues:
Collaborative research
agreements........... $ -- $ 3,600,000 $ 600,000 $ 4,200,000
----------- ----------- ----------- ------------
Operating expenses:
Research and
development.......... 6,568,914 5,438,405 7,178,909 25,250,042
General and
administrative
expenses............. 1,494,593 1,921,088 1,887,272 7,895,313
Stock based
compensation......... -- 14,066 90,386 104,452
----------- ----------- ----------- ------------
Total operating
expenses............. 8,063,507 7,373,559 9,156,567 33,249,807
----------- ----------- ----------- ------------
Operating loss........ (8,063,507) (3,773,559) (8,556,567) (29,049,807)
----------- ----------- ----------- ------------
Other income (expense),
net:
Interest income....... 280,402 167,514 237,581 1,108,741
Interest expense...... (164,321) (115,295) (90,175) (644,641)
Loss on disposal of
property and
equipment............ -- (16,587) (4,790) (328,520)
----------- ----------- ----------- ------------
Other income
(expense), net....... 116,081 35,632 142,616 135,580
----------- ----------- ----------- ------------
Loss before provision
for income taxes..... (7,947,426) (3,737,927) (8,413,951) (28,914,227)
Provision for income
taxes.................. -- 360,000 60,000 420,000
----------- ----------- ----------- ------------
Net loss.............. (7,947,426) (4,097,927) (8,473,951) (29,334,227)
Preferred stock
dividends.............. -- -- (62,032) (62,032)
----------- ----------- ----------- ------------
Net loss available to
common stockholders.. $(7,947,426) $(4,097,927) $(8,535,983) $(29,396,259)
=========== =========== =========== ============
Net loss per common
share--basic and
diluted................ $ (2.29) $ (1.14) $ (2.02)
=========== =========== ===========
Weighted average common
shares outstanding
--basic and diluted.... 3,466,224 3,607,448 4,201,802
=========== =========== ===========
Pro forma net loss per
common share--basic and
diluted................ $
===========
Pro forma weighted
average common shares
outstanding--basic and
diluted................
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from Inception (October 28, 1993) to December 31, 1999
<TABLE>
<CAPTION>
Convertible Class A and B Deficit
Preferred Stock Common Stock Common Stock Accumulated
---------------------- ------------------- ------------------- Additional During the
Number Number Number Paid-In Development Deferred
of Shares Amount of Shares Par Value of shares Par Value Capital Stage Compensation
---------- ----------- --------- --------- --------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inception
(October 28,
1993)............ -- $ -- -- $ -- -- $ -- $ -- $ -- $ --
---------- ----------- --------- ------ ------- -------- -------- ------------ ----------
Balance at
December 31,
1993............. -- -- -- -- -- -- -- -- --
Issuance of
Class A and B
common stock.... -- -- -- -- 10,000 10,000 -- -- --
Net loss........ -- -- -- -- -- -- -- (329,503) --
---------- ----------- --------- ------ ------- -------- -------- ------------ ----------
Balance at
December 31,
1994............. -- -- -- -- 10,000 10,000 -- (329,503) --
Issuance of
common stock and
cancellation of
Class A and B
common stock.... -- -- 1,488,000 1,488 (10,000) (10,000) 8,512 -- --
Stock issued for
consulting
services........ -- -- 1,025,000 1,025 -- -- 70,725 -- --
Stock issued in
exchange for
exclusive
license......... -- -- 521,000 521 -- -- 35,949 -- --
Issuance of
Series A
convertible
preferred
stock........... 9,200,000 9,100,403 -- -- -- -- -- -- --
Issuance of
Series A
warrants........ -- -- -- -- -- -- 91,410 -- --
Net loss........ -- -- -- -- -- -- -- (2,703,917) --
---------- ----------- --------- ------ ------- -------- -------- ------------ ----------
Balance at
December 31,
1995............. 9,200,000 9,100,403 3,034,000 3,034 -- -- 206,596 (3,033,420) --
Issuance of
common stock.... -- -- 397,844 398 -- -- 12,963 -- --
Net loss........ -- -- -- -- -- -- -- (5,781,503) --
---------- ----------- --------- ------ ------- -------- -------- ------------ ----------
Balance at
December 31,
1996............. 9,200,000 9,100,403 3,431,844 3,432 -- -- 219,559 (8,814,923) --
Issuance of
Series B
convertible
preferred
stock........... 10,866,014 12,966,256 -- -- -- -- -- -- --
Issuance of
common stock.... -- -- 55,920 56 -- -- 18,346 -- --
Net loss........ -- -- -- -- -- -- -- (7,947,426) --
---------- ----------- --------- ------ ------- -------- -------- ------------ ----------
Balance at
December 31,
1997............. 20,066,014 22,066,659 3,487,764 3,488 -- -- 237,905 (16,762,349) --
Issuance of
common stock.... -- -- 240,629 241 -- -- 16,757 -- --
Stock issued in
exchange for
exclusive
license......... -- -- 50,000 50 -- -- 17,950 -- --
Issuance of
Series C
convertible
preferred
stock........... 375,000 900,000 -- -- -- -- -- -- --
Issuance of
Series D
convertible
preferred
stock........... 416,667 1,500,000 -- -- -- -- -- -- --
Issuance of
Series B
warrants........ -- -- -- -- -- -- 7,035 -- --
Deferred
compensation.... -- -- -- -- -- -- 289,620 -- (289,620)
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- 14,066
Net loss........ -- -- -- -- -- -- -- (4,097,927) --
---------- ----------- --------- ------ ------- -------- -------- ------------ ----------
Balance at
December 31,
1998............. 20,857,681 24,466,659 3,778,393 3,779 -- -- 569,267 (20,860,276) (275,554)
Issuance of
common stock.... -- -- 536,857 536 -- -- 37,525 -- --
Issuance of
Series E
convertible
preferred
stock........... 6,201,985 11,405,952 -- -- -- -- -- -- --
Issuance of
Series G
convertible
preferred
stock........... 1,000,000 10,000,000 -- -- -- -- -- -- --
Issuance of
Series F
warrants........ -- -- -- -- -- -- 18,242 -- --
Issuance of
common stock
warrants........ -- -- -- -- -- -- 137,189 -- --
Preferred stock
dividends....... -- 22,532 -- -- -- -- -- (62,032) --
Deferred
compensation.... -- -- -- -- -- -- 143,900 -- (143,900)
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- 90,386
Net loss........ -- -- -- -- -- -- -- (8,473,951) --
---------- ----------- --------- ------ ------- -------- -------- ------------ ----------
Balance at
December 31,
1999............. 28,059,666 $45,895,143 4,315,250 $4,315 -- $ -- $906,123 $(29,396,259) $ (329,068)
========== =========== ========= ====== ======= ======== ======== ============ ==========
<CAPTION>
Total
Stockholders'
Equity/(Deficit)
---------------- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Inception
(October 28,
1993)............ $ --
----------------
Balance at
December 31,
1993............. --
Issuance of
Class A and B
common stock.... 10,000
Net loss........ (329,503)
----------------
Balance at
December 31,
1994............. (319,503)
Issuance of
common stock and
cancellation of
Class A and B
common stock.... --
Stock issued for
consulting
services........ 71,750
Stock issued in
exchange for
exclusive
license......... 36,470
Issuance of
Series A
convertible
preferred
stock........... 9,100,403
Issuance of
Series A
warrants........ 91,410
Net loss........ (2,703,917)
----------------
Balance at
December 31,
1995............. 6,276,613
Issuance of
common stock.... 13,361
Net loss........ (5,781,503)
----------------
Balance at
December 31,
1996............. 508,471
Issuance of
Series B
convertible
preferred
stock........... 12,966,256
Issuance of
common stock.... 18,402
Net loss........ (7,947,426)
----------------
Balance at
December 31,
1997............. 5,545,703
Issuance of
common stock.... 16,998
Stock issued in
exchange for
exclusive
license......... 18,000
Issuance of
Series C
convertible
preferred
stock........... 900,000
Issuance of
Series D
convertible
preferred
stock........... 1,500,000
Issuance of
Series B
warrants........ 7,035
Deferred
compensation.... --
Amortization of
deferred
compensation.... 14,066
Net loss........ (4,097,927)
----------------
Balance at
December 31,
1998............. 3,903,875
Issuance of
common stock.... 38,061
Issuance of
Series E
convertible
preferred
stock........... 11,405,952
Issuance of
Series G
convertible
preferred
stock........... 10,000,000
Issuance of
Series F
warrants........ 18,242
Issuance of
common stock
warrants........ 137,189
Preferred stock
dividends....... (39,500)
Deferred
compensation.... --
Amortization of
deferred
compensation.... 90,386
Net loss........ (8,473,951)
----------------
Balance at
December 31,
1999............. $17,080,254
================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
from
Inception
(October 28,
Year Ended December 31, 1993) to
-------------------------------------- December 31,
1997 1998 1999 1999
----------- ----------- ------------ ------------ ---
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(7,947,426) $(4,097,927) $ (8,473,951) $(29,334,227)
Adjustments to
reconcile net loss to
net cash used by
operating activities:
Depreciation and
amortization........ 496,598 541,704 622,806 2,118,726
Stock issue for
exclusive licenses.. -- 18,000 -- 54,470
Stock issued for
consulting
services............ -- -- -- 71,750
Amortization of
deferred
compensation........ -- 14,066 90,386 104,452
Amortization of debt
issuance costs...... 15,235 16,408 22,959 73,646
Loss on disposal of
property and
equipment........... -- 16,587 4,790 328,520
Deferred revenue..... -- -- 5,000,000 5,000,000
Changes in operating
assets and
liabilities:
Accounts
receivable........ 2,084 (5,404) (13,814) (19,540)
Prepaid expenses... 19,630 18,708 (8,519) (131,891)
Other assets....... (26,000) (24,599) 1,161 (187,790)
Accounts payable... 51,837 (208,380) 341,024 655,261
Accrued expenses... (32,259) 101,160 130,974 601,432
----------- ----------- ------------ ------------
Net cash used in
operating
activities...... (7,420,301) (3,609,677) (2,282,184) (20,665,191)
----------- ----------- ------------ ------------
Cash flows from
investing activities:
Purchase of property
and equipment........ (185,597) (169,911) (150,860) (1,432,892)
Proceeds from sale of
property and
equipment............ -- 127,037 -- 127,037
Sale of certificate of
deposit.............. -- -- -- (78,000)
----------- ----------- ------------ ------------
Net cash used in
investing
activities...... (185,597) (42,874) (150,860) (1,383,855)
----------- ----------- ------------ ------------
Cash flows from
financing activities:
Proceeds from bridge
loans................ -- -- -- 780,000
Proceeds from issuance
of notes payable..... 10,000 9,000 1,000 408,200
Payments on notes
payable.............. (158,183) (142,651) -- (400,000)
Issuance of common
stock, net........... 18,402 16,998 38,061 96,822
Issuance of
convertible preferred
stock, net........... 12,966,256 2,400,000 21,441,127 45,096,435
Payments on capital
lease obligations.... (247,916) (319,273) (457,085) (1,204,724)
----------- ----------- ------------ ------------
Net cash provided
by financing
activities...... 12,588,559 1,964,074 21,023,103 44,776,733
----------- ----------- ------------ ------------
Increase
(decrease) in
cash and cash
equivalents..... 4,982,661 (1,688,477) 18,590,059 22,727,687
Cash and cash
equivalents, beginning
of period............. 843,444 5,826,105 4,137,628 --
----------- ----------- ------------ ------------
Cash and cash
equivalents, end of
period................ $ 5,826,105 $ 4,137,628 $ 22,727,687 $ 22,727,687
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
1. Organization
Inspire Pharmaceuticals, Inc. (the "Company") was founded on October 28,
1993 to develop and commercialize novel pharmaceutical products that treat
respiratory and ophthalmic diseases which are characterized by deficiencies in
the body's innate defense mechanisms of mucosal hydration and mucociliary
clearance. The Company's technologies are based in part on exclusive license
agreements with The University of North Carolina at Chapel Hill for rights to
certain developments from the founders' laboratories.
The Company is considered a development stage enterprise. Since inception,
the Company has devoted substantially all of its efforts towards establishing
its business and research and development programs.
2. Summary of Significant Accounting Policies
Unaudited Pro Forma Balance Sheet
The Board of Directors has authorized the Company to file a Registration
Statement with the Securities and Exchange Commission permitting the Company to
sell shares of common stock in an initial public offering ("IPO"). If the IPO
is consummated as presently anticipated, all shares of the Series A, Series B,
Series D and Series E preferred stock will automatically convert into shares of
common stock at a 1-for-1 conversion ratio. The Series C preferred stock will
automatically convert into shares of common stock at a 1 to 1 conversion ratio
plus an additional 11,266 shares of common stock to be received by the Series C
preferred stockholders as a result of their antidilution protection (Note 8).
The unaudited pro forma balance sheet reflects the subsequent conversion of the
Series A, Series B, Series C, Series D and Series E preferred shares into
common stock as if such conversion had occurred as of December 31, 1999.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
Property and Equipment
Property and equipment is primarily comprised of furniture, laboratory and
computer equipment and leasehold improvements which are recorded at cost and
depreciated using the straight-line method over their estimated useful lives
which range from three to five years. Property and equipment includes certain
equipment under capital leases. These items are depreciated over the shorter of
the lease period or the estimated useful life of the equipment.
Other Assets
Other assets include deferred financing costs which were incurred when the
Company entered into capital lease obligations. These costs are amortized using
the effective interest rate method over the life of the related lease.
F-7
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation
The Company accounts for stock-based compensation based on the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), which states that no compensation expense is recorded
for stock options or other stock-based awards to employees that are granted
with an exercise price equal to or above the estimated fair value per share of
the Company's common stock on the grant date. In the event that stock options
are granted with an exercise price below the estimated fair value of the
Company's common stock, the difference between the estimated fair value of the
Company's common stock and the exercise price of the stock option is recorded
as deferred compensation. The Company recognized deferred compensation of
$289,620 and $143,900 related to stock option grants during the years ended
December 31, 1998 and 1999, respectively. Deferred compensation is amortized
over the vesting period of the related stock option, which is generally four
years. The Company recognized $14,066 and $90,386 of stock based compensation
expense related to amortization of deferred compensation during the years ended
December 31, 1998 and 1999, respectively. The Company has adopted the
disclosure requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" which requires compensation expense
to be disclosed based on the fair value of the options granted at the date of
the grant.
Income Taxes
The Company accounts for income taxes using the liability method which
requires the recognition of deferred tax assets or liabilities for the
temporary differences between financial reporting and tax bases of the
Company's assets and liabilities and for tax carryforwards at enacted statutory
tax rates in effect for the years in which the differences are expected to
reverse. The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date. In addition, valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Revenue Recognition
Revenue is recognized under collaborative research agreements when services
are performed or when contractual obligations are met. Nonrefundable fees
received at the initiation of collaboration agreements for which the Company
has an ongoing research and development commitment are deferred and recognized
ratably over the period of the related research and development commitment.
License fees received from research agreements for which the Company has no
future research and development commitments are recognized when received.
Milestone payments under collaboration agreements and research agreements will
be recognized on the date the Company achieves the indicated milestone and such
achievement is acknowledged by the collaborative partner, which generally
coincides with the receipt of the milestone payment.
Research and Development
Research and development costs include all direct costs, including salaries
for Company personnel, outside consultant's costs of clinical trials, sponsored
research and clinical trials insurance, related to the development of drug
compounds. These costs have been charged to operating expense as incurred.
Costs associated with obtaining and maintaining patents on the Company's drug
compounds and license initiation and continuation fees, including milestone
payments by the Company's to its licensors, are evaluated based on the stage of
development of the related drug compound and whether the underlying drug
compound has an alternative use. Costs of these types incurred for drug
compounds not yet approved by the United States Food and Drug Administration
("FDA") and for which no alternative use exists are recorded as research and
development
F-8
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
expense. In the event the drug compound has been approved by the FDA or an
alternative use exists for the drug compound, patent costs and license costs
are capitalized and amortized over the expected life of the related drug
compound. License milestone payments to the Company's licensors are recognized
when the underlying requirement is met by the Company.
Significant Customers and Credit Risk
All revenues recorded in 1998 and 1999 were from a single collaborative
partner. Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of short-term cash
investments. The Company primarily invests in short-term interest-bearing
investment-grade securities and certificates of deposits. Cash deposits are all
in financial institutions in the United States.
Cash Flows
The Company made cash payments for interest of $149,085, $98,887 and $67,216
for the years ended December 31, 1997, 1998 and 1999, respectively. The Company
made cash payments for foreign withholding taxes of $360,000 and $60,000 during
the years ended December 31, 1998 and 1999, respectively.
The Company acquired property and equipment through the assumption of
capital lease obligations amounting to $418,810 and $218,157 during the years
ended December 31, 1998 and 1999, respectively.
Net Income (Loss) Per Common Share
Historical
Basic net income (loss) per common share ("Basic EPS") is computed by
dividing net income (loss) available to common stockholders by the weighted
average number of common shares outstanding. Diluted net income (loss)
available to common stockholders per common share ("Diluted EPS") is computed
by dividing net income (loss) available to common stockholders by the weighted
average number of common shares and dilutive potential common share equivalents
then outstanding. Potential common shares consist of shares issuable upon the
exercise of stock options and warrants and conversion of convertible preferred
stock. The calculation of net loss per share available to common stockholders
for the years ended December 31, 1997, 1998 and 1999 does not include 306,602,
1,052,604 and 1,701,030, respectively, of potential shares of common stock
equivalents, as their impact would be antidilutive.
Pro Forma (Unaudited)
Pro forma net income (loss) per common share is calculated assuming
conversion of all convertible preferred stock, which will convert automatically
upon the closing of the Company's initial public offering into shares of the
Company's common stock (see Note 8), at the beginning of the applicable period
or date of issuance, if later.
Segment Reporting
The Company has determined that it did not have any separately reportable
operating segments as of December 31, 1998 or 1999.
Internal Use Software
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of
Position No. 98-1, "Accounting for the Costs of
F-9
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"), which
provides guidance regarding when software developed or obtained for internal
use should be capitalized. The Company adopted SOP 98-1 effective January 1,
1999. The adoption of SOP 98-1 did not have a material impact on the Company's
financial position or results of operations.
Comprehensive Income (Loss)
The Company had no items of other comprehensive income during the years
ended December 31, 1997, 1998 or 1999.
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as "derivatives"), and for hedging
activities. SFAS 133 as amended by SFAS 137, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000, with earlier
application encouraged. The Company does not currently nor does it intend in
the future to use derivative instruments and therefore does not expect that the
adoption of SFAS 133 will have any impact on its financial position or results
of operations.
3. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Equipment under capital leases.................... $ 1,529,759 $ 1,801,347
Leasehold improvements............................ 666,192 671,539
Computers and office equipment.................... 311,346 392,445
----------- -----------
2,507,297 2,865,331
Less--accumulated depreciation and amortization... (1,461,102) (2,076,303)
----------- -----------
Property and equipment, net....................... $ 1,046,195 $ 789,028
=========== ===========
</TABLE>
4. Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable and
accounts payable at December 31, 1998 and 1999 approximated their fair value
due to the short-term nature of these items.
The fair value of the Company's short-term investments, which are included
in cash and cash equivalents at December 31, 1998 and 1999, approximate their
carrying values as these investments were primarily in short-term interest-
bearing investment-grade securities.
The carrying value of the Company's notes payable and capital lease
obligations at December 31, 1998
and 1999 approximate their fair value as the interest rates on these
obligations approximate rates available in the financial market at such dates.
F-10
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Accrued Expenses
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
-------- --------
<S> <C> <C>
Research costs............................................. $133,264 $380,807
Accrued payroll and benefits............................... 49,038 31,848
Accrued legal and patent costs............................. 106,956 40,571
Accrued preferred stock dividends.......................... -- 39,500
Other...................................................... 158,577 157,924
-------- --------
$447,835 $650,650
======== ========
</TABLE>
6. Income Taxes
The components of the Company's 1997, 1998 and 1999 income tax expense
consist of the following:
<TABLE>
<CAPTION>
1997 1998 1999
------ -------- -------
<S> <C> <C> <C>
Current expense (benefit):
Federal........................................... $ -- $ -- $ --
Foreign........................................... -- 360,000 60,000
State............................................. -- -- --
------ -------- -------
Current tax expense (benefit)..................... -- 360,000 60,000
Deferred expense (benefit):
Federal........................................... -- -- --
State............................................. -- -- --
Deferred tax expense (benefit).................... -- -- --
------ -------- -------
Net tax expense (benefit)......................... $ -- $360,000 $60,000
====== ======== =======
</TABLE>
There was no current or deferred federal and state income tax expense for
the years ended December 31, 1997, 1998 and 1999 because the Company generated
net operating losses. The foreign tax represents foreign withholding tax paid
on amounts received from a foreign entity.
F-11
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Significant components of the Company's deferred tax assets and liabilities
at December 31, 1998 and 1999 consist of the following:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Deferred tax assets:
Domestic net operating loss carryforwards....... $ 7,544,056 $ 8,597,519
Deferred revenue................................ -- 1,939,250
Research and development credit................. 759,449 910,890
Fixed and intangible assets..................... 298,983 553,265
Compensation related items...................... 60,147 52,864
Stock warrants.................................. 28,477 37,381
Other........................................... 8,862 41,404
----------- ------------
Gross deferred tax assets..................... 8,699,974 12,132,573
Less valuation allowance...................... (8,699,974) (12,132,573)
----------- ------------
Net deferred tax assets....................... $ -- $ --
=========== ============
</TABLE>
For 1998 and 1999, the Company has provided a full valuation allowance
against its net deferred assets since realization of these benefits could not
be reasonably assured. The increase in valuation allowance of $3,432,598
resulted primarily from the generation of net operating loss carryforwards.
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $22,167,000 and $22,165,000, respectively.
The net operating loss carryforwards expire in various amounts starting in 2008
and 2000 for federal and state tax purposes, respectively. The utilization of
the federal net operating loss carryforward may be subject to limitation under
the rules regarding a change in stock ownership as determined by the Internal
Revenue Code. If the Company's utilization of its net operating loss
carryforwards is limited and the Company has taxable income which exceeds the
permissible yearly net operating loss carryforward, the Company would incur a
federal income tax liability even though its net operating loss carryforwards
exceed its taxable income.
Additionally, the Company has net research and development credit
carryforwards of $910,890 which expire beginning in 2010.
Taxes computed at the statutory federal income tax rate of 34% are
reconciled to the provision for income taxes as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
United States federal tax at
statutory federal income tax
rate............................. $ (2,702,125) $(1,269,365) $(2,860,743)
State taxes (net of federal
benefit)......................... (419,846) (202,328) (404,804)
Change in valuation reserve....... 3,472,665 1,863,576 3,432,598
Research and development credit... (353,445) (274,183) (151,441)
Foreign withholding tax, net of
federal benefit.................. -- 237,600 39,600
Other, net........................ 2,751 4,700 4,790
------------ ----------- -----------
Provision for income taxes........ $ -- $ 360,000 $ 60,000
============ =========== ===========
</TABLE>
F-12
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Notes Payable
On October 13, 1995, the Company entered into an unsecured loan agreement
with a lessor whereby the Company borrowed $400,000 from the lessor. The
promissory note bore interest at a rate of 10.75% and was payable in monthly
installments through October 1998. The note was fully repaid during 1998.
On November 13, 1996, the Company entered into a Collaborative Funding
Agreement ("CFA") with the North Carolina Biotechnology Center ("NCBC") and the
Kenan Institute whereby NCBC agreed to loan the Company a total of $20,000.
Loans made to the Company by NCBC under the CFA are to be used for specific
research activities. All such loans are unsecured and bear interest at 8.25%,
with principal and accrued interest payable on November 7, 2001. The Company
had total borrowings from NCBC under the CFA of $19,000 and $20,000 as of
December 31, 1998 and 1999, respectively. Accrued interest on these loans,
which is included in notes payable, totaled $1,825 and $3,714 at December 31,
1998 and 1999, respectively.
8. Stockholders' Equity
The Company is authorized to issue 56,000,000 shares of common stock with a
par value of $.001 per share and 52,000,000 shares of preferred stock. Of the
52,000,000 shares of preferred stock: (i) 9,365,000 shares have been designated
as Series A Convertible Preferred Stock ("Series A Preferred") of which
9,200,000 are issued and outstanding at December 31, 1998 and 1999; (ii)
10,881,014 shares have been designated as Series B Convertible Preferred Stock
("Series B Preferred") of which 10,866,014 are issued and outstanding at
December 31, 1998 and 1999; (iii) 375,000 shares have been designated as Series
C Convertible Preferred Stock ("Series C Preferred") and are issued and
outstanding at December 31, 1998 and 1999; (iv) 416,667 shares have been
designated as Series D Convertible Preferred Stock ("Series D Preferred") and
are issued and outstanding at December 31, 1998 and 1999; (v) 8,000,000 shares
have been designated as Series E Convertible Preferred Stock ("Series E
Preferred") of which 0 and 6,201,985 shares are issued and outstanding at
December 31, 1998 and 1999, respectively; (vi) 1,200,000 shares have been
designated as Series G Convertible Preferred Stock ("Series G Preferred") of
which 0 and 1,000,000 shares are issued and outstanding at December 31, 1998
and 1999, respectively; (vii) 9,365,000 shares have been designated as Series
AA Convertible Preferred Stock ("Series AA Preferred") none of which are issued
or outstanding at December 31, 1998 and 1999; (viii) 10,881,014 shares have
been designated as Series BB Convertible Preferred Stock ("Series BB
Preferred") none of which are issued or outstanding at December 31, 1998 and
1999; and (ix) 28,170 shares have been designated as Series F Convertible
Preferred Stock ("Series F Preferred") none of which are issued or outstanding
at December 31, 1998 and 1999.
