<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1998
REGISTRATION NO. 333-40503
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ALLERGAN SPECIALTY THERAPEUTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2834 33-0779207
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2525 DUPONT DRIVE
IRVINE, CA 92612
(714) 246-4500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
LESTER J. KAPLAN, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ALLERGAN SPECIALTY THERAPEUTICS, INC.
2525 DUPONT DRIVE
IRVINE, CA 92612
(714) 246-4500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
THOMAS A. COLL, ESQ. FRANCIS R. TUNNEY, JR., ESQ.
MICHAEL R. JACOBSON, ESQ. ALLERGAN, INC.
JANE K. ADAMS, ESQ. 2525 DUPONT DRIVE
COOLEY GODWARD LLP IRVINE, CA 92612
4365 EXECUTIVE DRIVE, SUITE 1100 (714) 246-4500
SAN DIEGO, CA 92121
(619) 550-6000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT 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.
================================================================================
<PAGE> 2
LOGO
, 1998
Dear Stockholder:
I am pleased to send you the attached Prospectus concerning Allergan
Specialty Therapeutics, Inc. ("ASTI") and notify you of the special distribution
of shares of ASTI Class A Common Stock to the holders of Common Stock of
Allergan, Inc. (the "Distribution"). Holders of Allergan Common Stock at the
close of business on February 17, 1998, the record date for the Distribution,
will receive one share of ASTI Class A Common Stock (an "ASTI Share") for each
20 shares of Allergan Common Stock held.
The distribution is expected to occur on or about March 10, 1998. The ASTI
Shares will be held in "book-entry" form, although stock certificates will be
available upon request. First Chicago Trust Company of New York is acting as
distribution agent and will be responsible for making book-entry credits to
holders of record on the record date and for mailing stock certificates to ASTI
stockholders upon request. Application has been made for the ASTI Class A Common
Stock to be quoted on the Nasdaq National Market under the symbol "ASTI."
ASTI has been formed by Allergan to conduct research and development of
potential pharmaceutical products, and to commercialize such products, most
likely through licensing to Allergan. In exchange for all of the shares of ASTI
Common Stock outstanding prior to the Distribution, Allergan will contribute
$200 million to ASTI to be used for the research and development of such
potential pharmaceutical products. As the sole holder of ASTI's outstanding
Class B Common Stock following the Distribution, Allergan will have the option
to repurchase all of the outstanding ASTI Shares under specified conditions. In
addition, in exchange for technology licenses granted by Allergan and a
commitment by Allergan to make specified payments on sales of certain products,
Allergan will be paid a technology fee by ASTI and will have the option to
independently develop certain compounds funded by ASTI prior to the filing of an
Investigational New Drug application ("IND") with respect thereto and/or to
license any products and technology developed by ASTI.
ASTI's technology and product research and development activities will take
place under a research and development agreement with Allergan. It is currently
expected that substantially all of ASTI's funds will be directed toward
continuing the research and development of products based on retinoid and
neuroprotective technologies, including Memantine and other glutamate and ion
channel blockers (collectively, "Retinoid and Neuroprotective Technologies"). In
addition, ASTI may fund the research and development of pharmaceutical products
in therapeutic categories of interest to Allergan that are not based on Retinoid
and Neuroprotective Technologies, but that complement Allergan's product
pipeline or otherwise are believed to provide a potential commercialization
opportunity for Allergan.
Allergan is increasing its focus on leading-edge, technology-based
pharmaceutical products. Through internal research and development efforts and
external research and development collaborations, Allergan seeks to expand its
product line with proprietary specialty pharmaceutical products that provide
distinctive therapeutic and economic benefit. Efforts to date have yielded many
potential product opportunities. Such opportunities involve significantly
different risk/reward profiles as compared to Allergan's established specialty
pharmaceutical business.
To continue the advancement of, and in certain cases accelerate, these
projects and programs, Allergan seeks strategic collaborations and ventures,
such as the recently concluded Allergan Ligand Retinoid Therapeutics, Inc.
("ALRT") collaboration, to provide complementary financing. Allergan's strategy
also involves actively seeking outside product opportunities through joint
ventures, licensing, acquisitions and strategic alliances with biotechnology,
marketing and geographic partners.
i
<PAGE> 3
Allergan believes that the retinoid research and development work
undertaken by ALRT to date and the research and development work Allergan has
undertaken, directly and through collaborators, in the neuroprotective area have
yielded results which justify further research and development. A substantial
amount of additional research and development effort is required to further
develop Allergan's Retinoid and Neuroprotective Technologies through their
potential commercialization.
By creating ASTI and distributing the ASTI Shares to Allergan stockholders,
Allergan will separate the risks associated with discovering, researching and
developing these products from those associated with its established specialty
pharmaceutical business. Thus, the transaction will provide an opportunity for
Allergan's stockholders to decide whether or not to participate in the research
and development of the retinoids and other specialty pharmaceutical products by
continuing to hold ASTI Shares after the Distribution.
We are very enthusiastic about our progress to date in pursuing Allergan's
specialty pharmaceutical business, and about the possibility of ASTI helping to
expand this business through the research and development of potential products
for commercialization by Allergan.
The Prospectus contains important information about the distribution and
about the proposed business of ASTI. I encourage you to read it carefully.
Holders of Allergan Common Stock on the record date for the Distribution are not
required to take any action to participate in the Distribution.
Sincerely,
--------------------------------------
David E. I. Pyott
President and Chief Executive Officer
ii
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 12, 1998
PROSPECTUS
ALLERGAN SPECIALTY THERAPEUTICS, INC.
CLASS A COMMON STOCK
Shares of callable Class A Common Stock ("ASTI Shares") of Allergan
Specialty Therapeutics, Inc. ("ASTI") will be distributed (the "Distribution")
by Allergan, Inc. ("Allergan") to the holders of record of Allergan Common Stock
(the "Holders") at the close of business on February 17, 1998 (the "Record
Date"). Each Holder will receive one ASTI Share for every 20 shares of Allergan
Common Stock held on the Record Date. The Distribution will result in all of the
then outstanding ASTI Shares being distributed to the Holders. Assuming that
65,292,628 shares of Allergan Common Stock (the number of shares outstanding on
December 31, 1997) are outstanding on the Record Date, approximately 3,264,600
ASTI Shares are expected to be issued in the Distribution to Holders of Allergan
Common Stock. After the Distribution, Allergan will hold 1,000 shares of ASTI
Class B Common Stock, representing all of the authorized shares of such class.
Prior to the Distribution, Allergan will contribute $200 million in cash to ASTI
in exchange for all of the shares of ASTI Common Stock outstanding prior to the
Distribution. As the sole holder of ASTI's outstanding Class B Common Stock
following the Distribution, Allergan will have the option to repurchase all of
the outstanding ASTI Shares under specified conditions. Allergan has also
granted certain technology licenses and agreed to make specified payments on
sales of certain products in exchange for the payment by ASTI of a technology
fee and the option to independently develop certain compounds funded by ASTI
prior to the filing of an Investigational New Drug application ("IND") with
respect thereto and to license any products and technology developed by ASTI.
The Distribution is expected to be taxable to the Holders of Allergan
Common Stock. See "Federal Income Tax Considerations." The Distribution is
expected to take place on or about March 10, 1998, subject to certain conditions
specified in the Distribution Agreement between Allergan and ASTI dated as of
, 1998. ASTI Shares will be held in "book-entry" form, although
stock certificates will be available upon request. First Chicago Trust Company
of New York ("FCTC") is acting as distribution agent and will be responsible for
making book-entry credits to Holders and for mailing stock certificates to ASTI
stockholders upon request.
There has been no previous public market for the ASTI Shares. Application
has been made for the ASTI Shares to be quoted on the Nasdaq National Market
under the symbol "ASTI."
Allergan will have the option to purchase all (but not less than all) of
the outstanding ASTI Shares at a price determined in accordance with a formula
specified in ASTI's Restated Certificate of Incorporation (the "Purchase Option
Exercise Price") at any time from and after the Distribution until the date
which is the earliest to occur of (i) December 31, 2002 (unless extended in
accordance with the terms contained in ASTI's Restated Certificate of
Incorporation) and (ii) the 90th day after the date on which Allergan receives
notice that the amount of cash and marketable securities held by ASTI is less
than $15 million. The Purchase Option Exercise Price must be paid by Allergan in
cash. See "The Agreements and the Purchase Option -- Purchase Option."
Stockholders of Allergan with inquiries regarding the Distribution should
contact Allergan, Inc., Corporate and Investor Relations, 2525 Dupont Drive,
Irvine, CA 92612; telephone (714) 246-6301.
------------------------
THE ASTI SHARES DISTRIBUTED HEREUNDER INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 17.
------------------------
NO APPROVAL OF THE DISTRIBUTION BY STOCKHOLDERS OF ALLERGAN IS REQUIRED
OR SOUGHT. NO PROXY IS REQUESTED AND NO ACTION IS REQUIRED WITH RESPECT TO THE
DISTRIBUTION.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 5
AVAILABLE INFORMATION
As a result of the Distribution, ASTI will be required to comply with the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, to file annual, quarterly and
other reports with the Securities and Exchange Commission ("SEC"). Additionally,
ASTI will be subject to the proxy solicitation requirements of the Exchange Act.
ASTI intends to provide annual reports containing audited financial statements
to its stockholders in connection with its annual meetings of stockholders.
ASTI has filed a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
securities offered by this Prospectus. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
Reference is made to the Registration Statement and to the exhibits thereto for
further information with respect to ASTI and the Distribution. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference to such exhibit. The Registration Statement,
including exhibits and schedules thereto, may be inspected without charge at the
Public Reference Room of the SEC, 450 Fifth Street, Washington, D.C. 20549 and
at the SEC's regional offices at 7 World Trade Center, Suite 1300, New York, New
York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Reports, proxy statements and other information filed electronically by ASTI
with the SEC are available at the SEC's World Wide Web site at
http://www.sec.gov. Copies of all or any part thereof may be obtained from the
SEC at its principal offices in Washington, D.C. after payment of fees
prescribed by the SEC.
ASTI's Restated Certificate of Incorporation does not entitle Allergan to
pay the Purchase Option Exercise Price using Allergan Common Stock. Accordingly,
shares of Allergan Common Stock need not be registered in connection with this
transaction and any such shares that may previously have been subject to
registration are no longer subject to registration.
2
<PAGE> 6
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS OR THE REGISTRATION STATEMENT
OF WHICH THIS PROSPECTUS IS A PART.
CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN
THIS PROSPECTUS, INCLUDING IN THE GLOSSARY BEGINNING ON PAGE 13.
Some of the statements made in this Prospectus and the accompanying letter
to stockholders are forward-looking in nature, including, but not limited to,
ASTI's and Allergan's research and development activities and plans,
particularly with respect to anticipated ASTI Products and Pre-Selection
Products, plans concerning the potential commercialization of products, and
other statements that are not historical facts. The occurrence of the events
described and the achievement of the intended results are subject to the future
occurrence of many events, some or all of which are not predictable or within
ASTI's control; therefore, actual results may differ materially from those
anticipated in any forward-looking statements. Many risks and uncertainties are
inherent in the biotechnology and pharmaceutical industry; others are more
specific to ASTI's business or that of Allergan. These risks include the risks
associated with product and technology research and development, including
clinical development, attempts to obtain regulatory clearance to market products
and medical acceptance of products, changes in the health care marketplace,
patent and intellectual property matters, regulatory and manufacturing issues,
the ability to commercialize products effectively, and risks associated with
competition from other companies. Many of the risks are described in "Risk
Factors" beginning on page 16 and/or in documents filed by Allergan under the
Exchange Act.
Distributing Company....... Allergan, Inc., a Delaware corporation, is a
leading provider of specialty pharmaceutical
products throughout the world with niche products
in the movement disorder, dermatological, eye care
pharmaceutical, ophthalmic surgical device and
over-the-counter contact lens care markets.
Distributed Company........ Allergan Specialty Therapeutics, Inc., a Delaware
corporation, is a company recently formed by
Allergan to conduct research and development of
potential human pharmaceutical products, and to
commercialize such products, most likely through
licensing to Allergan.
The Distribution........... Each Holder will receive one ASTI Share for every
20 shares of Allergan Common Stock held on the
Record Date. A total of approximately 3,264,600
ASTI Shares are expected to be distributed,
assuming 65,292,628 shares of Allergan Common Stock
(the number of shares outstanding on December 31,
1997) are outstanding on the Record Date. No Holder
will be required to pay any cash or other
consideration for the ASTI Shares received in the
Distribution (exclusive of applicable income
taxes), nor will any action be required to be taken
by any Holder in order to receive ASTI Shares. The
Distribution is expected to be taxable to the
Holders. See "Certain Federal Income Tax
Considerations."
ASTI Shares................ All of the shares of callable Class A Common Stock
of ASTI, whether distributed by Allergan in the
Distribution or later issued by ASTI, will be
subject to the Purchase Option. See "The Agreements
and the Purchase Option -- Purchase Option" and
"Description of ASTI Capital Stock."
Record Date; Distribution
Date....................... The Record Date for the Distribution will be the
close of business on February 17, 1998.
Distribution of the ASTI Shares is expected to take
place on or about March 10, 1998 (the "Distribution
Date"), subject to certain conditions specified in
the Distribution Agreement.
3
<PAGE> 7
Trading Market............. Application has been made for quotation of the ASTI
Shares on the Nasdaq National Market under the
symbol "ASTI."
Contribution by Allergan... Prior to the Distribution, Allergan will contribute
$200 million in cash to ASTI in exchange for all of
the shares of ASTI Common Stock outstanding prior
to the Distribution. Allergan expects to borrow all
or a portion of such funds from third parties. As
the sole holder of ASTI's outstanding Class B
Common Stock following the Distribution, Allergan
will have the option to repurchase all of the
outstanding ASTI Shares under specified conditions.
Allergan has also granted certain technology
licenses and agreed to make specified payments on
sales of certain products in exchange for the
payment of a technology fee by ASTI and the option
to independently develop certain compounds funded
by ASTI prior to the filing of an IND with respect
thereto and to license any products and technology
developed by ASTI.
The retinoid technology being licensed by Allergan
to ASTI includes technology acquired by Allergan
upon exercise of its option to acquire a one-half
undivided interest in the assets of Allergan Ligand
Retinoid Therapeutics, Inc. ("ALRT"). In September
1997, Ligand Pharmaceuticals Incorporated
("Ligand") and Allergan exercised their respective
options to purchase the outstanding ALRT Callable
Common Stock and a one-half undivided interest in
ALRT's assets. The initial agreements between
Allergan and Ligand provided for a joint research
and development and joint commercialization
arrangement following exercise of the buyout
option. Allergan and Ligand have amended and
restated their existing agreements, effective as of
the option exercise closing date, so that among
other things, existing ALRT compounds and research
and development programs will be divided among
Allergan and Ligand, and each party will receive
exclusive rights to the ALRT technology for use
with their respective compounds and programs. See
"Reasons For the Distribution and Effects on
Allergan, Inc."
ASTI Products.............. ASTI Products generally are expected to be based on
retinoid and neuroprotective technologies,
including Memantine and other glutamate and ion
channel blockers (collectively, "Retinoid and
Neuroprotective Technologies"). In addition, ASTI
may fund the research and development of products
licensed from third parties that complement the
products to be developed by ASTI or otherwise may
provide a significant commercialization opportunity
for Allergan. It is anticipated that ASTI will
initially develop four selected products. In
addition, ASTI may pursue the research and
development of other products to which it has been
granted rights pursuant to the Technology License
Agreement as substitutes for, or in addition to,
such products (any such products together with the
four initial products being the "ASTI Products").
The four initial ASTI Products, which are described
more fully in the section entitled "The Business of
ASTI -- The ASTI Products" below, are:
- Tazarotene (oral), an RAR beta gamma-selective
agonist being developed in oral form for the
treatment of cancer, acne and psoriasis
worldwide;
- Memantine, a glutamate blocker being developed as
a potential treatment to be used to halt the
progression of optic nerve damage that
4
<PAGE> 8
leads to blindness in glaucoma patients and for other ocular indications in the
United States;
- AGN 4310, an RAR antagonist/inverse agonist,
being developed as a topical antidote to systemic
retinoid-induced mucocutaneous toxicity and for
the topical treatment of psoriasis worldwide; and
- A compound to be selected from the RAR
alpha-selective agonist class of retinoid
compounds for the treatment of various cancers
worldwide.
Pursuant to the Research and Development Agreement,
ASTI will fund the research and development of the
ASTI Products from the date on which ALRT ceased
funding (October 23, 1997) until March 31, 1998.
Continuation of the research and development of any
ASTI Product after March 31, 1998 will depend upon
whether Allergan proposes and ASTI's independent
Board of Directors accepts additional work plans
and cost estimates for such ASTI Product. It is
anticipated that if ASTI were to fund the continued
research and development of the four initial ASTI
Products through U.S. Food and Drug Administration
("FDA") review for marketing clearance, the funding
of these activities, together with the
Pre-Selection Work expected to be undertaken by
Allergan and funded by ASTI, would require
substantially all of the Available Funds. See "The
Agreements and the Purchase Option -- Research and
Development Agreement."
ASTI Board of Directors.... Lester J. Kaplan, Ph.D., is currently serving as
the interim President and Chief Executive Officer
and a Director of ASTI. Prior to the Distribution,
Dr. Kaplan will resign as interim President and
Chief Executive Officer and William C. Shepherd,
who is not an employee or Director of Allergan,
will be appointed Director, President and Chief
Executive Officer of ASTI. It is expected that Mr.
Shepherd will appoint Gary L. Neil, Ph.D. and
Marvin E. Rosenthale, Ph.D., neither of whom is an
employee or Director of Allergan, and a third
individual to be identified, who will not be an
employee or Director of Allergan, as additional
Directors of ASTI prior to commencement of the
Distribution. Dr. Kaplan will remain a Director of
ASTI following the Distribution in accordance with
the rights of Allergan under ASTI's Restated
Certificate of Incorporation as the sole holder of
the outstanding shares of ASTI Class B Common
Stock.
No Fractional Shares....... No fractional ASTI Shares will be distributed.
Fractional ASTI Shares will be aggregated and sold
as whole ASTI Shares by ASTI's transfer agent and
distribution agent for the Distribution, FCTC (the
"Distribution Agent"), to provide cash to Holders
in lieu of such fractional ASTI Shares.