Common Stock
Dividends
The holders of common stock shall be entitled to receive dividends from time
to time as may be declared by the Board of Directors. No cash dividend may be
declared or paid to common stockholders until paid on each series of
outstanding preferred stock in accordance with its terms.
Voting
The holders of shares of common stock are entitled to one vote for each
share held with respect to all matters voted on by the shareholders of the
Company.
F-13
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Liquidation
After payment to the preferred stockholders, holders of common stock shall
be entitled, together with holders of preferred stock, to share ratably in all
remaining assets of the Company.
Class A and B Common Stock
During 1994, 10,000 shares of Class A and B common stock were issued to one
of the Company's founders and to the initial group of investors. During 1995,
the outstanding Class A and B common shares were exchanged for the issuance of
1,488,000 shares of common stock.
Preferred Stock
Outstanding preferred stock at December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
---------------------- ----------------------
Number of Number of
Description Shares Amount Shares Amount
----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Series A Preferred............. 9,200,000 $ 9,100,403 9,200,000 $ 9,100,403
Series B Preferred ............ 10,866,014 12,966,256 10,866,014 12,966,256
Series C Preferred............. 375,000 900,000 375,000 922,532
Series D Preferred............. 416,667 1,500,000 416,667 1,500,000
Series E Preferred............. -- -- 6,201,985 11,405,952
Series G Preferred............. -- -- 1,000,000 10,000,000
---------- ----------- ---------- -----------
20,857,681 $24,466,659 28,059,666 $45,895,143
========== =========== ========== ===========
</TABLE>
Dividends
The holders of Series A Preferred, Series B Preferred, Series C Preferred
and Series E Preferred shall be entitled to receive dividends equal to any
dividends paid on common stock. If dividends are declared on any series of
preferred stock other than Series G Preferred, dividends shall be declared pari
passu among the holders of the series on which such dividends are declared and
the holders of the Series A Preferred, Series B Preferred, Series C Preferred
and Series E Preferred. The number of preferred shares on which dividends would
be paid would be based on the number of shares of common shares into which a
share of preferred stock is convertible. The holders of Series G Preferred
shall be entitled to cumulative dividends at the prime rate plus 1% of the
Series G Preferred preference amount calculated on a per share basis. The
dividends shall accrue and be payable upon the liquidation, dissolution or
winding up of the Company or upon conversion to common stock. Accrued dividends
on the Series G Preferred totaled $39,500 for the year ended December 31, 1999.
No dividends have been declared or paid from the date of inception (October 28,
1993) through December 31, 1999.
Liquidation
In the event of liquidation, dissolution, or winding up of the Company,
holders of preferred stock shall be entitled, in the following order, before
any distribution is made to holders of common stock, to be paid an amount equal
to (i) $1.00 per share of Series A Preferred or Series AA Preferred, $1.20 per
share of Series B Preferred or Series BB Preferred, and $2.00 per share of
Series E Preferred; (ii) $2.40 per share of Series C Preferred; (iii) $3.60 per
share of Series D Preferred, $2.40 per share of Series F Preferred and $10.00
per share
F-14
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
of Series G Preferred; plus, in each case, any declared but unpaid dividends.
In the event that assets of the Company are insufficient to permit payment of
the above mentioned amounts, holders shall share ratably in any distribution of
the remaining assets and funds of the Company in proportion to the respective
amounts which would otherwise be payable under these circumstances in the order
of liquidity preference.
Conversion
Each share of preferred stock, other than Series G Preferred, shall be
convertible, at the option of the holder at any time after the date of issuance
and without payment of additional consideration, into shares of common stock at
a one to one conversion rate subject to certain adjustments. Each holder
converting shares of preferred stock shall be entitled to all declared but
unpaid dividends up to the date of conversion. In the event that a sale of any
series of preferred stock is made at price per share lower than the per share
price of either the Series A Preferred, Series B Preferred, Series C Preferred
or Series E Preferred then the conversion price of the respective series of
preferred stock will be adjusted to equal the per share sales price of the most
recent series of preferred stock. As a result of the sale of the Series E
Preferred for $2.00 per share in July and October 1999, the number of common
shares that Series C Preferred converts into was increased by 11,266 shares
which resulted in the Company recognizing a preferred stock dividend of
$22,532. Series G Preferred shall be convertible into shares of the Company's
common stock at the option of the holder at any time after the second
anniversary of the date of issuance provided the conversion would not cause a
single shareholder to exceed a 19.5% ownership interest in the Company. In such
event, the conversion price for the Series G Preferred will be determined based
on the facts and circumstances at the time of such conversion.
The conversion price will be reduced in the event the Company would issue
any shares of its common stock without consideration or for consideration per
share of less than the conversion price of any series of preferred stock in
effect immediately prior to the time of such issuance except when such common
stock is issued upon conversion of preferred stock or is issued to officers,
directors, employees, or consultants of the Company pursuant to actions or
stock compensation plans in existence as of the initial issue date of the
respective series of preferred stock or any other stock purchase or option plan
for employees or directors.
Automatic Conversion
Each share of preferred stock, other than Series G Preferred, shall
automatically be convertible into common stock at the conversion price upon (i)
the completion of an underwritten public offering involving the sale of the
Company's common stock at a price of at least $2.00 per share and resulting in
gross proceeds to the Company of not less than $10,000,000 or (ii) the consent
of 80% or more of the preferred shares then outstanding. Each share of Series G
Preferred shall automatically be converted into shares of common stock upon the
completion of an underwritten public offering provided that such conversion
would not cause the holder of the converted shares to exceed 19.5% ownership
interest in the Company.
The Series G Preferred shall automatically be convertible into common stock
at an exchange rate determined by dividing the total proceeds from the sale of
Series G Preferred, plus accrued and unpaid dividends, by the initial offering
price of the Company's common stock.
Mandatory Conversion
In the event that (i) the Company issues additional shares of common stock
or options or rights to purchase common stock at a price per share less than
the then applicable conversion price of Series A Preferred or Series B
Preferred ("Diluted Stock") and (ii) a holder of Diluted Stock fails to
purchase their pro rata share
F-15
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
of such issuance, each such nonparticipating holder's shares of Diluted Stock
shall be automatically converted to an equivalent number of shares of Series AA
Preferred or Series BB Preferred, as the case may be, which shall have all the
rights and preferences of the Diluted Stock except that the initial conversion
price of the Series AA Preferred and Series BB Preferred shall not take into
account any adjustment resulting from the dilutive issuance triggering such
conversion. Thereafter, the conversion price of the Series AA Preferred and
Series BB Preferred shall be subject to adjustment in the same manner as that
of the Diluted Stock. At December 31, 1999, there are no shares of Series AA
Preferred or Series BB Preferred outstanding.
Voting
Each holder of preferred stock, other than Series G Preferred, shall be
entitled to vote upon any matter submitted to a stockholder for a vote, as
though the common stock and preferred stock constituted a single class of
stock, except with respect to those matters on which Delaware General
Corporation Law requires that a vote must be by a separate class or classes or
by separate series, as to which each class or series shall have the right to
vote in accordance with such law. The holder of preferred stock shall have the
number of votes per share equal to the number of shares of common stock into
which the preferred stock is convertible. The holders of Series A Preferred,
Series B Preferred, Series E Preferred and common stock are obligated to vote
to elect the Company's Board of Directors as provided in the Second Amended and
Restated Stockholders' Agreement dated April 8, 1997, as amended, among the
Company and such stockholders. The agreement terminates upon conversion of the
outstanding shares of the Series A Preferred, Series B Preferred and Series E
Preferred.
Restrictions
The Company cannot, without the consent of the holders of a majority of
Series A Preferred, Series B Preferred, Series C Preferred and Series E
Preferred, (i) amend, repeal, or add any provision to the certificate of
incorporation or by-laws if such actions would change the preferences, rights,
privileges, powers of, or restrictions provided for the benefit of, the Series
A Preferred, Series B Preferred, Series C Preferred and Series E Preferred,
(ii) authorize any merger or consolidation of the Company into any other
corporation or entity, or (iii) authorize the sale of all or substantially all
of the assets of the Company.
Sales of Preferred Stock
In March 1995, the Company issued 8,388,679 shares of Series A Preferred to
a group of investors at a price per share of $1.00 which resulted in proceeds
to the Company of $8,289,082, net of offering costs of $99,597. In addition,
bridge loans from the Series A Preferred investors totaling $811,321, including
accrued interest, were converted into 811,321 shares of Series A Preferred,
using a conversion price of $1.00 per share.
In June and September 1997, the Company issued 10,866,014 shares of Series B
Preferred to a group of investors at a price per share of $1.20 which resulted
in proceeds to the Company of $12,966,256, net of offering costs of $72,960.
In September 1998, the Company issued 375,000 shares of Series C Preferred
to a strategic partner, Kissei Pharmaceutical Co. Ltd. ("Kissei"), at a price
per share of $2.40 which resulted in proceeds to the Company of $900,000, in
conjunction with entering into a research agreement with Kissei relating to the
development of INS365 Respiratory (see Note 10).
In December 1998, the Company issued 416,667 shares of Series D Preferred to
Santen Pharmaceutical Company Ltd., at a price per share of $3.60 which
resulted in proceeds to the Company of $1,500,000, in
F-16
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
conjunction with entering into a research agreement relating to the development
of INS365 Ophthalmic (See Note 10).
In July and October 1999, the Company issued 6,201,985 shares of Series E
Preferred to a group of venture capital investors at a price per share of $2.00
which resulted in proceeds to the Company of $11,405,952, net of offering costs
of $998,018.
In December 1999, the Company issued 1,000,000 shares of Series G Preferred
to Genentech, Inc. ("Genentech"), at a price per share of $10.00 which resulted
in proceeds to the Company of $10,000,000 in conjunction with entering into a
collaboration agreement (See Note 10). The shares will automatically convert
into shares of the Company's common stock upon an initial public offering at an
exchange rate determined by dividing the total proceeds plus accrued and unpaid
dividends by the initial offering price of the Company's common stock.
9. Stock Options and Warrants
1995 Stock Incentive Plan
During 1995, the Company adopted the 1995 Stock Plan (the "Plan") which
provided for the grant of up to 1,760,000 options to directors, officers,
employees and consultants. In April 1999, the Plan was amended and restated,
and is now the Amended and Restated 1995 Stock Plan. In September 1999, the
option pool was increased to 4,000,000 shares and in January 2000 the option
pool was further increased to 6,000,000 shares. Under the Plan, both incentive
and non-qualified, as well as restricted stock, can be granted. The Board of
Directors shall determine the term and dates of the exercise of all options at
their grant date, provided that for incentive stock options, such price shall
not be less than the fair market value of the Company's stock on the date of
grant. The maximum exercise terms for an option grant is ten years from the
date of the grant. Options granted under the plan generally vest 25% upon
completion of one full year of employment and on a monthly basis over the
following three years. Vesting begins from the date of hire for new employees
and on the date of grant for existing employees.
The following table summarizes the stock option activity for the Plan:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- --------
<S> <C> <C>
Options outstanding, December 31, 1996.................. 1,365,843 $ 0.070
Granted............................................... 76,099 0.078
Exercised............................................. (55,920) (0.070)
Forfeited............................................. (418) (0.070)
--------- -------
Options outstanding, December 31, 1997.................. 1,385,604 0.071
Granted............................................... 1,623,500 0.143
Exercised............................................. (240,629) (0.071)
Forfeited............................................. (160,797) (0.097)
--------- -------
Options outstanding, December 31, 1998.................. 2,607,678 0.114
Granted............................................... 691,250 0.393
Exercised............................................. (536,857) (0.071)
Forfeited............................................. (181,665) (0.121)
--------- -------
Options outstanding, December 31, 1999.................. 2,580,406 $ 0.197
========= =======
</TABLE>
F-17
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information concerning options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Weighted Remaining
Average Contractual
Number of Exercise Life
Shares Price (In Years)
--------- -------- -----------
<S> <C> <C> <C>
Options outstanding--price range
$0.070...................................... 433,501 $0.070 5.97
$0.080...................................... 9,591 0.080 6.42
$0.120...................................... 1,141,064 0.120 8.58
$0.180...................................... 55,000 0.180 8.79
$0.240...................................... 501,250 0.240 9.14
$0.480...................................... 440,000 0.480 9.70
--------- ------ ----
Options outstanding........................... 2,580,406 $.197 8.44
========= ====== ====
Options exercisable........................... 1,017,578 $.107
========= ======
</TABLE>
Subsequent to December 31, 1999, the Company has made the following stock
option grants:
<TABLE>
<CAPTION>
Number of Options Exercise
Date Granted Price
---- ----------------- ---------
<S> <C> <C>
January 2000.............. 57,500 $1.00
February 2000............. 130,000 $7.25
February 2000............. 750,000 IPO price
</TABLE>
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123") requires the Company to disclose pro forma
information regarding option grants made and warrants issued to its employees.
SFAS 123 specifies certain valuations techniques that produce estimated
compensation charges that are included in the pro forma results below. These
amounts have not been reflected in the Company's statement of operations,
because the Company has made the election to use the provisions of APB 25 to
account for its stock based compensation.
The fair value of options granted to employees was estimated using the
following assumptions for the years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
December 31,
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Expected dividend yield.............................. 0.00% 0.00% 0.00%
Expected stock price volatility...................... 0.00% 0.00% 0.00%
Risk-free interest rate.............................. 6.03% 5.02% 5.39%
Expected life of options............................. 5 years 5 years 5 years
</TABLE>
F-18
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
For purposes of pro forma disclosures, the estimated fair value of equity
instruments is amortized to expense over their respective vesting period. If
the Company had elected to recognize compensation expense based on the fair
value of stock-based instruments at the grant date, as prescribed by SFAS 123,
its pro forma net loss and net loss per common share would have been as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net loss available to common
stockholders--as reported...... $ (7,947,426) $ (4,097,927) $ (8,535,983)
Net loss available to common
stockholders--
SFAS 123 pro forma............. $ (7,955,969) $ (4,111,486) $ (8,552,123)
Net loss per common share--SFAS
123 pro forma.................. $(2.30) $(1.14) $(2.04)
</TABLE>
Warrants
Preferred Stock Warrants
In connection with the capital lease agreement executed on October 13, 1995,
the Company issued warrants which entitle the holder to purchase 165,000 shares
of Series A Preferred with an exercise price of $1.00 per share. These warrants
had an estimated fair value of $91,410 at the date of issuance which was
deferred and is being amortized as an increase to interest expense over the
term of the related lease agreement using the effective interest rate method.
The warrants shall be exercisable prior to the earlier of the tenth anniversary
of the grant date or the fifth anniversary date of the Company's initial public
offering.
In connection with an amendment on June 18, 1998 to increase the amount of
equipment under the capital lease agreement executed on October 13, 1995, the
Company issued warrants which entitle the holder to purchase 15,000 shares of
Series B Preferred with an exercise price of $1.20 per share. These warrants
had an estimated value of $7,035 at the date of issuance which was deferred and
is being amortized as an increase to interest expense over the term of the
related lease agreement using the effective interest rate method. The warrants
shall be exercisable prior to the earlier of the tenth anniversary of the grant
date or the fifth anniversary date of the Company's initial public offering.
In connection with additional amendments to increase the amount of equipment
under the Company's capital lease agreement which were executed on February 8,
1999 and April 15, 1999, the Company issued warrants which entitle the holder
to purchase 20,000 and 8,170 shares, respectively, of Series F Preferred with
an exercise price of $2.40 per share. These warrants had an estimated fair
value of $18,242 at their respective dates of issuance which was deferred and
is being amortized as an increase to interest expense over the term of the
related lease agreement using the effective interest rate method. The warrants
shall be exercisable prior to the earlier of the tenth anniversary of the grant
date or the fifth anniversary date of the Company's initial public offering.
None of the preferred stock warrants have been exercised as of December 31,
1999.
Common Stock Warrants
In connection with a consulting agreement, the Company issued 20,000
warrants on January 15, 1999 to purchase shares of the Company's common stock
with an exercise price of $2.40 per share. The warrants had an estimated value
of $300 at the date of issuance as determined using the Black-Scholes model.
The warrants shall be exercisable prior to the tenth anniversary of the grant
date.
F-19
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
In connection with the sale of the Series G Preferred and the collaboration
agreement entered into with Genentech on December 17, 1999, the Company issued
warrants which entitle the holder to purchase 444,444 shares of common stock
with an exercise price of $4.50 per share. The warrants had an estimated value
of $136,889 at the date of issuance as determined using the Black-Scholes model
which was deferred and will be amortized to research and development expense
over the period of the Company's research and development commitment. The
warrants shall be exercisable prior to the fifth anniversary of the grant date.
None of the common stock warrants have been exercised as of December 31,
1999.
Outstanding warrants to purchase the Company's common and preferred stock at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Number of Exercise
Type of Warrant Warrants Price
--------------- --------- --------
<S> <C> <C>
Series A Preferred..................................... 165,000 $1.00
Series B Preferred..................................... 15,000 $1.20
Series F Preferred..................................... 28,170 $2.40
Common................................................. 20,000 $2.40
Common................................................. 444,444 $4.50
</TABLE>
10. Collaboration Agreements
On September 10, 1998, the Company entered into a Joint Development, License
and Supply Agreement (the "Kissei Agreement") with Kissei related to the
development of INS365 Respiratory for all therapeutic respiratory applications,
excluding sinusitis and middle ear infection, in Japan. INS365 Respiratory for
respiratory therapeutic uses is licensed by the Company from UNC. Under the
terms of the Kissei Agreement, Kissei will develop, commercialize, and market
INS365 Respiratory in Japan. The Company has no ongoing research and
development commitment as it relates to the Kissei Agreement. The Company
maintains the right to manufacture and supply INS365 to Kissei.
The Kissei Agreement provided that Kissei would pay the Company an up front
payment of $4,500,000, which included the purchase of $900,000 in equity in the
form of Series C Preferred. In addition, depending on whether all milestones
are met, the Company could receive milestone payments of up to $13,000,000 over
the term of the Kissei Agreement. The Company is receiving reimbursement for
liaison staff positions which totaled $62,500 and $250,000 during the years
ended December 31, 1998 and 1999. In addition, the Company will receive
royalties on net sales of INS365 Respiratory by Kissei.
Upon the signing of the Kissei Agreement, Kissei purchased 375,000 shares of
the Company's Series C Preferred for $900,000 or $2.40 per share. In addition,
the Company received a nonrefundable up front license fee of $3,600,000 which
was recorded as license revenue when received as the Company has no ongoing
research commitment under the Kissei Agreement. During 1999, the Company
received a milestone payment under the Kissei Agreement of $600,000 based on
achievement of technical milestones by Inspire. Subsequent to December 31,
1999, the Company received a milestone payment of $1,500,000 based on
achievement of a technical milestone by Kissei in its development of INS365
Respiratory.
On December 16, 1998, the Company entered into a Development, License and
Supply Agreement (the "Santen Agreement") with Santen Pharmaceutical Company,
Ltd. ("Santen") to complete the development of INS365 Ophthalmic for the
therapeutic treatment of ocular surface diseases. Santen received an exclusive
license to INS365 Ophthalmic in Japan, China, South Korea, the Philippines,
Thailand, Vietnam, Taiwan, Singapore, Malaysia and Indonesia ("the Territory")
in the field. Under the terms of the Santen Agreement, Santen will develop,
commercialize, and market INS365 Ophthalmic in the Territory. The Company
retains the right to manufacture and supply INS365 Ophthalmic in bulk drug
substance to Santen.
F-20
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Santen Agreement provided that Santen would make the Company an up front
payment through an equity investment of $1,500,000 in Series D Preferred. In
addition, depending on whether all milestones under the Santen Agreement are
met, the Company could receive milestone payments of up to $4,750,000. No
milestone payments were received under the Santen Agreement during 1998 or
1999. In addition, the Company will receive royalties on net sales on INS365
Ophthalmic by Santen.
Upon the signing of the Santen Agreement, Santen purchased 416,667 shares of
the Company's Series D Preferred for $1,500,000 or $3.60 per share.
On December 17, 1999, the Company entered into a Development, License and
Supply Agreement (the "Genentech Agreement") with Genentech to jointly develop
INS365 Respiratory and other related P2Y\\2\\ agonists existing on the date of
the Genentech Agreement for all human therapeutic uses for (a) the treatment of
respiratory tract disorders, including chronic bronchitis and cystic fibrosis,
throughout the world, excluding Japan and (b) the treatment of sinusitis and
middle ear infection worldwide. The Company will maintain the right to
manufacture and supply such compounds in bulk drug substance form to Genentech
during the research and development period and up to the end of Phase II
clinical trials for each indication.
The Genentech Agreement provided that Genentech would pay the Company a non-
refundable, non-creditable up-front payment of $5,000,000 upon execution of the
Genentech Agreement, which the Company will record as license revenue over the
term of its research and development commitment, which is estimated to be two
years. In addition, the Company could receive milestone payments of up to an
additional $63,000,000 over the term of the Genentech Agreement. No milestone
payments were received under the Genentech Agreement during 1999. In addition,
the Company will receive royalties on net sales by Genentech of INS365
Respiratory and other indications for INS365 represented in the collaborative
research agreement.
Upon the signing of the agreement, Genentech purchased 1,000,000 shares of
Series G Preferred for $10.00 a share or an aggregate purchase price of
$10,000,000.
11. License Agreement
On March 10, 1995, the Company licensed the rights to the patent for a
Method of Treating Lung Disease with Urinide Triphosphates which covers INS316
Diagnostic from the University of North Carolina at Chapel Hill ("UNC"). In
connection with this license agreement, the Company paid $65,000 in license
initiation fees and issued 521,000 shares of common stock with an estimated
value at the date of issuance of $36,470 or $0.07 per share and has agreed to
make milestone payments totaling up to $1,000,000. The Company reached one such
milestone in 1997 and made the milestone payment of $500,000 in the same year.
A $10,000 milestone payment was made during each of 1998 and 1999.
On September 1, 1998, the Company licensed the rights to the patents for a
Method of Treating Cystic Fibrosis with Dinucleotides, a Method of Treating
Bronchitis with Uridine Triphosphates and related compounds, and a Method of
Treating Ciliary Dyskinesia with Uridine Triphosphates and related compounds,
which cover INS365 Respiratory, from UNC. In connection with this license
agreement, the Company paid $15,000 in license initiation fees and issued
50,000 shares of common stock with an estimated value at the date of issuance
of $18,000 or $0.36 per share and has agreed to pay milestone payments totaling
$160,000. The Company reached one such milestone and made milestone payments of
$30,000 in 1999.
In connection with the license agreements with UNC, the Company has agreed
to pay royalties based on net sales of certain Licensed Products (as defined in
the license agreements).
F-21
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company enters into sponsored research and development and clinical
trial agreements with the UNC on an annual basis whereby direct and indirect
costs, as defined, are reimbursed by the Company.
12. Commitments
The Company is obligated under a master capital lease for furniture,
equipment, and computers. Each lease term under the master lease agreement
expires between 30 to 48 months from the date of inception.
The Company also has several non-cancelable operating leases, primarily for
office space and office equipment, that extend through November 2003 and are
subject to certain voluntary renewal options. Rental expense for operating
leases during 1998, 1999 and for the cumulative period from inception
(October 28, 1993) to December 31, 1999 was $163,833 (net of sublease rentals
$24,938), $145,347 (net of sublease rentals of $65,483) and $610,261 (net of
sublease rentals of $96,656), respectively.
Future minimum lease payments under non-cancelable operating leases (net of
related sublease rentals) with remaining lease payments as of December 31, 1999
are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
<S> <C> <C>
Year ending December 31:
------------------------
2000.................................................. $267,098 $190,429
2001.................................................. 166,829 147,040
2002.................................................. 142,889 144,164
2003.................................................. 36,964 89,576
-------- --------
Total minimum lease payments............................ 613,780 $571,209
========
Less amount representing interest....................... (70,138)
--------
Present value of net minimum capital lease payments..... 543,642
Less current portion capital lease obligations.......... 210,259
--------
Capital lease obligations, excluding current portion.... $333,383
========
</TABLE>
The Company has a purchase commitment as of December 31, 1999 with Summit
Pharmaceuticals Corp. for certain drug compounds in an amount of $375,000 which
is expected to be paid as the drug compound is delivered in March and April
2000.
The Company is subject to various legal matters in the ordinary course of
business. In the opinion of management, the ultimate outcome of such matters
will not have a material adverse effect on the financial condition, results of
operations or cash flows of the Company.
13. Employee Benefit Plan
The Company has adopted a 401(k) Profit Sharing Plan ("the Plan") covering
all qualified employees. The effective date of the Plan is August 1, 1995.
Participants in the Plan must be 21 years of age or older. Participants may
elect a salary reduction of 1% to 15% as a contribution to the Plan.
Modifications of salary reductions can be made quarterly.
The Plan permits employer matching of up to 8% of a participant's salary,
but the Company has elected not to match participants' contributions at this
time. If employer matching is implemented, participants will
F-22
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
begin vesting in employer contributions after one year of employment at a rate
of 20% per year until fully vested.
14. Related Party Transaction
In 1995, the Company issued 1,025,000 shares of common stock to four
founding scientists with an estimated value of $71,750 in recognition of prior
consulting services provided to the Company.
During 1999, the Company contracted with a contract research organization
("CRO") to perform research and development on behalf of Kissei. The Company is
reimbursed by Kissei for the costs of this study. The total amount paid to the
CRO and reimbursement received from Kissei during 1999 totaled $813,000.
F-23
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that con-
tained in this prospectus. We are offering to sell, and seeking offers to buy,
shares of our common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this pro-
spectus or of any sale of the common stock.
Until , 2000, all dealers that effect transactions of these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a pro-
spectus when acting as underwriters and with respect to their unsold allot-
ments or subscriptions.
---------------------
TABLE OF CONTENTS
---------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Special Note Regarding Forward- Looking Statements ...................... 18
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Financial Data.................................................. 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 28
Management............................................................... 44
Certain Transactions..................................................... 50
Principal Stockholders................................................... 51
Description of Capital Stock............................................. 54
Shares Eligible for Future Sale.......................................... 57
Underwriting............................................................. 59
Legal Matters............................................................ 62
Experts.................................................................. 62
Change in Independent
Public Accountants....................................................... 62
Where You Can Find More Information...................................... 62
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO]
[LOGO OF INSPIRE]
Shares
Common Stock
--------------
PROSPECTUS
--------------
Bear, Stearns & Co. Inc.
Deutsche Banc Alex. Brown
U.S. Bancorp Piper Jaffray
, 2000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table lists the costs and expenses, other than underwriting
discounts and commissions, which we expect to incur in connection with the
issuance and distribution of the securities being registered. Except for the
SEC registration fee, the NASD filing fee and the Nasdaq National Market fees,
the amounts listed below are estimates:
<TABLE>
<S> <C>
SEC Registration Fee................................................. $
NASD filing fee......................................................
Nasdaq Listing application fee.......................................
Legal fees and expenses..............................................
Blue Sky fees and expenses...........................................
Accounting fees and expenses.........................................
Printing and engraving expenses......................................
Transfer Agent and Registrar fees....................................
Miscellaneous expenses...............................................
-----
Total.............................................................. $
=====
</TABLE>
All expenses of registration incurred in connection herewith are being borne
by us.
Item 14. Indemnification of Directors and Officers.
Section 102(b)(7) of the Delaware General Corporation Law ("DGCL") enables a
corporation in its certificate of incorporation to limit the personal liability
of its directors for violations of their fiduciary duty of care. Accordingly,
Article Eighth of our amended and restated certificate of incorporation states
that a director will not be personally liable to the company or to our
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the elimination or limitation of liability is
prohibited under the DGCL as in effect when such liability is determined.
Subsection (b)(7) of Section 102 of the DGCL states that such provision shall
not eliminate or limit the liability of a director: (i) for any breach of the
director's duty of loyalty to us or to our stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If
the DGCL is amended, then the liability of a director will be eliminated or
limited to the fullest extent permitted by the amended DGCL.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or
II-1
<PAGE>
settlement of that action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. No indemnification will be made, however, in respect to any claim,
issue or matter as to which that person is adjudged to be liable to the
corporation, unless and only to the extent that the Court of Chancery or the
court in which that action or suit was brought will determine upon application
that, despite the adjudication of liability but in view of all of the
circumstances of the case, that person is fairly and reasonably entitled to
indemnity for the expenses which the Court of Chancery or such other court
deems proper.
Section 145 further provides that to the extent a present or former director
or officer of a corporation has been successful in the defense of any action,
suit or proceeding referred to in subsections (a) and (b) of Section 145, or in
defense of any claim, issue or matter therein, that person will be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him; that the indemnification provided by Section 145 will not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the scope of indemnification extends to directors, officers,
employees, or agents of a constituent corporation absorbed in a consolidation
or merger and persons serving in that capacity at the request of the
constituent corporation for another. The determination of whether
indemnification is proper under the circumstances, unless made by a court, is
determined by: (a) a majority of the disinterested members of the board of
directors or board committee; (b) independent legal counsel (if a quorum of the
disinterested members of the board of directors or board committee is not
available or if the disinterested members of the board of directors or a board
committee so direct); or (c) the stockholders.
Section 145 also empowers us to purchase and maintain insurance on behalf of
our directors or officers against any liability asserted against them or
incurred by them in any such capacity or arising out of their status as our
directors or officers whether or not we would have the power to indemnify them
against the liabilities under Section 145. We currently carry liability
insurance for the benefit of our directors and officers, including Scientific
Advisory Board members, that provides coverage for any compensatory damages
(excluding punitive or exemplary damages, taxes, matters uninsurable pursuant
to any applicable law, fines or penalties), settlements, and reasonable and
necessary legal fees and expenses incurred by any of the officers or directors
resulting from any written demand for civil damages, any civil proceeding, or
any formal administrative or regulatory proceeding initiated during the policy
period against any of the officers or directors in which they shall be
subjected to a binding adjudication of liability for damages or other relief,
including any appeal therefrom, for any actual or alleged error, act, omission,
misstatement, misleading statement, neglect, or breach of duty committed or
attempted by any officer or director in their capacity as a director or officer
of the company (or any subsidiary of the company) or with consent of the
company in the position of director, officer or trustee of any non-profit
entity, or any matter claimed against any director or officer solely by reason
of their serving in such capacity or position. Among other exclusions, our
current policy specifically excludes coverage for any claim: involving an
accounting of profits made in fact from the purchase or sale of the securities
of the company by officers or directors; based upon actual or alleged pollution
or any decision to test for or clean up pollutants or nuclear material; for
violations of the Employee Retirement Income Security Act of 1974; by or on
behalf of the company, other officers or directors or any security holder of
the company (in most instances); brought about by any deliberately dishonest,
fraudulent or malicious act or omission or any willful violation of law
established by an adverse final adjudication; based upon any personal profit,
remuneration or advantage gained by any director or officer to which they were
not legally entitled; based upon or arising out of their services as directors,
officers or employees of any entity other than the company (or a subsidiary of
the company) except for service, with consent of the company, by a director or
officer in the position of director, officer or trustee in any non-profit
entity, if such claim is brought and maintained without the participation of
the non-profit entity; for defamation, bodily injury, sickness, disease, death,
false arrest or imprisonment, assault, battery, outrage, humiliation, mental
anguish, emotional distress, abuse of process, malicious prosecution, violation
or invasion of any right of privacy or private occupancy, trespass, nuisance or
wrongful entry or eviction, or for damage to or destruction of any tangible
property including loss of use thereof; based any claim related to allegations
that computer software or hardware failed to function properly because of a
year 2000 problem; for, based upon, a rising from, or in any way related to any
demand, suit, or
II-2
<PAGE>
other proceeding which was pending on or existed prior to January 23, 1998 with
respect to the first $1,000,000 in coverage, and prior to January 23, 1999,
with respect to the remaining coverage; which, in whole or in part, is brought
or maintained by or on behalf of David Drutz, including his estate, any
beneficiary of his estate, or assignee, trustee or receiver thereof. In
addition, the policy excludes all or part of such claim that is, directly or
indirectly, based on, attributable to, arising out of, resulting from or in any
manner relating to the Initial Public Offering of the Company's securities
and/or any registration statement or prospectus related thereto, however, the
Company intends to procure liability insurance for the benefit of its directors
and officers which includes the coverage relating to the Initial Public
Offering which is excluded from its current policy, provided it can obtain
reasonable quotations.
Article Ninth of our amended and restated certificate of incorporation
requires that we indemnify, to the fullest extent permitted by the DGCL, each
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was, or has agreed to become, a director or officer of Inspire, or is or was
serving, or has agreed to serve, at our request, as a director, officer or
trustee of, or in a similar capacity with, another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action,
suit or proceeding and any appeal therefrom.
Any amendment or repeal of Article Ninth of our amended and restated
certificate of incorporation shall not adversely affect any right or protection
of a director or officer with respect to any act or omission of such director
or officer occurring prior to such amendment or repeal.
Item 15. Recent Sales of Unregistered Securities.
In the three years preceding the filing of this registration statement, we
sold the following securities that were not registered under the Securities
Act.
(1) During the period of April 10, 1995 to February 24, 2000, we granted
stock options to employees, directors and consultants under our stock plan
covering an aggregate of 5,212,295 shares of our common stock. Of these,
approximately 463,139 shares have been cancelled without being exercised,
approximately 1,258,250 shares have been exercised and 3,490,906 are currently
outstanding. The weighted average exercise price of the stock options
outstanding as of February 24, 2000 was $ per share. During the period of
April 10, 1995 to February 24, 2000, we sold 1,258,250 shares of our common
stock to employees, directors and consultants upon the exercise of outstanding
stock options for exercise prices ranging from $0.07 to $0.12 per share.
(2) On June 19, 1997, June 30, 1997 and September 10, 1997, we sold an
aggregate of 10,866,014 shares of our Series B convertible preferred stock to
several accredited investors for an aggregate purchase price of $13,039,217.
(3) On June 18, 1998, we issued Comdisco, Inc. a 10-year warrant to purchase
15,000 shares of our Series B convertible preferred stock at $1.20 per share.
(4) On September 1, 1998, we issued 50,000 shares of our common stock to The
University of North Carolina at Chapel Hill as partial consideration for
technology licensed pursuant to an Exclusive License Agreement dated September
1, 1998.
(5) On September 10, 1998, we sold 375,000 shares of our Series C
convertible preferred stock to Kissei Pharmaceutical Co., Ltd. for an aggregate
purchase price of $900,000.
II-3
<PAGE>
(6) On December 16, 1998, we sold 416,667 shares of our Series D convertible
preferred stock to Santen Pharmaceuticals Co., Ltd. for an aggregate purchase
price of $1,500,000.
(7) On January 29, 1999, we issued PharmaLogic Development, Inc. a 10-year
warrant to purchase 20,000 shares of our common stock at $2.40 per share;
(8) On February 8, 1999, we issued Comdisco, Inc. a 10-year warrant to
purchase 20,000 shares of our Series F convertible preferred stock at $2.40 per
share;
(9) On April 15, 1999, we issued Comdisco, Inc. a 10-year warrant to
purchase 8,170 shares of our Series F convertible preferred stock at $2.40 per
share;
(10) On July 1, 1999 and October 29, 1999, we sold an aggregate of 6,201,985
shares of our Series E convertible preferred stock to several accredited
investors for an aggregate purchase price of $12,403,970. In connection with
these sales, we paid Pacific Growth Equities placement fees of $744,238.
(11) On December 17, 1999, we sold 1,000,000 shares of Series G convertible
preferred stock to Genentech, Inc. for an aggregate purchase price of
$10,000,000 and a five-year warrant to purchase 444,444 shares of common stock
at $4.50 per share.
The sale and issuances of securities in the transactions described in
paragraph (1) above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 (promulgated thereunder in that they were
offered and sold either pursuant to a written compensatory benefit plan or
pursuant to a written contract relating to compensation, as evidenced by Rule
701, or were deemed to be exempt from registration under the Securities Act by
virtue of Section 4(2) as transactions not involving any public offering.
The sale and issuance of securities in the transactions described in
paragraphs (2) through (11) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) and/or Regulation D as
transactions not involving any public offering, or Regulation S as offers and
sales that occurred outside the United States. Where appropriate, the
purchasers represented their intention to acquire the securities for investment
only and not with a view to the distribution thereof, or that they were non-
U.S. persons. Appropriate legends are affixed to the stock certificates issued
in those transactions. All recipients either received adequate information
about us or had access, through employment or other relationships, to adequate
information.
Item 16. Exhibits and Financial Statement Schedules.
Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation
3.2* Bylaws
4.1* Specimen Common Stock Certificate
5.1* Opinion of Smith, Stratton, Wise, Heher & Brennan
10.1 Amended and Restated 1995 Stock Plan, as amended
10.2 Form of Incentive Stock Option
10.3* Form of Non-statutory Stock Option
10.4 Consultation and Scientific Advisory Board Agreement between Inspire
Pharmaceuticals, Inc. and Dr. Richard Boucher, dated March 10, 1995
10.5** Sponsored Research Agreement between Inspire Pharmaceuticals, Inc. and
The University of North Carolina at Chapel Hill, effective March 10,
1995, as amended
10.6** Clinical Trial Agreement between Inspire Pharmaceuticals, Inc. and The
University of North Carolina at Chapel Hill, effective March 10, 1995,
as amended
10.7** Exclusive License Agreement between Inspire Pharmaceuticals, Inc. and
The University of North Carolina at Chapel Hill, dated as of March 10,
1995
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.8 Lease between Inspire Pharmaceuticals, Inc. and Imperial Center,
Limited Partnership regarding Royal Center I, Durham, North Carolina,
dated as of May 17, 1995, as amended
10.9 Master Lease Agreement between Inspire Pharmaceuticals, Inc. and
Comdisco, Inc., dated October 13, 1995
10.10 Lease Agreement between Inspire Pharmaceuticals, Inc. and Petula
Associates Ltd. regarding Royal Center II, Durham, North Carolina,
dated as of December 30, 1997
10.11 Sublease Agreement between ICAgen, Inc. and Inspire Pharmaceuticals,
Inc. regarding premises located at 4222 Emperor Boulevard, Suite 500,
Durham, North Carolina, dated September 22, 1997 and extension of
Sublease Agreement dated February 14, 2000
10.12** Exclusive License Agreement between Inspire Pharmaceuticals, Inc. and
The University of North Carolina at Chapel Hill, dated September 1,
1998
10.13** Joint Development, License and Supply Agreement between Inspire
Pharmaceuticals, Inc. and Kissei Pharmaceutical Co., Ltd., dated as of
September 10, 1998
10.14 Registration Rights Agreement between Inspire Pharmaceuticals, Inc.
and Kissei Pharmaceutical Co., Ltd., dated as of September 10, 1998
10.15** Development, License and Supply Agreement between Inspire
Pharmaceuticals, Inc. and Santen Pharmaceutical Co., Ltd., dated as of
December 16, 1998
10.16 Registration Rights Agreement between Inspire Pharmaceuticals, Inc.
and Santen Pharmaceutical Co., Ltd., dated as of December 16, 1998
10.17** Clinical Research Agreement between Inspire Pharmaceuticals Inc. and
Simbec Research Limited, dated August 30, 1999
10.18** Services Agreement between Inspire Pharmaceuticals, Inc. and
Pharmaceutical Development Associates, Inc. (ClinSites/PDA) dated
November 1, 1999
10.19** Quotation between Inspire Pharmaceuticals, Inc. and Simbec Research
Limited regarding research study, dated December 17, 1999
10.20** Development, License and Supply Agreement between Inspire
Pharmaceuticals, Inc. and Genentech, Inc., dated as of December 17,
1999
10.21** Series G Preferred Stock and Warrant Purchase Agreement between
Inspire Pharmaceuticals, Inc. and Genentech, Inc., dated as of
December 17, 1999
10.22 Warrant Agreement between Inspire Pharmaceuticals, Inc. and Genentech,
Inc., dated as of December 17, 1999
10.23 Amended and Restated Investors' Rights Agreement among Inspire
Pharmaceuticals, Inc. and the holders of Series A, B, E and G
Preferred Stock of the Company dated as of December 17, 1999
10.24 Employee Confidentiality, Invention Assignment and Non-Compete
Agreement between Inspire Pharmaceuticals, Inc. and Donald J.
Kellerman dated February 3, 2000
10.25 Employee Confidentiality, Invention Assignment and Non-Compete
Agreement between Inspire Pharmaceuticals, Inc. and Gregory J.
Mossinghoff dated February 4, 2000
10.26 Employee Confidentiality, Invention Assignment and Non-Compete
Agreement between Inspire Pharmaceuticals, Inc. and Benjamin R. Yerxa
dated February 4, 2000
10.27 Employee Confidentiality, Invention Assignment and Non-Compete
Agreement between Inspire Pharmaceuticals, Inc. and Janet L. Rideout
dated February 4, 2000
10.28 Employee Confidentiality, Invention Assignment and Non-Compete
Agreement between Inspire Pharmaceuticals, Inc. and Christy L. Shaffer
dated February 10, 2000
16.1 Letter of KPMG LLP dated February 25, 2000
23.1 Consent of PricewaterhouseCoopers, L.L.P., independent public
accountants
23.2* Consent of Smith, Stratton, Wise, Heher & Brennan (contained in
Exhibit 5.1)
24.1 Power of Attorney (see "Power of Attorney" below)
27.1 Financial Data Schedule
</TABLE>
II-5
<PAGE>
- --------
* To be filed by amendment.
** Confidential treatment has been requested with respect to a portion of this
Exhibit.
Financial Statement Schedules
No schedules are required because the information is either not applicable
or is presented elsewhere herein.
Item 17. Undertakings.
We hereby undertake to provide to the underwriter at the closing specified
in the underwriting agreements, certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Inspire
pursuant to the foregoing provisions, or otherwise, we have been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person of Inspire in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
We hereby undertake that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act will be deemed to be part of this registration statement
as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus will
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time will be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Durham, State of North
Carolina on February 25, 2000.
Inspire Pharmaceuticals, Inc.
/s/ Christy L. Shaffer
By: _________________________________
Christy L. Shaffer,
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Christy L. Shaffer and Gregory J. Mossinghoff,
and each or any one of them, his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments (including Rule 462(b) or other post-effective amendments) to
this registration statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Christy L. Shaffer President, Chief Executive February 25, 2000
______________________________________ Officer (principal
Christy L. Shaffer executive officer) and
Director
/s/ Gregory J. Mossinghoff Chief Business Officer February 25, 2000
______________________________________ (principal financial
Gregory J. Mossinghoff officer and principal
accounting officer)
/s/ Terrance G. McGuire Chairman of the Board February 25, 2000
______________________________________
Terrance G. McGuire
/s/ Richard Boucher, M.D. Director February 25, 2000
______________________________________
Richard Boucher, M.D.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Andre L. Lamotte, Sc.D. Director February 25, 2000
______________________________________
Andre L. Lamotte, Sc.D.
/s/ H. Jefferson Leighton Director February 25, 2000
______________________________________
H. Jefferson Leighton
/s/ W. Leigh Thompson Director February 25, 2000
______________________________________
W. Leigh Thompson
/s/ Jesse I. Treu Director February 25, 2000
______________________________________
Jesse I. Treu
</TABLE>
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation
3.2* Bylaws
4.1* Specimen Common Stock Certificate
5.1* Opinion of Smith, Stratton, Wise, Heher & Brennan
10.1 Amended and Restated 1995 Stock Plan, as amended
10.2 Form of Incentive Stock Option
10.3* Form of Non-statutory Stock Option
10.4 Consultation and Scientific Advisory Board Agreement between Inspire
Pharmaceuticals, Inc. and Dr. Richard Boucher, dated March 10, 1995
10.5** Sponsored Research Agreement between Inspire Pharmaceuticals, Inc. and
The University of North Carolina at Chapel Hill, effective March 10,
1995, as amended
10.6** Clinical Trial Agreement between Inspire Pharmaceuticals, Inc. and The
University of North Carolina at Chapel Hill, effective March 10, 1995,
as amended
10.7** Exclusive License Agreement between Inspire Pharmaceuticals, Inc. and
The University of North Carolina at Chapel Hill, dated as of March 10,
1995
10.8 Lease between Inspire Pharmaceuticals, Inc. and Imperial Center,
Limited Partnership regarding Royal Center I, Durham, North Carolina,
dated as of May 17, 1995, as amended
10.9 Master Lease Agreement between Inspire Pharmaceuticals, Inc. and
Comdisco, Inc., dated October 13, 1995, as amended
10.10 Lease Agreement between Inspire Pharmaceuticals, Inc. and Petula
Associates Ltd. regarding Royal Center II, Durham, North Carolina,
dated as of December 30, 1997
10.11 Sublease Agreement between ICAgen, Inc. and Inspire Pharmaceuticals,
Inc. regarding premises located at 4222 Emperor Boulevard, Suite 500,
Durham, North Carolina, dated September 22, 1997 and extension of
Sublease Agreement dated February 14, 2000
10.12** Exclusive License Agreement between Inspire Pharmaceuticals, Inc. and
The University of North Carolina at Chapel Hill, dated September 1,
1998
10.13** Joint Development, License and Supply Agreement between Inspire
Pharmaceuticals, Inc. and Kissei Pharmaceutical Co., Ltd., dated as of
September 10, 1998
10.14 Registration Rights Agreement between Inspire Pharmaceuticals, Inc.
and Kissei Pharmaceutical Co., Ltd., dated as of September 10, 1998
10.15** Development, License and Supply Agreement between Inspire
Pharmaceuticals, Inc. and Santen Pharmaceutical Co., Ltd., dated as of
December 16, 1998
10.16 Registration Rights Agreement between Inspire Pharmaceuticals, Inc.
and Santen Pharmaceutical Co., Ltd., dated as of December 16, 1998
10.17** Clinical Research Agreement between Inspire Pharmaceuticals Inc. and
Simbec Research Limited, dated August 30, 1999
10.18** Services Agreement between Inspire Pharmaceuticals, Inc. and
Pharmaceutical Development Associates, Inc. (ClinSites/PDA) dated
November 1, 1999
10.19** Quotation between Inspire Pharmaceuticals, Inc. and Simbec Research
Limited regarding research study, dated December 17, 1999
10.20** Development, License and Supply Agreement between Inspire
Pharmaceuticals, Inc. and Genentech, Inc., dated as of December 17,
1999
10.21** Series G Preferred Stock and Warrant Purchase Agreement between
Inspire Pharmaceuticals, Inc. and Genentech, Inc., dated as of
December 17, 1999
10.22 Warrant Agreement between Inspire Pharmaceuticals, Inc. and Genentech,
Inc., dated as of December 17, 1999
10.23 Amended and Restated Investors' Rights Agreement among Inspire
Pharmaceuticals, Inc. and the holders of Series A, B, E and G
Preferred Stock of the Company dated as of December 17, 1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.24 Employee Confidentiality, Invention Assignment and Non-Compete
Agreement between Inspire Pharmaceuticals, Inc. and Donald J.
Kellerman dated February 3, 2000
10.25 Employee Confidentiality, Invention Assignment and Non-Compete
Agreement between Inspire Pharmaceuticals, Inc. and Gregory J.
Mossinghoff dated February 4, 2000
10.26 Employee Confidentiality, Invention Assignment and Non-Compete
Agreement between Inspire Pharmaceuticals, Inc. and Benjamin R. Yerxa
dated February 4, 2000
10.27 Employee Confidentiality, Invention Assignment and Non-Compete
Agreement between Inspire Pharmaceuticals, Inc. and Janet L. Rideout
dated February 4, 2000
10.28 Employee Confidentiality, Invention Assignment and Non-Compete
Agreement between Inspire Pharmaceuticals, Inc. and Christy L. Shaffer
dated February 10, 2000
16.1 Letter of KPMG LLP dated February 25, 2000
23.1 Consent of PricewaterhouseCoopers, L.L.P., independent public
accountants
23.2* Consent of Smith, Stratton, Wise, Heher & Brennan (contained in
Exhibit 5.1)
24.1 Power of Attorney (see "Power of Attorney" above)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Confidential treatment has been requested with respect to a portion of this
Exhibit.
<PAGE>
EXHIBIT 10.1
INSPIRE PHARMACEUTICALS, INC.
AMENDED AND RESTATED
1995 STOCK PLAN
A. Inspire Pharmaceuticals, Inc. (the "Company") heretofore established
this 1995 Stock Plan (the "Plan") to encourage ownership of Common Stock, $0.001
par value (the "Stock") of by its directors, officers, employees and consultants
("Participants") through the grant of Incentive Stock Options, Nonstatutory
Stock Options (as such terms are defined in Section 3(a) below (collectively,
"Options") and Restricted Stock (as such term is defined in Section 8 below).
B. Pursuant to Section 11 of the Plan, the Company now desires to amend
and restate the Plan in order to clarify the right of the Board to amend
existing Options and Options granted hereafter and the consequences of any such
amendments.
NOW THEREFORE, effective April 6, 1999 , the Plan is hereby amended and restated
as follows:
1. Administration of the Plan.
---------------------------
The administration of the Plan shall be under the general supervision
of the Board of Directors of the Company or any committee of such board to which
such board delegates such administrative responsibility (the "Board"). The Board
may establish such rules as it deems necessary for the proper administration of
the Plan, make such determinations and interpretations with respect to the Plan
and Options and Restricted Stock granted under it as may be necessary or
desirable and include such further provisions or conditions in Options and
Restricted Stock granted under the Plan as it deems advisable. To the extent
permitted by law, the Board may delegate its authority under the Plan to a sub-
committee of the Board. Within the limits of the Plan, the Board shall
determine:
(a) the individuals to whom, and the times at which, Options or
Restricted Stock shall be granted;
(b) in the case of Options, the type of Option to be granted, the
duration of each Option, the price at which Option Shares (as defined in Section
2(a)) may from time to time be purchased through exercise of an Option ("Strike
Price") and method of payment for each Option, and the time or times within
which (during its term) all or portions of each Option may be exercised; and
(c) in the case of Restricted Stock, the repurchase provisions of
such Restricted Stock and the price and method of payment for such Restricted
Stock..
<PAGE>
2. Shares Subject to the Plan.
--------------------------
(a) Number and Type of Shares. The aggregate number of shares of
-------------------------
Stock of the Company which may be issued pursuant to Options ("Option Shares")
or Restricted Stock granted under the Plan is 1,760,000 shares. In the event
that the Board in its discretion determines that any stock dividend, split-up,
combination or reclassification of shares, recapitalization or other similar
capital change affects the Stock such that adjustment is required in order to
preserve the benefits or potential benefits of the Plan or any Option granted
under the Plan, the maximum aggregate number and kind of shares or securities of
the Company which may be issued under the Plan and as to which Options then
outstanding shall be exercisable, and the Strike Price of such Options or the
repurchase price of Restricted Stock, shall be appropriately adjusted by the
Board (whose determination shall be conclusive) so that the proportionate number
of Option Sshares or other securities as to which Options or Restricted Stock
may be granted and the proportionate interest of holders of outstanding Options
shall be maintained as before the occurrence of such event.