Reasons for the
Distribution............... Allergan is increasing its focus on leading-edge,
technology-based pharmaceutical products. Through
internal research and development efforts and
external research and development collaborations,
Allergan seeks to expand its product line with
proprietary specialty pharmaceutical products that
provide distinctive therapeutic and economic
benefit. Allergan believes that the retinoid
research and development work undertaken by ALRT to
date and the research and development work it has
undertaken, directly and through collaborators, in
the neuroprotective area have yielded results which
justify further research and development. However,
5
<PAGE> 9
a substantial amount of additional research and
development effort is required to further develop
Allergan's Retinoid and Neuroprotective
Technologies through to their potential
commercialization. Such opportunities involve
significantly different risk/reward profiles as
compared to Allergan's established specialty
pharmaceutical business. Allergan believes that the
arrangements with ASTI will significantly benefit
Allergan stockholders by:
- separating the risks associated with researching
and developing pharmaceutical products based on
Retinoid and Neuroprotective Technologies from
those associated with Allergan's established
specialty pharmaceutical business;
- allowing individual stockholders of Allergan to
increase or decrease their level of participation
in the business of researching and developing
pharmaceutical products based on Retinoid and
Neuroprotective Technologies for
commercialization by Allergan by varying their
level of investment in ASTI;
- obtaining for Allergan the exclusive right to
commercialize, in the United States with respect
to Memantine and worldwide with respect to any
other ASTI Products, any successfully developed
ASTI Product, assuming Allergan's exercise of the
License Option with respect to such product or
exercise of the Purchase Option, thereby making
it possible for Allergan to capture a potentially
greater return on the products developed with
ASTI than would otherwise be possible from
products developed for commercialization in
conjunction with other third parties; and
- allowing Allergan's near-term financial results
to continue to reflect principally its
established specialty pharmaceutical business, by
providing Allergan with research and development
revenues from ASTI to reimburse Allergan for
Research and Development Costs incurred by
Allergan.
The foregoing potential benefits to Allergan
stockholders of the arrangements with ASTI may,
however, be offset by certain costs and detriments,
including but not limited to the following:
Allergan's loss of control over research and
development activities to be conducted by ASTI,
which instead will be overseen by ASTI's
independent Board of Directors, potential adverse
effects on Allergan's future ability to borrow
funds and credit rating due to the additional
indebtedness to be incurred by Allergan to fund the
initial $200 million cash contribution by Allergan
to ASTI, the administrative costs to Allergan of
the arrangement, including accounting and legal
fees and costs, and the loss of income tax benefits
to Allergan which may have been derived from
deductions by Allergan rather than ASTI of research
and development expenses attributable to projects
funded by ASTI.
Research and Development
Agreement................ ASTI and Allergan will enter into the Research and
Development Agreement under which Allergan will
perform research and development on products
recommended by Allergan and accepted by ASTI as
ASTI Products. Such recommendation and acceptance
may be made on a "field of use" basis. Such new
product recommendation must be made no later than
the date of filing of an IND with the FDA for such
product.
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<PAGE> 10
It is anticipated that ASTI will initially develop
four selected products which will be the initial
ASTI Products. Unless ASTI agrees otherwise, all
ASTI Products will be owned by ASTI or, in the case
of a product or a therapeutic agent licensed from a
third party, exclusively licensed to ASTI, in each
case subject to the License Option. A portion of
the Available Funds is expected to be used to
identify potential new products within the
portfolio of product candidates licensed to ASTI
under the Technology License Agreement for possible
research and development as ASTI Products by ASTI
under the Research and Development Agreement.
Compounds evaluated under this process, other than
those which become ASTI Products, will be
Pre-Selection Products. To the extent any
Pre-Selection Product is approved for commercial
sale, Allergan will make payments to ASTI based on
such sales, as described below.
ASTI is required to spend all of the Available
Funds under the Research and Development Agreement.
ASTI is expected to utilize substantially all of
the Available Funds to reimburse Allergan for its
Research and Development Costs. Research and
Development Costs will be charged in a manner
consistent with industry practices, and
reimbursement for all reasonable, fully-burdened
costs will be recognized by Allergan as contract
research and development revenue. Under the
Research and Development Agreement, ASTI also may
use Available Funds for licensing technology,
products or therapeutic agents from third parties
and for the research and development of ASTI
Products with third parties; provided, however,
that Allergan's consent will be required if such
activities involve Allergan Technology or could
affect Allergan's rights under the Allergan/ASTI
Agreements or Allergan's rights as a holder of the
Class B Common Stock. Subject to the foregoing, the
amount and nature of work to be performed by third
parties will be determined by ASTI. It is not
anticipated that ASTI will undertake research and
development without contracting with a third party,
as ASTI is not expected to have the staffing or
facilities to do so.
Pursuant to the Research and Development Agreement,
ASTI will fund the research and development of the
initial four ASTI Products beginning as of October
23, 1997 and continuing through March 31, 1998.
Research and Development Costs are expected to
total between $7 million and $8 million for all of
the four initial ASTI Products and for Pre-
Selection Work conducted during such period.
Continuation of the research and development of any
ASTI Product after March 31, 1998 will depend upon
whether Allergan proposes, and ASTI's Board of
Directors accepts, additional work plans and cost
estimates for such ASTI Product. It is anticipated
that if ASTI were to fund the continued research
and development of the initial four ASTI Products
through FDA review for marketing clearance, the
funding of these activities, together with the
Pre-Selection Work expected to be undertaken by
Allergan and funded by ASTI, would require
substantially all of the Available Funds. It is
anticipated that ASTI will spend the Available
Funds under the Research and Development Agreement
over a period of approximately four to five years.
ASTI's use of Available Funds is subject to the
terms of ASTI's Restated Certificate of
Incorporation and the Allergan/ASTI Agreements. All
technology developed or otherwise obtained pursuant
to the Research and Development Agreement ("De-
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<PAGE> 11
veloped Technology") will be owned by Allergan,
subject to ASTI's right to use Developed Technology
in ASTI Products. Allergan will pay ASTI royalties
with respect to products, other than ASTI Products,
that use any patented Developed Technology, as
described below.
The Research and Development Agreement will
terminate upon the exercise or expiration of the
Purchase Option, which will expire on the earlier
of December 31, 2002 or 90 days after ASTI provides
Allergan with notification that there are less than
$15 million of Available Funds. However, Allergan's
obligation under the Research and Development
Agreement to make payments to ASTI with respect to
Developed Technology Products and Pre-Selection
Products will continue if the Purchase Option
expires unexercised. See "The Agreements and the
Purchase Option -- Research and Development
Agreement."
Technology License
Agreement.................. Pursuant to the Technology License Agreement,
Allergan has granted to ASTI a license to use
Allergan Technology solely to conduct research and
development with respect to ASTI Products, and to
commercialize such products, in the United States
with respect to Memantine and worldwide with
respect to other ASTI Products. Until a product
candidate becomes an ASTI Product, Allergan will
have full rights to exploit such product, subject
only to its obligations to pay Developed Technology
Royalties and Pre-Selection Product Payments. In
exchange for the license to use existing Allergan
Technology relating to the ASTI Products and
Allergan's commitment to make certain payments
specified under the Technology License Agreement,
ASTI will pay a fee (the "Technology Fee") to
Allergan and has granted Allergan the License
Option and the option to independently develop
Pre-Selection Products. The Technology Fee will be
payable monthly over a period of four years and
will be $833,333 for each of the 12 months
following October 23, 1997, $558,333 per month for
the following 12 months, $275,000 per month for the
following 12 months and $166,667 per month for the
following 12 months; provided that the Technology
Fee will no longer be payable at such time as fewer
than two ASTI Products are being researched or
developed by ASTI and/or have been licensed by
Allergan pursuant to Allergan's exercise of the
License Option.
License Option............. In exchange for Allergan's license grants pursuant
to the Technology License Agreement and Allergan's
commitment to make specified payments thereunder,
ASTI has granted Allergan an option to acquire a
license to each ASTI Product (the "License
Option"), in addition to the option to
independently develop Pre-Selection Products and
ASTI's commitment to pay the Technology Fee. Upon
exercise of the License Option, Allergan will make
Product Payments to ASTI with respect to each
Licensed Product. The License Option for each ASTI
Product is exercisable on a country-by-country
basis at any time until (i) with respect to the
United States, 30 days after clearance by the FDA
to commercially market such ASTI Product in the
United States and (ii) with respect to any other
country, 90 days after the earlier of (a) clearance
by the appropriate regulatory agency to
commercially market the ASTI Product in such
country and (b) clearance by the FDA to market the
ASTI Product in the United States. The License
Option will expire, to the extent not previously
exercised, 30 days after the expiration of the
Purchase Option. If and to the extent the License
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<PAGE> 12
Option is exercised as to any ASTI Product (a
"Licensed Product"), Allergan will acquire a
perpetual, exclusive license (with the right to
sublicense) to research, develop, make, have made
and use the Licensed Product and to sell and have
sold the Licensed Product in the country or
countries as to which the License Option is
exercised, subject to the obligation to make
Product Payments.
Product Payments........... Allergan will make Product Payments to ASTI with
respect to each Licensed Product as follows:
(a) if the Licensed Product is sold by Allergan,
royalties of up to a maximum of 6% of Net Sales (as
defined in the Glossary) of the Licensed Product
determined as follows: (i) 1% of such Net Sales,
plus (ii) an additional 0.1% of such Net Sales for
each full $1 million of Research and Development
Costs of the Licensed Product that have been paid
by ASTI; and
(b) if the Licensed Product is sold by a third
party, sublicensing fees of up to a maximum of 50%
of Sublicensing Revenues (as defined in the
Glossary) with respect to such Licensed Product
determined as follows: (i) 10% of such Sublicensing
Revenues, plus (ii) an additional 1% of such
Sublicensing Revenues for each full $1 million of
Research and Development Costs of the Licensed
Product paid by ASTI.
Because the marketing expenses associated with
newly introduced products during the first few
years after launch are generally significantly
higher than those for established products, the
License Option provides that the Product Payments
described above will be capped at 3% of Net Sales,
on a quarterly basis, for the first twelve calendar
quarters during which the Licensed Product is
commercially sold in the first Major Market
Country. Subject to Allergan's Product Payment
buy-out option described below, Product Payments
will be payable, with respect to all countries for
which the License Option has been exercised, until
10 years after the first commercial sale of the
Licensed Product in the first Major Market Country
in which such product is commercially sold. To the
extent Allergan does not exercise the License
Option with respect to any ASTI Product, ASTI will
retain the rights to research, develop and
commercialize such ASTI Product.
Developed Technology
Royalties................ Allergan will pay ASTI Developed Technology
Royalties, on a country-by-country basis, equal to
the sum of (i) 1% of Net Sales in the relevant
country plus (ii) 10% of any Sublicensing Revenues
with respect to any product that, in each case, is
not an ASTI Product and is (a) covered at the time
of sale in a country by one or more unexpired
patents issued in such country that are included in
Developed Technology and (b) with respect to which
Allergan receives any consideration (a "Developed
Technology Product"). Developed Technology
Royalties will be payable with respect to a
Developed Technology Product in any country until
expiration of the last to expire of the relevant
patent or patents.
Pre-Selection Product
Payments................. Allergan will make Pre-Selection Product Payments
to ASTI equal to the sum of (i) 1% of Net Sales and
(ii) 10% of any Sublicensing Revenues with respect
to each Pre-Selection Product. Pre-Selection
Product Payments will be payable until seven years
after such Pre-
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<PAGE> 13
Selection Product is commercially sold in the first
Major Market Country, subject to Allergan's payment
buy-out option. A product may be both a
Pre-Selection Product and a Developed Technology
Product; however, in such a case the payment due
for any period for such product will be limited to
the sum of (i) 1% of Net Sales and (ii) 10% of any
Sublicensing Revenues with respect to such product.
Product Payment Buy-Out
Options.................. Allergan has the option to buy out ASTI's right to
receive Product Payments for any Licensed Product,
Developed Technology Royalties for any Developed
Technology Product, and Pre-Selection Product
Payments for any Pre-Selection Product, in each
case, on a country-by-country or global basis. A
country-by-country buy-out option may be exercised
for any Licensed Product, Developed Technology
Product or Pre-Selection Product in any country at
any time after the end of the twelfth calendar
quarter during which the product was commercially
sold in such country. The buy-out price will be 15
times the payments made by or due from Allergan to
ASTI with respect to sales of such product in such
country for the four calendar quarters immediately
preceding the quarter in which the buy-out option
is exercised (plus, in the case of a Licensed
Product, 15 times such additional Product Payments
as would have been made for such period but for the
3% limits described above). The global buyout
option may be exercised for any Licensed Product,
Developed Technology Product or Pre-Selection
Product at any time after the end of the twelfth
calendar quarter during which the product was
commercially sold in either the United States or
two other Major Market Countries. The global
buy-out price will be (i) 20 times (a) the payments
made by or due from Allergan to ASTI for the
relevant product, plus (b) such payments as would
have been made by or due from Allergan to ASTI if
Allergan had not exercised any country-specific
buy-out option with respect to such product, plus
(c) such additional Product Payments, in the case
of a Licensed Product, as would have been made but
for the 3% limits described above, in each case for
the four calendar quarters immediately preceding
the quarter in which the global buy-out option is
exercised, less (ii) any amounts previously paid as
the result of the exercise of any country-specific
buy-out option with respect to such product. The
global buy-out option with respect to any Licensed
Product may be exercised only with respect to
countries as to which Allergan has exercised the
License Option.
Purchase Option............ Pursuant to ASTI's Restated Certificate of
Incorporation and Allergan's rights as the sole
holder of the ASTI Class B Common Stock outstanding
after the Distribution, Allergan has the right to
purchase all (but not less than all) of the
outstanding ASTI Shares (the "Purchase Option").
The Purchase Option will be exercisable by written
notice to ASTI at any time during the period
beginning immediately after the Distribution and
ending on December 31, 2002; provided that such
date will be extended for successive six month
periods if, as of any June 30 or December 31
beginning with June 30, 2001, ASTI has not paid or
accrued expenses for at least 95% of all Available
Funds pursuant to the Research and Development
Agreement. The Purchase Option will in any case
terminate on the 90th day after the date (the
"Statement Date") on which Allergan receives notice
that the amount of cash and marketable securities
held by ASTI is less than $15 million. If the
Purchase Option
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<PAGE> 14
is exercised, the exercise price (the "Purchase
Option Exercise Price") will be the greatest of:
(a) (i) 25 times the aggregate of (a) all worldwide
payments made by and all worldwide payments due
to be made by Allergan to ASTI with respect to
all Licensed Products, Developed Technology
Products and Pre-Selection Products for the
four calendar quarters immediately preceding
the quarter in which the Purchase Option is
exercised (the "Base Period") and (b) all
payments that would have been made and all
payments due to be made by Allergan to ASTI
during the Base Period if Allergan had not
previously exercised its payment buy-out option
with respect to any product; provided, however,
that for the purposes of the foregoing
calculation, for any product which has not been
commercially sold during each of the four
calendar quarters in the Base Period, Allergan
will be deemed to have made Product Payments,
Developed Technology Royalties and
Pre-Selection Product Payments to ASTI for each
such quarter equal to the average of the
payments made during each of such calendar
quarters during which such product was
commercially sold less (ii) any amounts
previously paid to exercise any payment buy-out
option for any product;
(b) the fair market value of 500,000 shares of
Allergan Common Stock;
(c) $250 million less the aggregate amount of all
Technology Fee payments and Research and
Development Costs paid or incurred by ASTI as
of the date the Purchase Option is exercised;
and
(d) $60 million.
In each case, the amount payable as the Purchase
Option Exercise Price will be reduced to the
extent, if any, that ASTI's liabilities at the time
of exercise (other than liabilities under the
Research and Development Agreement, the Services
Agreement and the Technology License Agreement)
exceed ASTI's cash and cash equivalents, and
short-term and long-term investments (excluding the
amount of Available Funds remaining at such time).
Allergan must pay the Purchase Option Exercise
Price in cash.
Under ASTI's Restated Certificate of Incorporation,
ASTI is prohibited from taking or permitting any
action inconsistent with, or which would in any way
alter, Allergan's rights under the Purchase Option.
In addition, until the expiration of the Purchase
Option, ASTI may not, without the consent of
Allergan as the sole holder of the ASTI Class B
Common Stock, merge, liquidate, sell any
substantial assets, or amend its Restated
Certificate of Incorporation to alter the Purchase
Option, ASTI's authorized capitalization, or
certain provisions of the Restated Certificate of
Incorporation governing ASTI's Board of Directors.
Federal Income Tax
Considerations........... It is expected that the Distribution will be
taxable to each Holder in the amount of the fair
market value of the ASTI Shares distributed to such
Holder. No later than February 2, 1999, Allergan
will issue to each Holder an IRS Form 1099-DIV
reflecting the fair market value of the ASTI Shares
distributed to such Holder; the Holder's basis (for
income tax purposes) in the distributed ASTI Shares
will be such fair market value. If Allergan were to
exercise the Purchase Option, a Holder would have a
taxable gain or loss equal to the difference
between the value of the consideration received
from Allergan in such exercise and the
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<PAGE> 15
Holder's basis in the ASTI Shares. The
Distribution, any subsequent sale of ASTI Shares,
and the exercise or expiration of the Purchase
Option may have other federal income tax
consequences to Holders. See "Certain Federal
Income Tax Considerations."
HOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS.
Risk Factors............... Ownership of ASTI Shares involves a high degree of
investment risk. The risk factors listed below
should be considered carefully in evaluating the
ownership of ASTI Shares. See "Risk Factors."
- ASTI is a newly formed company.
- There can be no assurance of the successful
research, development, manufacturing or marketing
of ASTI Products.
- There can be no assurance that ASTI will have
sufficient funds to complete the research and
development of any or all of the ASTI Products.
- ASTI and Allergan will face competition from
others with greater resources and experience. The
fundamental technology underlying retinoids
licensed to ASTI is also cross-licensed to Ligand
and therefore competition from similar activities
by Ligand and its collaborators in retinoids is
likely.
- There can be no assurance that necessary
regulatory approvals and clearances, including
pricing approvals, will be obtained.
- There can be no assurance of the exercise of the
Purchase Option or the License Option for any
ASTI Product.
- There can be no assurance that ASTI or Allergan
will effectively commercialize any ASTI Products
for which regulatory clearance is obtained.
- There can be no assurance that Allergan's
personnel and facilities will be adequate for the
performance of its duties to ASTI under the
Research and Development Agreement.
- There can be no assurance that therapeutic
agents, technologies, patents or products can be
licensed by ASTI or Allergan, if such licenses
are necessary.
- There can be no assurance of patent protection
for ASTI Products or that such products will not
infringe the patents or proprietary rights of
third parties.
- The Allergan/ASTI Agreements and Allergan's
rights as holder of the ASTI Class B Common Stock
may restrain ASTI from taking certain actions,
including actions with third parties, and may
limit the ability of ASTI to raise additional
capital.
- The terms of the Allergan/ASTI Agreements were
not negotiated at arm's length.
- There may be conflicts of interest between ASTI
and Allergan due to Allergan's ability to develop
and market for its own account products that
compete directly with ASTI Products.