(b) Effect of Certain Transactions. In the event of a consolidation
------------------------------
or merger of the Company with another corporation, or the sale or exchange of
all or substantially all of the assets of the Company, or a reorganization or
liquidation of the Company, each holder of an outstanding Option shall be
entitled to receive upon exercise and payment in accordance with the terms of
the Option the same shares, securities or property as he would have been
entitled to receive upon the occurrence of such event if he had been,
immediately prior to such event, the holder of the number of Option Shares;
provided, however, that in lieu of the foregoing the Board may upon written
notice to each holder of an outstanding Option provide that such Option shall
terminate on a date not less than 20 days after the date of such notice unless
theretofore exercised. In connection with such notice, the Board may in its
discretion accelerate or waive any deferred exercise period.
(c) Restoration of Shares. If any Option expires or is terminated
---------------------
unexercised or is forfeited for any reason or settled in a manner that results
in fewer shares outstanding than were initially awarded, including without
limitation the surrender of shares in payment of the Strike Price or any tax
obligation thereon, or if any shares of Restricted Stock are repurchased by the
Company pursuant to the terms thereof, the shares subject to such Option or so
surrendered or repurchased, as the case may be, to the extent of such
expiration, termination, forfeiture, repurchase or decrease, shall again be
available for granting Options or Restricted Stock under the Plan, subject,
however, in the case of Incentive Stock Options, to any requirements under the
Internal Revenue Code of 1986, as amended (the "Code").
(d) Reservation of Shares. The Company shall at all times while the
---------------------
Plan is in force reserve such number of shares of Stock as will be sufficient to
satisfy the requirements of the Plan. Shares issued under the Plan may consist
in whole or in part of authorized but unissued shares or treasury shares.
-2-
<PAGE>
3. Grant of Options, Eligible Persons
----------------------------------
(a) Types of Options. Options shall be granted under the Plan either
----------------
as incentive stock options ("Incentive Stock Options"), as defined in Code
Section 422 or as Options which do not meet the requirements of Section 422
("Nonstatutory Stock Options"). Options may be granted from time to time by the
Board, within the limits set forth in Sections 1 and 2 of the Plan, to all
employees of the Company or of any parent corporation or subsidiary corporation
of the Company (as claimed in Sections 424(e) and (f), respectively, of the
Code), and, with regard to Nonstatutory Stock Options, to all consultants and
directors of the Company.
(b) Date of Grant. The date of grant for each Option shall be the
-------------
date on which it is approved by the Board, or such later date as the Board may
specify. No Incentive Stock Options shall be granted hereunder after ten years
from the date on which the Plan was approved by the Board.
(c) Automatic Awards. The Board may provide for the automatic award
----------------
of an Option upon the delivery of shares to the Company in payment of an Option
for up to the number of shares so delivered.
4. Form of Options.
----------------
Options granted hereunder shall be evidenced by a writing delivered to
the optionee specifying the terms and conditions thereof and containing such
other terms and conditions not inconsistent with the provisions of the Plan as
the Board considers necessary or advisable to achieve the purposes of the Plan
or comply with applicable tax and regulatory laws and accounting principles.
The form of such Options may vary among optionees.
5. Option Strike Price.
-------------------
(a) Incentive Stock Options. In the case of Incentive Stock Options,
-----------------------
the Strike Price shall be determined by the Board, provided that such price
shall not be less than the fair market value of the Stock on the date of
granting (or the date on which a modification of an existing Option is treated
as the grant of a new Option, pursuant to Section 11(b) of the Plan), as
determined in good faith by the Board; and provided further that no Incentive
Stock Option shall be granted to any individual who is ineligible to be granted
an Incentive Stock Option because his or her ownership of stock of the Company
or its parent or subsidiary corporations exceeds the limitations set forth in
Code Section 422(b)(6) (a "Ten Percent Owner") unless such Strike Price is at
least 110 % of the fair market value of the Stock on the date of grant.
(b) Nonstatutory Stock Options. In the case of Nonstatutory Stock
--------------------------
Options (and Incentive Stock Options which have been converted by the Board to
Nonstatutory Stock Options pursuant to Section 11(b) of the Plan), the Strike
Price shall be determined by the Board.
-3-
<PAGE>
(c) Payment Method. The Board may in its discretion permit the
--------------
Strike Price to be paid in whole or in part by a note or in installments or with
shares of Stock or such other lawful consideration as the Board may determine.
6. Term of Option and Dates of Exercise.
------------------------------------
(a) Exercisability. The Board shall determine the term of all
--------------
Options, the time or times that Options are exercisable and whether they are
exercisable in installments; provided, however, that (i) the term of each
Nonstatutory Stock Option shall not exceed a period of eleven years from its
Date of Grant; (ii) the term of each Incentive Stock Option granted to anyone
who is not a Ten Percent Owner shall not exceed a period of ten years from its
Date of Grant; (iii) the term of each Incentive Stock Option granted to any Ten
Percent Owner shall not exceed a period of five years from its Date of Grant.
(b) Effect of Disability, Death or Termination of Employment. The
--------------------------------------------------------
Board shall determine the effect on an Option of the disability, death,
retirement or other termination of employment of an optionee and the extent to
which, and during the period which, the optionee's estate, legal representative,
guardian, or beneficiary on death may exercise rights thereunder. Any
beneficiary on death shall be designated by the optionee, in the manner
determined by the Board, to exercise rights of the optionee in the case of the
optionee's death.
(c) Other Conditions. The Board may impose such conditions with
----------------
respect to the exercise of Options, including conditions relating to applicable
federal or state securities laws, as it considers necessary or advisable.
(d) Withholding. The optionee shall pay to the Company, or make
-----------
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in respect of any Options under the Plan no later than the date of
the event creating the tax liability. In the Board's discretion, such tax
obligations may be paid in whole or in part in shares of Stock, including shares
retained from the exercise of the Option creating the tax obligation, valued at
the fair market value of the Stock on the date of delivery to the Company as
determined in good faith by the Board. The Company and any parent corporation
or subsidiary corporation of the Company (as defined in Sections 424(e) and (f),
respectively, of the Code) may, to the extent permitted by law, deduct any such
tax obligations from any payment of any kind otherwise due to the optionee.
(e) Amendment or Termination of Existing Options. The Board may
--------------------------------------------
amend, modify, or terminate any outstanding Option, including substituting
therefor another Option of the same or different type, (for example, changing
the date of exercise or realization and converting an Incentive Stock Option to
a Nonstatutory Stock Option, provided that the optionee's consent (which consent
may be withheld for any reason) shall be required unless the Board determines
that the action, taking into account any related action, would not materially
and adversely affect the optionee. Any such amendment which results in a
"modification" of an existing option (as defined under Section 1.425-1(e) (2) of
the proposed Income Tax Regulations for purposes of Code Section 421
-4-
<PAGE>
and 424) shall be treated as a grant of new option if the Board determines that
such option should continue to qualify as an "incentive stock option" (as
defined in Code Section 422).
7. Non-transferability of Options.
------------------------------
Incentive Stock Options granted under the Plan shall not be
transferable by the holder thereof otherwise than by will or the laws of descent
and distribution, and shall be exercisable, during the holder's lifetime, only
by him or her.
Nonstatutory Stock Options granted under the Plan shall not be
transferable by the holder thereof, except as expressly provided by the
applicable Option Agreement.
8. Restricted Stock.
----------------
(a) Subject to the provisions of the Plan, the Committee may award
shares of Stock subject to the Company's right to repurchase such shares
("Restricted Stock"). The Committee shall determine the duration of the period
of time (the "Restricted Period") during which, and the price at which and other
the conditions under which, the shares may be repurchased by the Company and
other terms and conditions of such grants. Shares of Restricted Stock may be
issued without cash consideration or for such consideration as may be determined
by the Committee.
(b) Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as permitted by the
Committee, during the Restricted Period. Shares of Restricted Stock shall be
evidenced in such manner as the Committee may determine. Any certificates issued
in respect of shares of Restricted Stock shall be registered in the name of the
holder and if requested by the Committee, shall be deposited by the holder,
together with a stock power endorsed in blank, with the Company. At the
expiration of the Restricted Period, the Company shall deliver such certificates
to the Participant or if the Participant has died, to the Participant's
designated beneficiary.
(c) Each recipient of Restricted Stock shall enter into a Restricted
Stock Purchase Agreement with the Company which shall specify the terms and
conditions of such grant of Restricted Stock and shall contain such other terms
and conditions not inconsistent with the provisions of this Plan as the
Committee considers necessary or advisable to achieve the purposes of the Plan
or comply with applicable tax and regulatory laws and accounting principles. The
form of such Restricted Stock Purchase Agreement may vary among Participants.
9. No Right to Employment.
----------------------
No persons shall have any claim or right to be granted an Option or
Restricted Stock, and the grant of an Option or Restricted Stock shall not be
construed as giving an optionee the right to continued employment. The Company
expressly reserves the right at any time to dismiss a Participant free from any
liability or claim under the Plan, except as specifically provided in the
-5-
<PAGE>
applicable Option or Restricted Stock Purchase Agreement.
10. No Rights as a Shareholder.
--------------------------
Subject to the provisions of the applicable Option or Restricted Stock
Purchase Agreement, no optionee or any person claiming through an optionee shall
have any rights as a shareholder with respect to any shares of Stock to be
distributed under the Plan until he or she becomes the holder thereof.
11. Amendment or Termination.
------------------------
The Board may amend or terminate the Plan at any time, provided that
no amendment shall be made without stockholder approval if such approval is
necessary to comply with any applicable tax or regulatory requirement, including
any requirement for exemptive relief under Section 16(b) of the Securities
Exchange Act of 1934, or any successor provision.
12. Stockholder Approval.
--------------------
The Plan is subject to approval by the stockholders of the Company by
the affirmative vote of the holders of a majority of the shares of capital stock
of the Company entitled to vote thereon and present or represented at a meeting
duly held in accordance with the laws of the State of Delaware, or by any other
action that would be given the same effect under the laws of such jurisdiction,
which action in either case shall be taken within twelve (12) months from the
date the Plan was adopted by the Board. In the event such approval is not
obtained, all Options granted under the Plan shall be void and without effect.
13. Governing Law.
-------------
The provisions of the Plan shall be governed by and interpreted in
accordance with the laws of Delaware.
Adopted by the Board of Directors on April 6, 1999.
-6-
<PAGE>
EXHIBIT 10.2
Option No. ISO-__
INSPIRE PHARMACEUTICALS, INC.
INCENTIVE STOCK OPTION
Inspire Pharmaceuticals, Inc. (the "Company"), a Delaware corporation, as
an incentive and inducement to___________________ (the "Optionee"), who is
presently an employee of the Company, to devote [his or her] best efforts to the
affairs of the Company, which incentive and inducement the Board of Directors of
the Company (the "Board") has determined to be sufficient consideration for the
grant of this Option, hereby grants to the Optionee the right and option (the
"Option") to purchase from the Company up to____________shares of its Common
Stock, $0.001 par value (the "Stock"). This Option is granted under, and is
subject to, the provisions of the Company's 1995 Stock Plan, as amended from
time to time (the "Plan") and shall be exercisable only on the following terms
and conditions:
1 . The price ("Strike Price") to be paid for each share of Stock upon exercise
of the whole or any part of this Option shall be $0._____, which is not less
than 100% of the fair market value of a share of Stock on the date hereof.
2. This Option may be exercised, at any time after________________ (a "Vesting
Date"), as to_______ shares, then for____ months thereafter on the _____ day of
each month (each, a "Vesting Date"), this Option may be exercised as to ______
shares, and on the final month of vesting, this Option may be exercised as to
the remaining______ shares (the "Exercise Period"); provided, however, that this
Option may not be exercised as to any shares after the expiration of ten years
from the date hereof.
3. This Option may be exercised at any time and from time to time, subject to
the limitation of Section 2 above, up to the aggregate number of shares
specified herein, but in no event for the purchase of other than full shares.
Written notice of exercise shall be delivered to the Company specifying the
number of shares with respect to which the Option is being exercised and a date
not later than fifteen days after the date of the delivery of such notice as the
date on which the Optionee will take up and pay for such shares. On the date
specified in such notice, the Company will deliver to the Optionee a certificate
for the number of shares with respect to which the Option is being exercised
against payment therefor in cash or by certified check.
4. The Optionee shall not be deemed, for any purpose, to have any rights
whatever in respect of Option Shares to which the Option shall not have been
exercised and payment made as aforesaid. The Optionee shall not be deemed to
have any rights to continued employment by virtue of this Option.
5. In the event that the Board, in its discretion, determines that any stock
dividend, split-up, combination or reclassification of shares, recapitalization
or other similar capital change affects the
-1-
<PAGE>
Stock such that adjustment is required in order to preserve the benefits or
potential benefits of this Option, the maximum aggregate number and kind of
shares or securities of the Company subject to this Option, and the Strike Price
of this Option, shall be appropriately adjusted by the Board (whose
determination shall be conclusive) so that the proportionate number of Option
Shares or other securities subject to this Option and the proportionate interest
of the Optionee shall be maintained as before the occurrence of such event.
6. In the event of a consolidation or merger of the Company with another
corporation, or the sale or exchange of all or substantially all of the assets
of the Company, or a reorganization or liquidation of the Company, the Optionee
shall be entitled to receive upon exercise and payment in accordance with the
terms of the Option the same shares, securities or property as he or she would
have been entitled to receive upon the occurrence of such event if he or she had
been, immediately prior to such event, the owner of the number of Option Shares.
In lieu of the foregoing, however, the Board may upon written notice to the
Optionee provide that, unless theretofore exercised, this Option shall expire as
of the earlier of the Expiration Date or the date specified in such notice which
may not be less than 20 days after the date of such notice. In connection with
such notice, the Board may in its discretion accelerate or waive any deferred
Vesting Date.
7. During the Optionee's lifetime, this Option shall be exercisable only by
such Optionee or, in the case of his or her legal incapacity, his or her
guardian or legal representative. This Option shall be transferable by the
Optionee only by will or the laws of descent and distribution. After the
Optionee's death, the Option shall be exercisable only by the person or persons
entitled to do so under the Optionee's last will and testament or if the
Optionee fails to make a testamentary disposition of the Option or dies
intestate, by the person or persons entitled to receive the Option under any
applicable laws of descent and distribution. In no event shall the Option be
exercisable by any such transferee described above to a greater extent than the
Option could have been exercised by the Optionee immediately prior to his or her
death or the effective date of his or her termination of employment due to
Disability, as defined in Section 22(e)(3) of the Code (as applicable). The
Board shall have the right to require evidence to its satisfaction of the rights
of any person or persons seeking to exercise the Option hereunder, e.g., an
---
authenticated copy of the will. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of this Option contrary to the provisions
hereof, and the levy of any execution, attachment or similar process upon the
Option, shall be null and void and without effect. Any transferee described
above shall be treated as the Optionee for purposes of all other provisions of
this Option Agreement and the terms of the Plan.
8. If the Optionee terminates employment during the Exercise Period, such
period shall be adjusted as follows, except that in no event shall the Exercise
Period be extended beyond the Expiration Date:
(a) The Exercise Period shall end immediately upon the date of the
Optionee's breach of any agreement, covenant or representation by and
between the Optionee and the Company, including but not limited to any
promise or warrant made as consideration for this amendment or the
terms of any severance agreement.
-2-
<PAGE>
(b) The Exercise Period shall end immediately upon the effective date of
the Optionee's termination of employment by his or her: (i)
voluntary resignation in violation of any agreement to remain in the
employ of the Company; (ii) involuntary "Discharge for Cause" for
reasons which may include, without limitation, any illegal or improper
conduct that injures or impairs the reputation, goodwill, or business
of the Company, involves the misappropriation of funds of the Company,
or the misuse of data, information or documents acquired in connection
with employment by the Company, or violates any other directive or
policy promulgated by the Company; (iii) resignation in anticipation
of Discharge for Cause; or (iv) resignation accepted by the Company in
lieu of a formal Discharge for Cause.
(c) The Exercise Period shall end three months after the effective date of
the Optionee's termination of employment for any reason OTHER THAN:
(i) by transfer to an affiliated corporation which owns directly or
indirectly 50 percent or more of the total combined voting power of
the Company or in which the Company owns directly or indirectly 50
percent or more of the total combined voting power or has a
significant financial interest as determined by the Board
("Affiliate"); or (ii) any reason for which the Option would expire
immediately, as described under this Section.
(d) The Exercise Period shall end twelve months after the effective date
of the Optionee's death or termination of employment due to
Disability, subject to such proof of Disability as the Board may
require.
9. It shall be a condition of exercise hereunder that:
(a) The Company may, in its discretion, require that in the opinion of
counsel for the Company the proposed purchase of Option Shares shall
be exempt from registration under the Securities Act of 1933, as
amended;
(b) The Optionee shall have made such undertakings and agreements with the
Company as the Company may reasonably require, and that such other
steps, if any, as counsel for the Company shall deem necessary to
comply with any law, rule or regulation applicable to the issue of
such shares by the Company shall have been taken by the Company or the
Optionee, or both;
(c) The certificates representing the shares purchased under this Option
may contain such legends as counsel for the Company shall deem
necessary to comply with the applicable law, rule or regulation;
(d) The Optionee shall execute and deliver to the Company a counterpart of
the Amended and Restated Stockholders Agreement among the Company and
certain of its
-3-
<PAGE>
stockholders dated March 10, 1995, and any amendment thereto or
restatement or replacement thereof, pursuant to which the Optionee
shall be subject to all provisions therein applicable to holders of
Common Stock of the Company; and
(e) The Option shall, if the Company so requests, provide payment of all
state and federal taxes imposed upon the exercise of this Option and
the issue of the shares covered hereby.
10. This Option is issued pursuant to the terms of the Plan. This Certificate
does not set forth all of the terms and conditions of the Plan, which are
incorporated herein by reference. Copies of the Plan may be obtained upon
written request without charge from the Treasurer of the Company.
11. This Option is intended to be treated as an Incentive Stock Option.
(a) The Optionee agrees to notify the Company in writing within 30 days of
the disposition of one or more shares of Stock which were transferred
to him or her pursuant to the exercise of this Option if such
disposition occurs within two years from the Date of Grant of this
Option or within one year after the transfer of such shares.
(b) The Optionee acknowledges that:
(i) In the event the Optionee terminates employment with the Company
or an Affiliate for reasons other than death or Disability, this
Option shall cease to be eligible for tax treatment as an
Incentive Stock Option, unless it is exercised within three
months from the date of such termination; and.
(ii) In the event the Optionee dies or terminates employment due to
Disability, this Option shall cease to be eligible for tax
treatment as an Incentive Stock Option, unless it is exercised
within twelve months from the date of death or such termination
due to Disability.
12. This Option Agreement may be amended only by a written agreement executed
by the Company and the Optionee. The Company and the Optionee acknowledge that
changes in federal tax laws enacted subsequent to the Date of Grant, and
applicable to stock options, may provide for tax benefits to the Company or the
Optionee. In that event, the Company and the Optionee agree that this Option
Agreement may be amended as necessary to secure for the Company and the Optionee
any benefits that may result from that legislation. Any amendment shall be made
only upon the mutual consent of the parties, which consent (of either party) may
be withheld for any reason.
* * *
IN WITNESS WHEREOF the Company has caused this Option to be executed by its
duly authorized officers on its behalf as of ___________________.
-4-
<PAGE>
INSPIRE PHARMACEUTICALS, INC.
By:____________________________
Title:_________________________
-5-
<PAGE>
EXHIBIT 10.4
CONSULTATION AND SCIENTIFIC ADVISORY BOARD AGREEMENT
This Agreement, effective as of March 10, 1995, is between Inspire
Pharmaceuticals, Inc. (the "Company"), a Delaware corporation, and Richard
Boucher, M.D. ("Consultant").
W I T N E S S E T H
WHEREAS, Consultant is a faculty member at the University of North Carolina
at Chapel Hill (the "University");
WHEREAS, pursuant to the University's regulations concerning professional
consulting and additional workload, Consultant is permitted to enter into
consulting agreements with private companies;
WHEREAS, the Company desires to have the benefit of Consultant's knowledge
and experience, and Consultant desires to provide consulting services to the
Company, all as hereinafter provided in this Agreement; and
WHEREAS, the Company desires to have Consultant serve as Chairman of the
Company's Scientific Advisory Board (the "SAB"), and Consultant desires to serve
as Chairman of such SAB;
NOW, THEREFORE, in consideration of the promises and mutual agreements
hereinafter set forth, the Company and Consultant hereby agree as follows:
1. Consultation and Scientific Advisory Board. The Company shall retain
------------------------------------------
Consultant as a consultant, and Consultant shall serve the Company as a
consultant and Chairman of the SAB upon the terms and conditions hereinafter set
forth.
1
<PAGE>
2. Term. Subject to the terms and conditions hereinafter set forth, the
----
term of the Consultant's consulting arrangement and service on the SAB hereunder
(hereinafter referred to as the "Consultation Period") shall commence on the
date hereof, and shall continue for a period of three (3) years; provided,
--------
however, that the Consultation Period shall automatically be extended for
- -------
additional periods of one (1) year each unless and until either party shall give
the other party thirty (30) days notice of termination prior to the end of the
initial Consultation Period or any one (1) year extension thereof (in the manner
hereinafter provided).
3. Consulting and SAB Member Duties.
--------------------------------
3.1. During the Consultation Period, Consultant shall render to
Company or to Company's designee such consulting services in his areas of
expertise and knowledge related to the field of airway diseases and the
development of low molecular weight molecules for therapeutic or diagnostic
purposes (the "Field"), at such times and places as Company may from time to
time reasonably request. The Company shall give Consultant reasonable advance
notice of any services required of him hereunder.
3.2. All work to be performed by Consultant for the Company shall be
under the general supervision of the Company.
3.3. Consultant shall perform the consulting services in a manner
consistent with the needs of the Company as determined by the Board of Directors
or the President of the Company. All work performed by Consultant to the Company
shall be at times reasonably convenient to the Consultant, and nothing contained
herein shall interfere with Consultant's teaching responsibilities, research
duties or other responsibilities required by the University, his other teaching
and administrative responsibilities or the policies of the
2
<PAGE>
University or the Consultant's Department regarding the scheduling of outside
services (see Exhibit A).
3.4. During the Consultation Period, Consultant shall serve as
Chairman of the SAB which will meet periodically to advise the Company on
scientific affairs. As Chairman of the SAB, Consultant will advise the Chief
Executive Officer of the Company regarding the selection of other active and
effective members of the SAB, and will recommend such proposed members to the
Board of Directors for consent and approval.
4. Compensation.
------------
4.1. Consulting Fees. The Company shall pay to the Consultant the
---------------
following annual consulting fees:
Year One: $40,000
Year Two: $45,000
Year Three: $50,000
Such consulting fees shall be payable in arrears in twelve (12) equal
monthly installments within ten (10) days of the last day of each month.
4.2. Reimbursement of Expenses. The Company shall reimburse the
-------------------------
Consultant for all reasonable and necessary expenses incurred or paid by the
Consultant in connection with, or related to, the performance of his services
under this Agreement. The Consultant shall submit to the Company itemized
monthly statements, in a form satisfactory to the Company, of such expenses
incurred in the previous month. The Company shall pay to the Consultant the
amounts shown on each such statement within thirty (30) days after receipt
thereof. Notwithstanding the foregoing, the Consultant shall not incur total
expenses in excess of $500.00 per month without the prior written approval of
the Company.
-3-
<PAGE>
4.3. Benefits. The Consultant shall not be entitled to any
--------
benefits, coverages or privileges, including, without limitation, social
security, unemployment, medical or pension payments, made available to employees
of the Company.
5. Equity to Consultant. In partial consideration of the consulting
--------------------
services and service on the SAB, the Company shall grant to Consultant founder's
stock consisting of seven hundred thousand (700,000) shares of the Company's
Common Stock, $.001 par value per share, under the terms of a Restricted Stock
Purchase Agreement to be executed by the Company and Consultant.
6. Termination. The Consultation Period shall terminate upon the
-----------
occurrence of any of the following events:
(a) Immediately and without notice upon the death or legal incapacity of
the Consultant;
(b) At the option of the Board of Directors of the Company, with cause,
immediately upon written notice to the Consultant; or
(c) At the option of the Consultant, in his sole discretion, upon ninety
(90) days prior written notice to the Company.
For the purposes of subsection (b) above, the term "for cause" shall mean (i)
material failure to perform assigned duties for the Company, as described in
this Agreement, or any acts or omissions constituting gross negligence or
willful misconduct in relation to such duties, (ii) commission of a material
breach of any obligation under this Agreement, or (iii) conviction for, pleading
guilty to, or pleading nolo contendere to any crime involving moral turpitude or
any crime that is a felony. In the event of such termination, the Consultant
shall be entitled to payment for services performed and expenses paid or
incurred prior to the effective date of termination, subject to the limitation
on reimbursement of expenses set forth in Section 4.2. Such payments shall
constitute full settlement of any and
4
<PAGE>
all claims of the Consultant under this Agreement for compensation or
reimbursement of expenses against the Company. Notwithstanding the foregoing,
the Company may terminate the Consultation Period, effective immediately upon
receipt of written notice, if the Consultant breaches or threatens to breach any
provision of Sections 7, 8, or 10.
7. Cooperation. The Company shall provide such access to its information
-----------
and property as may be reasonably required in order to permit the Consultant to
perform his obligations hereunder. The Consultant shall cooperate with the
Company's personnel, shall not interfere with the conduct of the Company's
business and shall observe all rules, regulations and security requirements of
the Company concerning the safety of persons and property.
8. Inventions; Proprietary Information and Materials.
-------------------------------------------------
8.1. Inventions.
----------
8.1.1. All inventions, discoveries, tangible materials, computer
programs, data, technology, designs, innovations and improvements (whether or
not patentable and whether or not copyrightable) related to the Field which are
made, conceived, reduced to practice, created, written, designed, discovered or
developed by the Consultant, solely or jointly with others and whether during
normal business hours or otherwise, in the course of performing services
requested by the Company or thereafter if resulting directly or indirectly
derived from Proprietary Information and Materials of the Company (as defined
below) (collectively, "Inventions") shall be the sole property of the Company.