- The fifth member of the ASTI Board of Directors
after the Distribution, other than Lester J.
Kaplan, Ph.D., William C. Shepherd, Gary L. Neil,
Ph.D. and Marvin E. Rosenthale, Ph.D., has not
been identified, and none of the initial
Directors of ASTI will have been selected by the
holders of the ASTI Shares.
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<PAGE> 16
- There can be no assurance of a trading market
for, or of the trading value of, the ASTI Shares.
Principal Offices.......... ASTI's principal offices are located at 2525 Dupont
Drive, Irvine,
CA 92612, telephone (714) 246-6301.
Reasons for Furnishing this
Prospectus............... This Prospectus is being furnished solely to
provide information for Holders, each of whom will
receive ASTI Shares in the Distribution. It is not
to be construed as an inducement or encouragement
to buy or sell any securities of ASTI or Allergan.
The information contained herein is provided as of
the date of this Prospectus unless otherwise
indicated. ASTI will not update the information
contained in this Prospectus except in the normal
course of its public disclosure practices.
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<PAGE> 17
GLOSSARY
Allergan/ASTI Agreements... The Distribution Agreement, the Research and
Development Agreement, the Technology License
Agreement, the License Option Agreement, the
Services Agreement and the Purchase Option,
collectively.
Allergan Technology........ All proprietary technology, whether patented or
unpatented, owned by, licensed to or controlled by
Allergan and related to the Retinoid and
Neuroprotective Technologies, which Allergan has
the right to license or sublicense, including
technology and data relating to the ASTI Products
and Developed Technology, and any additional
technology which Allergan chooses to designate as
Allergan Technology. Allergan Technology excludes,
and ASTI will have no rights with respect to, any
topical formulation of Tazarotene. Allergan is
currently marketing a topical formulation of
Tazarotene for the treatment of psoriasis and acne
in the United States under the brand name "Tazorac"
and outside of the United States under the brand
name "Zorac." Allergan Technology also excludes,
and ASTI will have no rights with respect to,
proprietary technology related to the research,
development, manufacture, sale and other use of
Memantine outside of the United States. These
rights will be retained by an overseas affiliate of
Allergan.
ALRT....................... Allergan Ligand Retinoid Therapeutics, Inc., a
Delaware corporation.
ASTI Product............... Any dosage form of a compound which is the subject
of research and development as a potential human
pharmaceutical product which has been recommended
by Allergan and accepted by ASTI's independent
Board of Directors for such research and
development as such under the Research and
Development Agreement. Such recommendations may be
made on a Field of Use basis. Research to identify
and select product candidates may be performed by
ASTI or Allergan. Such potential product candidates
will be Pre-Selection Products until and unless
they become ASTI Products.
Available Funds............ All of the funds contributed to ASTI by Allergan,
plus any investment income earned thereon, less (i)
Research and Development Costs, (ii) ASTI's
administrative expenses and (iii) the Technology
Fee payments.
Developed Technology....... Any technology developed or otherwise obtained by
ASTI pursuant to the Research and Development
Agreement.
Developed Technology
Product.................... Any product, other than an ASTI Product, (i)
covered at the time of sale in a country by one or
more unexpired patents issued in such country that
are included in Developed Technology and (ii) with
respect to which Allergan receives any
consideration.
Developed Technology
Royalties................ The payments made by Allergan to ASTI with respect
to Net Sales of Developed Technology Products.
Distribution............... Allergan's distribution of all of the outstanding
ASTI Shares to the Holders.
Distribution Date.......... March 10, 1998, the date of commencement of the
Distribution.
Distribution Agreement..... The agreement between Allergan and ASTI relating to
the terms and conditions of the Distribution.
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<PAGE> 18
Field of Use............... A particular disease state or set of related
disease states (e.g., "cancer," "diabetes,"
"non-insulin dependent diabetes"). A license or an
ASTI Product may be limited to a particular field
of use.
Holders.................... The holders of record, on the Record Date, of
Allergan Common Stock.
License Option............. The option granted by ASTI to Allergan to acquire a
license to each ASTI Product, exercisable on a
product-by-product and country-by-country basis.
License Option Agreement... The agreement between Allergan and ASTI granting
the License Option.
Licensed Product........... An ASTI Product as to which the License Option has
been exercised by Allergan.
Major Market Country....... Any one of the following countries: the United
States, France, Germany, Italy, Japan or the United
Kingdom.
Net Sales.................. The total amount invoiced on sales of a Licensed
Product, Developed Technology Product or
Pre-Selection Product by Allergan (or its
affiliates) to unrelated third parties such as
wholesalers, hospitals and others, in bona fide
arm's-length transactions, less allowances as
customarily determined under Allergan's accounting
policies.
Pre-Selection Work......... Research and pre-clinical development work
undertaken in order to determine the suitability of
lead compounds and product candidates for research
and development. Any such compounds or product
candidates recommended by Allergan and accepted by
ASTI for research and development will become ASTI
Products. Such recommendation must be made no later
than the date of filing of an IND with the FDA with
respect to such compounds or product candidates.
Pre-Selection Product...... A product, other than one which becomes an ASTI
Product, for which ASTI funds Pre-Selection Work.
Pre-Selection Product
Payments................. The payments to be made by Allergan to ASTI with
respect to worldwide Net Sales of Pre-Selection
Products.
Product Payment Buy-Out
Options.................. Allergan's option to buy out ASTI's right to
receive Product Payments for any Licensed Product,
Developed Technology Royalties for any Developed
Technology Product and Pre-Selection Product
Payments for any Pre-Selection Product, in each
case, on a country-by-country or global basis.
Product Payments........... Payments to be made by Allergan to ASTI with
respect to Net Sales of Licensed Products and
Sublicensing Revenues with respect to Licensed
Products.
Purchase Option............ The option of Allergan to purchase all (but not
less than all) of the outstanding ASTI Shares.
Purchase Option Exercise
Price.................... The amount payable by Allergan to exercise the
Purchase Option.
Record Date................ February 17, 1998, the date as of which holders of
record of Allergan Common Stock will be eligible to
receive ASTI Shares in the Distribution.
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<PAGE> 19
Research and Development
Agreement................ The agreement between Allergan and ASTI providing
for the research and development of potential human
pharmaceutical products and conducting related
activities.
Research and Development
Costs.................... The fully-burdened cost of activities undertaken
pursuant to the Research and Development Agreement.
Services Agreement......... The agreement between Allergan and ASTI pursuant to
which Allergan has agreed to provide ASTI with
administrative services on a fully-burdened cost
reimbursement basis.
Specialty Royalty
Payments................... Front-end distribution fees, prepaid royalties or
similar one-time, infrequent or special payments
from a sublicensee to Allergan with respect to a
Licensed Product, a Developed Technology Product or
a Pre-Selection Product.
Sublicensing Revenues...... Percentage-of-sales payments and Special Royalty
Payments received by Allergan from sublicensees
with respect to a Licensed Product, a Developed
Technology Product or a Pre-Selection Product.
Technology Fee............. The payments to be made by ASTI to Allergan which,
together with the License Option and Allergan's
option to independently develop Pre-Selection
Products, are made in exchange for Allergan
granting ASTI a license to use existing Allergan
Technology relating to ASTI Products and Allergan's
commitment to make specified payments on sales of
certain products.
Technology License
Agreement.................. The agreement between Allergan and ASTI pursuant to
which Allergan has granted to ASTI a license to use
Allergan Technology solely to conduct research and
development and related activities with respect to
ASTI Products, and to commercialize ASTI Products,
in the United States with respect to Memantine and
worldwide with respect to any other ASTI Product,
together with the commitment to make specified
payments on sales of certain products, in exchange
for the Technology Fee, the License Option and the
option to independently develop Pre-Selection
Products.
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<PAGE> 20
RISK FACTORS
The following factors, in addition to the other information set forth in
this Prospectus, should be considered carefully in evaluating ownership of ASTI
Shares.
NEW COMPANY
ASTI is a newly formed company and is subject to the risks inherent in the
establishment of a new business enterprise in the biotechnology industry. ASTI
will incur substantial losses for several years due to the long-term nature of
the research and development of pharmaceutical products through clinical testing
and the regulatory process, which losses may never be recovered. See "Business
of ASTI."
NO ASSURANCE OF CONTINUED RESEARCH OR DEVELOPMENT OF ASTI PRODUCTS
There can be no assurance that the independent ASTI Board of Directors will
approve the continued funding of the research and development of the four
initial ASTI Products, or that any ASTI Products can be successfully researched,
developed and/or commercialized within the anticipated cost estimates or time
frames, if at all. Certain of the ASTI Products are at critical stages of
research and development, and technical and clinical outcomes are impossible to
predict. Because of the long-range nature of any pharmaceutical product research
and development plan, research and development of a particular product or
products could accelerate, slow down or be discontinued, and other unforeseen
events could occur, all of which would significantly affect the timing and
amount of ASTI's expenditures on a particular product, or in total. As a result,
estimates of costs and timing of research and development programs and for the
use of Available Funds may not be accurate. There can be no assurance that
Allergan will recommend, or that ASTI will approve, additional products for
research and development as ASTI Products beyond the four initial ASTI Products.
Although ASTI has received from Allergan a license to use Allergan
Technology for the purpose of researching, developing and commercializing ASTI
Products, some or all of the ASTI Products may require new technologies or
enhancements or modifications to existing Allergan Technology, and there can be
no assurance that such technology can or will be successfully developed or
acquired. Even if appropriate technology is available or developed, there can be
no assurance that such ASTI Products will be successfully researched or
developed (or be researched or developed in a timely fashion) or be proven to be
safe and efficacious in clinical trials.
NEED FOR REGULATORY CLEARANCE
All ASTI Products, Developed Technology Products and Pre-Selection Products
will require FDA clearance before such products may be lawfully marketed in the
United States. Applications for FDA clearance must be based on costly and
extensive clinical trials designed to demonstrate safety and efficacy. Clearance
to market such products will also be required from corresponding regulatory
authorities in foreign countries before such products may be marketed in those
countries. Such clearance often involves pricing and reimbursement approvals in
addition to clearance based on safety and efficacy. Delay in obtaining FDA
and/or foreign regulatory clearance or pricing or reimbursement approvals for
any such product may have a material adverse effect on the commercial success of
such product. There can be no assurance that the necessary regulatory clearances
and approvals will be obtained in a timely fashion or, if obtained, that such
clearances and approvals will not be revoked or withdrawn.
NO ASSURANCE OF SUFFICIENCY OF FUNDS OR AVAILABILITY OF ADDITIONAL FUNDS
Prior to the Distribution, Allergan will contribute $200 million in cash to
ASTI in exchange for all of the shares of ASTI Common Stock outstanding prior to
the Distribution. Allergan has no obligation to contribute additional funds to
ASTI, and has no present intention to do so. It is anticipated that if ASTI were
to fund the continued research and development of the initial four ASTI Products
through FDA review for marketing clearance, the funding of these activities,
together with any Pre-Selection Work undertaken by Allergan and/ or ASTI and
funded by ASTI, would require substantially all of the Available Funds. There
can be no
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<PAGE> 21
assurance that ASTI will have sufficient funds to complete the research and
development of any or all of the ASTI Products, including the four initial ASTI
Products.
Allergan's rights under the Allergan/ASTI Agreements may limit ASTI's
ability to raise funds, or may prevent ASTI from doing so, if ASTI needs
additional funds to continue or complete research and development of any ASTI
Product. If ASTI were to attempt to raise funds following the expiration of the
Purchase Option, ASTI would have very little cash, few assets and an
undeterminable number of products under research and development. Allergan would
at that time have the unilateral option to license any or all ASTI Products for
such countries for which Allergan's License Option had not previously expired.
Third parties might therefore be reluctant to lend money to ASTI, or to invest
in ASTI.
NO ASSURANCE OF SUCCESSFUL MANUFACTURING OR MARKETING
Even if ASTI Products are developed and receive necessary regulatory
clearances and approvals, there can be no assurance that the ASTI Products will
be successfully manufactured for clinical trials or successfully manufactured or
marketed for commercial sale. To be successfully marketed, any ASTI Product must
be manufactured in commercial quantities in compliance with regulatory
requirements and at an acceptable cost. Any significant delays in the completion
of validation and licensing of expanded or new facilities could have a material
adverse effect on the ability to continue clinical trials of and ultimately to
market ASTI Products on a timely and profitable basis. If Allergan does not
exercise its License Option for an ASTI Product (and does not exercise the
Purchase Option), ASTI will have to make alternative arrangements for
manufacturing that ASTI Product, and there can be no assurance that ASTI will be
able to do so.
If Allergan exercises its License Option for any ASTI Product, Allergan may
need to develop and/or expand its marketing capabilities to commercialize such
Licensed Product effectively. If Allergan exercises its License Option for any
ASTI Product, and does not at the time the product is to be commercialized have
a sales force in the relevant country or countries, Allergan will need to
arrange for marketing by third parties outside of the United States and, if the
product is not within Allergan's target markets at such time, within the United
States. If Allergan does not exercise its License Option for an ASTI Product
(and does not exercise the Purchase Option), ASTI will need to find other means
to commercialize that ASTI Product not involving Allergan, and there can be no
assurance that ASTI will be able to do so.
At the present time, ASTI does not have, nor, through the development stage
of the ASTI Products, does it expect to develop, any manufacturing or marketing
capability. If ASTI decides to manufacture or market one or more ASTI Products
itself, ASTI will need substantial additional funds. There is no assurance that
additional funds will be available, or will be available on attractive terms,
and Allergan has no obligation to supply any additional funds to ASTI. In
addition, ASTI may not use Available Funds for this purpose without Allergan's
consent.
If either Allergan or ASTI seeks a third party to manufacture or market an
ASTI Product, there can be no assurance that satisfactory arrangements can be
successfully negotiated or that any such arrangements will be on commercial
terms acceptable to Allergan or ASTI. In addition, even if ASTI decides to
license any ASTI Product to a third party, agreements with that third party, if
available, may be on terms less favorable to ASTI than the terms of the
Allergan/ASTI Agreements.
Even if acceptable manufacturing and marketing resources are available,
there can be no assurance that any ASTI Products will be accepted in the
marketplace. There can be no assurance that there will be adequate reimbursement
by health insurance companies or other third party payors for any ASTI Products
that are marketed.
NO ASSURANCE OF EXERCISE OF ALLERGAN'S OPTIONS
Allergan is not obligated to exercise the License Option for any ASTI
Product or to exercise the Purchase Option, and Allergan will exercise any such
option only if it is in Allergan's best interest to do so. The timing of the
exercise of the Purchase Option is within Allergan's sole discretion, and
Allergan may choose to exercise the Purchase Option at a time when the Purchase
Option Exercise Price is as low as possible. Because
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<PAGE> 22
the contractual relationship between Allergan and ASTI contemplates that
Allergan will perform research and development activities on behalf of ASTI, in
the event of Allergan's failure to exercise the Purchase Option, ASTI would be
required to seek alternative research and development facilities, either
independently or with a third party. There can be no assurance that ASTI would
be able to obtain access to adequate research and development facilities in such
event on a timely basis, on acceptable terms, or at all. The timing of the
exercise of the License Option with respect to any Licensed Product is also
within Allergan's sole discretion, and thereafter research, development and
funding of any such product will be controlled by Allergan.
RELIANCE ON PROPRIETARY TECHNOLOGIES; UNPREDICTABILITY OF PATENT PROTECTION
Patent protection generally has been important in the pharmaceutical
industry. Therefore, ASTI's financial success may depend in part upon Allergan
obtaining strong patent protection for the technologies incorporated in ASTI
Products. Allergan will determine which patent applications to pursue, and the
expense of obtaining and maintaining patents covering Developed Technology will
be shared equally by Allergan and ASTI during the term of the Research and
Development Agreement. However, there can be no assurance that patents will be
issued covering any products, or that any existing patents or patents issued in
the future will be of commercial benefit. In addition, it is impossible to
anticipate the breadth or degree of protection that any such patents will
afford, and there can be no assurance that any such patents will not be
successfully challenged in the future. If Allergan is unsuccessful in obtaining
or preserving patent protection, or if any products rely on unpatented
proprietary technology, there can be no assurance that others will not
commercialize products substantially identical to such products.
Patents have been issued to third parties covering various therapeutic
agents, products and technologies. There can be no assurance that any ASTI
Products, Developed Technology Products or Pre-Selection Products will not
infringe patents held by third parties. In such event, licenses from such third
parties would be required, or their patents would have to be designed around.
There can be no assurance that such licenses would be available or that they
would be available on commercially attractive terms, or that any necessary
redesign could be successfully completed.
Allergan licenses certain intellectual property from third parties which it
will sublicense to ASTI pursuant to the Technology License Agreement.
Specifically, Allergan has licensed certain rights to its retinoid technology
from ALRT and certain rights to the technology underlying Memantine from
Children's Medical Center Corporation and Merz + Co. GmbH & Co. ("Merz"). Under
the terms of certain of its license agreements, Allergan may be obligated to
exercise diligence and make certain royalty and milestone payments as well as
incur costs related to filing and prosecuting the underlying patents. Each
agreement is terminable by either party upon notice if the other party defaults
in its obligations. Should Allergan default under any of its agreements,
Allergan and therefore ASTI may lose its right to market and sell products based
upon such licensed technology. In addition, there can be no assurance that
Allergan's licensors will meet their obligations to Allergan pursuant to such
licenses. In such event, ASTI's results of operations and business prospects
would be materially and adversely affected. See "The Business of ASTI -- The
ASTI Products."
COMPETITION
ASTI Products, Developed Technology Products and Pre-Selection Products are
likely to face competition from other therapies for the same indications.
Competitors potentially include any of the world's pharmaceutical and
biotechnology companies. Many pharmaceutical companies have greater financial
resources, technical staffs and manufacturing and marketing capabilities than
Allergan or ASTI. A number of companies have developed and are developing
competing technologies and products. To the extent that ASTI Products, Developed
Technology Products and Pre-Selection Products incorporate therapeutic agents
that are off-patent or therapeutic agents marketed by multiple companies, such
products will face more competition than products incorporating proprietary
therapeutic agents.
The fundamental technology underlying retinoids licensed to ASTI is also
cross-licensed to Ligand and therefore competition from similar activities by
Ligand and its collaborators in retinoids is likely. In addition, pursuant to
the agreement between Allergan and Ligand, each party has been granted
non-exclusive rights to
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<PAGE> 23
use the ALRT technology with respect to any unsynthesized compounds, provided
that such license will become exclusive with respect to any compound with
respect to which an IND is filed with and accepted by the FDA. Accordingly, no
assurance can be given that Ligand will not be the first party to file an IND
with respect to any retinoid compound under research by ASTI, thereby preventing
ASTI and Allergan from undertaking any further research, development or
commercialization with respect to such compound.
POTENTIAL CONFLICTS OF INTEREST BETWEEN ALLERGAN AND ASTI
Because Allergan may develop and/or market products (including Developed
Technology Products and Pre-Selection Products) for its own account, independent
of ASTI, that compete directly with ASTI Products, Allergan and ASTI may have
conflicting interests with respect to certain products and/or certain markets.
In addition, ASTI Products, Developed Technology Products and Pre-Selection
Products may compete with one another. Allergan Technology excludes, and ASTI
will have no rights with respect to, any topical formulation of Tazarotene.
Allergan is currently marketing a topical formulation of Tazarotene for the
treatment of psoriasis and acne in the United States under the brand name
"Tazorac" and outside of the United States under the brand name "Zorac."
DEPENDENCE ON ALLERGAN FOR PERSONNEL AND FACILITIES
ASTI will depend substantially on Allergan for research and development
activities to be performed under the Research and Development Agreement.
Although ASTI may perform directly, or engage other third parties to perform on
its behalf, some of these activities, it is likely that Allergan will be
responsible for executing substantially all of ASTI's research and development
activities. While Allergan believes that its current and planned personnel and
facilities will be adequate for the performance of its duties under the Research
and Development Agreement, such personnel will perform services in the same
facilities for Allergan itself. Subject to Allergan's obligation to use diligent
efforts under the Research and Development Agreement, Allergan may allocate its
personnel and facilities as it deems appropriate. Allergan's own research and
development activities may restrict the resources that otherwise would be
available for performing Allergan's duties under the Research and Development
Agreement. See "The Agreements and the Purchase Option -- Research and
Development Agreement."
RELATIONSHIP BETWEEN ASTI AND ALLERGAN MAY LIMIT ASTI'S ACTIVITIES AND MARKET
VALUE
The terms of the Allergan/ASTI Agreements and ASTI's Restated Certificate
of Incorporation were not determined on an arm's-length basis and certain terms
may limit ASTI's activities and its market value.
ASTI's Restated Certificate of Incorporation prohibits ASTI from taking or
permitting any action that might impair Allergan's rights under the Purchase
Option. Prior to the expiration of the Purchase Option, ASTI may not, without
the consent of the holders of ASTI Class B Common Stock, merge or liquidate, or
sell, lease, exchange, transfer or dispose of any substantial assets, or amend
its Restated Certificate of Incorporation to alter the Purchase Option, ASTI's
authorized capitalization, or the provisions of the Restated Certificate of
Incorporation governing ASTI's Board of Directors. Because Allergan will hold
all of the outstanding Class B Common Stock following the Distribution, Allergan
will be able to influence significantly or control the outcome of any of the
foregoing actions requiring approval by the Class B stockholders of ASTI. The
ability of Allergan to significantly influence or control such matters, together
with the provisions of ASTI's Restated Certificate of Incorporation eliminating
the right of the ASTI stockholders to call special meetings of stockholders,
could affect the liquidity of the ASTI Shares and have an adverse effect on the
price of the ASTI Shares, and may have the effect of delaying or preventing a
change in control of ASTI, including transactions in which stockholders might
otherwise receive a premium for their shares over then current market prices.
Neither the terms of the ASTI/Allergan Agreements nor ASTI's Restated
Certificate of Incorporation prohibit Allergan from transferring its ASTI Class
B Common Stock. The special rights accorded to the holder or holders of the ASTI
Class B Common Stock will expire upon expiration of the Purchase Option. See
"The Agreements and The Purchase Option--Purchase Option" and "Description of
ASTI Capital Stock."
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<PAGE> 24
So long as the Purchase Option is exercisable, the market value of the ASTI
Shares will be limited by the Purchase Option Exercise Price. The Purchase
Option Exercise Price was determined by Allergan, giving consideration to the
structure of the Distribution, ASTI's planned business, the Allergan/ASTI
Agreements, advice given by Merrill Lynch, and such other factors as Allergan
deemed appropriate. The Purchase Option Exercise Price was not determined on an
arm's-length basis.
The existence of the Purchase Option and Allergan's rights as holder of the
ASTI Class B Common Stock may inhibit ASTI's ability to raise capital.
Additional capital raised by ASTI, if any, would most likely reduce the per
share proceeds available to holders of ASTI Shares if the Purchase Option were
exercised. The existence of the Purchase Option and Allergan's rights as the
holder of the ASTI Class B Common Stock may inhibit a change of control and may
make an investment in ASTI Shares less attractive to certain potential
stockholders, which could adversely affect the liquidity and market value of
ASTI Shares.
If Allergan exercises its License Option for any ASTI Product, Allergan
will have the right to commercialize the product with third parties on such
terms as Allergan deems appropriate. In such event, payments from Allergan to
ASTI with respect to the ASTI Product will be based solely on Sublicensing
Revenues received from such third parties.
DIRECTORS NOT INITIALLY ELECTED BY STOCKHOLDERS
Lester J. Kaplan, Ph.D., is currently serving as the interim President and
Chief Executive Officer and a Director of ASTI. Prior to the Distribution, Dr.
Kaplan will resign as interim President and Chief Executive Officer and William
C. Shepherd will be appointed a Director, President and Chief Executive Officer
of ASTI. It is expected that Mr. Shepherd will appoint Gary L. Neil, Ph.D. and
Marvin E. Rosenthale, Ph.D., neither of whom is an employee or Director of
Allergan, and a third individual to be identified, who will not be an employee
or Director of Allergan, as additional Directors of ASTI prior to commencement
of the Distribution. Dr. Kaplan will remain a Director of ASTI following the
Distribution in accordance with the rights of Allergan under ASTI's Restated
Certificate of Incorporation as the sole holder of the outstanding shares of
ASTI Class B Common Stock. Therefore, at present, one of the Directors expected
to be appointed upon the Distribution is unknown. In addition, the Directors
will not have been elected by the stockholders, and the holders of the ASTI
Shares will not have the opportunity to elect any members of the full Board of
Directors until the first annual meeting of stockholders following the
Distribution.
LIMITATION ON ASTI'S ABILITY TO LICENSE PRODUCTS TO THIRD PARTIES
ASTI has granted Allergan the License Option, which is exercisable on a
product-by-product and country-by-country basis. During the term of the License
Option for each ASTI Product, ASTI will not be able to license such ASTI Product
to any party other than Allergan. Furthermore, ASTI may perform research with
respect to product candidates which become ASTI Products only if recommended by
Allergan and accepted by ASTI. In particular, it is expected that Allergan will
perform Pre-Selection Work with respect to various product candidates. If such
product candidates do not become ASTI Products, ASTI will have no rights with
respect thereto except the right to receive limited royalties from Allergan on
commercial sales of such products, if any.
NO ASSURANCE OF TRADING VALUE OR MARKET FOR ASTI SHARES
There can be no assurance there will be an active trading market for the
ASTI Shares.
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<PAGE> 25
POSSIBLE DILUTION; REDUCTION OF PER SHARE PURCHASE OPTION EXERCISE PRICE
All ASTI Shares issued by ASTI after the Distribution will be subject to
the Purchase Option, and the Purchase Option Exercise Price will not increase as
a result of any such issuance. Accordingly, if additional ASTI Shares were to be
issued, the percentage of the Purchase Option Exercise Price payable with
respect to each ASTI Share in the event Allergan exercises the Purchase Option
would be reduced. Liabilities, including any debt issued by ASTI, but excluding
any accounts payable to Allergan, will reduce the Purchase Option Exercise Price
to the extent that such liabilities exceed ASTI's cash, cash equivalents, and
short-term and long-term investments (excluding Available Funds), unless repaid
or discharged by ASTI prior to exercise of the Purchase Option.
NO DIVIDENDS
ASTI's Restated Certificate of Incorporation prohibits the payment of
dividends from Available Funds.
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<PAGE> 26
THE DISTRIBUTION
The Board of Directors of Allergan has declared a distribution, payable to
Holders, of one ASTI Share for every 20 shares of Allergan Common Stock owned by
such Holder on the Record Date. As a result of the Distribution, all of the then
outstanding ASTI Shares will be distributed to the Holders. After the
Distribution, Allergan will hold all of the authorized shares of ASTI Class B
Common Stock. See "Description of ASTI Capital Stock."
Subject to certain conditions set forth in the Distribution Agreement,
Allergan will effect the Distribution (expected to be on or about March 10,
1998) by delivering all of the ASTI Shares to the Distribution Agent. Commencing
on or about the Distribution Date, the Distribution Agent will begin mailing
account statements reflecting ownership of ASTI Shares to the Holders. ASTI
stockholders may request stock certificates from the Distribution Agent.
No fractional shares will be issued as part of the Distribution. The
Distribution Agent will aggregate undistributed fractional shares and sell such
shares at the earliest practicable date at the then-prevailing market price.
Each person who would be otherwise entitled to receive a fractional share will
instead receive a cash payment equal to such person's proportionate share of the
net proceeds of the sale of such aggregated shares.
No Holder will be required to pay any cash or other consideration for the
ASTI Shares to receive shares in the Distribution. However, income taxes are
likely to be payable by Holders. See "Certain Federal Income Tax
Considerations."
The general terms and conditions of the Distribution and the arrangements
between Allergan and ASTI are set forth in the Allergan/ASTI Agreements. See
"The Agreements and the Purchase Option." The Distribution Agreement conditions
the Distribution on, among other things, the absence of material adverse changes
to Allergan or ASTI.
Stockholders of Allergan with inquiries regarding the Distribution should
contact Allergan, Inc., Corporate and Investor Relations, 2525 Dupont Drive,
Irvine, California 92612; telephone (714) 246-6301.
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<PAGE> 27
ASTI CAPITALIZATION
The following table sets forth the capitalization and certain other balance
sheet data of ASTI as of November 18, 1997, as adjusted to give effect to the
contribution by Allergan of $200 million to ASTI, the filing of the Restated
Certificate of Incorporation of ASTI and the issuance to Allergan of ASTI Shares
prior to the Distribution. The data set forth below should be read in
conjunction with the Financial Statements and related Notes included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
AS ADJUSTED AS OF
NOVEMBER 18,
1997(1)
-----------------
<S> <C>
Cash................................................................. $ 200,000,000
============
Stockholders' equity:
Class A Common Stock, $.01 par value; 6,000,000 shares authorized;
3,262,400 shares outstanding as adjusted........................ $ 32,624
Class B Common Stock, $1.00 par value; 1,000 shares authorized;
1,000 shares outstanding as adjusted(2)......................... 1,000
Additional paid-in capital......................................... 199,966,376
------------
Total stockholders' equity................................. $ 200,000,000
============
</TABLE>
- ---------------
(1) See notes (a), (b) and (c) to Pro Forma Balance Sheet on Page F-5 for a
description of the pro forma adjustments reflected in the adjusted balances.
(2) All shares of Class B Common Stock, as adjusted, are held by Allergan.
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<PAGE> 28
REASONS FOR THE DISTRIBUTION AND EFFECTS ON ALLERGAN, INC.
Allergan is a leading provider of specialty pharmaceutical products
throughout the world with niche products in the movement disorder,
dermatological, ophthalmic surgical device, eye care pharmaceutical and the
over-the-counter contact lens care markets. Allergan had 1996 net sales of $1.1
billion and net income of $77.1 million. Adjusting for a one-time charge, its
1996 net income was $132.1 million. At September 30, 1997, Allergan's
stockholders' equity was $795.5 million.
Allergan is increasing its focus on leading-edge, technology-based
pharmaceutical products. Through internal research and development efforts and
external research and development collaborations, Allergan seeks to expand its
product line with proprietary specialty pharmaceutical products that provide
distinctive therapeutic and economic benefit. Allergan's research and
development efforts to date have yielded many potential product opportunities.
Such opportunities involve significantly different risk/reward profiles as
compared to Allergan's established specialty pharmaceutical business.
To continue the advancement of, and in certain cases accelerate, these
projects and programs, Allergan seeks strategic collaborations and ventures,
such as the recently concluded ALRT collaboration, to provide complementary
financing. In September 1997, Ligand and Allergan exercised their respective
options to purchase the outstanding ALRT Callable Common Stock and a one-half
undivided interest in ALRT's assets. The initial agreements between Allergan and
Ligand provided for a joint research and development and joint commercialization
arrangement following exercise of the buyout option. Allergan and Ligand have
amended and restated their existing agreements, effective as of the option
exercise closing date, so that among other things, existing ALRT compounds and
research and development programs will be divided among Allergan and Ligand, and
each party will receive exclusive rights to the ALRT technology for use with
their respective compounds and programs. Allergan's strategy also involves
actively seeking outside product opportunities through joint ventures,
licensing, acquisitions and strategic alliances with both technology, marketing
and geographic partners.
Allergan believes that the retinoid research and development work
undertaken by ALRT to date and the research and development work it has
undertaken, directly and through collaborations, in the neuroprotective area
have yielded results which justify further research and development. However, a
substantial amount of additional research and development effort is required to
further develop Allergan's Retinoid and Neuroprotective Technologies through to
their potential commercialization.
Allergan believes that the formation of ASTI to fund the research and
development of products for commercialization by Allergan, and the arrangements
between Allergan and ASTI, will provide Allergan with the opportunity to
continue to pursue and expand, more quickly than would otherwise be possible,
its product commercialization business. Allergan believes that the arrangements
with ASTI will significantly benefit Allergan stockholders by:
- separating the risks associated with researching and developing
pharmaceutical products based on Retinoid and Neuroprotective
Technologies from those associated with Allergan's established specialty
pharmaceutical business;
- allowing individual stockholders of Allergan to increase or decrease
their level of participation in the business of researching and
developing pharmaceutical products based on Retinoid and Neuroprotective
Technologies for commercialization by Allergan by varying their level of
investment in ASTI;
- obtaining for Allergan the exclusive right to commercialize, in the
United States with respect to Memantine and worldwide with respect to any
other ASTI Products, any successfully developed ASTI Product, assuming
Allergan's exercise of the License Option with respect to such product or
exercise of the Purchase Option, thereby making it possible for Allergan
to capture a potentially greater return on the products researched and
developed with ASTI than may otherwise be possible from products
researched and developed for commercialization in conjunction with other
third parties; and
- allowing Allergan's near-term financial results to continue to reflect
principally its established specialty pharmaceutical business, by
providing Allergan with research and development revenues from ASTI to
reimburse Allergan for Research and Development Costs incurred by
Allergan.
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<PAGE> 29
The foregoing potential benefits to Allergan stockholders of the
arrangements with ASTI may, however, by offset by certain costs and detriments,
including but not limited to the following: Allergan's loss of control over
research and development activities to be conducted by ASTI, which instead will
be overseen by ASTI's independent Board of Directors, potential adverse effects
on Allergan's future ability to borrow funds and credit rating due to the
additional indebtedness to be incurred by Allergan to fund the initial $200
million cash contribution by Allergan to ASTI, the administrative costs to
Allergan of the arrangement, including accounting and legal fees and costs, and
the loss of income tax benefits to Allergan which may have been derived from
deductions by Allergan rather than ASTI of research and development expenses
attributable to projects funded by ASTI.
After reviewing Allergan's goals and objectives and considering other
possible methods of expanding its product line with proprietary specialty
pharmaceutical products based on Retinoid and Neuroprotective Technologies that
provide distinctive therapeutic and economic benefit, Allergan's management and
Board of Directors believe that continuing to pursue the research and
development of such products through the formation of ASTI and the Distribution
will significantly benefit the Allergan stockholders. The Board of Directors'
final approval of this transaction was conditioned upon the advice and the
delivery of a written opinion of Merrill Lynch. Merrill Lynch has delivered an
opinion dated January 27, 1998, substantially to the effect that, based upon the
factors recited in such opinion and the actions described below, (i) from a
financial point of view, the Distribution provides a reasonable structure to
pursue the financial objectives of Allergan set forth above and (ii) from a
financial point of view, the Distribution is fair to Allergan's stockholders.
In delivering its opinion, Merrill Lynch has undertaken, among other
things, the following actions: (a) a review of the Prospectus and certain other
material documents; (b) discussions with members of senior management of
Allergan with respect to the businesses and prospects of Allergan and ASTI and
the strategic objectives of each; (c) discussions concerning the Distribution
with other representatives and advisors of Allergan; (d) a review of financial
and other information concerning Allergan (with and without ASTI) that was
either publicly available or was furnished to it by Allergan; (e) a review of
historical prices and trading volumes of the Allergan Common Stock; (f) a review
of the terms and conditions of transactions that are similar to the transactions
contemplated in connection with the Distribution; and (g) a review of such other
financial studies and analyses as it deemed to be appropriate.
The opinion states that Merrill Lynch has relied on the accuracy and
completeness of all information supplied or otherwise made available to it,
discussed with or reviewed by or for it, or publicly available (including the
information contained in this Prospectus), and Merrill Lynch has not assumed any
responsibility for independently verifying such information or undertaken an
independent evaluation or appraisal of any of the assets or liabilities of
Allergan (with or without ASTI) or been furnished with any such evaluation or
appraisal. In connection with this opinion, Merrill Lynch has not been asked to,
nor has it provided any opinion as to, the valuation or future performance of
ASTI as an independent public company following the Distribution.
In its opinion, Merrill Lynch does not opine on or give assurances of the
price at which the shares of Allergan Common Stock will actually trade after
announcement of the Distribution or the price at which the ASTI Shares will
actually trade after the Distribution. The opinion notes that such trading
following the Distribution may be characterized by a redistribution among
existing stockholders and other investors and that accordingly the shares of
Allergan Common Stock and the ASTI Shares may trade during such period at prices
below those at which they would trade on a fully distributed basis. In addition,
the opinion does not address whether the funds invested by Allergan or ASTI will
be adequate to accomplish the objective of successfully developing ASTI
Products.
ASTI will pay Merrill Lynch a fee of $2,500,000 for its services in
connection with the Distribution. The receipt of this fee is contingent upon the
consummation of the Distribution. Merrill Lynch will also be reimbursed for up
to $125,000 of expenses that it has incurred or will incur in rendering its
services. Allergan has agreed to indemnify Merrill Lynch against certain
liabilities and expenses in connection with its services as financial advisor.
Merrill Lynch has from time to time performed various investment banking and
financial advisory services for Allergan. Merrill Lynch may actively trade
Allergan Common Stock and may, in the
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<PAGE> 30
future, trade ASTI Shares for its own account and for accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Merrill Lynch, as part of its investment banking business, engages in the
valuation of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements, and valuations for estate, corporate and other purposes.
Allergan selected Merrill Lynch as its financial advisor because it is a
nationally recognized investment banking firm that has substantial experience in
transactions similar to the Distribution.
Although Merrill Lynch participated in certain of the discussions regarding
the Distribution, the terms of the Distribution were determined by Allergan's
Board of Directors.