The Consultant hereby assigns to the Company all Inventions and any and all
related patents, copyrights, trademarks, trade names, and other industrial and
intellectual property rights and applications therefor, in the United States and
elsewhere and appoints any officer of the Company as his duly authorized
attorney to execute, file, prosecute and protect the same
5
<PAGE>
before any government agency, court or authority. Upon the request of the
Company and at the Company's expense, the Consultant shall execute such further
assignments, documents and other instruments as may be reasonably necessary or
desirable to fully and completely assign all Inventions to the Company and to
assist the Company in any reasonable manner and at the expense of the Company in
applying for, obtaining and enforcing patents or copyrights or other rights in
the United States and in any foreign country with respect to any Invention.
8.1.2. The Consultant shall promptly disclose to the Company all
Inventions and will maintain adequate and current written records (in the form
of notes, sketches, drawings and as may be specified by the Company) to document
the conception and/or first actual reduction to practice of any Invention. Such
written records shall be available to and remain the sole property of the
Company at all times.
8.1.3. Consultant shall not perform any duties under this Agreement
on the premises of the University or in any other manner that could result in
claims by the University of rights in any work product generated by Consultant
while performing duties requested by the Company hereunder, unless the Company
and the University have entered into a written agreement that allocates
ownership of such work product, in which case the terms of such agreement shall
on the premises of the University or in any other manner that could result in
claims by the University of rights in any work product generated by Consultant
while performing duties requested by the Company hereunder, unless the Company
and the University have entered into a written agreement that allocates
ownership of such work product, in which case the terms of such agreement shall
prevail in the event of any conflict with this Section 8.1.
8.2. Proprietary Information and Materials.
-------------------------------------
8.2.1. The Consultant acknowledges that his relationship with
the Company is one of high trust and confidence and that in the course of his
service to the Company he will have access to and contact with Proprietary
Information and Materials (as defined in subparagraph 8.2.2 below). The
Consultant agrees that he will not, during the
6
<PAGE>
Consultation Period or at any time thereafter, disclose to others, or use for
his benefit or the benefit of others, any Proprietary Information or Invention.
8.2.2. For purposes of this Agreement, Proprietary Information
and Materials shall mean, by way of illustration and not limitation, all
information and tangible materials (whether or not patentable and whether or not
copyrightable) owned, possessed or used by the Company, including, without
limitation, any Invention, formula, vendor information, customer information,
apparatus, equipment, trade secret, process, research, report, technical data,
know-how, computer program, software, software documentation, hardware design,
technology, marketing or business plan, forecast, unpublished financial
statement, budget, license, price, cost and employee list that is communicated
to, learned of, developed or otherwise acquired by the Consultant in the course
of performing services as a consultant to the Company.
8.2.3. The Consultant's obligations under this Section 8.2 shall
not apply to any information or tangible material that (i) is or becomes known
to the general public under circumstances involving no breach by the Consultant
or others of the terms of this Section 8.2, (ii) is generally disclosed to third
parties by the Company without restriction on such third parties, or (iii) is
approved for release by written authorization of the Board of Directors of the
Company.
8.2.4. Upon termination of this Agreement or at any other time
upon request by the Company, the Consultant shall promptly deliver to the
Company all records, files, memoranda, notes, designs, data, reports, price
lists, customer lists, drawings, plans, computer programs, software, software
documentation, sketches, laboratory and research notebooks and other documents
(and all copies or reproductions of such materials) and
7
<PAGE>
tangible materials in the possession of Consultant and which were provided to
the Consultant by the Company.
8.2.5. The Consultant represents that his retention as a
consultant with the Company and his performance under this Agreement does not,
and shall not, breach any agreement that obligates him to keep in confidence any
trade secrets or confidential or proprietary information of his or of any other
party or to refrain from competing, directly or indirectly, with the business of
any other party. The Consultant shall not disclose to the Company any trade
secrets or confidential or proprietary information of any other party.
8.2.6. The Consultant acknowledges that the Company from time to
time may have agreements with other persons or with the United States
Government, or agencies thereof, that impose obligations or restrictions on the
Company regarding inventions made during the course of work under such
agreements or regarding the confidential nature of such work. The Consultant
agrees to be bound by all such obligations and restrictions that are known to
him and to take all action necessary and reasonable to discharge the obligations
of the Company under such agreements.
8.3. Remedies. The Consultant acknowledges that any breach of the
--------
provisions of this Section 8 shall result in serious and irreparable injury to
the Company for which the Company cannot be adequately compensated by monetary
damages alone. The Consultant agrees, therefore, that, in addition to any other
remedy it may have, the Company shall be entitled to seek the specific
performance of this Agreement by the Consultant and to seek both temporary and
permanent injunctive relief (to the extent permitted by law) to prevent the
violation of Consultant's obligations hereunder without the necessity of proving
actual damages.
8
<PAGE>
9. Independent Contractor Status. The Consultant shall perform all
-----------------------------
services under this Agreement as an "independent contractor" and not as an
employee or agent of the Company. The Consultant is not authorized to assume or
create any obligation or responsibility, express or implied, on behalf of, or in
the name of, the Company or to bind the Company in any manner.
10. Noncompetition.
--------------
10.1. Consultant represents and warrants that, as of the date hereof,
except as set forth in Exhibit A, he is not a party to any agreement or
---------
arrangement that would require him to conduct activities in the Field for
another party or would prevent him from carrying out his obligations to the
Company under this Agreement. During the Consultation Period, Consultant shall
immediately disclose to the Company the occurrence of either of the activities
described in the preceding sentence. If Consultant fails to notify the Company
of such activities within thirty (30) days of the occurrence thereof, the
Company shall have the right to terminate this Agreement immediately upon notice
to Consultant.
10.2. Consultant understands the confidential nature of the
information and materials he will acquire or develop in performing his services
under this Agreement. Consultant acknowledges that if such information or
materials were revealed to competitors of the Company, then such disclosure
could cause damage to the Company. Therefore, for the duration of the
Consultation Period and for one (1) year thereafter, Consultant shall not engage
in any activities that would compete with the Company, in the Field, except as
to activities disclosed on Exhibit A or activities for which Consultant has
previously notified the Company under Section 10.1 including without limitation
becoming employed by, serving as a consultant for, serving as a member of a
scientific advisory board (or a comparable organization) for, or acting in any
manner on behalf of any other for-profit enterprise that
9
<PAGE>
conducts activities competitive with those of the Company in the Field, without
first obtaining the written consent of the Company. The Company agrees not to
unreasonably withhold or delay its consent to activities by Consultant in
competitive areas with respect to which the Company either has no business or
does not intend to develop business.
11. Notices. All notices required or permitted under this Agreement shall
-------
be in writing delivered by a recognized national overnight courier, personal
delivery, or facsimile transmission and shall be deemed effective upon receipt.
The parties shall designate their addresses and facsimile numbers.
12. Pronouns. Whenever the context may require, any pronouns used in this
--------
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular forms of nouns and pronouns shall include the plural, and vice
versa.
13. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
14. Amendment. This Agreement may be amended or modified only by a
---------
written instrument executed by both the Company and the Consultant.
15. Governing Law. This Agreement shall be construed, interpreted and
-------------
enforced in accordance with the laws of the State of North Carolina.
16. Successors and Assigns. This Agreement shall be binding upon, and
----------------------
inure to the benefit of, both parties and their respective successors and
assigns, including any corporation with which, or into which, the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Consultant are personal and shall not be assigned by him.
10
<PAGE>
17. Miscellaneous.
-------------
17.1. No delay or omission by the Company or the Consultant in
exercising any right under this Agreement shall operate as a waiver of that or
any other right. A waiver or consent given by the Company or Consultant on any
one occasion shall be effective only in that instance and shall not be construed
as a bar or waiver of any right on any other occasion.
17.2. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
17.3. In the event that any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
INSPIRE PHARMACEUTICALS, INC.
By: /s/ H. Jeff Leighton
--------------------------
Name: H. Jeff Leighton
Title: President / CEO
CONSULTANT
/s/ Richard Boucher, M.D.
------------------------------
Richard Boucher, M.D.
11
<PAGE>
EXHIBIT A
Disclosure of Activities in the Field
-------------------------------------
1. Glaxo activities include consulting, research and clinical development of
amiloride for the treatment of lung disease in Cystic Fibrosis. Assistance
and consulting also provided in study design, FOA discussions, and multi-
center study of CF patients.
2. Participation in clinical studies and other consultations regarding gene
transfer in CF at the present time. Intend to continue studies of gene
transfer in connection with CF/airway diseases.
3. University policy varies by Department, but generally, no outside
Consultation is permitted which would require services in excess of one-
half day per week.
4. Consultant shall be permitted to conduct research activities at the
University under grants sponsored by the Federal Government or any non-
profit organization.
5. Consultant shall be permitted to fulfill any teaching duties required by
the University.
12
<PAGE>
Exhibit 10.5
[NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT
CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.]
SPONSORED RESEARCH AGREEMENT
RESEARCH AGREEMENT, effective March 10, 1995 (the "Effective Date"), by and
between The University of North Carolina at Chapel Hill, having an address at
300 Bynum Hall, Chapel Hill, North Carolina (the "University"), and Inspire
Pharmaceuticals, Inc., a corporation existing, under the laws of the State of
Delaware, and having its principal place
of business at c/o Burr, Egan, Deleage & Co., One Post Office Square, Boston,
Massachusetts (the "Sponsor").
WITNESSETH:
WHEREAS, in pursuit of its educational purposes, which include research and
training, the University undertakes scholarly research and experimental
activities in a variety of academic disciplines; and
WHEREAS, the Sponsor wishes to fund, and desires that the University
undertake, a research program in accordance with said research and training
mission, which research program is described more fully in Exhibit A, attached
hereto and made a part hereof (hereinafter, the "Research"); and
WHEREAS, in furtherance of its scholarly research and instructional
interests, the University is willing to undertake the Research upon the terms
and conditions set forth
below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Scope of Research
-----------------
During the term of this Agreement, the University shall, use its best
efforts to perform
the Research, as described in Exhibit A, attached hereto and made a part hereof.
Notwithstanding the foregoing, the University makes no warranties or
representations regarding its ability to achieve any particular research
objective or results.
2. Personnel
---------
The Research shall be performed by, and under the supervision and direction
of, Dr. Richard C. Boucher, who shall be designated the Principal Investigator,
together with Drs. Ken Harden and Jack Stutts and such additional personnel as
may be assigned by the
<PAGE>
University. If for any reason the Principal Investigator is unable to continue
to serve as Principal Investigator, and a successor acceptable to both the
University and the Sponsor is not available, this agreement may be terminated as
provided in Article 10 (b).
3. University Policies and Procedures
----------------------------------
All Research conducted hereunder shall be performed in accordance with
established University policies and procedures, including, but not limited to,
policies and procedures applicable to research involving human subjects,
laboratory animals, and hazardous agents and materials.
4. Reimbursement of Costs
----------------------
The Sponsor shall reimburse the University for all direct and indirect
costs incurred by the University in connection with the Research in accordance
with the budget set forth on Exhibit B. Provided, however, that the University
may submit to the Sponsor at any time, and the Sponsor may at its discretion
approve in writing, requests for additional funds. Any such written approval
shall constitute a modification of the Agreement. However, the Sponsor is not
liable for any cost in excess of the amount specified herein, unless this
Agreement is modified to indicate such in writing by both parties. All checks
shall be made payable to The University of North Carolina at Chapel Hill, shall
include reference to the University Principal Investigator and his department,
and shall be sent to:
S. Kent Walker
University of North Carolina at Chapel Hill
Office of Contracts and Grants
440 West Franklin Street
Chapel Hill, NC 27599
Tel: (919) 966-5625
Fax: (919) 962-0646
Payments shall be made in accordance with the schedule set forth on Exhibit B.
5. Research Reports
----------------
The University and its employees will prepare and maintain records,
including bound laboratory notebooks maintained in accordance with standard
scientific procedures, containing all appropriate data reflecting the results of
the Research. The Principal Investigator shall furnish to the Sponsor during
the term of this Agreement periodic informal written reports regarding the
progress of the Research. The Principal Investigator, or a mutually agreeable
substitute, shall meet with representatives of the Sponsor at the reasonable
request of the Sponsor to facilitate exchange of information regarding the
Research. Unless such meeting takes place at the University, the meeting shall
be at the expense of Sponsor, including travel. A final report setting forth the
significant research findings shall be prepared by the Principal Investigator
and submitted to the Sponsor within ninety (90) days following the expiration of
the term of this Agreement or the effective date of early termination, as set
forth in Article 10.
-2-
<PAGE>
6. Publication
-----------
The University will be free to publicly disclose (through journals,
lectures, or otherwise) the results of the research, provided that the
University shall have provided a copy of the proposed publication to the Sponsor
at least sixty (60) days prior to the intended submission of any written
publication and at least thirty (30) days prior to any other public disclosure
to allow the Sponsor to determine whether any patentable invention or Sponsor's
Confidential Information (as defined below) would be disclosed.
If the proposed disclosure contains Sponsor's Confidential Information, the
University shall remove or cause the author to remove such Sponsor Confidential
Information prior to its submission for publication or other public disclosure.
If the proposed disclosure would disclose a patentable invention, the University
shall, at the request of the Sponsor, delay or cause the author to delay
submission of the work for publication or other public disclosure for up to an
additional sixty (60) days to enable the University or the Sponsor to file a
patent application. If the Sponsor has obtained an extension for the thirty-day
evaluation period as set forth in this Section 6, the Sponsor shall use
reasonable efforts to reduce this sixty-day filing period by the amount of time
previously granted in the extension.
As between the Sponsor and the University, the University shall have
ownership of any copyrights or copyrightable materials first produced or
composed by or on behalf of the University by its faculty, staff, employees and
agents. The Sponsor shall have ownership of all copyrightable materials that
contain Confidential Information of the Sponsor; University shall either cause
such Confidential Information to be removed from such materials or assign
copyright to such materials to the Sponsor. In addition, the University shall
grant to the Sponsor upon request an irrevocable, royalty-free, nonexclusive
right to reproduce, translate, and use, for the Sponsor's own purposes, which
purposes shall not conflict with any other provision of this Agreement, all of
the University's copyrighted material derived from the results of the Research.
The Sponsor, at its election, shall be entitled to receive in any
publication describing the results of the Research an acknowledgment of its
sponsorship of the Research.
It is specifically agreed that nothing contained in this agreement will
interfere with the oral defense of research theses and dissertations of graduate
students.
7. Proprietary Information
-----------------------
All confidential information of either party disclosed to the other party
in connection with the Research hereunder ("Confidential Information") will be
treated by the receiving party as confidential and restricted in its use to only
those uses contemplated by the terms of this Agreement. Any information which is
to be treated as confidential must be clearly marked as confidential prior to
transmittal to the other party. If such Confidential Information is disclosed
orally, it shall be identified as being confidential at the time of disclosure,
and shall thereafter be summarized in writing within 30 days, marked as
confidential, and transmitted to the receiving party. The Sponsor may submit
Confidential
-3-
<PAGE>
Information only to the Principal Investigator, who shall be free to refuse to
accept such Confidential Information. The obligations of this paragraph shall
survive and continue for five (5) years after termination of this Agreement.
Specifically excluded from such confidential treatment shall be information
which: (a) as of the date of disclosure and/or delivery, is already known to the
party receiving such information; (b) is or becomes part of the public domain,
through no fault of the receiving party; (c) is lawfully disclosed to the
receiving party by a third party who is not obligated to retain such information
in confidence; (d) is independently developed at the receiving party, as
demonstrated by its written records, by someone not privy to the Confidential
Information; or (e) is required to be disclosed to comply with applicable laws
or governmental regulations, provided that the disclosing party receives prior
written notice of such disclosure and that the receiving party takes all
reasonable and lawful actions to minimize the extent of such disclosure and, if
possible, to avoid such disclosure.
From time to time, the Sponsor may also provide the University with
biological, chemical, or physical materials ("Materials") for use in the
Research; Materials shall be proprietary to the Sponsor if they were developed
prior to or outside the performance of this Agreement ("Proprietary Materials").
University shall not, and shall take reasonable steps to assure that its
faculty, staff, employees, and agents will not, either: (1) use the Proprietary
Materials for any purpose other than the conduct of the Research, or (2) make
the Proprietary Materials available to third party without the prior written
consent of the Sponsor. Materials developed in the performance of this Agreement
shall be treated as described in Section 8.
Each party shall retain full ownership of any Confidential Information or
Proprietary Materials in the possession of the other party. At the termination
of this Agreement, each party shall use its best efforts to secure the return
of, or destroy, any Confidential
Information or Proprietary Materials that are in its possession and are owned by
the other party, unless such party grants specific written permission to retain
possession of such Confidential Information or Proprietary Materials.
8. Inventions
----------
a. All rights in any inventions or discoveries (including all Materials),
whether or not patentable, that are developed, conceived, or reduced to practice
in the course of the Research solely by University employees shall be property
of the University ("University Inventions"). All rights in any inventions or
discoveries (including Materials) whether or not patentable, that are developed,
conceived, or reduced to practice jointly by University employees and Sponsor
employees in the course of the Research shall be jointly owned by the University
and the Sponsor ("Joint Inventions"). All rights in any inventions or
discoveries (including Materials) whether or not patentable, that are developed,
conceived, or reduced to practice in the course of the Research solely by
Sponsor employees shall be property of the Sponsor. The University shall
promptly report to the Sponsor any University Inventions or Joint Inventions by
University employees.
-4-
<PAGE>
b. The University hereby grants the Sponsor a first option to obtain an
exclusive license under any University Inventions or Joint Inventions that are
conceived and reduced to practice during the term of this Agreement. The
University agrees to notify the Sponsor of any such Inventions promptly and in
writing. This option for Inventions shall become effective when the Sponsor
receives notice from the University and shall remain open for ninety (90) days.
During, this ninety (90) day period, the University shall make available to the
Sponsor information that the Sponsor reasonably requests which would be useful
and necessary in evaluating such Invention, subject to reasonable
confidentiality requirements that may be imposed by the University. The Sponsor
shall indicate the exercise of its option by written notification to the
University. Upon receipt of such notice, the University shall automatically
grant the Sponsor an exclusive license under such Invention under the terms of
the License Agreement attached hereto as Exhibit C (the "License Agreement"),
---------
whereupon such Invention shall become a "Licensed Improvement" under the terms
of such License Agreement.
c. The University also grants the Sponsor a right of first negotiation,
during the sixty-day period immediately following the termination of this
Agreement, to obtain an exclusive license under any University Inventions and
Joint Inventions that arise as a direct result of the sponsored research
("Developments"). The University agrees to notify the Sponsor of any
Developments promptly and in writing. The Sponsor shall have the right of first
negotiation with respect to a given Development for a period of sixty (60) days
after the Sponsor receives notice of that Development. The University shall
promptly make available to the Sponsor any information that the Sponsor
reasonably requests which would be useful and necessary in evaluating a
Development, subject to reasonable confidentiality requirements that may be
imposed by the University. In the event that the Sponsor desires to obtain an
exclusive license to any Development, the University agrees to negotiate in good
faith the terms and conditions of such license. If the parties cannot reach
agreement on the terms of an exclusive license to a Development within the
sixty-day negotiation period, the University shall be free to offer that
Development to third parties; provided, however, that for a period of eighteen
(18) months if the University offers to a third party the opportunity to license
such Development on financial terms that are more favorable than the financial
terms last offered to the Sponsor, then the University shall offer the Sponsor
an opportunity to license such Development on the same terms as those offered by
the University to such third party.
d. If the Sponsor fails to exercise its exclusive license option to any
Invention within the applicable option period, or if the Sponsor notifies the
University in writing that it will not exercise such option, then the University
shall be free to offer its rights in such Invention to any third parties. The
foregoing notwithstanding, the Sponsor retains its rights in any Joint
Invention.
e. During any option period applicable to a University Invention, the
University agrees, if requested by the Sponsor, to cause U.S. or foreign patent
applications to be filed and prosecuted in its name at the Sponsor's expense,
using patent counsel reasonably acceptable to the Sponsor. The University shall
consult with the Sponsor regarding the preparation, filing, prosecution, and
maintenance of such patent applications and shall furnish to the Sponsor copies
of documents relating thereto in sufficient time to enable the Sponsor to
comment on them prior to filing. If the Sponsor declines to license such
University Invention,
-5-
<PAGE>
then the University shall have no further obligation to obtain patent protection
for such Invention and the Sponsor shall have no further obligation to reimburse
the University for its expenses. If the Sponsor elects to license such
University Invention, then the responsibility for patenting such Inventions and
any associated expenses shall be governed by the terms of the resulting license
agreement. In the event that the University desires to file a patent application
with respect to a University Invention, and the Sponsor does not agree within
sixty (60) days after receipt of written notification from the University of its
intent to file such patent application, the University may file and prosecute
such patent at its own expense and the Sponsor shall have no farther rights
under this Agreement with respect to such University Invention.
f. During any option period applicable to a Joint Invention, the Sponsor
shall have the first right to cause patent applications to be filed and
prosecuted in the names of both parties at the Sponsor's expense using patent
counsel reasonably acceptable to the University. The Sponsor shall consult with
the University regarding the preparation, filing, prosecution, and maintenance
of such patent applications and shall furnish to the University copies of
documents relating thereto in sufficient time to enable the University to
comment on them prior to filing. If the Sponsor elects to license such Joint
Invention, then the responsibility for patenting such Inventions and any
associated expenses shall be governed by the terms of the resulting license
agreement. If the Sponsor elects not to license such Joint Invention or not to
seek patent protection for such Invention, then the University shall be free to
cause patent applications to be filed and prosecuted in the names of both
parties at the University's expense using patent counsel reasonably acceptable
to the Sponsor. The University shall consult with the Sponsor regarding the
preparation, filing, prosecution, and maintenance of such patent applications
and shall furnish to the Sponsor copies of documents relating thereto in
sufficient time to enable the Sponsor to comment on them prior to filing.
9. Ownership of Property
---------------------
Title to any equipment purchased or manufactured in the performance of the
work funded under this agreement shall vest in the University.
10. Term and Termination
--------------------
a. This Agreement shall commence on the Effective Date and remain in
effect for a period of two (2) years and may be extended thereafter by mutual
agreement of the parties in writing.
b. Notwithstanding the foregoing, this Agreement may be terminated by
either party at any time upon sixty (60) days advance written notice to the
other party. Upon receipt of notice of early termination, the University shall
use its best efforts promptly to limit or terminate any outstanding commitments
and to conclude the work. All costs associated with such termination shall be
reimbursable, including, without limitation, all non- reimbursed costs and non-
cancelable commitments incurred prior to the receipt of the notice of
termination, such reimbursement together with other payments not to exceed the
total estimated project cost specified in Article 4.
-6-
<PAGE>
c. The provisions of paragraphs 5, 6, 7, 8, 9, 12, 14, 15, and 20 shall
survive such termination of this Agreement.
11. Notices
-------
Any notices given under this Agreement shall be in writing and shall be
deemed delivered when received by means of confirmed facsimile transmission or
recognized national overnight courier or when sent by first-class mail, postage
paid, addressed or transmitted to the parties as follows (or at such other
addresses or facsimile numbers as the parties may notify each other of in
writing):
The University of North Carolina At Chapel Hill:
------------------------------------------------
Dr. Robert P. Lowman
Director
Office of Research Services
The University of North Carolina at Chapel Hill
CB #4100, 300 Bynum Hall
Chapel Hill, NC 27599-4100
Ph: (919) 966-5625
Fax: (919) 962-0646
Sponsor:
--------
H. Jeff Leighton
President and Chief Executive Officer
Inspire Pharmaceuticals, Inc.
c/o Burr, Egan, Deleage & Co.
One Post Office Square
Boston, MA 02110
Ph: (617) 482-8020
Fax: (617) 566-0848
With a copy to:
Michael Lytton, Esq.
Palmer & Dodge
One Beacon Street
Boston, MA 02108
Fax: (617) 227-4420
12. Use of University Name
----------------------
Sponsor shall not employ or use the name of the University in any
promotional materials, advertising, or in any other manner without the prior
express written permission of the University, except that Sponsor may, during
the term of this Agreement, state that it is sponsoring the Research by the
Principal Investigator at the University. The foregoing
-7-
<PAGE>
notwithstanding, Sponsor shall have the right to identify the University and to
disclose the terms of this Agreement in any prospectus, offering memorandum, or
other document or filing required by applicable securities laws or other
applicable law or regulation, provided that Sponsor shall have given University
at least five (5) days prior written notice of the proposed text of any such
identification or disclosure for the purpose of giving University the
opportunity to comment on such proposed text. In no event shall the sponsoring
of the Research be considered to be an endorsement of the Sponsor by the
University of any commercial product which may result, indirectly or directly,
from the Research.
13. Relationship of the Parties
---------------------------
The University, for all purposes related to this Agreement, shall be deemed
an independent contractor of the Sponsor, and nothing in this Agreement shall be
deemed to create a relationship of employment or agency or to constitute the
parties as partners or joint venturers.
14. Indemnification
---------------
The Sponsor hereby agrees to indemnify, defend and hold harmless the
University, its employees, students and agents from and against any loss, claim,
damage or liability of any kind arising out of or in connection with the act(s)
or failure(s) to act of Sponsor's employees or agents in connection with the
performance of this Agreement, and/or involving Sponsor's use and/or possession
of the results of the Research and/or biological samples or other Materials
provided by the University to the Sponsor pursuant to the Research.