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<PAGE> 31
BUSINESS OF ASTI
BACKGROUND
ASTI was formed by Allergan in November 1997 to research and develop
pharmaceutical products based on Retinoid and Neuroprotective Technologies. ASTI
has not conducted any business to date and has no employees other than its
President and Chief Executive Officer. ASTI does not intend to perform any
research, development or other activities on its own behalf, as it will pay
Allergan to perform all such activities pursuant to the terms of the Research
and Development Agreement. The ASTI Products initially to be researched and
developed under the Research and Development Agreement are (i) Tazarotene
(oral), (ii) Memantine (in the United States), (iii) AGN 4310 and (iv) a
compound to be selected from the RAR alpha-selective agonist class of compounds.
In addition, the Board of Directors of ASTI has the right, with the consent of
Allergan, to expand the indications for the ASTI Products and to select
additional products for research and development. However, ASTI will have no
rights with respect to any topical formulation of Tazarotene. Allergan is
currently marketing a topical formulation of Tazarotene for the treatment of
psoriasis and acne in the United States under the brand name "Tazorac" and
outside of the United States under the brand name "Zorac."
ASTI's belief in the potential efficacy of the ASTI Products is based upon
preclinical studies performed by Allergan or other third parties. ASTI has not
received FDA approval to begin clinical trials on any ASTI Product other than
Memantine, and neither ASTI nor Allergan has received FDA approval for the
manufacturing and/or marketing of any of the ASTI Products. Consequently, there
can be no assurance that the ASTI Products or any other products selected for
research and development will receive the necessary FDA approvals, that either
ASTI or Allergan will commence manufacturing or marketing of any of the ASTI
Products or as to when manufacturing and marketing of the ASTI Products will
commence.
In order to conduct its business, ASTI will depend substantially on
Allergan and Allergan's licensors for rights to use Allergan Technology, for
research and development activities, for administrative services and, if
Allergan exercises any License Option, for the commercialization of ASTI
Products. ASTI may also perform directly, or engage other third parties to
perform on its behalf, some of these activities. However, it is likely that
Allergan will be responsible for executing substantially all of the operational
activities necessary for ASTI's business following the Distribution and
continuing through completion of the development stage of the ASTI Products, and
that ASTI's funds will be used primarily to fund these activities under the
Research and Development Agreement and the Services Agreement and to pay the
Technology Fee. ASTI's Board of Directors will be responsible for determining
which products will be pursued, and for approving the work plans and cost
estimates therefor. ASTI's Chief Executive Officer will supervise and review
Allergan's ongoing activities on behalf of ASTI. See "Risk Factors -- Dependence
on Allergan for Personnel and Facilities."
Prior to the Distribution, Allergan will contribute a total of $200 million
in cash to ASTI in exchange for all of the shares of ASTI Common Stock
outstanding prior to the Distribution. As the sole holder of ASTI's outstanding
Class B Common Stock following the Distribution, Allergan will have the option
to repurchase all of the outstanding ASTI Shares under specified conditions.
Allergan has also granted certain technology licenses and agreed to make
specified payments on sales of certain products in exchange for the payment by
ASTI of the Technology Fee and the option to independently develop certain
compounds funded by ASTI prior to the filing of an Investigational New Drug
application ("IND") with respect thereto and to license any products and
technology developed by ASTI. In the early years, ASTI's only revenues are
expected to be from investment income. In later years, if Allergan were to
exercise its License Option for any ASTI Product, or if an ASTI Product were
commercialized by ASTI itself or by a third party on behalf of ASTI, ASTI would
derive revenues from sales of the ASTI Product or from fees paid to ASTI by
third parties for the rights to commercialize the ASTI Product.
ALLERGAN TECHNOLOGY OVERVIEW
ASTI will be entitled to use Allergan Technology in connection with
research and development relating to the ASTI Products. Allergan Technology
includes all technology owned, licensed to or controlled by Allergan relating to
Retinoid and Neuroprotective Technologies, excluding topical formulations of
Tazarotene and non-U.S. rights to Memantine. The Allergan Technology licensed to
ASTI includes existing Allergan
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Technology and will also include new technology developed or licensed by
Allergan. The following is a description of certain Allergan Technology that may
be incorporated in ASTI Products.
OVERVIEW OF RETINOID TECHNOLOGY
Retinoids, which include naturally occurring hormones derived from Vitamin
A and synthetic analogs, regulate a very broad range of important biological
activities including cell proliferation and differentiation, programmed cell
death, lipid metabolism and immune function. Retinoids have been shown to be of
potential therapeutic benefit in a variety of diseases including psoriasis,
acne, cancer, diabetes, emphysema and arthritis. Despite their major therapeutic
applications, the use of retinoids in clinical medicine has been limited by
unacceptable toxicities that are associated with most of the currently-marketed
retinoids. However, recent advances in the understanding of retinoid mechanism
of action have provided rational approaches to the design and research and
development of new retinoid drugs with superior therapeutic indices.
Retinoids elicit their myriad biological effects by regulating gene
transcription through multiple, specific nuclear receptors termed retinoid
receptors. There are six known retinoid receptors belonging to two families, the
Retinoid Acid Receptors ("RARs") and the Retinoid X Receptors ("RXRs"), each
with three distinct subtypes (alpha, beta and gamma). These individual receptors
appear to have distinct biological functions because of different tissue
distribution patterns and target gene specificities.
Non-selective retinoid compounds that indiscriminately activate all of the
retinoid receptors cause many toxic side effects along with the therapeutic
effect in a given disease. Receptor-selective retinoids, on the other hand,
would be expected to be of therapeutic benefit in a narrower range of diseases
but also to be associated with far fewer side-effects. Thus, a
receptor-selective retinoid which will be targeted to specific diseases should
have a much better therapeutic index than the current drugs.
The fundamental technology underlying retinoids licensed to ASTI is also
cross-licensed to Ligand and therefore competition from similar activities by
Ligand or its collaborators in retinoids is likely. In addition, pursuant to the
agreement between Allergan and Ligand, each party has been granted non-exclusive
rights to use the ALRT technology with respect to any unsynthesized compounds,
provided that such license will become exclusive with respect to any compound
with respect to which an IND is filed with and accepted by the FDA. Accordingly,
no assurance can be given that Ligand will not be the first party to file an IND
with respect to any retinoid compound under research by ASTI, thereby preventing
ASTI and Allergan from undertaking any further research, development or
commercialization with respect to such compound.
OVERVIEW OF NEUROPROTECTIVE TECHNOLOGY AND GLAUCOMA
Vision loss in glaucoma results from damage to retinal ganglion cells, the
cells that connect the retina to the brain. Currently, the clinical management
of glaucoma is limited to surgical or pharmaceutical reduction of intraocular
pressure. In many patients, however, reduction of intraocular pressure does not
prevent progression of visual loss associated with glaucoma. Furthermore, a
significant fraction of the clinical glaucoma population has intraocular
pressure within the normal range. For this reason, efforts to develop more
effective glaucoma therapies are focused on the preservation of retinal ganglion
cells and, thereby, the prevention of blindness. The prevention of blindness in
glaucoma patients would represent a medical breakthrough. With an estimated 6 to
7 million glaucoma patients by the year 2000 worldwide, glaucoma represents a
large market opportunity.
Allergan has undertaken a rigorous study of the mechanisms which may be
responsible for glaucomatous damage to retinal ganglion cells. Allergan is
focused on two specific targets, the NMDA-type glutamate receptor and the
voltage-gated sodium channel or combination ion channel blockers, which are
physiologically well characterized and which, according to existing evidence,
may contribute to glaucomatous damage of retinal ganglion cells. Allergan
believes that these two mechanisms represent currently the best opportunities
for protection of retinal ganglion cells and, accordingly, obtained worldwide
exclusive rights to develop products containing Memantine for ophthalmic uses
from Merz in February 1997. Memantine is currently in use in Germany for the
treatment of other clinical indications and can be expected to reach protective
levels in the retina following oral administration. New clinical methods that
are more sensitive in reducing vision loss with higher sensitivity are important
areas of current clinical investigation. Thus, Memantine may allow a
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<PAGE> 33
rapid path into a clinical efficacy trial using current and novel approaches to
document vision sparing in humans. In parallel, Allergan research will be
developing new neuroprotection compounds from Allergan research or in
collaboration with Cambridge NeuroSciences, Inc. ("CNSI").
THE ASTI PRODUCTS
ASTI Products are products recommended by Allergan, and accepted by ASTI,
for research and development under the Research and Development Agreement. Four
initial ASTI Products are currently under research and development by Allergan.
The Research and Development Agreement provides that ASTI will reimburse
Allergan for the Research and Development Costs of the four initial ASTI
Products from October 23, 1997, the date on which ALRT ceased funding their
research and development, through March 31, 1998. Such Research and Development
Costs are expected to total between $7 million and $8 million for all of the
ASTI Products and Pre-Selection Work undertaken during such period. This
arrangement is intended to ensure that research and development of the ASTI
Products continues uninterrupted through and beyond the Distribution. To
continue research and development of any ASTI Product beyond March 31, 1998,
Allergan must propose and ASTI's independent Board of Directors must accept an
additional work plan and cost estimate for that ASTI Product. It is expected
that Allergan will recommend such additional work plans and cost estimates to
ASTI by March 31, 1998. Under the Allergan/ASTI Agreements, ASTI will own the
ASTI Products. Continuation of Pre-Selection Work will also require proposal and
acceptance of a plan and cost estimate. See "Risk Factors -- No Assurance of
Continued Research or Development of ASTI Products."
RETINOID PRODUCTS
Allergan has already identified many classes of retinoid compounds which
are selective for receptor families (for example, RAR vs. RXR) as well as for
individual receptor subtypes (for example, RAR alpha selective and RAR beta
selective receptor subtypes). As a further advance, Allergan has identified new
function-selective compounds such as RAR neutral antagonists and inverse
agonists. Allergan has also been successful in combining the structural features
separately required for receptor subtype and for function selectivity to produce
subtype/function selective compounds such as RAR alpha specific antagonists. As
these novel compounds become available, research is initiated in order to
identify specific therapeutic applications for the different classes of
selective compounds. Allergan evaluates these selective compounds in a variety
of pre-clinical models for efficacy in dermatology, oncology and metabolic
disease. The scope of the search for potential therapeutic applications is
further expanded by collaborations with academic laboratories in which the
compounds are evaluated in pre-clinical models in a variety of other areas
including ophthalmology (proliferative vitreoretinopathy and age-related macular
degeneration), human papilloma virus-related diseases (cervical dysphasia),
emphysema and restenosis. Several lead compounds and therapeutic targets have
already been identified and these are in various stages of development as
detailed below. It is also expected that ongoing research will identify newer
classes of retinoid compounds and exciting applications in human disease.
Tazarotene (oral).
Tazarotene is a potent RAR beta gamma selective agonist which was recently
introduced into the market as a topical treatment for psoriasis and acne.
Tazarotene is the first retinoid to be approved for the topical treatment of
psoriasis, and Allergan is currently marketing topical Tazarotene for the
treatment of psoriasis and acne in the United States under the brand name
"Tazorac" and outside of the United States under the brand name "Zorac."
Allergan Technology excludes, and ASTI will have no rights with respect to, any
topical formulation of Tazarotene. An oral formulation of Tazarotene is in late
stages of pre-clinical research and development and clinical trials in cancer,
acne and psoriasis are expected to start in 1998.
Given the clear demonstration of the clinical efficacy of topical
Tazarotene in plaque psoriasis, oral Tazarotene may also be effective in the
treatment of psoriasis. It is also possible that oral Tazarotene may be an
effective agent in severe psoriasis involving extended body areas. If this were
the case and depending on its side-effect profile, it is possible that oral
Tazarotene may effectively replace acitretin and etretinate as the preferred
oral retinoid for psoriasis. It should be noted that acitretin and etretinate
are not particularly
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efficacious agents. Thus, if oral Tazarotene is an effective agent which
provides prolonged remission, oral Tazarotene may expand the current limited
market for oral retinoids in psoriasis.
Topical Tazarotene is also effective in treatment of mild to moderate acne,
presumably by a keratolytic mechanism similar to other topical retinoids. The
systemic retinoid, Accutane, is a very effective agent in severe acne and it is
believed to work by a sebosuppressive mechanism. Oral Tazarotene may also be
sebosuppressive in humans, which will be evaluated in a phase II study. If
effective, oral Tazarotene could be a competitor in the large market of oral
retinoids for acne.
Oral retinoids have been shown to be of benefit in a variety of human
cancers including acute promyeloctyic leukemia and squamous cell carcinomas of
the cervix and the head and neck. After phase I/IIA studies to determine a
maximum tolerated dose, oral Tazarotene will be investigated in phase IIB
studies in several tumors, both as monotherapy and in combination with other
modalities.
AGN 4310.
RAR antagonists/inverse agonists represent a completely novel class of
retinoid compounds which have a unique biology distinct from that observed for
retinoid agonists. AGN 4310, an optimized compound from this class, is in
pre-clinical development with expected IND filings for two indications (topical
antidote to systemic retinoid-induced mucocutaneous toxicity and topical
treatment of psoriasis) in the fourth quarter of 1998. Mucocutaneous toxicity is
an almost universally observed and bothersome side-effect associated with the
use of systemic retinoids such as Accutane. As a consequence, an effective agent
for the treatment and prevention of this adverse effect is likely to be a
well-accepted adjunct to systemic retinoid therapy. It is well-established that
mucocutaneous toxicity induced by systemic retinoids results from activation of
RARs, particularly RAR gamma. AGN 4310 is a very potent and effective antagonist
of retinoid agonist activity at all three RARs. Also, topical AGN 4310 used at
very low doses can effectively prevent or treat the skin irritation produced by
systemic retinoids in clinically-relevant animal models. Animal models have
shown that this blockage of topical irritation can be achieved without
compromising the systemic efficacy of retinoid agonist. Thus, AGN 4310 may be
effective in human clinical studies as a topical antidote to systemic
retinoid-induced mucocutaneous toxicity. It would be the first product
introduced for this therapeutic application.
In addition to its efficacy as an antagonist of retinoid agonist action,
AGN 4310 may have pharmacological actions by itself by acting as an inverse
agonist. Inverse agonists are compounds that can actually repress the basal gene
transcriptional activity associated with unliganded nuclear receptors. The
concept of inverse agonsim in the field of nuclear receptors is a completely
novel one and was first introduced by Allergan. Recent studies have shown that
RAR inverse agonists such as AGN 4310 function by binding to RAR and increasing
interaction between RARs and co-repressor proteins such as NCoR. However, the
subsequent molecular events have not been identified and the pharmacology
associated with these novel compounds remains largely unexplored. Studies
conducted by Allergan scientists have indicated that RAR inverse agonists can
suppress psoriasis-associated markers in human keratinocytes induced to
differentiate along a psoriasiform pathway.
Given the possibility that psoriasis is associated with defective
keratinocyte function, these data suggest that an RAR inverse agonists such as
AGN 4310 may be an effective agent for the topical treatment of psoriasis. Other
studies have suggested that AGN 4310 will function in psoriasis by a mechanism
quite distinct from that of a retinoid agonist such as Tazarotene. Since AGN
4310 is also expected to be non-irritating, it is possible that it could be an
important product for the topical treatment of psoriasis. It is also possible
that ongoing research will identify other therapeutic applications for RAR
inverse agonists.
Since endogenous retinoid signaling pathways are intimately involved in the
control of several fundamental biological processes such as cell differentiation
and proliferation, it is likely that there are pathological conditions which are
dependent on endogenous retinoids for their maintenance. Such diseases are
likely to be appropriate therapeutic targets for an RAR inverse agonists such as
AGN 4310.
RAR alpha Selective Retinoids.
Allergan has also identified several series of RAR alpha subtype-specific
agonists, the first known examples of receptor subtype-specific retinoids.
Studies in pre-clinical models suggest that RAR alpha-
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specific agonists may be of potential use in breast cancer and leukemia. RAR
alpha-specific agonists also inhibit the proliferation of some estrogen receptor
(ER)-negative breast cancer cell lines suggesting that they may be effective in
treating ER-negative breast cancers as well. This is of particular therapeutic
significance since the prognosis for ER-negative breast cancer patients is
particularly poor. Studies conducted in various animal models of retinoid
toxicity suggest that RAR alpha-specific retinoids agonists are significantly
reduced or completely devoid of the mucocutaneous, bone and some other general
toxicities associated with non-specific retinoids. However, RAR alpha-specific
compounds still retain the hypertriglyceridmic toxicity associated with their
non-selective counterparts. This type of data indicate that the RAR
alpha-specifics may have a much improved therapeutic index in their target
diseases relative to the non-selective retinoids currently in use. Our findings
in the RAR alpha area appears to validate our fundamental hypothesis that
receptor and function selectivity can lead to compounds of improved therapeutic
ratios.
Treatment of leukemias and breast cancer is the immediate therapeutic goal
in the RAR alpha area and it is anticipated a development candidate will be
selected and development activities commence in 1998. However, it is likely that
further research in the area and clinical studies with the development candidate
will identify other therapeutic applications for RAR alpha agonists. In
addition, the relative clean side-effect profile of RAR alpha-specific agonists
may make them the compounds of choice as potential chemopreventive agents. It is
currently expected that specific RAR alpha product candidates will be selected
in 1998.
Other Retinoids.
RAR beta-specific transactivators. Allergan scientists have also identified
several classes of RAR beta-specific transactivators. Research in terms of
potential therapeutic applications for RAR beta-specifics is at a relatively
early stage. However, several studies have suggested that aberrations in RAR
beta mediated gene transcription may be associated with head and neck and lung
cancer. Hence, cancer of these types are potential targets for RAR
beta-specifics and research investigations are underway with the currently
available compounds to identify therapeutic applications.
Research programs are also underway to identify better retinoids for the
oral treatment of acne and the oral and topical treatment of psoriasis. Allergan
scientists have also shown that it is possible to make compounds that do not
themselves activate gene transcription through RARs but can antagonize the gene
transcriptional effects of other pathogenic nuclear transcription factors such
as AP1. Such anti-AP1 function selective retinoids may be effective
anti-inflammatory agents and the development of pure anti-AP1 compounds is also
being pursued.
RXR Agonists. RXRs function in vivo as heterodimeric partners with other
nuclear receptors including RARs. Recent research has suggested that RXRs
heterodimerized with the Peroxisome-Proliferator Activated Receptor gamma
("PPARg") may be a molecular target in functions of potential benefit in
metabolic disease. Thiazolidinediones ("TZDs") are a class of compounds of
demonstrated clinical efficacy in the treatment of Type II or non-insulin
dependent diabetes mellitus. It has recently been shown that TZDs function by
binding to the PPARg half of RXR-PPARg heterodimers and activating these
heterodimers. Our research has shown that RXR ligands can also activate
RXR-PPARg heterodimers and that they are effective in well-characterized animal
models of Type II diabetes. Thus, RXR agonists effectively lower the
hyperglycemia and hyperinsulinemia observed in rodent models of diabetes
associated with disorders of leptin signaling. Moreover, the RXR agonists, like
TZD's, appear to function in these models by restoring insulin sensitivity.