15. No Warranties
-------------
The University makes no warranties, either express or implied, as to any
matter, including, without limitation, the results of the research or any
inventions or product, tangible or intangible, conceived, discovered or
developed under this Agreement; or the merchantability or fitness for a
particular purpose of the research results of any such invention or product. The
University shall not be liable for any direct, consequential or other damages
suffered by the Sponsor or by any Licensee or any others resulting from the use
of the research results or any such invention or product.
16. Force Majeure
-------------
The University shall not be liable for any failure to perform as required
by this Agreement, to the extent such failure to perform is caused by any reason
beyond the University's control, or by reason of any of the following: labor
disturbances or disputes of
-8-
<PAGE>
any kind, accidents, failure of any required governmental approval, civil
disorders, acts of aggressions, acts of God, energy or other conversation
measures, failure of utilities, mechanical breakdowns, material shortage,
disease, or similar occurrences.
17. Severability
------------
In the event that a court of competent jurisdiction holds any provision of
this Agreement to be invalid, such holding shall have no effect on the remaining
provisions of this Agreement, and they shall continue in full force and effect.
18. Entire Agreement; Amendments
----------------------------
This Agreement and the Exhibits hereto contain the entire agreement between
the parties. No amendments or modifications to this Agreement shall be effective
unless made in writing and signed by authorized representatives of both parties.
19. Similar Research
----------------
Nothing in this Agreement shall be construed to limit the freedom of the
University or of its researchers who are participants under this Agreement, from
engaging in similar research made under other grants, contracts or agreements
with parties other than the Sponsor, provided that the Sponsor receives advance
written notice describing any research not funded by the Federal Government.
The Sponsor agrees to maintain all such disclosures in strict confidence.
20. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with the
law of North Carolina.
-9-
<PAGE>
IN WITNESS HEREOF, the parties hereto have executed this Agreement by their
duly authorized officers or representatives.
THE UNIVERSITY OF NORTH CAROLINA INSPIRE PHARMACEUTICALS,
CHAPEL HILL INC.
By: /s/ Wayne R. Jones By: /s/ H. Jeff Leighton
-------------------------- -------------------------------
Wayne R. Jones H. Jeff Leighton, Ph.D
Vice Chancellor, President & Chief Executive
Business and Finance Officer
Consented to by Principal Investigator:
By: /s/ Richard C. Boucher
------------------------------
Richard C. Boucher
-10-
<PAGE>
Exhibit A
---------
Description of Research
Exhibit A-1: Research Plan for Dr. T. Kendall Harden.
- -----------
[CONFIDENTIAL TREATMENT REQUESTED]
Exhibit A-2: Research Plan for Dr. M. Jackson Stutts.
- -----------
[CONFIDENTIAL TREATMENT REQUESTED]
Exhibit A-3: Research Plan for Dr. Richard C. Boucher.
- -----------
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
Exhibit B
---------
Budget for Research
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
Exhibit C
---------
License Agreement
<PAGE>
Extension of Sponsored Research Agreement
This Extension of Sponsored Research Agreement is dated as of March 7, 1997 by
and between the University of North Carolina at Chapel Hill (the "University")
and Inspire Pharmaceuticals, Inc. (the "Company"). The University and the
Company agree to extend the Sponsored Research Agreement, effective March 10,
1995, as previously amended (the Agreement"), as follows:
1. The term of the Agreement shall be extended until the date on which the
University and the Company execute an Amendment to the Agreement, but no later
than September 30, 1997.
2. All other terms and conditions of the Agreement shall remain in full
force and effect.
The University of North Carolina Inspire Pharmaceuticals, Inc.
At Chapel Hill
By: /s/ Robert P Lowman /s/ David J. Drutz
----------------------------------------- --------------------------
David J. Drutz, M. D.
Title: Director, Office of Research Services President and CEO
--------------------------------------
<PAGE>
Extension of Sponsored Research Agreement
This Extension of Sponsored Research Agreement is dated as of October 1, 1997 by
and between the University of North Carolina at Chapel Hill (the "University")
and Inspire Pharmaceuticals, Inc. (the "Company"). The University and the
Company agree to extend the Sponsored Research Agreement, effective March 10,
1995, as previously amended (the "Agreement"), as follows:
1. The term of the Agreement shall be extended until the date on which
the University and the Company execute an Amendment to the Agreement, but no
later than September 30, 1998.
2. All other terms and conditions of the Agreement shall remain in
full force and effect.
The University of North Carolina Inspire Pharmaceuticals, Inc.
At Chapel Hill
By: /s/ Robert P. Lowman By: /s/ David J. Drutz
------------------------------------------ -------------------------
David J. Drutz, M.D.
President and CEO
Title: Director, Office of Research Services
---------------------------------------
<PAGE>
AMENDMENT
This Amendment, made and entered into this 30th day of September, 1998, by and
between The University of North Carolina at Chapel Hill, hereinafter referred to
as the "University" and Inspire Pharmaceuticals, Inc., hereinafter referred to
as the "Company".
WITNESSETH:
WHEREAS, the parties previously entered into a Sponsored Research Agreement
dated March 10, 1995, and have mutually agreed to amend said Sponsored Research
Agreement on December 4, 1995, June 6, 1996, March 7, 1997, and October 1, 1997,
hereinafter referred to as the "Agreement"; and
WHEREAS, the parties desire to continue the research activities being conducted
under the Agreement as well as to conduct additional research initiatives under
the same terms and conditions of the Agreement; and
WHEREAS, this amendment is in accordance with the amendment provision
authorizing amendments in writing executed by the duly authorized officials of
both parties.
NOW, THEREFORE, in consideration of the premises and of the following mutual
promises, covenants, considerations and the sums to be paid, the University and
the Company agree as follows:
1. Paragraph 10, Term and Termination shall be amended as follows:
--------------------
"This Agreement shall commence on the Effective Date and shall continue through
September 30, 2000 and may be extended thereafter by mutual agreement of the
parties in writing."
2. All terms of the Agreement not altered by this Amendment shall remain in full
force and effect throughout the term of said Agreement.
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement in their
official capacities of the day and year listed below.
FOR AND ON BEHALF OF FOR AND ON BEHALF OF THE
INSPIRE PHARMACEUTICALS, INC. UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL
/s/ Janet L. Rideout
- -----------------------------
Signature /s/ Robert P. Lowman
--------------------------
Signature
Janet L. Rideout
- -----------------------------
Name Robert P. Lowman, Ph.D.
--------------------------
Name
V.P. Discovery
- -----------------------------
Title Director, Office of Research Services
----------------------------------------
Title
Date: OCT 2, 1998 Date: OCT 13 1998
- ----------------------------- ----------------------
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF ORANGE
AMENDMENT
This Amendment, made and entered into this 9th day of December, 1998 by and
between The University of North Carolina at Chapel Hill, hereinafter referred to
as the "University" and Inspire Pharmaceuticals, Inc., hereinafter referred to
as the "Company".
WITNESSETH:
WHEREAS, the parties previously entered in a Sponsored Research Agreement dated
March 10, 1995, hereinafter referred to as the "Agreement"; and
WHEREAS, this amendment is in accordance with the amendment provision
authorizing amendments in writing executed by the duly authorized officials of
both parties.
NOW, THEREFORE, in consideration of the premises and of the following mutual
promises, covenants, considerations and the sums to be paid, the University and
the Company agree as follow:
1. Article 1, Scope of Research, is amended by adding the following:
-----------------
"University shall use its best efforts to perform the research as described in
Exhibit A-6."
2. Article 2, Personnel, is amended by adding the following:
---------
"The Research described in Exhbit A-6 shall be performed under the supervision
and direction of Dr. Richard Boucher, together with additional personnel as may
be assigned by the University."
3. Article 4, Reimbursement of Cost, shall be amended by adding the following:
---------------------
"The Sponsor shall agrees to pay the University for all direct and indirect
costs incurred by the University in connection with the Research described in
Exhibit A-6 in the amount not to exceed [CONFIDENTIAL TREATMENT REQUESTED].
Payment shall be made in accordance with the following schedule: one-quarter
(1/4) of the budget upon execution of this Amendment and equal quarterly
payments for the duration of the Research."
<PAGE>
4. Article 10, Term and Termination, shall be amended as follows:
---------------------
"The term for the Research to be performed under Exhibit A-6 shall be from
October 1, 1998 through September 30, 1999 and may be extended thereafter by
mutual agreement of the parties in writing.
5. All terms of the Agreement not altered by this Amendment shall remain in full
force and effect throughout the term of said agreement.
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement in their
official capacities of the day and year listed below.
FOR AND ON BEHALF OF FOR AND ON BEHALF OF THE
INSPIRE PHARMACEUTICALS, INC. UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL
/s/ Janet L. Rideout
- ------------------------------
Signature /s/ Robert P. Lowman
-------------------------------------------
Signature
Janet L. Rideout
- ------------------------------
Name Robert P. Lowman, Ph.D.
-------------------------------------------
Name
V.P. Discovery
- ------------------------------
Title Director, Office of Research Services
-------------------------------------------
Title
Date: DEC 9, 1998 Date: JAN 14 1999
- ------------------------------ -------------------------------------
Agreed and Accepted: /s/ Richard Boucher
---------------------------
Dr. Richard Boucher
<PAGE>
EXHIBIT A-6
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF ORANGE
AMENDMENT
This Amendment, made and entered into this 7th day of April, 1999, by and
between The University of North Carolina at Chapel Hill, hereinafter referred to
as the "University" and Inspire Pharmaceuticals, Inc., hereinafter referred to
as the "Company".
WITNESSETH:
WHEREAS, the parties previously entered in a Sponsored Research Agreement dated
March 10, 1995, hereinafter referred to as the "Agreement"; and
WHEREAS, this amendment is in accordance with the amendment provision
authorizing amendments in writing executed by the duly authorized officials of
both parties.
NOW, THEREFORE, in consideration of the premises and of the following mutual
promises, covenants, considerations and the sums to be paid, the University and
the Company agree as follows:
1. Article 1, Scope of Research, is amended by adding the following:
-----------------
"University shall use its best efforts to perform the research as described in
Exhibit A-7 for the period of January 1, 1999 through December 31, 1999."
2. Article, 2, Personnel, is amended by adding the following:
---------
"The Research described in Exhibit A-7 shall be performed under the supervision
and direction of Dr. M. Jackson Stutts and such additional personnel as may be
assigned by the University."
3. Article 4, Reimbursement of Cost, shall be amended by adding the following:
---------------------
"The Sponsor shall agrees to pay the University for all direct and indirect
costs incurred by the University in connection with the Research described in
Exhibit A-7 in the amount not to exceed [CONFIDENTIAL TREATMENT REQUESTED],
bringing the total funding under the Master Research Agreement to [CONFIDENTIAL
TREATMENT REQUESTED]. Payment for one-half of the [CONFIDENTIAL TREATMENT
REQUESTED] supplement shall be made upon execution of this Amendment, with the
balance to be paid upon submission of the final report."
<PAGE>
4. All terms of the Agreement not altered by this Amendment shall remain in
full force and effect throughout the term of said agreement.
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement in their
official capacities of the day and year listed below.
FOR AND ON BEHALF OF FOR AND ON BEHALF OF THE
INSPIRE PHARMACEUTICALS, INC. UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL
/s/ Janet L. Rideout
- -----------------------------
Signature /s/ Robert P. Lowman
-------------------------------------
Signature
Janet L. Rieout
- -----------------------------
Name Robert P. Lowman, Ph.D.
-------------------------------------
Name
V.P., Discovery
- -----------------------------
Title Director, Office of Research Services
-------------------------------------
Title
Date: April 7, 1999 Date: APR 23 1999
- ----------------------------- -------------------------------
Agreed and Accepted: /s/ M. Jackson Stutts
--------------------------------
Dr. M. Jackson Stutts
<PAGE>
Exhibit A-7
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF ORANGE
AMENDMENT
This Amendment, made and entered into this 2nd day of July, 1999, by and between
The University of North Carolina at Chapel Hill, hereinafter referred to as the
"University" and Inspire Pharmaceuticals, Inc., hereinafter referred to as the
"Company".
WITNESSETH:
WHEREAS, the parties previously entered in a Sponsored Research Agreement dated
March 10, 1995, hereinafter referred to as the "Agreement"; and
WHEREAS, this amendment is in accordance with the amendment provision
authorizing amendments in writing executed by the duly authorized officials of
both parties.
NOW, THEREFORE, in consideration of the premises and of the following mutual
promises, covenants, considerations and the sums to be paid, the University and
the Company agree as follows:
1. Article 1, Scope of Research, is amended by adding the following:
-----------------
"University shall use its best efforts to perform the research as described in
Exhibit A-8 for the period of April 1, 1999 through December 31, 1999."
2. Article, 2, Personnel, is amended by adding the following:
---------
"The Research described in Exhibit A-8 shall be performed under the supervision
and direction of Dr. C. William Davis and such additional personnel as may be
assigned by the University."
3. Article 4, Reimbursement of Cost, shall be amended by adding the following:
---------------------
"The Sponsor shall agrees to pay the University for all direct and indirect
costs incurred by the University in connection with the Research described in
Exhibit A-8 in the amount not to exceed
[CONFIDENTIAL TREATMENT REQUESTED], bringing the total funding under the Master
Research Agreement to [CONFIDENTIAL TREATMENT REQUESTED]. Payment for one-half
of the [CONFIDENTIAL TREATMENT REQUESTED] supplement shall be made upon
execution of this Amendment, with the balance to be paid upon submission of the
final report."
<PAGE>
4. All terms of the Agreement not altered by this Amendment shall remain in
full force and effect throughout the term of said agreement.
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement in their
official capacities of the day and year listed below.
FOR AND ON BEHALF OF FOR AND ON BEHALF OF THE
INSPIRE PHARMACEUTICALS, INC. UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL
/s/ Janet L. Rideout
- ------------------------------------
Signature /s/ Robert P. Lowman
---------------------------------------
Janet L. Rideout Signature
- ------------------------------------
Name Robert P. Lowman, Ph.D
---------------------------------------
V.P., Development Name
- ------------------------------------
Title Director, Office of Research Services
---------------------------------------
Title
Date: July 2, 1999 Date: OCT 26 1999
------------------------------ -------------------------------
Agreed and Accepted: /s/ C. William Davis
---------------------------------
Dr. C. William Davis
<PAGE>
Exhibit A-8
[CONFIDENTIAL TREATMENT REQUESTED].
<PAGE>
INSPIRE
PHARMACEUTICALS, INC.
- -------------------------------------------------------------------------------
December 15, 1999
C. William Davis, Ph.D.
CB#7248, 6009 Thurston-Bowles Building
Chapel Hill, NC 27599-7248
Dear Dr. Davis:
This is to confirm our previous conversation and our agreement that the
Sponsored Research Agreement , "Purinergic Regulation of Ciliary Activity in the
Airways" for which you are the PI can be extended from Dec. 31 1999 to end March
31, 2000. Both Dr. Christy Shaffer and myself have approved this amendment to
the above Agreement to enable you to conduct some instrumental development work.
Payment of [CONFIDENTIAL TREATMENT REQUESTED] will be made to Account #5-58336.
Sincerely yours,
/s/ Janet L. Rideout
Janet L. Rideout, Ph.D.
VP, Discovery
CC: Rebecca Owen
- -------------------------------------------------------------------------------
4222 Emperor Boulevard, Suite 470 o Durham, North Carolina 27703
Telephone 919.941.9777 o Fax 919.941.9797
<PAGE>
THE UNIVERSITY OF NORTH CAROLINA
AT
CHAPEL HILL
<TABLE>
<S> <C>
Office of Contracts & Grants The University of North Carolina at Chapel Hill
Area Code 919-966-3411 Campus Box #135, 440 W. Franklin St.
FAX 919-962-5011 Chapel Hill, NC 27599-1350
</TABLE>
February 10, 2000
Ms. Janet Rideout, Ph.D.
Vice President, Discovery
Inspire Pharmaceuticals, Inc.
4222 Emperor Boulevard, Suite 470
Durham, NC 27703
919/941.9777
Dear Dr. Rideout:
Re: Amendment to Sponsored Research Agreement between Inspire Pharmaceuticals,
Inc. and the University of North Carolina at Chapel Hill/UNC Account #5-58026,
UNCPI: M. Jackson Stutts
This Amendment made and entered into this 10th day of February 2000 by and
between The University of North Carolina at Chapel Hill, hereinafter referred to
as the "University" and Inspire Pharmaceuticals, Inc., hereinafter referred to
as the "Sponsor".
WHEREAS, the parties previously entered in a Sponsored Research Agreement dated
March 10, 1995, hereinafter referred to as the "Agreement".
WHEREAS, this Amendment is in accordance with the amendment provision
authorizing amendments in writing executed by duly authorized officials of both
parties:
NOW, THEREFORE, in consideration of the mutual promises contained herein and
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereto promise and agree as follows:
1. The University will use its best efforts to perform the research as
described in Exhibit A for the period of January 1, 2000 through December 31,
2000.
<PAGE>
Janet Rideout, PH.D. 2 February 10, 2000
2. Sponsor shall pay the University during the term of the Amendment for all
direct and indirect costs incurred by the University in connection with the
Research, described in Exhibit A, in the amount not to exceed [CONFIDENTIAL
TREATMENT REQUESTED]. Payment shall be made in accordance with the
following schedule: one half (1/2) of the [CONFIDENTIAL TREATMENT
REQUESTED] supplement shall be made upon the execution of this Amendment,
with the balance to be paid upon submission of the Final Report. Budget
attached as Exhibit B.
3. Any and all provisions of the Agreement not expressly modified hereby will
remain in full force and effect.
IN WITNESS THEREOF, the undersigned duly authorized representatives of the
parties have executed this first amendment.
Inspire Pharmaceuticals, Inc.
By: /s/ Janet L. Rideout By: /s/ Robert P. Lowman
--------------------------- ----------------------------------------
Name: Janet L. Rideout Name: Robert P. Lowman, Ph.D.
------------------------- --------------------------------------
Title: V.P., Development Title: Director, Office of Research Services
------------------------ -------------------------------------
Date: 2/15/00 Date: FEB 17 2000
------------------------ -------------------------------------
Principal Investigator
----------------------
/s/ Richard Boucher
----------------------
Date: 2-17-00
----------------
<PAGE>
<TABLE>
<CAPTION>
THE UNIVERSITY OF NORTH CAROLINA
AT
CHAPEL HILL
<S> <C>
Office of Contracts & Grants The University of North Carolina at Chapel Hill
Area Code 919-966-3411 Campus Box #135, 440 W. Franklin St.
FAX 919-962-5011 Chapel Hill, NC 27599-1350
</TABLE>
February 10, 2000
Ms. Janet Rideout, Ph.D.
Vice President, Discovery
Inspire Pharmaceuticals, Inc.
4222 Emperor Boulevard, Suite 470
Durham, NC 27703
919/941.9777
Dear Dr. Rideout:
Re: Amendment to Sponsored Research Agreement between Inspire Pharmaceuticals,
Inc. and the University of North Carolina at Chapel Hill/UNC Account #5-58026,
UNCPI: Richard Boucher
This Amendment made and entered into this 10th day of February 2000 by and
between The University of North Carolina at Chapel Hill, hereinafter referred to
as the "University" and Inspire Pharmaceuticals, Inc., hereinafter referred to
as the "Sponsor".
WHEREAS, the parties previously entered in a Sponsored Research Agreement dated
March 10, 1995, hereinafter referred to as the "Agreement".
WHEREAS, this Amendment is in accordance with the amendment provision
authorizing amendments in writing executed by duly authorized officials of both
parties:
NOW, THEREFORE, in consideration of the mutual promises contained herein and
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereto promise and agree as follows:
1. The University will use its best efforts to perform the research as
described in Exhibit A for the period of October 1, 1999 through
September 30, 2000.
<PAGE>
Janet Rideout, PH.D. 2 February 10, 2000
2. Sponsor shall pay the University during the term of the Amendment
for all direct and indirect costs incurred by the University in
connection with the Research, described in Exhibit A, in the amount
not to exceed [CONFIDENTIAL TREATMENT REQUESTED]. Payment shall be
made in accordance with the following schedule: one half (1/2) of
the [CONFIDENTIAL TREATMENT REQUESTED] supplement shall be made upon
the execution of this Amendment, with the balance to be paid upon
submission of the Final Report. Budget attached as Exhibit B.
3. Any and all provisions of the Agreement not expressly modified
hereby will remain in full force and effect.
IN WITNESS THEREOF, the undersigned duly authorized representatives of the
parties have executed this first amendment.
Inspire Pharmaceuticals, Inc. University of North Carolina
At Chapel Hill
By: /s/ Janet L. Rideout By: /s/ Robert P. Lowman
-------------------------- -----------------------------------------
Name: Janet L. Rideout Name: Robert P. Lowman, Ph.D.
------------------------- ---------------------------------------
Title: V.P., Development Title: Director, Office of Research Services
------------------------ --------------------------------------
Date: 2/15/00 Date: FEB 17 2000
------------------------ --------------------------------------
Principal Investigator
----------------------
/s/ M. Jackson Stutts
----------------------
Date: 2-17-00
----------------
<PAGE>
Exhibit 10.6
[NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT
CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.]
CLINICAL TRIAL AGREEMENT
This Agreement is entered into as of March 10, 1995 (the "Effective Date")
by and between The University of North Carolina at Chapel Hill (the
"University") and Inspire Pharmaceuticals, Inc. (the "Company"), a Delaware
corporation.
1. Performance of Study. The University and the Company shall promptly
--------------------
select a Principal Investigator who shall conduct a clinical study entitled
"Evaluation of UTP for the Treatment of Certain Chronic Airway Diseases" in
accordance with the work plan set forth on Exhibit A (the "Study"). In the event
---------
of any conflict between Exhibit A and the provisions of this Agreement, the
---------
terms of this Agreement shall govern. In the event the Principal Investigator
becomes unwilling or unable to perform the duties required by this Agreement,
the parties shall attempt to find a mutually acceptable replacement, and if such
replacement is not found within thirty (30) days, the Company may terminate this
Agreement immediately upon written notice to the University.
2. Payment for Study. In consideration of the performance of the Study,
-----------------
the Company shall pay the University in accordance with the budget and payment
schedule set forth on Exhibit B (the "Budget"). All checks shall be made
---------
payable to The University of North Carolina at Chapel Hill and mailed to the
following address:
S. Kent Walker
University of North Carolina at Chapel Hill
Office of Contracts and Grants
440 West Franklin Street
Chapel Hill, NC 27599
3. Inspection and Records. The Principal Investigator shall furnish the
----------------------
Company with any results of the Study in signed case report forms within a
reasonable time after completion of each case, and the Company shall have the
unrestricted right, consistent with this Agreement, to use such Study results.
The University and the Principal Investigator agree to permit authorized
representatives of the Company to examine University facilities, validate case
reports against original results in University files, and monitor the work
performed for the Study, all at reasonable times during the term of this
Agreement, for the purpose of determining the adequacy of the facilities and
whether the study is being conducted in compliance with the work plan set forth
on Exhibit A and with relevant U.S. Food and Drug Administration ("FDA")
----------
regulations. Records of the Study (specifically including a copy of all
volunteer consent forms) shall be retained in conformance with applicable
federal regulations. The Company shall notify the Principal Investigator of the
date a new drug application ("NDA") is approved for the drug under study; or if
the NDA is not approved, the Company shall notify the Principal Investigator
when all clinical investigations have been discontinued and the FDA has been
notified. The University will promptly notify the Company, by telephone and
subsequently in written form, of any significant changes that occur at any time
during the Study, including without limitation any adverse events or changes to
the personnel conducting the Study.
<PAGE>
4. Compliance with Law. The Principal Investigator shall conduct the Study
-------------------
at the University with the prior approval and ongoing review of all necessary
and appropriate authorities, including without limitation the University
Institutional Review Board, and in compliance with all federal, state, and local
laws and regulations. At the request of the Company, the Principal Investigator
shall provide written evidence of all Institutional Review Board approvals.
5. Intellectual Property. Neither the Company nor the University
---------------------
transfers to the other any patent right, copyright, or other proprietary right
owned by such party as of the Effective Date. The University agrees that any
inventions, discoveries, or improvements arising out of the Study ("Inventions")
shall be promptly disclosed by the University to the Company. The University
hereby grants to the Company a first option to obtain an exclusive, worldwide
license to make, have made, use, and sell products incorporating such
Inventions. The Company may exercise its option by written notice to the
University which is received within ninety (90) days after the Company receives
written disclosure of an Invention from the University. During this option
period, the University shall provide the Company with any information reasonably
necessary for evaluating the subject Invention. In the event that the Company
exercises its license option, the parties shall negotiate in good faith a
license agreement on commercially reasonable terms and conditions. If the
parties cannot reach agreement within ninety (90) days after the Company
exercised its license option, or if the Company fails to exercise its option
right within the specified option period, the University shall thereafter be
free to license such Invention to third parties. The University reserves the
right to use the results of the study for its own noncommercial, academic
purposes.
6. Confidentiality. The University agrees not to disclose to any third
---------------
party or to use for any purposes other than performance of the Study any and all
trade secrets, privileged records, or other proprietary information (hereinafter
"Information") obtained by the University under this Agreement. Any Information
disclosed to the University by the Company shall be designated as "Confidential"
in writing. Such information shall be disclosed only to the Principal
Investigator and persons working on the Study under the direction of the
Principal Investigator, subject to the confidentiality terms of this Agreement.
The obligation of non-disclosure and non-use shall extend for a period of three
(3) years upon execution of this Agreement and shall not apply to the following:
(a) Information at or after such time that it is or becomes publicly
available through no fault of the University;
(b) Information which is disclosed to the University by a third party who
is under no obligation of confidence with respect to such information;
(c) Information which is already known to the University as shown by its
prior written records, provided that the University so demonstrates to
the Company within fifteen (15) days after disclosure of the
Information to the University by the Company;
<PAGE>
(d) Information that is developed by the University, independent of the
disclosure of Information by the Company, as demonstrated by
documentary evidence.
(e) Information that is required to be disclosed to comply with applicable
laws or regulations, or with a court or administrative order, provided
that the University gives the Company prior written notice of such
disclosure and that the University takes all reasonable and lawful
actions to obtain confidential treatment for such disclosure and, if
possible, to minimize the extent of such disclosure.
At the conclusion of the study, the University shall return all such Information
to the Company.
7. Publication. In order to prevent the inadvertent loss of patent rights
-----------
or disclosure of confidential information, the University shall provide the
Company, for review by the Company, with pre-prints or abstracts of any proposed
presentation or paper describing any results of the Study at least sixty (60)
days prior to publication. At the conclusion of this sixty-day review period,
the University shall be free to proceed with publication.
8. Term and Expiration. This Agreement shall commence on the Effective
-------------------
Date and shall continue for a period of one (1) year, unless sooner terminated
as provided below. The parties may extend the term of this Agreement for
additional six (6) month periods by mutual written agreement. Sections 3, 5, 6,
7, l3, and 16 shall survive termination of this Agreement.
9. Early Termination. This Agreement may be terminated at any time by
-----------------
either the University or the Company for any reason upon (30) days prior written
notice to the other party, whereupon the University will use its best efforts
immediately to curtail charges and make no subsequent commitments for
expenditures under this Agreement. In the event of termination when there is an
outstanding balance of funds owed to the University pursuant to Section 2 above,
including any University uncancellable commitments, the Company shall make a
final payment for services performed under the terms of this Agreement through
the date of termination. In the event of termination when the University
possesses prepaid funds that the University has not earned as of the date of
termination, the University shall promptly remit such funds to the Company.
10. Independent Contractors. Each party to this Agreement shall act as an
-----------------------
independent contractor and shall not act as the agent, employee, or servant of
any other party. Accordingly, the employees of the University shall not be
considered the employees of the Company, and no party shall enter into any
contract or agreement with a third party which purports to obligate or bind any
other party.
11. Changes to the Study. If at a future date changes in the Study appear
--------------------
desirable, such changes may be made through prior agreement between the Company
and University. If such changes can be expected to affect the charge for the
Study, University will submit a written estimate for approval to Company.
However, if in the course of
<PAGE>
performing this Agreement, generally accepted standards of clinical research and
medical practice relating to the benefit, well-being, and safety of the
patient(s) requires a deviation from the study, such standards will be followed.
In such case, the party aware of the need for a deviation shall immediately
inform the other parties of the circumstances giving rise to such need.
12. Title to Equipment. Title to all equipment purchased by the
------------------
University for use in performing this Agreement shall be in the University and
shall be free of all claims, liens, or encumbrances of the Company, or anyone
claiming under or through the Company.
13. Return of Materials. Upon the earlier of the completion of the Study
-------------------
or the termination of this Agreement, all unused compounds, materials, or
supplies that were furnished to the University by the Company or purchased by
the University using funds provided by the Company shall be promptly returned to
Company, at the Company's expense.
14. Assignment. This Agreement may not be assigned by either party
----------
without the prior written consent of the other party, except that the Company
may assign this Agreement to an affiliate or to a successor in connection with
the merger, consolidation, or sale of all or substantially all of its assets or
that portion of its business pertaining to the subject matter of this Agreement.
15. Use of University Name. No press release, advertising, promotional
----------------------
sales literature, or other promotional written statements or promotional oral
statements to the public in connection with or alluding to work performed under
this Agreement or the relationship between the parties created by it, having or
containing any reference to the Company or the University, shall be made by any
party without the prior written approval of the affected party. The foregoing
notwithstanding, the Company shall have the right to identify the University and
to disclose the terms of this agreement in any prospectus, offering memorandum,
or other document or filing required by applicable securities laws or other
applicable law or regulation.
16. Indemnification. The Company hereby agrees to indemnify, defend, and
---------------
hold harmless the University and its schools, departments, and employees from
and against any and all liability arising out of the performance of this Study,
provided that (i) the Study is performed in compliance with this agreement and
the protocol set forth on Exhibit A, (ii) such liability does not arise out of
---------
the negligence or willful misconduct of the University or its employees or
agents, (iii) the Company is promptly notified of any complaint, claim, or
injury to any subject that arises out of or in connection with the performance
of the Study, and (iv) subject to the statutory duty of the Attorney General of
the State of North Carolina, the Company has sole control of the defense or
settlement of any such complaint or claim.
To the extent provided by the North Carolina Tort Claims Act, the
University agrees to indemnify, defend, and hold harmless the Company and its
directors, officers, employees, and agents against all losses, expenses, claims,
demands, suits, or other actions that arise out of or in connection with the
performance of the Study to the extent resulting from the negligence or willful
misconduct of the University or its employees or agents.
<PAGE>
17. Notices. All notices, requests, demands, and other communications
-------
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be deemed to have been duly given (i) upon the date of receipt if
delivered by hand, recognized national overnight courier, confirmed facsimile
transmission, or registered or certified mail, return receipt requested, postage
prepaid, or (ii) on the third business day after mailing by first class mail,
postage prepaid, to the following addresses or facsimile numbers:
If to the Company:
H. Jeff Leighton, Ph.D.
President and Chief Executive Officer
Inspire Pharmaceuticals, Inc.
c/o Burr, Egan, Deleage & Co.
One Post Office Square
Boston, MA 02110
Tel: (617) 482-8020
Fax: (617) 566-0848
With a copy to:
Michael Lytton, Esq.
Palmer & Dodge
One Beacon Street
Boston, MA 02108
Fax: (617) 227-4420
If to the University:
Dr. Robert P. Lowman
Office of Research Services
University of North Carolina at Chapel Hill
CB# 4100, 300 Bynum Hall
Chapel Hill, NC 27599
Tel: (919) 966-5265
Fax: (919) 962-0646
Either party may change its designated address and facsimile number by notice to
the other party in the manner provided in this Section.
18. Choice of Law. The laws of the State of North Carolina shall govern
-------------
the validity and interpretation of the provisions, terms, and conditions of the
Agreement.
19. Waiver. Failure to insist upon compliance with any of the terms and
------
conditions of this Agreement shall not constitute a general waiver or
relinquishment of any such terms or conditions, but the same shall remain at all
time in full force and effect.
<PAGE>
20. Severability. In the event that any provision of this Agreement
------------
shall, for any reason, be held to be invalid or unenforceable in any respect,
such invalidity or unenforceability shall not affect any other provision hereof,
and this Agreement shall be construed as if such invalid or unenforceable
provision had not been included herein.
21. Entire Agreement and Modification. This Agreement contains the entire
---------------------------------
understanding of both parties and shall not be altered, amended or modified
except by an agreement in writing executed by the duly authorized officials of
both parties.
AGREED AND ACCEPTED:
INSPIRE PHARMACEUTICALS, INC. UNIVERSITY OF NORTH CAROLINA
AT CHAPEL HILL
/s/ H. Jeff Leighton /s/ Wayne R. Jones
- -------------------------------- ------------------------------------
H. Jeff Leighton Wayne R. Jones
President Vice Chancellor, Business & Finance
<PAGE>
Exhibit A
Work Plan
---------
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
Exhibit B
Budget
------
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF ORANGE
ADDENDUM TO AMENDMENT # 95-1
This ADDENDUM, made and entered into this 19th day of July, 1996, by and between
The University of North Carolina at Chapel Hill, hereinafter referred to as the
"University" and Inspire Pharmaceuticals, Inc., hereinafter referred to as the
"Company".
WITNESSETH:
WHEREAS, the parties previously entered in a Clinical Trial Agreement dated
March 10, 1995 concerning "Evaluation of UTP for the Treatment of Certain
Chronic Airway Diseases," hereinafter referred to as the "Agreement"; and
WHEREAS, the parties wish by this ADDENDUM to revise the specific terms of an
individual research project, hereinafter referred to as the "Project," as
contemplated by Exhibit A, #2a, of the Agreement.
NOW, THEREFORE, in consideration of the premises and of the following mutual
promises, covenants, considerations and the sums to be paid, the University and
the Company agree as follows:
1. Article 1, Performance of Study shall be amended as follows:
--------------------
The University shall exercise its best efforts to carry out the Project set
forth in the Protocol with the revised title of "Acute Safety Study of UTP in
Patients with COPD" and attached here as Attachment A-1 ("Protocol") in
accordance with the Agreement. The University's Principal Investigator for this
Project is M. Patricia Rivera, M.D., who will be responsible for the direction
of this Project. To the extent the terms of Attachment A conflict with the
terms of this ADDENDUM, the Agreement, and Amendment #95-1, the terms this
ADDENDUM, the Agreement and Amendment #95-1 shall govern the conduct of the
parties.
2. Article 2, Payment for Study for the research to be conducted under this
-----------------
ADDENDUM to Amendment #95-1 shall be as follows:
In consideration of the performance of this Project, the Company shall pay the
University in accordance with the budget set forth in Attachment B-1, attached
hereto and made a part hereof.. An initial payment of [CONFIDENTIAL TREATMENT
REQUESTED] will be made upon execution of this ADDENDUM and includes the
direct and indirect costs for one patient ([CONFIDENTIAL TREATMENT REQUESTED])
and equipment (Passport Monitor @[CONFIDENTIAL TREATMENT REQUESTED]).
Subsequent payments of [CONFIDENTIAL TREATMENT REQUESTED] will be made upon the
completion of each patient in accordance with the Protocol and acceptance of the
case report form. Payments for partially completed patients shall be prorated
according to the assessments completed. All checks shall be made payable to the
University of North Carolina at Chapel Hill and mailed to the following address:
M. Patricia Rivera, M.D.
Department of Pulmonary Medicine
CB#7020 - 724 Burnett-Womack Bldg.
Chapel Hill, NC 27599-7220
<PAGE>
3. All terms of the Agreement and Amendment 95-1 not altered by this ADDENDUM
shall remain in full force and effect throughout the term of said agreement.
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement in their
official capacities of the day and year listed below.
<TABLE>
<CAPTION>
FOR AND ON BEHALF OF FOR AND ON BEHALF OF THE
INSPIRE PHARMACEUTICALS, INC. UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL
<S> <C>
/s/ David J. Drutz
- ---------------------------------------------
Signature
/s/ Wayne R. Jones
----------------------------------------------
Signature
David J. Drutz, M.D.
- ---------------------------------------------
Name
Wayne R. Jones
----------------------------------------------
Name
President and CEO
- ---------------------------------------------
Title
Vice Chancellor, Business & Finance
----------------------------------------------
Title
Date: June 21, 1996 Date: 7/19/96
------------------------------------ -----------------------------------
</TABLE>
Agreed and Accepted: /s/ M. Patricia Rivera
----------------------
Principal Investigator
Date: July 10, 1996
----------------
<PAGE>
ATTACHMENT A-1
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
ATTACHMENT B-1
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF ORANGE
AMENDMENT #95-2
This Amendment, made and entered into this 4th day of December, 1995, by and
between The University of North Carolina at Chapel Hill, hereinafter referred to
as the "University" and Inspire Pharmaceuticals, Inc., hereinafter referred to
as the Company".
WITNESSETH:
WHEREAS, the parties previously entered in a Clinical Trial Agreement dated
March 10, 1995 concerning "Evaluation of UTP for the Treatment of Certain
Chronic Airway Diseases," hereinafter referred to as the "Agreement"; and
WHEREAS, the parties wish by this Amendment to specify terms of an individual
research project, hereinafter referred to as the "Project," as contemplated by
Exhibit A, #3c, of the Agreement.
NOW, THEREFORE, in consideration of the premises and of the following mutual
promises, covenants, considerations and the sums to be paid, the University and
the Company agree as follows:
1. Article 1, Performance of Study shall be amended as follows:
--------------------
The University shall exercise its best efforts to carry out the Project set
forth in the Protocol entitled: "Acute Safety of UTP-Amiloride Aerosol in
Children Ages 4-10 Years" and attached here as Attachment A ("Protocol") in
accordance with the Agreement. The University's Principal Investigator for this
Project is George Retsch-Bogard, M.D., who will be responsible for the direction
of this Project. The parties anticipate that the term of this Project will be
from the date of execution through March 9, 1996. To the extent the terms of
Attachment A conflict with the terms of the Agreement or this Amendment #95-2,
the terms of the Agreement and this Amendment # 95-2 shall govern the conduct of
the parties.
2. Article 2, Payment for Study for the research to be conducted under this
-----------------
Amendment #95-2 shall be as follows:
In consideration of the performance of this Project, the Company shall pay the
University [CONFIDENTIAL TREATMENT REQUESTED]in accordance with the budget set
forth in Attachment B, attached hereto and made a part hereof.. An initial
payment of [CONFIDENTIAL TREATMENT REQUESTED] will be made upon execution of
this Amendment and includes the direct and indirect costs for one patient
([CONFIDENTIAL TREATMENT REQUESTED]) and for the repair, upgrade, and
maintenance of equipment ([CONFIDENTIAL TREATMENT REQUESTED]). Subsequent
payments of [CONFIDENTIAL TREATMENT REQUESTED] will be made upon the completion
of each patient in accordance with the Protocol and acceptance of the case
report form. All checks shall be made payable to the University of North
Carolina at Chapel Hill and mailed to the following address:
George Retsch-Bogart, M.D.
Department of Pediatrics
CB#7220 - Burnett-Womack Bldg.
Chapel Hill, NC 27599-7220
<PAGE>
3. All terms of the Agreement not altered by this Amendment shall remain in
full force and effect throughout the term of said agreement
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement in their
official capacities of the day and year listed below.
FOR AND ON BEHALF OF FOR AND ON BEHALF OF THE
INSPIRE PHARMACEUTICALS, INC. UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL
/s/ H. Jeff Leighton /s/ Robert P. Lowman
- ------------------------------------- -------------------------------------
Signature Signature
H. Jeff Leighton Robert P. Lowman, Ph.D.
- ------------------------------------- -------------------------------------
Name Name
Managing Director Director, Office of Research Services
- ------------------------------------- -------------------------------------
Title Title
Date: 1--22-95 Date: DEC 04 1995
---------------------------- ----------------------------
Agreed and Accepted: /s/ George Retsch-Bogart, M.D.
------------------------------
Principal Investigator
Date: 11-6-95
-----------------------
<PAGE>
ATTACHMENT A
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
ATTACHMENT B
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF ORANGE
ADDENDUM TO AMENDMENT # 95-2
This ADDENDUM, made and entered into this 11 day of March, 1996, by and between
The University of North Carolina at Chapel Hill, hereinafter referred to as the
"University" and Inspire Pharmaceuticals, Inc., hereinafter referred to as the
"Company".
WITNESSETH:
WHEREAS, the parties previously entered in a Clinical Trial Agreement dated
March 10, 1995 concerning "Evaluation of UTP for the Treatment of Certain
Chronic Airway Diseases,"hereinafter referred to as the "Agreement"; and
WHEREAS, the parties wish by this Addendum to revise the specific terms of an
individual research project, hereinafter referred to as the "Project," as
contemplated by Exhibit A, #3c, of the Agreement.
NOW, THEREFORE, in consideration of the premises and of the following mutual
promises, covenants, considerations and the sums to be paid, the University and
the Company agree as follows:
1. See * below.
2. Article 2, Payment for Study for the research to be conducted under
-----------------
Amendment #95-2 shall be replaced as follows:
In consideration of the performance of this Project, the Company shall pay the
University up to [CONFIDENTIAL TREATMENT REQUESTED] in accordance with the
budget set forth in Attachment B, attached hereto and made part hereof.. An
initial payment of [CONFIDENTIAL TREATMENT REQUESTED] will be made upon
execution of this Addendum and includes the direct and indirect costs for one
patient ([CONFIDENTIAL TREATMENT REQUESTED]) and for the repair, upgrade, and
maintenance of equipment ([CONFIDENTIAL TREATMENT REQUESTED]). Subsequent
payments of [CONFIDENTIAL TREATMENT REQUESTED] will be made upon the completion
of patients 2-4 in accordance with the original Protocol and acceptance of the
case report forms. Payments of [CONFIDENTIAL TREATMENT REQUESTED] will be made
upon the completion of patients 5-10 in accordance with the Protocol as revised
and acceptance of the case reports form. All checks shall be made payable to
the University of North Carolina at Chapel Hill and mailed to the following
address:
George Retsch-Bogart, M.D.
Department of Pediatrics
CB#7220 - Burnett-Womack Bldg.
Chapel Hill, NC 27599-7220
* The University shall exercise its best efforts to carry out the Study set
forth in Amendment 1 to the Protocol entitled "Acute Safety of Aerosolized
UTP (with and with- out amiloride) in Children (age 4-10 years) with Cystic
Fibrosis" and attached here as Attachment A-1 ("Protocol") in accordance
with the Agreement.
<PAGE>
3. All terms of Amendment 95-2 not altered by this Addendum shall remain in
full force and effect throughout the term of said agreement.
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement in their
official capacities of the day and year listed below.
<TABLE>
<CAPTION>
FOR AND ON BEHALF OF FOR AND ON BEHALF OF THE
INSPIRE PHARMACEUTICALS, INC. UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL
<S> <C>
/s/ David J. Drutz, M.D. /s/ Robert P. Lowman
- --------------------------------------------- ----------------------------------------------
Signature Signature
David J. Drutz Robert P. Lowman, Ph.D.
- --------------------------------------------- ----------------------------------------------
Name Name
President and CEO Director, Office of Research Services
- --------------------------------------------- ----------------------------------------------
Title Title
Date: March 12, 1996 Date: APR 23 1996
------------------------------------ -----------------------------------
</TABLE>
Agreed and Accepted: /s/ George Retsch-Bogart, M.D.
------------------------------
Principal Investigator
Date: 4-16-96
-----------
<PAGE>
ATTACHMENT A-1
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
PROTOCOL AMENDMENT
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
ATTACHMENT B
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF ORANGE
AMENDMENT #95-3
This Amendment, made and entered into this day of, 3/11/96, by and between The
University of North Carolina at Chapel Hill, hereinafter referred to as the
"University" and Inspire Pharmaceuticals, Inc., hereinafter referred to as the
Company".
WITNESSETH:
WHEREAS, the parties previously entered in a Clinical Trial Agreement dated
March 10, 1995 concerning "Evaluation of UTP for the Treatment of Certain
Chronic Airway Diseases," hereinafter referred to as the "Agreement"; and
WHEREAS, the parties wish by this Amendment to specify terms of an individual
research project, hereinafter referred to as the "Project," as contemplated by
Exhibit A, #3b, of the Agreement.
NOW, THEREFORE, in consideration of the premises and of the following mutual
promises, covenants, considerations and the sums to be paid, the University and
the Company agree as follows:
1. Article 1, Performance of Study shall be amended as follows:
--------------------
The University shall exercise its best efforts to carry out the Project set
forth in the Protocol entitled: "Acute Efficacy of UTP-Amiloride Aerosol in
Adolescents Ages 11-18 Years" and attached here as Attachment A ("Protocol") in
accordance with the Agreement The University's Principal Investigator for this
Project is George Retsch-Bogard, M.D., who will be responsible for the direction
of this Project. To the extent the terms of Attachment A conflict with the
terms of the Agreement or this Amendment #95-3, the terms of the Agreement and
this Amendment #95-3 shall govern the conduct of the parties.
2. Article 2, Payment for Study for the research to be conducted under this
-----------------
Amendment #95-3 shall be as follows:
In consideration of the performance of this Project, the Company shall pay the
University up to [CONFIDENTIAL TREATMENT REQUESTED] in accordance with the
budget set forth in Attachment B, attached hereto and made a part hereof. An
initial payment of [CONFIDENTIAL TREATMENT REQUESTED] will be made upon
execution of this Amendment and includes the direct and indirect costs for one
patient ([CONFIDENTIAL TREATMENT REQUESTED]) and for the repair, upgrade, and
maintenance of equipment ([CONFIDENTIAL TREATMENT REQUESTED]). Subsequent
payments of [CONFIDENTIAL TREATMENT REQUESTED] will be made upon the completion
of each patient in accordance with the Protocol and acceptance of the case
report form. All checks shall be made payable to the University of North
Carolina at Chapel Hill and mailed to the following address:
George Retsch-Bogart, M.D.
Department of Pediatrics
CB#7220 - Burnett-Womack Bldg.
Chapel Hill, NC 27599-7220
<PAGE>
3. All terms of the Agreement not altered by this Amendment shall remain in
full force and effect throughout the term of said agreement
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement in their
official capacities of the day and year listed below.
FOR AND ON BEHALF OF FOR AND ON BEHALF OF THE
INSPIRE PHARMACEUTICALS, INC. UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL
/s/ David J. Drutz /s/ Robert P. Lowman
- ------------------------------------- -------------------------------------
Signature Signature
David J. Drutz, M.D. Robert P. Lowman, Ph.D.
- ------------------------------------- -------------------------------------
Name Name
President and CEO Director, Office of Research Services
- ------------------------------------- -------------------------------------
Title Title
March 12, 1996 MAR 26 1996
- ------------------------------------- -------------------------------------
Date: Date:
Agreed and Accepted: /s/ George Retsch-Bogart
---------------------------
Principal Investigator
Date: 3-21-96
------------------
<PAGE>
ATTACHMENT A
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
ATTACHMENT B
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF ORANGE
AMENDMENT # 95-4
This ADDENDUM, made and entered into this 21st day of March , 1996, by and
between The University of North Carolina at Chapel Hill, hereinafter referred to
as the "University" and Inspire Pharmaceuticals, Inc., hereinafter referred to
as the "Company".
WITNESSETH:
WHEREAS, the parties previously entered in a Clinical Trial Agreement dated
March 10, 1995 concerning "Evaluation of UTP for the Treatment of Certain
Chronic Airway Diseases,"hereinafter referred to as the "Agreement"; and
WHEREAS, the parties wish by this Amendment to specify terms of an individual
research project, hereinafter referred to as the "Project," as contemplated by
Exhibit A, #2, of the Agreement.
NOW, THEREFORE, in consideration of the premises and of the following mutual
promises, covenants, considerations and the sums to be paid, the University and
the Company agree as follows:
1. Article 1, Performance of Study shall be amended as follows:
--------------------
The University shall exercise its best efforts to carry out the Project set
forth in the Protocol entitled: "Acute Efficacy of Aerosolized UTP-Amiloride by
Mucocioliary and Cough Clearance in Patients with Primary Ciliary Dyskinesia
(PCD)" and attached here as Attachment A ("Protocol") in accordance with the
Agreement. The University's Principal Investigator for this Project is Peadar
G. Noone, M.D., who will be responsible for the direction of this Project. To
the extent the terms of Attachment A conflict with the terms of the Agreement or
this Amendment #95-4, the terms of the Agreement and this Amendment #95-4 shall
govern the conduct of the parties.
2. Article 2, Payment for Study for the research to be conducted under this
-----------------
Amendment #95-4 shall be as follows:
In consideration of the performance of this Project, the Company shall pay the
University up to [CONFIDENTIAL TREATMENT REQUESTED] in accordance with the
budget set forth in Attachment B, attached hereto and made a part hereof. An
initial payment of [CONFIDENTIAL TREATMENT REQUESTED] will be made upon
execution of this Amendment. Subsequent payments of [CONFIDENTIAL TREATMENT
REQUESTED] will be made upon the completion of each patient in accordance with
the Protocol and acceptance of the case report form. All checks shall be made
payable to the University of North Carolina at Chapel Hill and mailed to the
following address:
Peadar Noone, M.D.
Division of Pulonary Medicine
University of North Carolina at Chapel Hill
724 Burnett-Womack, CB# 7020
Chapel Hill, NC 27599-7020
<PAGE>
3. All terms of the Agreement not altered by this Amendment shall remain in
full force and effect throughout the term of said agreement
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement in their
official capacities of the day and year listed below.
<TABLE>
<CAPTION>
FOR AND ON BEHALF OF FOR AND ON BEHALF OF THE
INSPIRE PHARMACEUTICALS, INC. UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL
<S> <C>
/s/ David J. Drutz, M.D.
- ---------------------------------------------
Signature
/s/ Robert P. Lowman
----------------------------------------------
Signature
David J. Drutz
- ---------------------------------------------
Name
Robert P. Lowman, Ph.D.
----------------------------------------------
Name
President and CEO
- ---------------------------------------------
Title
Director, Office of Research Services
----------------------------------------------
Title
Date: March 21, 1996 Date: APR 12 1996
------------------------------------ -----------------------------------
</TABLE>
Agreed and Accepted: /s/ Peadar Noone
---------------------
Principal Investigator
Date: April 2 '96
----------------
<PAGE>
ATTACHMENT A
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
ATTACHMENT B
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF ORANGE
AMENDMENT # 95-5
This Amendment, made and entered into this 2nd day of October, 1996, by and
between The University of North Carolina at Chapel Hill, hereinafter referred to
as the "University" and Inspire Pharmaceuticals, Inc., hereinafter referred to
as the "Company".
WITNESSETH:
WHEREAS, the parties previously entered in a Clinical Trial Agreement dated
March 10, 1995 concerning "Evaluation of UTP for the Treatment of Certain
Chronic Airway Diseases," hereinafter referred to as the "Agreement"; and
WHEREAS, The parties wish by this Amendment to specify terms of an individual
research project, hereinafter referred to as the "Project," as contemplated by
Exhibit A of the Agreement.