Thus, RXR agonists and TZDs may be a new class of anti-diabetic agents that
function as insulin sensitizers. Also, the RXR agonists give additive or
synergistic effects when used in combination with TZDs and insulin in these
animal models. These data suggest that the maximum therapeutic benefits in
diabetes can be derived by combination therapies may prevent progression to
insulin dependence and may reduce insulin requirement in Type I diabetes.
Allergan currently intends to develop RXR agonists with a collaboration partner.
It is therefore likely that these products will be licensed by Allergan while
still undergoing Pre-Selection Work.
MEMANTINE
Memantine is a glutamate receptor blocker, which has been shown to protect
nerve cells from injury and death in a number of in vitro and in vivo studies.
This neuroprotective activity has been shown to be useful
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both for acute injury (ischemia, trauma) and for chronic, neurodegenerative
processes (dementia) involving neurons in the central nervous system.
Glaucoma is a blinding disease characterized by death of neurons
(specifically, retinal ganglion cells) that connect the eye to the brain. This
neuronal cell death is the ultimate cause of visual loss associated with the
disease. Currently, therapy is directed toward lowering of intraocular pressure
("IOP"), one of the major risk factors for vision loss. Memantine, as a drug
directed toward preserving nerves important for vision, would directly target
the loss of visual function. As such, the drug represents a novel therapeutic
approach which is applicable to various forms of glaucoma regardless of their
etiology.
The excitatory neurotransmitter glutamate is normally involved in
interneuronal signal transmission, but in excess can be toxic to neurons. This
concept of "excitotoxicity" is widely recognized and has served as a basis for
the design of a number of novel therapeutic agents. Increased levels of
glutamate have been found, in fact, in the vitreous (the material filling the
interior of the eye) of glaucoma patients. This has led to the hypothesis that
an excessive release of glutamate in the retina is associated with glaucoma, and
may contribute significantly to retinal ganglion cell loss. Previous studies
have demonstrated that glutamate toxicity is mediated by activation of a subset
of glutamate receptors (NMDA) and the subsequent influx of calcium ions into the
nerve cells. Memantine has been shown to bind to NMDA receptors and lead to
blocking of receptor channel function. Recently, it has been determined that
Memantine is able to block NMDA receptors in the presence of increasing levels
of glutamate. By this mechanism, Memantine has been shown to protect against
glutamate toxicity both in cell culture and in animal models, while having
minimal effects on normal synaptic transmission. These studies support the use
of Memantine in glaucoma patients, where inhibition of NMDA receptors would be
expected to slow or prevent glutamate-induced excitotoxicity and the associated
loss of visual function.
Memantine has been marketed in Germany by Merz since 1983 and is registered
in 14 other countries around the world. Its licensed uses are dementia/organic
brain syndrome, Parkinson's disease and cerebral and spinal spasticity. Allergan
completed an agreement with Merz in February 1997 to purchase the clinical,
toxicological, pharmacokinetic and chemistry data supporting the safety and
efficacy of this drug, together with the right to cross-reference Merz's U.S.
IND, for Allergan's filing purposes. Allergan filed its own U.S. IND in
September 1997. A Phase I/II safety study in glaucoma patients was begun in
October 1997. Two Phase III trials are planned for July 1998. One will be
carried out in open-angle glaucoma patients, with concurrent IOP-lowering
medication. The second study will be done in ocular hypertensive patients not
receiving IOP lowering drugs. These studies, directed toward registration of the
drug world-wide, are scheduled for completion in 2002. Many NMDA antagonists
have been tested in human clinical trials and have been disappointing. Side
effects are the principal reason for failure. The unique pharmacological profile
and current use in humans suggests Memantine may be different from most NMDA
antagonists; however, there can be no assurance of this fact.
The use of Memantine in glaucoma is covered by a patent application filed
by Children's Hospital, Boston, Massachusetts ("Children's Hospital") in
December 1992. Allergan obtained exclusive rights to this technology through a
license agreement with Children's Hospital in August 1995. Memantine is
currently undergoing clinical trials in the U.S. for AIDS, dementia and
neuropathic pain.
Allergan, Allergan Pharmaceuticals (Ireland) Ltd., Inc., an affiliate of
Allergan ("Allergan-Ireland"), and certain other Allergan affiliates have
entered into a cross license agreement (the "Cross License Agreement") whereby
rights to commercialize Memantine and any improvements to the Memantine
technology in the United States have been exclusively licensed to Allergan, and
rights to commercialize Memantine and any improvements to the Memantine
technology in the rest of the world other than the United States have been
exclusively licensed to Allergan-Ireland. Pursuant to the Technology License
Agreement, Allergan has licensed to ASTI its rights under the Cross License
Agreement.
VOLTAGE-ACTIVATED SODIUM CHANNELS AND NMDA ANTAGONISTS
Another class of ion channels that Allergan has targeted for research are
voltage-activated sodium channels. These channels are expressed on the axons of
retinal ganglion cells. Allergan scientists speculate that
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this is an important site of injury in glaucoma. Drugs which can shut down the
operation of sodium channels and/or NMDA channels may prevent or limit the
extent of neurodegeneration in animals.
In addition, further research by Allergan scientists and universities
regarding the molecular biology, structure and function of NMDA and sodium
channels may lead to the identification of additional drug discovery targets.
These advances may facilitate the development of novel, differentiated
neuroprotective drugs.
Ion Channel Blockers
Research by Allergan scientists has indicated that excessive activation of
ion channels other than the NMDA-type in the ischemic retina and optic nerve may
lead to cellular calcium overload and neurodegeneration.
Allergan has entered into a collaborative relationship with CNSI to
discover, develop and commercialize compounds for use in the field of ion
channel blockers for the treatment of ophthalmic diseases and disorders.
Compounds selected by Allergan from CNSI are at a much earlier phase of the drug
discovery/development process than Memantine. CNSI compounds are currently
undergoing ocular pharmacology testing. Included in the CNSI technology licensed
to Allergan are patent rights covered by 19 granted U.S. patents and numerous
U.S. and foreign corresponding pending patent applications.
PRE-SELECTION WORK
Much of the Allergan Technology consists of product candidates for which
substantial additional research must be conducted before a conclusion can be
reached as to whether it is worthwhile to attempt to develop the candidate as a
therapeutic product. Such research would include such matters as determining the
molecular make-up of the candidate, determining whether and how it can be
manufactured and determining how strongly it binds to a desired receptor or
otherwise exhibits in-vitro and in-vivo effects. ASTI will spend a portion of
its funds conducting this type of broad research to identify viable product
candidates. ASTI will pay for this research in the same manner as other research
and development under the Research and Development Agreement. ASTI will not pay
for any research on a product development candidate that is the subject of an
IND filing unless Allergan has proposed and the ASTI Board has accepted such
product as an ASTI Product. Unless such product has been proposed and accepted
as an ASTI Product, Allergan will be free to exploit such product in any way it
deems beneficial, including through potential corporate partners and/or
sublicensing to third parties, subject only to its obligations to make payments
to ASTI as Developed Technology Royalties or Pre-Selection Product Payments. It
is currently expected that approximately $7 million to $10 million will be spent
on candidate identification, feasibility evaluation and research relating to
Pre-Selection Product candidates each year by ASTI. See "Business of
ASTI -- Potential Research and Development Expenditures."
POTENTIAL RESEARCH AND DEVELOPMENT EXPENDITURES
Based on Allergan's experience in other product research and development
programs, Available Funds are expected to be expended pursuant to the Research
and Development Agreement over a period of approximately four to five years as
follows:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Candidate Identification,
Feasibility Evaluation and
Research..................... $ 7 - 8 $ 8 - 10 $ 8 - 10 $ 7 - 8 $ 7 - 9
Product Development............ 18 - 22 21 - 25 27 - 33 35 - 42 43 - 52
-------- -------- -------- -------- --------
Total................ $25 - 30 $29 - 35 $35 - 43 $42 - 50 $50 - 61
</TABLE>
The estimates of product development costs set forth above are based upon
projected development of the four initial ASTI Products. Product development
activity includes costs of pre-clinical studies; costs of Phase I, Phase II and
Phase III human clinical trials; and costs of preparation and filing with the
U.S. FDA (or similar governmental bodies in other countries) to register drugs
for sale. It is anticipated that if ASTI were to fund the continued research and
development of the four initial ASTI Products through FDA review
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for marketing clearance, the funding of these activities, together with the
Pre-Selection Work expected to be undertaken by Allergan and funded by ASTI,
would require substantially all of the Available Funds. The above estimates will
change as ASTI Products are researched and developed. Because of the long-range
nature of any pharmaceutical product research and development plan, research and
development of a particular product or products could accelerate, slow down or
be discontinued, research and development with respect to additional ASTI
Products could be commenced, technology or products could be purchased or
licensed, and other unforeseen events could occur, all of which would
significantly affect the timing and amount of expenditures. See "Risk
Factors -- No Assurance of Continued Research or Development of ASTI Products."
GOVERNMENTAL REGULATION
All ASTI Products, Developed Technology Products and Pre-Selection Products
will require clearance by the FDA and comparable agencies in other countries
before they can be marketed. During the research and development stage and as
required, INDs for all new products will be filed with the FDA prior to the
commencement of initial (Phase I) clinical testing in human subjects in the
United States. In some instances this process could result in substantial delay
and expense. No INDs have been filed to date for any of the initial ASTI
Products other than Memantine.
After Phase I/II testing, which is intended to demonstrate the safety and
functional characteristics of a product, extensive efficacy and safety studies
in patients must be conducted. After completion of Phase III clinical testing,
an NDA is submitted, and its clearance involves an extensive review process.
There can be no marketing in the United States of any product for which an NDA
has been submitted until that NDA has been accepted for filing and cleared by
the FDA. It is impossible to determine the amount of time that will be required
to obtain clearance from the FDA to market any product or the cost of obtaining
such clearance.
Whether or not FDA clearance has been obtained, marketing clearance of a
product by the relevant regulatory authorities must be obtained in each foreign
country before the product may be marketed in that country. The clearance
procedures vary from country to country, and the time required may be longer or
shorter than that required for FDA clearance. In many foreign countries, pricing
and reimbursement approvals are also required. Although there are certain
procedures for unified filing in the European Community, in general each country
has its own procedures and requirements.
All facilities and manufacturing techniques used for the manufacture of
products for clinical use or for sale must conform with "current Good
Manufacturing Practices," the FDA regulations governing the production of
pharmaceutical products. These regulations govern a range of activities
including manufacturing, packaging, quality assurance and recordkeeping. Other
FDA regulations govern labeling and advertising materials. From time to time,
the FDA and other federal, state and local government agencies may adopt
regulations that affect the manufacturing and marketing of pharmaceutical
products. Environmental regulations will also affect the manufacture of such
products. Pharmaceutical products and their manufacture often use chemicals and
materials that may be classified as hazardous or toxic and/or require special
handling and disposal. Allergan undertakes to minimize releases into the
environment, and exposure of its employees and the public, to such materials.
The cost of these activities continues to increase. Some of the therapeutic
agents used in ASTI Products, Developed Technology Products and Pre-Selection
Products may also be regulated by the United States Drug Enforcement
Administration.
PATENTS
As of November 17, 1997, Allergan owned 1,287 granted patents worldwide and
785 pending patent applications worldwide. It is expected that Allergan will
attempt to secure patent coverage for each of the ASTI Products. Allergan
believes that its current patents, and patents that may be obtained in the
future, are important to its future operations and to ASTI.
Patent protection generally has been important in the pharmaceutical
industry, and the commercial success of ASTI Products, Pre-Selection Products
and Developed Technology Products may depend, in part, upon Allergan's ability
to obtain strong patent protection. Although Allergan's existing patents,
pending
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patents, and any patents obtained in the future may be of importance to ASTI,
there can be no assurance that any additional patents will be issued or that any
patents now or hereafter issued will be of commercial benefit.
Although a patent has a statutory presumption of validity in the United
States, the issuance of a patent is not conclusive as to such validity or as to
the enforceable scope of the claims therein, and the validity and enforceability
of a patent after its issuance by the United States Patent Office can be
challenged in litigation. If the outcome of such litigation is adverse to the
owner of the patent, third parties may then be able to use the invention
pertaining to the patent, in some cases without payment. There can be no
assurance that patents covering ASTI Products, Developed Technology Products or
Pre-Selection Products, if and when issued, will not be infringed or
successfully avoided through design innovation.
It is also possible that third parties will obtain patents or other
proprietary rights that might be necessary or useful to Allergan or ASTI. In
cases where third parties are the first to invent a particular product or
technology, it is possible that those parties will obtain patents that will be
sufficiently broad so as to prevent Allergan or ASTI from using certain
Developed Technology or other Allergan Technology or from marketing certain
products. If licenses from third parties are necessary and cannot be obtained,
commercialization of such products could be delayed or prevented. Third parties
may claim that ASTI Products infringe their patents; in such event Allergan or
ASTI would need to defend against such claims. Defense of such claims could be
costly and time consuming. If licenses to the third party's patents are
available, the payments required by the third parties could be significant.
In addition, ASTI may use substantial unpatented technology. There can be
no assurance that others will not develop similar technology. Allergan licenses
certain intellectual property from third parties which it will sublicense to
ASTI pursuant to the Technology License Agreement. Specifically, Allergan has
licensed certain rights to its retinoid technology from ALRT and certain rights
to the technology underlying Memantine from Children's Medical Center
Corporation and Merz. In addition, Allergan has licensed certain ion channel
blocker technology from CNSI. Under the terms of certain of its license
agreements, Allergan may be obligated to exercise diligence and make certain
royalty and milestone payments as well as incur costs related to filing and
prosecuting the underlying patents. Each agreement is terminable by either party
upon notice if the other party defaults in its obligations. Should Allergan
default under any of its agreements, Allergan and therefore ASTI may lose its
right to market and sell products based upon such licensed technology. In
addition, there can be no assurance that Allergan's licensors will meet their
obligations to Allergan pursuant to such licenses. In such event, ASTI's results
of operations and business prospects would be materially and adversely affected.
See "The Business of ASTI -- The ASTI Products." See "Risk Factors -- Reliance
on Proprietary Technologies; Unpredictability of Patent Protection."
FACILITIES AND PERSONNEL
ASTI is not expected to hire a significant number of employees or to
acquire significant property or assets prior to completion of the development
stage of the ASTI Products. However, pursuant to the Research and Development
Agreement, Allergan has been engaged by ASTI to research and develop human
pharmaceutical products under work plans and cost estimates recommended by
Allergan and accepted by ASTI. Decisions as to whether and/or when to hire
employees, purchase property or assets, perform administrative functions, engage
Allergan to perform administrative services under the Services Agreement, engage
others to do so or engage third parties other than or in addition to Allergan to
perform research and development activities will be made by ASTI.
COMPETITION
Any ASTI Product successfully developed under the Research and Development
Agreement will face competition from other therapies for the same indications.
Competitors potentially include any of the world's pharmaceutical and
biotechnology companies. Allergan is also free to develop competitive products
for its own account. The fundamental technology underlying retinoids licensed to
ASTI is also cross-licensed to Ligand and therefore competition from similar
activities by Ligand in retinoids is likely. In addition, pursuant to the
agreement between Allergan and Ligand, each party has been granted non-exclusive
rights to use the ALRT technology with respect to any unsynthesized compounds,
provided that such license will become exclusive with respect to any compound
with respect to which an IND is filed with and accepted by the FDA.
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<PAGE> 40
Accordingly, no assurance can be given that Ligand will not be the first party
to file an IND with respect to any retinoid compound under research by ASTI,
thereby preventing ASTI and Allergan from undertaking any further research,
development or commercialization with respect to such compound. See "Risk
Factors -- Competition."
MANAGEMENT OF ASTI
The following table provides information concerning the current officers
and Directors of ASTI. Each of the Directors and officers of ASTI is employed by
Allergan and has held his or her position with ASTI since its formation.
<TABLE>
<CAPTION>
AGE ON
NAME POSITION WITH ASTI 9/30/97
- ---------------------------------------- ------------------------------------------------ -------
<S> <C> <C>
Lester J. Kaplan, Ph.D.................. President, Chief Executive Officer and Director 47
Dwight J. Yoder......................... Chief Financial Officer 52
Susan J. Glass.......................... Secretary and General Counsel 55
</TABLE>
LESTER J. KAPLAN, PH.D. has been the President and Chief Executive Officer
of ASTI, as well as its sole Director, since its formation in November 1997. He
has also been the Corporate Vice President, Science and Technology of Allergan
since July 1996 and had been Corporate Vice President, Research and Development
since 1992. Dr. Kaplan is an Advisory Board Member to the Pediatric Cancer
Research Foundation and Healthcare Ventures. He first joined Allergan in 1983
and was elected to its Board of Directors in 1994.
DWIGHT J. YODER has been the Chief Financial Officer of ASTI since its
formation in November 1997. He has also been the Senior Vice President and
Controller of Allergan since July 1996 and had been Vice President and
Controller since joining Allergan in 1990. Mr. Yoder was the Chief Financial
Officer of ALRT from July 1995 until November 1997.
SUSAN J. GLASS has been the Secretary and General Counsel of ASTI since its
formation in November 1997. She has also been the Associate General Counsel and
Assistant Secretary of Allergan since December 1995 and had been the Assistant
General Counsel and Assistant Secretary since 1989. Ms. Glass joined Allergan in
1987. She is also a member of the Board of Directors of Pacific Chorale.
Prior to commencement of the Distribution, Dr. Kaplan will resign as
interim President and Chief Executive Officer of ASTI and William C. Shepherd,
who is not an employee or Director of Allergan, will be appointed Director,
President and Chief Executive Officer of ASTI. It is expected that Mr. Shepherd
will appoint Gary L. Neil, Ph.D. and Marvin E. Rosenthale, Ph.D., neither of
whom is an employee or Director of Allergan, and a third individual to be
identified, who will not be an employee or Director of Allergan, as additional
Directors of ASTI prior to commencement of the Distribution. Dr. Kaplan will
remain a Director of ASTI following the Distribution in accordance with the
rights of Allergan under ASTI's Restated Certificate of Incorporation as the
sole holder of the outstanding shares of ASTI Class B Common Stock.
WILLIAM C. SHEPHERD served as Chairman of the Board of Allergan from
January 1996 and President and Chief Executive Officer of Allergan from 1992, in
each case, until his retirement from Allergan, which was effective January 1,
1998. Since his retirement, Mr. Shepherd has served as a consultant to Allergan.
Mr. Shepherd was President and Chief Operating Officer of Allergan from 1984 to
1991. Mr. Shepherd first joined Allergan in 1966. He is a director of Furon
Company. Mr. Shepherd also serves on the Board of Directors of the Orange County
Performing Arts Center and the National Children's Eye Care Foundation. He is a
member of the Governing Board of Pharmaceutical Partners for Better Health Care.
Pursuant to the terms of a letter agreement between Mr. Shepherd and
Allergan regarding Mr. Shepherd's retirement, Allergan has agreed to pay Mr.
Shepherd severance payments totaling $3,210,000, on a semi-monthly basis, during
the period commencing January 1, 1998 and ending 36 months following such date
(the "Severance Pay Period"). In partial consideration of such severance
payments, Mr. Shepherd has agreed to provide certain consulting services. In
addition, pursuant to the terms of the letter agreement, the vesting of all of
Mr. Shepherd's outstanding unvested options was accelerated as of January 1,
1998. Such options are exercisable by Mr. Shepherd at any time prior to the
earlier of (a) January 1, 2003 or (b) the expiration of any such options in
accordance with their terms. Under the terms of the letter agreement,
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<PAGE> 41
Allergan has also agreed to provide Mr. Shepherd with continued medical, dental,
group term life, disability and flexible spending account benefits, continued
pension benefit accruals and other miscellaneous perquisites and benefits during
the Severance Pay Period.
GARY L. NEIL, PH.D. is currently President and Chief Executive Officer and
a Director of Crescendo Pharmaceuticals Corporation. From 1993 to 1997, Dr. Neil
was President and Chief Executive Officer and a Director of Therapeutic
Discovery Corporation. From 1990 to 1993, Dr. Neil served as Executive Vice
President of the Wyeth-Ayerst Research division of Wyeth Laboratories, Inc., a
subsidiary of American Home Products, and served in various positions with the
Upjohn Company from 1966 to 1989. Mr. Neil is also a director of Pharsight
Corp., a privately held company. Dr. Neil received a Ph.D. in chemistry from the
California Institute of Technology and a B.S. in chemistry from Queens
University, Canada.
MARVIN E. ROSENTHALE, PH.D. served as President and Chief Executive Officer
of Allergan Ligand Retinoid Therapeutics, Inc. ("ALRT") from December 1994 until
November 1997. He joined the joint venture formed by Allergan and Ligand (the
"Joint Venture"), the entity through which they combined their resources to
pursue the development of retinoid research and development prior to ALRT, in
August 1993 as Vice President. Prior to joining the Joint Venture, Dr.
Rosenthale served as Vice President, Drug Discovery Worldwide, at R. W. Johnson
Pharmaceutical Research Institute from 1990 to 1993. From 1977 to 1990, Dr.
Rosenthale served in a variety of positions in drug discovery research for Ortho
Pharmaceutical Corporation, including director of the divisions of pharmacology
and of biological research and executive director of drug discovery research.
From 1960 to 1977, he served in various positions with Wyeth Laboratories. Dr.
Rosenthale is a member of the Board of Directors of Acute Therapeutics Inc., a
privately held company. Dr. Rosenthale received a Ph.D. in pharmacology from
Hahnemann Medical College & Hospital, an M.Sc. in pharmacology from Philadelphia
College of Pharmacy and Science and a B.Sc. in pharmacy from Philadelphia
College of Pharmacy.
SECURITY OWNERSHIP OF ASTI
Immediately prior to the Distribution, all of the outstanding ASTI Shares
will be held by Allergan. The following tables set forth the projected
beneficial ownership of ASTI Shares following the Distribution by each Director
and executive officer of ASTI and all Directors and officers of ASTI as a group,
as well as by any person that owns beneficially more than 5% of the outstanding
shares of Allergan Common Stock.
BY MANAGEMENT
<TABLE>
<CAPTION>
ASTI SHARES PROJECTED TO BE
BENEFICIALLY OWNED
----------------------------------
NAME NUMBER(1)(2) PERCENT OF CLASS
------------------------------------------------- -------------- -----------------
<S> <C> <C>
Lester J. Kaplan, Ph.D........................... 329 *
Dwight J. Yoder.................................. 161 *
Susan J. Glass................................... 178 *
All Directors and executive officers as a group
(3 persons).................................... 668 *
</TABLE>
- ---------------
* Less than 1%
(1) Except as otherwise noted, reflects, in each case, the number of shares of
Allergan Common Stock beneficially owned as of December 31, 1997, divided by
20. In addition to shares held in the individual's sole name, this column
includes shares held by the spouse and other members of the named person's
immediate household who share that household with the named person, and
shares held in family trusts.
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<PAGE> 42
(2) In calculating the number of ASTI shares projected to be owned by the
individuals listed above, the calculation has been accomplished by treating
each category of ownership, direct, book entry, street name and trust
account separately and dividing each by 20, eliminating each set of
fractional shares.
BY OTHERS
Management of ASTI knows of no person, except as set forth below, who would
be the beneficial owner of more than 5% of the projected to be issued.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES PERCENT
BENEFICIAL OWNERS BENEFICIALLY OWNED OF CLASS
------------------------------------------------- -------------------- ----------
<S> <C> <C>
Swiss Bank Corporation and Brinson Partners,
Inc............................................ 287,382(1) 8.8%
209 South LaSalle Street
Chicago, Illinois 60604-1295
State Farm Mutual Automobile Insurance Company... 214,145(2) 6.5%
One State Farm Plaza
Bloomington, Illinois 61710
Certain Fidelity funds........................... 198,794(3) 6.1%
82 Devonshire Street
Boston, MA 02109-3614
</TABLE>
- ---------------
(1) Based on a Schedule 13G, dated February 12, 1997, relating to its holdings
of Allergan Common Stock, filed with the Securities and Exchange Commission
by the named beneficial owner on behalf of itself and related entities.
(2) Based on a Schedule 13G, dated January 17, 1997, relating to its holdings of
Allergan Common Stock, filed with the Securities and Exchange Commission by
the named beneficial owner on behalf of itself and related entities.
(3) Based on a Schedule 13G, dated February 14, 1997, relating to its holdings
of Allergan Common Stock, filed with the Securities and Exchange Commission
by FMR Corp. on behalf of itself and related entities.
39
<PAGE> 43
SELECTED FINANCIAL DATA OF ASTI
Balance Sheet Data:
<TABLE>
<CAPTION>
AS OF
NOVEMBER 17,
1997(1)
------------
<S> <C>
Cash............................................................................ $1,000
Stockholders' equity............................................................ $1,000
</TABLE>
- ---------------
(1) ASTI was incorporated in November 1997. Allergan contributed $1,000 in
November 1997 in exchange for 100 shares of Common Stock. ASTI had no
operations through November 17, 1997.
40
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
ASTI was formed in November 1997. Prior to the Distribution, in exchange
for all of the shares of ASTI Common Stock outstanding prior to the
Distribution, Allergan will contribute a total of $200 million in cash to ASTI.
ASTI's funds are expected to be used primarily to fund activities to be
conducted under the Research and Development Agreement with Allergan and to
reimburse Allergan for the Research and Development Costs relating to the ASTI
Products and Pre-Selection Work from October 23, 1997, the date on which ALRT
ceased funding, until March 31, 1998 (expected to be between $7 million and $8
million). Allergan's contribution, together with any investment interest earned
thereon, is expected to fund such activities for approximately four to five
years. ASTI is not expected to require facilities or capital equipment of its
own during the term of the Research and Development Agreement. Pending the use
of ASTI's cash resources for the research and development activities described
in this Prospectus, ASTI will invest such resources in interest-bearing,
investment-grade securities.
There can be no assurance, particularly given the existence of the
Allergan/ASTI Agreements, that ASTI will be able to raise any additional
capital. Such additional capital, if raised, would most likely reduce the per
share proceeds available to holders of ASTI Shares if the Purchase Option were
to be exercised. See "The Agreements and the Purchase Option -- Purchase
Option."
OPERATIONS
Prior to the Distribution, ASTI will not have conducted any operations.
After the Distribution and continuing through completion of the development
stage of the ASTI Products, ASTI's operations will be conducted largely pursuant
to the Allergan/ASTI Agreements. See "The Agreements and the Purchase Option."
In its early years, ASTI's revenues are expected to consist solely of
investment income (which will become part of the Available Funds). In later
years, ASTI could receive revenues through the commercialization of ASTI
Products either from Allergan in the form of Product Payments if Allergan were
to exercise its License Option for any ASTI Product, or otherwise if Allergan's
License Option for any ASTI Product were to expire unexercised and ASTI were to
commercialize the product alone or with a third party. ASTI also could receive
revenues from Allergan in the form of Developed Technology Royalties or
Pre-Selection Product Payments. However, ASTI is not expected to earn
substantial revenues unless or until ASTI Products or, to a lesser extent,
Pre-Selection Products or Developed Technology Products are successfully
commercialized. As a result of the foregoing factors, it is anticipated that
ASTI will incur substantial losses which will likely be recurring.
ASTI's expenses largely will be incurred under the Allergan/ASTI
Agreements. ASTI will have research and development expenses as a result of (i)
the payment of Research and Development Costs under the Research and Development
Agreement, most likely through reimbursements to Allergan, and (ii) payment of
the Technology Fee to Allergan under the Technology License Agreement. The
Technology License Agreement provides that the Technology Fee will be payable
monthly by ASTI over a period of four years and will be $833,333 for each of the
12 months following October 23, 1997, $558,333 per month for the following 12
months, $275,000 per month for the following 12 months and $166,667 per month
for the following 12 months; provided that the Technology Fee will no longer be
payable at such time as fewer than two ASTI Products are being researched or
developed by ASTI and/or have been licensed by Allergan. The Technology Fee
payment amounts are based upon the expected value of the originally transferred
technology. The value of the technology transferred is expected to decrease as
ASTI further develops the technology on its own. The Technology Fee will be
expensed by ASTI on a straight-line basis over 48 months.
The Research and Development Agreement provides that, in addition to
funding ongoing Research and Development Costs, ASTI will reimburse Allergan for
the Research and Development Costs of the ASTI Products and Pre-Selection Work
after October 23, 1997, the date on which ALRT ceased funding, until March 31,
1998. Such reimbursements are expected to total between $7 million and $8
million for such
41
<PAGE> 45
period. ASTI also will incur administrative expenses, which will be paid to
Allergan under the Services Agreement to the extent that ASTI engages Allergan
to perform administrative services on its behalf.
Pursuant to the Research and Development Agreement, Allergan will charge
ASTI for both "direct" and "indirect" Research and Development Costs based on
Allergan's internal R&D Project Accounting System, as well as an amount equal to
10% of such direct and indirect costs representing an allocation of Allergan
corporate overhead.
Direct costs will include third party contract costs, such as those
expenses paid to outside vendors which can be directly identified to a specific
research and development program or project.
Indirect costs will include the fully absorbed cost of labor which can be
specifically identified with or physically traced to a project using the
internal Allergan Project Accounting System. The fully absorbed cost of labor
included with indirect costs will consist of actual labor hours charged to ASTI
projects plus research and development overhead costs of approximately 200% to
250% of such actual labor hours charged. The research and development overhead
allocations are based upon Allergan's historical overhead experience arising
from its research and development activities and include only overhead costs
incurred by Allergan's Research and Development department.
In addition, in order to fully and fairly allocate an appropriate portion
of Allergan's general corporate overhead to projects undertaken by Allergan on
behalf of ASTI, an amount equal to 10% of the fully absorbed cost of labor for
each ASTI project will be added to the amount charged by Allergan to ASTI. Such
costs are separate and distinct from the direct and indirect costs charged to
research and development identified in the Research and Development Agreement.
Such costs will be charged to ASTI by Allergan for the purpose of recovery of
such costs applicable to ASTI projects.
Items included in general corporate overhead include human resources,
accounting, treasury, payroll, accounts payable, legal, accounts receivable,
procurement, tax and common area maintenance costs. None of these services is
performed within Allergan's Research and Development department. As a result,
such costs are in addition to the costs incurred within research and development
as described in the Research and Development Agreement. A portion of the costs
of these services calculated to be attributable to Allergan's Research and
Development department comprises the 10% allocation of Allergan corporate
overhead. The 10% proportionate share is based on the number of Research and
Development department personnel relative to total personnel at Allergan's
corporate headquarters.
ASTI's future cash flow obligations will derive largely from the
Allergan/ASTI Agreements. ASTI is required to expend all of the Available Funds
under the Research and Development Agreement and to pay the Technology Fee. It
is anticipated that if ASTI were to fund the continued research and development
of the four initial ASTI Products through FDA review for marketing clearance,
the funding of these activities, together with the Pre-Selection Work expected
to be undertaken by Allergan and funded by ASTI, would require substantially all
of the Available Funds. However, the rate at which Available Funds are expended
will derive from work plans and cost estimates approved by ASTI.
42
<PAGE> 46
THE AGREEMENTS AND THE PURCHASE OPTION
TECHNOLOGY LICENSE AGREEMENT
ASTI and Allergan have entered into a Technology License Agreement pursuant
to which Allergan has granted to ASTI an exclusive (subject to certain
pre-existing rights), perpetual license, with certain rights to sublicense, to
use Allergan Technology solely to conduct research and development with respect
to ASTI Products and to conduct related activities, and to commercialize such
products, in the U.S. with respect to Memantine and worldwide with respect to
other ASTI Products. Until a product candidate becomes an ASTI Product, Allergan
will have full rights to exploit such product, subject only to its obligations
to pay Developed Technology Royalties and Pre-Selection Product Payments. ASTI
has agreed to enter into license arrangements to document such rights, as
necessary.
In exchange for the license to use the existing Allergan Technology
relating to the ASTI Products and Allergan's commitment to make specified
payments on sales of certain products, ASTI will pay the Technology Fee to
Allergan and has granted Allergan the License Option and the option to
independently develop Pre-Selection Products. The Technology Fee will be payable
monthly over a period of four years and will be $833,333 per month for the first
12 months following October 23, 1997, $558,333 per month for the following 12
months, $275,000 per month for the following 12 months and $166,667 per month
for the following 12 months; provided that the Technology Fee will no longer be
payable at such time as fewer than two of the ASTI Products are being developed
by ASTI and/or have been licensed by Allergan pursuant to Allergan's exercise of
the License Option.
Either Allergan or ASTI may terminate the Technology License Agreement upon
the occurrence of a material breach of the Technology License Agreement or the
License Option Agreement by the other party which continues for 60 days after
written notice. The Technology License Agreement will automatically terminate
(a) upon termination by ASTI of the Research and Development Agreement other
than due to a breach thereof by Allergan or (b) upon termination by Allergan of
the Research and Development Agreement due to a breach thereof by ASTI.
Pursuant to the Technology License Agreement, Allergan has licensed to ASTI
rights to research and develop Memantine for commercialization in the United
States only. Commercialization rights to Memantine for the rest of the world
other than the United States have been licensed to Allergan-Ireland.
Allergan-Ireland and ASTI have entered into a cross-license agreement whereby
each has exclusively licensed to the other rights to commercialize in each
party's respective territory any improvements to the Memantine technology
developed by the licensing party.
Allergan Technology excludes, and ASTI will have no rights with respect to,
any topical formulation of Tazarotene. Allergan is currently marketing a topical
formulation of Tazarotene for the treatment of psoriasis and acne in the United
States under the brand name "Tazorac" and outside of the United States under the
brand name "Zorac."
RESEARCH AND DEVELOPMENT AGREEMENT
Under the Research and Development Agreement, Allergan will agree to
perform diligently all work necessary to conduct the activities agreed upon by
Allergan and ASTI. Allergan is not required to devote any specific amount of
time or resources to research and development activities under the Research and
Development Agreement, and Allergan expects to devote a substantial amount of
its time and resources to activities for its own account. Activities under the
Research and Development Agreement will be undertaken pursuant to work plans and
cost estimates proposed by Allergan and accepted by ASTI. ASTI may approve all
or any portion of a proposed work plan and cost estimate or may determine not to
approve any proposed work plan and cost estimate. ASTI is not obligated to fund
research and development of ASTI Products or Pre-Selection Work in excess of
amounts reflected in approved work plans and cost estimates. Allergan is not
required to undertake activities that would result in Research and Development
Costs exceeding those in approved work plans and cost estimates.
Under the Research and Development Agreement, ASTI is expected to utilize
substantially all of the Available Funds to reimburse Allergan for its Research
and Development Costs and Pre-Selection Work.
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<PAGE> 47
Research and Development Costs will be determined on the same basis as charged
by Allergan to its pharmaceutical company clients, and Allergan will recognize
reimbursement of such amounts as research and development revenue. The
corresponding research and development expenses of Allergan will offset this
revenue. Under the Research and Development Agreement, ASTI also may use
Available Funds for licensing technology, products or therapeutic agents from
third parties and for the research and development of ASTI Products with third
parties; provided, however, that Allergan's consent will be required if such
activities involve Allergan Technology or could affect Allergan's rights under
any of the Allergan/ASTI Agreements or Allergan's rights as a holder of the ASTI
Class B Common Stock. Any agreements between ASTI and third parties relating to
ASTI Products or Developed Technology must include appropriate provisions for
the protection of Allergan Technology and Developed Technology and Allergan's
rights under the Allergan/ASTI Agreements. Subject to the foregoing, the amount
and nature of the work to be performed by third parties will be determined by
ASTI.
Pursuant to the Research and Development Agreement, ASTI will fund the
research and development of the ASTI Products and Pre-Selection Work as of
October 23, 1997 through March 31, 1998. Continuation of the research and
development of any ASTI Product and Pre-Selection Work after that time will
depend upon whether Allergan proposes, and ASTI's independent Board of Directors
accepts, additional work plans and cost estimates for such ASTI Product and
Pre-Selection Work. It is anticipated that if ASTI were to fund the continued
research and development of the initial four ASTI Products through FDA review
for marketing clearance, the funding of these activities, together with
Pre-Selection Work undertaken by Allergan and funded by ASTI, would require
substantially all of the Available Funds.
ASTI has agreed to use diligent efforts to research and develop ASTI
Products in accordance with approved work plans and cost estimates under the
Research and Development Agreement, most likely by paying Allergan or third
parties to perform research and development services. ASTI is required to spend
all Available Funds under the Research and Development Agreement. It is
anticipated that ASTI will spend the Available Funds over a period of
approximately four to five years. Prior to expenditure, ASTI will invest
Available Funds in certain types of high quality marketable securities. ASTI may
not encumber, pledge or otherwise take any action with respect to Available
Funds that could prevent the full expenditure of such funds under the Research
and Development Agreement. There are no restrictions on ASTI's use of its funds
other than Available Funds to conduct its business as it determines, subject to
the terms of ASTI's Restated Certificate of Incorporation and the Allergan/ASTI
Agreements.