NOW, THEREFORE, in consideration of the premises and of the following mutual
promises, covenants, considerations and the sums to be paid, the University and
the Company agree as follows:
1. Article 1, Performance of Study shall be amended as follows:
--------------------
The University shall exercise its best efforts to carry out the Project set
forth in the Portocol entitled: "Evaluation of Aerosol Delivery Systems for UTP
(Part 1)" and attached here as Attachment A ("Protocol") in accordance with the
Agreement. The University's Principal Investigator for this Project is William
Bennett, Ph.D, who will be responsible for the direction of this Project. To
the extent the terms of Attachment A conflict with the terms of the Agreement or
this Amendment #95-5, the terms of the Agreement and this Amendment #95-5 shall
govern the conduct of the parties.
2. Article 2, Payment for Study for the research to be conducted under this
-----------------
Amendment #95-5 shall be as follows:
In consideration of the performance of this Project, the Company shall pay the
University [CONFIDENTIAL TREATMENT REQUESTED] in accordance with the budget set
forth in Attachment B, attached hereto and made a part herof. The University
acknowledges receipt of the initial payment of [CONFIDENTIAL TREATMENT
REQUESTED] . Subsequent payments of [CONFIDENTIAL TREATMENT REQUESTED] shall be
made upon the completion Part A, Particle Sizing; [CONFIDENTIAL TREATMENT
REQUESTED] shall be paid upon completion of Part B, Nebulizer Output, and
[CONFIDENTIAL TREATMENT REQUESTED] shall be paid upon submission to Inspire of
all data and a brief summary report. All checks shall be made payable to the
University of North Carolina at Chapel Hill and mailed to the following address:
William Bennett
Center for Environmental Medicine
University of North Carolina at Chapel Hill
104 Mason Farm Road, CB# 7310
Chapel Hill, NC 27599-7310
<PAGE>
3. All terms of the Agreement not altered by this Amendment shall remain in
full force and effect throughout the term of said agreement
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement in their
official capacities of the day and year listed below.
<TABLE>
<CAPTION>
FOR AND ON BEHALF OF FOR AND ON BEHALF
INSPIRE PHARMACUETICALS, INC. OF THE UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL
<S> <C>
/s/ David J. Drutz
- ---------------------------------------------
Signature /s/ Robert P. Lowman
----------------------------------------------
Signature
David J. Drutz, MD
- ---------------------------------------------
Name Robert P. Lowman, Ph.D.
----------------------------------------------
Name
President & CEO
- ---------------------------------------------
Title Director, Office of Research Services
----------------------------------------------
Title
Date: 9/10/96 Date: OCT 02 1996
- --------------------------------------------- --------------------------------------------
</TABLE>
Agreed and Accepted: /s/ William D. Bennett
-----------------------------------------------------
Principal Investigator
Date: 9/17/96
-----------------------------------------
<PAGE>
EXHIBIT A
---------
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF ORANGE
AMENDMENT # 95-6
This Amendment, made and entered into this 15 day of November, 1996, by and
between The University of North Carolina at Chapel Hill, hereinafter referred to
as the "University" and Inspire Pharmaceuticals, Inc., hereinafter referred to
as the "Company".
WITNESSETH:
WHEREAS, the parties previously entered in a Clinical Trial Agreement dated
March 10, 1995 concerning "Evaluation of UTPfor the Treatment of Certain Chronic
Airway Diseases," hereinafter referred to as the "Agreement"; and
WHEREAS, The parties wish by this Amendment to specify terms of an individual
research project, hereinafter referred to as the "Project," as contemplated by
Exhibit A of the Agreement.
NOW, THEREFORE, in consideration of the premises and of the following mutual
promises, covenants, considerations and the sums to be paid, the University and
the Company agree as follows:
4. Article 1, Performance of Study shall be amended as follows:
--------------------
The University shall exercise its best efforts to carry out the Project set
forth in the Protocol entitled: "Rising Dose Tolerance Study of Multiple Daily
Doses of Uridine 5'-Triphosphate in Patients with Mild to Moderate Cystic
Fibrosis Lung Disease" and attached here as Attachment A ("Protocol") in
accordance with the Agreement. The University's Principal Investigator for this
Project is Dr. Peader Noone, who will be responsible for the direction of this
Project. To the extent the terms of Attachment A conflict with the terms of the
Agreement or this Amendment #95-6, the terms of the Agreement and this Amendment
#95-6 shall govern the conduct of the parties.
5. Article 2, Payment for Study for the research to be conducted under this
-----------------
Amendment #95-6 shall be as follows:
In consideration of the performance of this Project, the Company shall pay the
University up to [CONFIDENTIAL TREATMENT REQUESTED] in accordance with the
budget set forth in Attachment B, attached hereto and made a part hereof. The
University acknowledges receipt of an initial payment of [CONFIDENTIAL TREATMENT
REQUESTED], representing the cost for two completed patients. Subsequent
payments shall be made upon completion of case report forms and their review by
Company. The final payment shall be made upon completion of case report forms
and their acceptance by Company. All checks shall be made payable to the
University of North Carolina at Chapel Hill and mailed to the following address:
Dr. Peadar Noone
Division of Pulmonary Medicine
University of North Carolina at Chapel Hill
724 Burnett-Womack, CB# 7020
Chapel Hill, NC 27599-7020
<PAGE>
3. All terms of the Agreement not altered by this Amendment shall remain in
full force and effect throughout the term of said agreement
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement in their
official capacities of the day and year listed below.
<TABLE>
<CAPTION>
FOR AND ON BEHALF OF FOR AND ON BEHALF
INSPIRE PHARMACUETICALS, INC. OF THE UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL
<S> <C>
/s/ David J. Drutz
- ---------------------------------------------
Signature /s/ Robert P. Lowman
----------------------------------------------
Signature
David J. Drutz, MD
- ---------------------------------------------
Name Robert P. Lowman, Ph.D.
----------------------------------------------
Name
President & CEO
- ---------------------------------------------
Title Director, Office of Research Services
----------------------------------------------
Title
Date: January 28, 1997 Date: MAR 14 1997
- --------------------------------------------- --------------------------------------------
</TABLE>
Agreed and Accepted: /s/ Peader Noone
------------------------------------------------
Principal Investigator
Date: 3/7/97
------------------------------------------------
<PAGE>
ATTACHMENT A (Protocol)
-----------------------
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF ORANGE
AMENDMENT # 95-7
This Amendment, made and entered into this 1 day of January, 1997, by and
between The University of North Carolina at Chapel Hill, hereinafter referred to
as the "University" and Inspire Pharmaceuticals, Inc., hereinafter referred to
as the "Company".
WITNESSETH:
WHEREAS, the parties previously entered in a Clinical Trial Agreement dated
March 10, 1995 concerning "Evaluation of UTP for the Treatment of Certain
Chronic Airway Diseases," hereinafter referred to as the "Agreement"; and
WHEREAS, The parties wish by this Amendment to specify terms of an individual
research project, hereinafter referred to as the "Project," as contemplated by
Exhibit A of the Agreement.
NOW, THEREFORE, in consideration of the premises and of the following mutual
promises, covenants, considerations and the sums to be paid, the University and
the Company agree as follows:
6. Article 1, Performance of Study shall be amended as follows:
--------------------
The University shall exercise its best efforts to carry out the Project set
forth in the Protocol entitled: "A Safety and Tolerability Study of Aerosolized
Uridine 5'-Triphosphate (UTP) in Patients with Mild Chronic Bronchitis: A
Double-Blind Crossover Evaluation" and attached here as Attachment A
("Protocol") in accordance with the Agreement. The University's Principal
Investigator for this Project is Dr. James Donohue, who will be responsible for
the direction of this Project. To the extent the terms of Attachment A conflict
with the terms of the Agreement or this Amendment #95-7, the terms of the
Agreement and this Amendment #95-7 shall govern the conduct of the parties.
7. Article 2, Payment for Study for the research to be conducted under this
-----------------
Amendment #95-7 shall be as follows:
In consideration of the performance of this Project, the Company shall pay the
University up to [CONFIDENTIAL TREATMENT REQUESTED] in accordance with the
budget set forth in Attachment B, attached hereto and made a part hereof. An
initial payment of [CONFIDENTIAL TREATMENT REQUESTED], representing the cost for
two completed patients, shall be made within two weeks following execution of
this Amendment. Subsequent payments shall be made upon completion of case
report forms and their review by Company. The final payment shall be made upon
completion of case report forms and their acceptance by Company. All checks
shall be made payable to the University of North Carolina at Chapel Hill and
mailed to the following address:
Dr. James Donohue
Division of Pulmonary Medicine
University of North Carolina at Chapel Hill
724 Burnett-Womack, CB# 7020
Chapel Hill, NC 27599-7020
<PAGE>
8. All terms of the Agreement not altered by this Amendment shall remain in
full force and effect throughout the term of said agreement
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement in their
official capacities of the day and year listed below.
<TABLE>
<CAPTION>
FOR AND ON BEHALF OF FOR AND ON BEHALF
INSPIRE PHARMACUETICALS, INC. OF THE UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL
<S> <C>
/s/ David J. Drutz
- ---------------------------------------------
Signature /s/ Robert P. Lowman
----------------------------------------------
Signature
David J. Drutz, M.D.
- ---------------------------------------------
Name Robert P. Lowman, Ph.D.
----------------------------------------------
Name
President & CEO
- ---------------------------------------------
Title Director, Office of Research Services
----------------------------------------------
Title
Date: January 28, 1997 Date: MAR 17 1997
- --------------------------------------------- --------------------------------------------
</TABLE>
Agreed and Accepted: /s/ James P. Donohue
------------------------------------------------
Principal Investigator
Date: 3/12/97
---------------------------------------
<PAGE>
EXHIBIT A
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
AMENDMENT TO CLINICAL TRIAL AGREEMENT
This Amendment is dated as of June 9, 1997 by and between The University
of North Carolina at Chapel Hill (the "University") and Inspire Pharmaceuticals,
Inc. (the "Company"). The University and the Company agree to amend the Clinical
Trial Agreement, effective March 10, 1995, as previously amended (the
"Agreement), as follows:
1. The name of the Agreement shall be changed to "Clinical Research
Agreement."
2. Pursuant to Section 8, the term of the Agreement shall be
extended to and including June 9, 1998. The last sentence of Section 8 is hereby
amended by adding the words "the expiration or" immediately after the word
"survive".
3. The name of the person and the address of the Company to whom
notices and other communications to the Company should be directed, as set forth
in Section 17, shall be changed to:
David J. Drutz, M.D.
President and Chief Executive Officer
Inspire Pharmaceuticals, Inc.
4222 Emperor Boulevard, Suite 470
Durham, North Carolina 27703
Phone: (919) 941-9777
Fax: (919) 941-9797
The name and address of a person to whom a copy shall be sent shall be deleted.
4. Exhibits A and B expressly acknowledge that as of the Effective
Date of the Agreement each is "in preliminary form" and will require "further
elaboration" and "revision", respectively. The University and the Company agree
that Section 1 and Exhibits A and B have never been further elaborated or
revised, are obsolete, and should be revised to include the clinical studies
already underway or already agreed to be placed, such additional studies as the
Company and the University may agree, and a budget and payment schedule for each
such study. Accordingly, the University and the Company agree that Sections 1
and 2 and Exhibits A and B in the Clinical Trial Agreement as originally
executed shall be deleted. The following shall be the new Sections 1 and 2:
"1. Performance of Studies. (a) The University and the Company
shall promptly select a Principal Investigator to conduct each study that the
parties agree shall be conducted at the University. A definitive list of the
studies conducted at the University (whether completed or terminated prior to
completion) or which the parties have agreed to conduct at the University is set
forth in Exhibit A attached hereto and made part of this
<PAGE>
Agreement. This Agreement shall cover clinical studies, clinical support studies
(including, but not limited to, metabolism studies in human cells or human
blood) and other clinically related studies involving UTP and/or other
substances of interest to the Company which the parties have agreed or will
agree to conduct at the University. The term "Study" shall refer to each study
conducted by the University pursuant to this Agreement, and the term "Principal
Investigator" shall refer to each Principal Investigator selected pursuant to
this Agreement. A definitive listing of the maximum budget or other total
payment obligation of the Company for each Study is set forth in Exhibit B
attached hereto and made a part of the Agreement.
(b) The University and the Company shall execute a separate "Work
Order # _______ " each time they agree to conduct an additional Study pursuant
to this Agreement. Each such Work Order shall set forth (i) the name of the
Principal Investigator, (ii) the duration of such Study, (iii) payment schedules
and information and (iv) a detailed work plan (Attachment A) and maximum budget
(Attachment B) for such Study which shall be deemed to be added to Exhibits A
and B of this Agreement, respectively.
(c) In the event of any conflict between (i) any Amendment executed
heretofore or any Work Order referred to in paragraph (b) of this Section 1 and
(ii) the provisions of this Agreement (including, without limitation, Exhibits A
and B attached hereto and made a part of this Agreement), the terms of this
Agreement shall govern.
(d) In the event that any Principal Investigator becomes unwilling
or unable to perform the duties required by this Agreement, the parties shall
attempt to find a mutually acceptable replacement, and if such replacement is
not found within thirty (30) days, the Company may terminate this Agreement with
respect to such Study immediately upon written notice to the Unversity."
"2. Payment for Studies. In consideration of the performance of
each Study, the Company shall pay the University in accordance with the budget
and payment schedule set forth in the respective Amendment and other pertinent
documents which have been executed or exchanged heretofore and any Work Order
and other pertinent documents which may be executed or exchanged hereafter. All
checks shall be made payable to The University of North Carolina at Chapel Hill
and mailed to the respective addresses set forth in each Amendment or Work
Order, as the case may be."
The new Exhibits A and B are set forth in the Appendix to this Amendment
to the Agreement and made a part of the Agreement. The respective Work Plans
and detailed maximum budgets or other total payment obligations of the Company
for each Study set forth in each of the Amendments and other pertinent
documents executed or exchanged heretofore are incorporated by reference in the
revised
<PAGE>
Exhibits.
5. Except as expressly provided in this Amendment to the Agreement,
all other terms and conditions of the Agreement shall continue in full force and
effect.
THE UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL INSPIRE PHARMACEUTICALS, INC.
By: /s/ Robert P. Lowman By: /s/ David J. Drutz
------------------------ -------------------------
Title: Director Office of Research David J. Drutz, M.D.
Services Title: President and CEO
<PAGE>
EXHIBIT A
LIST OF STUDIES
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
EXHIBIT B
MAXIMUM BUDGETS OR TOTAL PAYMENT OBLIGATIONS
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF ORANGE
AMENDMENT #95-8
This Amendment, made and entered into this 12 day of September, 1997, by and
between The University of North Carolina at Chapel Hill, hereinafter referred to
as the "University" and Inspire Pharmaceuticals, Inc., hereinafter referred to
as the "Company".
WITNESSETH:
WHEREAS, the parties previously entered in a Clinical Trial Agreement dated
March 10, 1995 concerning "Evaluation of UTP for the Treatment of Certain
Chronic Airway Diseases," hereinafter referred to as the "Agreement"; and
WHEREAS, The parties wish by this Amendment to specify terms of an individual
research project, hereinafter referred to as the "Project," as contemplated by
Exhibit A of the Agreement.
NOW, THEREFORE, in consideration of the premises and of the following mutual
promises, covenants, considerations and the sums to be paid, the University and
the Company agree as follows:
9. Article 1, Performance of Study shall be amended as follows:
The University shall exercise its best efforts to carry out the Project set
forth in the Protocol entitled: "Evaluation of the Acute Effect of Aerosolized
Uridine 5' Triphosphate (UTP) on Mucociliary Clearance in Patients with Mild
Chronic Bronchitis: A Double-Blind Three-Period Crossover Study of Normal Saline
(Placebo) Versus Two Doses of UTP and a No Treatment Baseline" - and attached
here as Attachment A ("Protocol") in accordance with the Agreement. The
University's Principal Investigator for this Project is Dr. William Bennett, who
will be responsible for the direction of this Project. To the extent the terms
of Attachment A conflict with the terms of the Agreement or this Amendment
#95-8, the terms of the Agreement and this Amendment #95-8 shall govern the
conduct of the parties.
10. Article 2, Payment for Study for the research to be conducted under this
Amendment #95-8 shall be as follows:
In consideration of the performance of this Project, the Company shall pay the
University up to [CONFIDENTIAL TREATMENT REQUESTED] in accordance with the
budget set forth in Attachment B, attached hereto and made a part hereof. An
initial payment of [CONFIDENTIAL TREATMENT REQUESTED], representing the cost for
two completed patients, shall be made within two weeks following execution of
this Amendment. Subsequent payments shall be made upon completion of case report
forms and their review by Company. The final payment shall be made upon
completion of case report forms and their acceptance by Company. All checks
shall be made payable to the University of North Carolina at Chapel Hill and
mailed to the following address:
<PAGE>
Dr. William Bennett, Ph.D
Center for Environmental Medicine
University of North Carolina at Chapel Hill
104 Mason Farm Road, CB #7310
Chapel Hill, NC 27599-7310
3. All terms of the Agreement not altered by this Amendment shall remain in full
force and effect throughout the term of said agreement
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement in their
official capacities of the day and year listed below.
FOR AND ON BEHALF OF FOR AND ON BEHALF OF THE
INSPIRE PHARMACUETICALS, INC. UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL
/s/ David J. Drutz /s/ Robert P. Lowman
- ------------------------------- -------------------------------------
Signature Signature
David J. Drutz, MD Robert P. Lowman, Ph.D.
- ------------------------------- -------------------------------------
Name Name
President & CEO Director, Office of Research Services
- ------------------------------- -------------------------------------
Title Title
Date: September 5, 1997 Date: SEP 12 1997
- ------------------------------- -------------------------------------
Agreed and Accepted: /s/ William D Bennett
------------------------
Principal Investigator
Date: 9/8/97
------------------------
<PAGE>
EXHIBIT A
CLINICAL PROTOCOL
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF ORANGE
AMENDMENT #95-9
This Amendment, made and entered into this 11th day of December, 1997, by and
between The University of North Carolina at Chapel Hill, hereinafter referred to
as the "University" and Inspire Pharmaceuticals, Inc., hereinafter referred to
as the "Company".
WITNESSETH:
WHEREAS, the parties previously entered in a Clinical Trial Agreement dated
March 10, 1995 concerning "Evaluation of UTP for the Treatment of Certain
Chronic Airway Diseases," hereinafter referred to as the "Agreement"; and
WHEREAS, The parties wish by this Amendment to specify terms of an individual
research project, hereinafter referred to as the "Project," as contemplated by
Exhibit A of the Agreement.
NOW, THEREFORE, in consideration of the premises and of the following mutual
promises, covenants, considerations and the sums to be paid, the University and
the Company agree as follows:
11. Article 1, Performance of Study shall be amended as follows:
The University shall exercise its best efforts to carry out the Project set
forth in the Protocol entitled: "A Double-Blind, Two-Phase Safety Challenge of
the Acute Effects of Aerosolized Uridine 5'-Triphosphate (UTP) in Patients with
Mild Chronic Bronchitis: Influence of the Presence of Chloride Concentrations in
the Dosing Solutions" and attached here as Attachment A ("Protocol") in
accordance with the Agreement. The University's Principal Investigator for this
Project is Dr. James Donohue, who will be responsible for the direction of this
Project. To the extent the terms of Attachment A conflict with the terms of the
Agreement or this Amendment #95-9, the terms of the Agreement and this Amendment
#95-9 shall govern the conduct of the parties.
12. Article 2, Payment for Study for the research to be conducted under this
Amendment #95-9 shall be as follows:
In consideration of the performance of this Project, the Company shall pay the
University up to [CONFIDENTIAL TREATMENT REQUESTED] in accordance with the
budget set forth in Attachment B, attached hereto and made a part hereof. An
initial payment of [CONFIDENTIAL TREATMENT REQUESTED], representing the cost for
one completed patient shall be made within two weeks following execution of this
Amendment. Subsequent payments shall be made upon completion of case report
forms and their review by Company. The final payment shall be made upon
completion of case report forms and their acceptance by Company.
<PAGE>
All checks shall be made payable to the University of North Carolina at Chapel
Hill and mailed to the following address:
Dr. James Donohue
Division of Pulmonary Medicine
University of North Carolina at Chapel Hill
724 Burnett-Womack, CB# 7020
Chapel Hill, NC 27599-7020
3. All terms of the Agreement not altered by this Amendment shall remain in full
force and effect throughout the term of said agreement
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement in their
official capacities of the day and year listed below.
FOR AND ON BEHALF OF FOR AND ON BEHALF OF THE
INSPIRE PHARMACUETICALS, INC. UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL
/s/ David J. Drutz /s/ Robert P. Lowman
- ------------------------------- -------------------------------------
Signature Signature
David J. Drutz, MD Robert P. Lowman, Ph.D.
- ------------------------------- -------------------------------------
Name Name
President and CEO Director, Office of Research Services
- ------------------------------- -------------------------------------
Title Title
Date: November 25, 1997 Date: DEC 11 1997
- ------------------------------- -------------------------------------
Agreed and Accepted: /s/ James F. Donohue
------------------------
Principal Investigator
Date: 12/10/97
------------------------
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF ORANGE
AMENDMENT #95-11
This Amendment, made and entered into this 1st day of August, 1998, by and
between The University of North Carolina at Chapel Hill, hereinafter referred to
as the "University" and Inspire Pharmaceuticals, Inc., hereinafter referred to
as the "Company".
WITNESSETH:
WHEREAS, the parties previously entered in a clinical Trial Agreement dated
March 10, 1995 concerning "Evaluation of UTP for the Treatment of certain
Chronic Airway Diseases," hereinafter referred to as the "Agreement"; and
WHEREAS, the parties wish by this Amendment to specify terms of an individual
research project, hereinafter referred to as the "Project," as contemplated by
Exhibit A of the Agreement.
NOW, THEREFORE, in consideration of the premises and of the following mutual
promises, covenants, considerations and the sums to be paid, the University and
the Company agree as follows:
1. Article 1, Performance of Study shall be amended as follows:
The University shall exercise its best efforts to carry out the Project set
forth in the Protocol entitled: A Double-Blind Crossover Evaluation of the
Effect of Single Doses of Aerosolized INS365 Versus Normal Saline (Placebo) on
Mucociliary clearance in Normal Volunteers (Nonsmokers and Smokers)" and
attached here as Attachment A ("Protocol") in accordance with the Agreement. The
University's Principal Investigator for this Project is Dr. William Bennett, who
will be responsible for the direction of this Project. To the extent the terms
of Attachment A conflict with the terms of the Agreement or this Amendment
#95-11, the terms of the Agreement and this Amendment #95-11 shall govern the
conduct of the parties.
2. Article 2, Payment for Study for the research to be conducted under this
Amendment #95-11 shall be as follows:
In consideration of the performance of this Project, the Company shall pay the
University up to [CONFIDENTIAL TREATMENT REQUESTED] in accordance with the
budget set forth in Attachment B, attached hereto and made a part hereof. An
initial payment of [CONFIDENTIAL TREATMENT REQUESTED], representing the cost for
two completed patients, shall be made within two weeks following execution of
this Amendment. Subsequent payments shall be made upon completion of case report
forms and their review by Company. The final payment shall be made upon
completion of case report forms and their acceptance by Company.
<PAGE>
All Checks shall be made payable to the University of North Carolina at Chapel
Hill and mailed to the following address:
William Bennett
Center for Environmental Medicine
University of North Carolina at Chapel Hill
104 Mason Farm Road, CB# 7310
Chapel Hill, NC 27599-7310
3. All terms of the Agreement not altered by this Amendment shall remain in full
force and effect throughout the term of said agreement.
IN WITNESS WHEREOF, the parties have hereunto signed this Agreement in their
official capacities of the day and year listed below.
FOR AND ON BEHALF OF FOR AND ON BEHALF OF THE
INSPIRE PHARMACEUTICALS, INC. UNIVERSITY OF NORTH
CAROLINA AT CHAPEL HILL
/s/ Christy L. Shaffer /s/ Robert P. Lowman
- ------------------------------- -------------------------------------
Signature Signature
Christy L. Shaffer, Ph.D. Robert P. Lowman, Ph.D.
- ------------------------------- -------------------------------------
Name Name
VP Development & COO Director, Office of Research Services
- ------------------------------- -------------------------------------
Title Title
Date: Sept. 21, 1998 Date: SEP 18 1998
- ------------------------------- -------------------------------------
Agreed and Accepted: /s/ William Bennett
--------------------------
Principal Investigator
Date: 8/12/98
--------------------------
<PAGE>
EXHIBIT A
CLINICAL TRIAL PROTOCOL AMENDMENT
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
AMENDMENT/AGREEMENT TO EXTEND THE TERM
OF CLINICAL SERVICES AGREEMENT
This Amendment is dated effective June 1, 1999 by and between The
University of North Carolina at Chapel Hill (the "University") and Inspire
Pharmaceuticals, Inc. (the "Company"). The University and the Company agree to
amend the Clinical Research Agreement, effective March 10, 1995, as previously
amended (the "Agreement"), as follows:
1. Pursuant to Section 8, the term of the Agreement shall be
extended to and including June 30, 2000.
2. The name of the person and the address of the Company to whom
notices and other communications to the Company should be directed, as set forth
in Section 17, shall be changed to:
Christy L. Shaffer, Ph.D.
President and Chief Executive Officer
Inspire Pharmaceuticals, Inc.
4222 Emperor Boulevard, Suite 470
Durham, North Carolina 27703
Phone: (919) 941-9777
Fax: (919) 941-9797
3. Except as expressly provided in this Amendment to the Agreement,
all other terms and conditions of the Agreement shall continue in full force and
effect.
THE UNIVERSITY OF NORTH INSPIRE PHARMACEUTICALS, INC.
CAROLINA AT CHAPEL HILL
By /s/ Robert P. Lowman By /s/ Christy L. Shaffer
---------------------------- ----------------------------
Robert P. Lowman Christy L. Shaffer, Ph.D.
Associate Vice Provost and President and CEO
Director, Office of Research Services