Unless ASTI agrees otherwise, all ASTI Products will be owned by ASTI or,
in the case of a product licensed from a third party (or a product incorporating
a therapeutic agent licensed from a third party), exclusively licensed to ASTI,
in each case subject to the License Option. Any such exclusive license will be
worldwide, will include the right to sublicense and will grant rights to ASTI
that are substantially similar to those rights ASTI would have as the owner of
such product. As between Allergan and ASTI, Allergan will own all Developed
Technology, including patents, subject to ASTI's exclusive license to use
Developed Technology to select and develop ASTI Products and to conduct related
activities, and to commercialize ASTI Products. Allergan will determine whether
and to what extent to seek patent protection for Developed Technology. If
Allergan declines to seek patent protection for any technology, ASTI will not
have the right to do so. ASTI and Allergan will share equally the costs of
obtaining and maintaining patents covering Developed Technology during the term
of the Research and Development Agreement. Such costs are to be included as
Research and Development Costs under the Research and Development Agreement.
Allergan will pay Developed Technology Royalties to ASTI, on a
country-by-country basis, equal to the sum of (i) 1% of Net Sales of such
Developed Technology Product, plus (ii) 10% of any Sublicensing Revenues with
respect to such Developed Technology Product. Subject to Allergan's payment
buy-out option, Developed Technology Royalties will be payable with respect to a
Developed Technology Product in any country until expiration of the last to
expire of the relevant patent or patents.
Allergan will make Pre-Selection Product Payments to ASTI equal to the sum
of (i) 1% of Net Sales of such Pre-Selection Product, plus (ii) 10% of any
Sublicensing Revenues with respect to such Pre-Selection Product. Subject to
Allergan's payment buy-out option, Pre-Selection Product Payments will be
payable with
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<PAGE> 48
respect to a Pre-Selection Product until seven years after the first commercial
sale of such Pre-Selection Product in the first Major Market Country in which
such product is commercially sold.
In the case where Allergan is required to make payments with respect to a
product that is both a Pre-Selection Product (by virtue of ASTI having funded
Pre-Selection Work therefor) and a Developed Technology Product (by virtue of
the issuance of a patent covering such product which claims Developed
Technology) in any country, the payment due for any period with respect to such
product will be limited to the sum of (i) 1% of Net Sales, plus (ii) 10% of
Sublicensing Revenues.
In determining the Developed Technology Royalties and Pre-Selection Product
Payments due to ASTI, Net Sales by Allergan will be reduced by the amount of any
license payments or similar payments due to third parties from Allergan with
respect to such Developed Technology Product or Pre-Selection Product. It is
possible that, to develop certain products using Developed Technology or
Pre-Selection Products, licenses or other arrangements with third parties may be
necessary or appropriate. Such arrangements could require payments by Allergan
that would reduce payments owed to ASTI.
Allergan has the option to buy out the right of ASTI to receive Developed
Technology Royalties and Pre-Selection Product Payments with respect to any
Developed Technology Product or Pre-Selection Product, in each case, on either a
country-by-country or worldwide basis.
A country-by-country buy-out option may be exercised for any Developed
Technology Product or Pre-Selection Product in any country at any time after the
end of the twelfth calendar quarter during which the product was commercially
sold in such country. The buy-out price will be 15 times the payments made by or
due from Allergan to ASTI with respect to sales of such product in such country
for the four calendar quarters immediately preceding the quarter in which the
buy-out option is exercised. The global buy-out option may be exercised for any
Developed Technology Product or Pre-Selection Product at any time after the end
of the twelfth calendar quarter during which the product was commercially sold
in either the United States or two other Major Market Countries. The global
buy-out price will be (i) 20 times (a) the payments made by or due from Allergan
to ASTI for the relevant product, plus (b) such payments as would have been made
by or due from Allergan to ASTI if Allergan had not exercised any
country-specific buy-out option with respect to such product, in each case, for
the four calendar quarters immediately preceding the quarter in which the global
buy-out option is exercised, less (ii) any amounts previously paid to exercise
any country-specific buy-out option with respect to such product.
The Research and Development Agreement will terminate upon the exercise or
expiration of the Purchase Option; provided, however that Allergan's obligation
to pay Developed Technology Royalties and Pre-Selection Product Payments will
continue if the Purchase Option expires unexercised. Either party may terminate
the Research and Development Agreement if the other party (i) breaches a
material obligation thereunder or under the Technology License Agreement, the
License Option Agreement or any license thereunder (if such breach continues for
60 days after written notice by the terminating party), or (ii) enters into any
proceeding, whether voluntary or involuntary, in bankruptcy, reorganization or
similar arrangement for the benefit of creditors. In addition, ASTI's
expenditures under the Research and Development Agreement relating to an ASTI
Product in any country will terminate after exercise of the License Option for
such ASTI Product in such country if the development of such ASTI Product is
being continued by Allergan, alone or with a third party, and if Allergan elects
not to include ASTI in the continuing development activities related to the ASTI
Product. If Allergan does include ASTI in such development activities, ASTI may
continue to fund all or a portion of Research and Development Costs, even after
any arrangement with the third party has been executed, subject to ASTI's
continued approval of the work plans and cost estimates for the ASTI Product.
LICENSE OPTION AGREEMENT
Pursuant to the License Option Agreement, ASTI has granted the License
Option to Allergan pursuant to which Allergan may, on a product-by-product and
country-by-country basis, obtain from ASTI a perpetual, exclusive license (with
the right to sublicense) to research, develop, make, have made and use the
Licensed Product and to sell and have sold the Licensed Product in the country
or countries as to which the License Option is exercised (the "Territory").
Allergan may exercise the License Option with respect to any ASTI
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<PAGE> 49
Product on a country-by-country basis at any time until (i) with respect to the
United States, 30 days after FDA clearance to market such ASTI Product in the
United States and (ii) with respect to all other countries, 90 days after the
earlier of (a) clearance by the appropriate regulatory agency to market such
ASTI Product in such country, or (b) clearance by the FDA to market the ASTI
Product in the United States. The License Option will expire, to the extent not
previously exercised, 30 days after the expiration of the Purchase Option.
Allergan must exercise the License Option for any country prior to the date of
the first commercial sale of the ASTI Product in such country. Even if Allergan
exercises its License Option with respect to an ASTI Product, ASTI may continue
to fund the development of such product to the extent proposed by Allergan and
accepted by ASTI's Board of Directors.
If Allergan exercises the License Option for an ASTI Product, ASTI and
Allergan will enter into a License Agreement with respect to such product
(thereafter a "Licensed Product"), and Allergan will be required to use diligent
efforts to complete the research and development of and to commercialize such
Licensed Product in each Major Market Country covered by the License Agreement.
Allergan will devote to its commercialization efforts the same resources as
other pharmaceutical companies of similar size devote to products with similar
market potential and similar relative importance in their product portfolios and
may use reasonable discretion in allocation of its resources in performing such
obligations.
Allergan will make Product Payments to ASTI with respect to each Licensed
Product as follows: (a) if the Licensed Product is sold by Allergan, royalties
of up to a maximum of 6% of Net Sales of the Licensed Product determined as
follows: (i) 1% of Net Sales of the Licensed Product, plus (ii) an additional
0.1% of such Net Sales for each full $1 million of Research and Development
Costs of the Licensed Product paid by ASTI; and (b) if the Licensed Product is
sold by a third party, sublicensing fees of up to a maximum of 50% of
Sublicensing Revenues with respect to such Licensed Product determined as
follows: (i) 10% of such Sublicensing Revenues, plus (ii) an additional 1% of
Sublicensing Revenues for each full $1 million of Research and Development Costs
of the Licensed Product paid by ASTI. For purposes of determining the payments
due for any quarter, Research and Development Costs will be determined as of the
last day of the immediately preceding calendar quarter. Because the marketing
expenses associated with a newly introduced product during the first few years
after launch are generally significantly higher than those for an established
product, the Product Payments will not exceed 3% of Net Sales, on a quarterly
basis, for the first twelve calendar quarters during which the Licensed Product
is commercially sold in the first Major Market Country. As a result of this
provision, if a Licensed Product were to be cleared for marketing in a country
or countries that are not Major Market Countries prior to marketing clearance in
the first Major Market Country and Product Payments in such countries would
exceed 3% of Net Sales, the Product Payment rates in such countries will not
exceed 3% for the first twelve calendar quarters during which the Licensed
Product is commercially sold in the first Major Market Country.
In determining the payments due to ASTI with respect to any Licensed
Product, Net Sales by and Sublicensing Revenues of Allergan will be reduced by
the amount of any license or similar payments made by or due from Allergan to
third parties with respect to sales of such Licensed Product in the Territory.
It is possible that, to develop the ASTI Products, licenses or other
arrangements with third parties may be necessary or appropriate. Such
arrangements could also require payments by Allergan that would reduce the
Product Payments owed to ASTI.
Subject to Allergan's buy-out option described below, Product Payments will
commence on the date of the first commercial sale of such Licensed Product in
any country for which the License Option has been exercised. Allergan will make
such Product Payments, with respect to all countries for which the License
Option has been exercised, until 10 years after the first commercial sale of the
Licensed Product in the first Major Market Country in which such product is
commercially sold.
Allergan has the option to buy out ASTI's right to receive Product Payments
for any Licensed Product on either a country-by-country or global basis. A
country-specific buy-out option may be exercised for any Licensed Product at any
time after the end of the twelfth calendar quarter during which the product was
commercially sold in such country. The global buy-out option may be exercised
for any Licensed Product, for all countries for which Allergan has exercised the
License Option, at any time after the end of the twelfth calendar quarter during
which the product was commercially sold in either the United States or two other
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<PAGE> 50
Major Market Countries. The buy-out price in the case of a country-specific
buy-out will be 15 times the Product Payments made by or due from Allergan to
ASTI with respect to such Licensed Product in such country for the four calendar
quarters immediately preceding the quarter in which the buy-out option is
exercised. The buy-out price in the case of a global buy-out will be (i) 20
times (a) the Product Payments made by or due from Allergan to ASTI with respect
to the Licensed Product, plus (b) such Product Payments as would have been made
by or due from Allergan to ASTI if Allergan had not exercised any
country-specific buy-out option with respect to such Licensed Product, in each
case for the four calendar quarters immediately preceding the quarter in which
the global buy-out option is exercised, less (ii) any amounts previously paid to
exercise any country-specific buy-out option with respect to such Licensed
Product. In either case, the buy-out price will be computed as if Product
Payments were not limited to 3% of Net Sales during early marketing as described
above. At the time Allergan exercises the global buyout option for any Licensed
Product, the License Option for such product will expire for all countries for
which it has not been exercised.
If Allergan exercises the License Option for any ASTI Product, Allergan
will continue to own and have the right to use any clinical supplies, materials
and other assets purchased, manufactured or developed for use in the development
of such ASTI Product under approved work plans and cost estimates (the
"Development Assets"), without any additional payment to or reimbursement of
ASTI. To the extent Allergan does not exercise the License Option for any ASTI
Product prior to its expiration, or to the extent Allergan notifies ASTI that it
will not exercise its License Option for any ASTI Product, Allergan must make
Development Assets relating to such ASTI Product available to ASTI at no charge,
unless such Development Assets are being used under the Research and Development
Agreement.
During the term of the License Agreement for a Licensed Product, Allergan
will provide quarterly reports to ASTI detailing payments due for such period
with respect to the Licensed Product. Such reports will be due 90 days after the
end of each calendar quarter and will indicate the quantity and dollar amount of
Net Sales of or Sublicensing Revenue relating to the Licensed Product, or other
consideration in respect of Net Sales, during the quarter covered by such
report. No more than once in each calendar year upon reasonable notice and
during regular business hours, at ASTI's expense, Allergan is required to make
available for inspection by an independent public accountant selected by ASTI
such records of Allergan as may be necessary to verify the accuracy of reports
and payments made under the License Agreement. Allergan must provide similar
reports and records with respect to all Developed Technology Products and
Pre-Selection Products.
A License Agreement may be terminated by ASTI in the event that Allergan
(i) breaches any material obligation under the License Agreement (which breach
continues for a period of 60 days after written notice by ASTI) or (ii) enters
into any proceeding, voluntary or involuntary, in bankruptcy, reorganization or
similar arrangement for the benefit of its creditors. Allergan may terminate a
License Agreement as to any country upon 30 days' written notice to ASTI.
To the extent Allergan does not exercise the License Option with respect to
any ASTI Product, ASTI will retain exclusive rights to develop and commercialize
such ASTI Product.
PURCHASE OPTION
The Purchase Option is set forth in ASTI's Restated Certificate of
Incorporation. Pursuant to the Purchase Option, Allergan has an exclusive,
irrevocable option to purchase all, but not less than all, of the issued and
outstanding ASTI Shares. Allergan may exercise the Purchase Option by written
notice to ASTI at any time during the period beginning immediately after the
Distribution and ending on December 31, 2002; provided, that such date will be
extended for successive six month periods if, as of any June 30 or December 31
beginning with June 30, 2001, ASTI has not paid or accrued expenses for at least
95% of all Available Funds pursuant to the Research and Development Agreement.
The Purchase Option will in any case terminate on the 90th day after the date
(the "Statement Date") on which Allergan receives notice that the amount of cash
and marketable securities held by ASTI is less than $15 million. All
certificates evidencing ASTI Shares will bear a legend indicating that such ASTI
Shares are subject to the Purchase Option.
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<PAGE> 51
If the Purchase Option is exercised, the exercise price (the "Purchase
Option Exercise Price") will be the greatest of:
(a) (i) 25 times the aggregate of (a) all worldwide payments made by
and all worldwide payments due to be made by Allergan to ASTI with respect
to all Licensed Products, Developed Technology Products and Pre-Selection
Products for the four calendar quarters immediately preceding the quarter
in which the Purchase Option is exercised (the "Base Period") and (b) all
payments that would have been made and all payments due to be made by
Allergan to ASTI during the Base Period if Allergan had not previously
exercised its payment buy-out option with respect to any product; provided,
however, that, for the purposes of the foregoing calculation, for any
product which has not been commercially sold during each of the four
calendar quarters in the Base Period, Allergan will be deemed to have made
Product Payments, Developed Technology Royalties and Pre-Selection Product
Payments to ASTI for each such quarter equal to the average of the payments
made during each of such calendar quarters during which such product was
commercially sold, less (ii) any amounts previously paid to exercise any
payment buy-out option for any product;
(b) the fair market value of 500,000 shares of Allergan Common Stock
determined as of the date Allergan provides notice of its intention to
exercise its Purchase Option;
(c) $250 million less the aggregate amount of all Technology Fee
payments and Research and Development Costs paid or incurred by ASTI as of
the date the Purchase Option is exercised; or
(d) $60 million.
In each case, the amount payable as the Purchase Option Exercise Price will
be reduced to the extent, if any, that ASTI's liabilities at the time of
exercise (other than liabilities under the Research and Development Agreement,
the Services Agreement and the Technology License Agreement) exceed ASTI's cash
and cash equivalents and short-term and longterm investments (excluding the
amount of Available Funds remaining at such time). For this purpose, liabilities
will include, in addition to liabilities required to be reflected on ASTI's
financial statements under generally accepted accounting principles, certain
contingent liabilities relating to guarantees and similar arrangements.
Allergan must pay the Purchase Option Exercise Price in cash. For the
purpose of determining the Purchase Option Exercise Price, the fair market value
of Allergan Common Stock shall be deemed to be the average of the closing sales
price of Allergan Common Stock on the New York Stock Exchange for the 20 trading
days ending with the trading day that is two trading days prior to the date of
determination.
The closing of the acquisition of the ASTI Shares pursuant to exercise of
the Purchase Option will take place on a date selected by Allergan, but no later
than 60 days after the exercise of the Purchase Option unless, in the judgment
of Allergan, a later date is required to satisfy any applicable legal
requirements or to obtain required consents. Between the time of exercise of the
Purchase Option and the time of closing of the acquisition of the ASTI Shares,
ASTI may not, without Allergan's consent, incur additional debt, dispose of
assets, pay or declare any dividends or operate its business other than in the
ordinary course.
At Allergan's election, ASTI may redeem on such closing date the ASTI
Shares for an aggregate redemption price equal to the final Purchase Option
Exercise Price. Any such redemption would be in lieu of Allergan paying the
final Purchase Option Exercise price directly to holders of ASTI Shares, and
would be subject to Allergan providing the final Purchase Option Exercise Price
to ASTI to allow ASTI to pay the redemption price.
In the event that prior to Allergan's exercise of the Purchase Option, the
number of outstanding shares of Allergan Common Stock is increased by virtue of
a stock split or a dividend payable in Allergan Common Stock or the number of
such shares is decreased by virtue of a combination or reclassification of such
shares, then the number of shares of Allergan Common Stock used to compute the
Purchase Option Exercise Price (if the Purchase Option Exercise Price is the
fair market value of 500,000 shares of Allergan Common Stock)
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<PAGE> 52
shall be increased or decreased, as the case may be, in proportion to such
increase or decrease in the number of outstanding shares of Allergan Common
Stock.
DISTRIBUTION AGREEMENT
Under the Distribution Agreement, Allergan will contribute $200 million in
cash to ASTI in exchange for all of the shares of ASTI Common Stock outstanding
prior to the Distribution, and will distribute the ASTI Shares to the Holders.
Under the Distribution Agreement, Allergan has agreed to indemnify ASTI's
officers and directors to the same extent such persons are entitled to
indemnification under ASTI's Restated Certificate of Incorporation if Allergan
exercises the Purchase Option.
SERVICES AGREEMENT
ASTI and Allergan have entered into a Services Agreement pursuant to which
Allergan has agreed to provide ASTI with administrative services, including
accounting and legal services, and other services as mutually agreed on a
fully-burdened cost reimbursement basis.
The initial term of the Services Agreement expires on December 31, 1998,
but such agreement will be renewed automatically for successive one-year terms
during the term of the Research and Development Agreement, until six months
after the expiration of the Purchase Option. ASTI may terminate the Services
Agreement at any time upon 60 days' written notice.
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<PAGE> 53
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion sets forth the opinion of Cooley Godward LLP with
respect to certain material federal income tax considerations under the Internal
Revenue Code of 1986, as amended (the "Code"), with respect to the ASTI Shares,
cash in lieu of fractional ASTI Shares, or both ASTI Shares and cash distributed
to Holders in the Distribution. THIS DISCUSSION DOES NOT ADDRESS THE TAX
CONSEQUENCES OF THE ACQUISITION OF ASTI SHARES BY PURCHASE OR MEANS OTHER THAN
THE DISTRIBUTION. In addition, this discussion is intended only to provide
general information regarding Holders that are subject to United States federal
income tax; it may not address all relevant federal income tax consequences to
such persons or to other categories of Holders, e.g., foreign persons, dealers
in securities, and Holders that are exempt from federal income tax. This
discussion is based upon the Code, Treasury Regulations (including proposed
Treasury Regulations) promulgated thereunder, rulings, official pronouncements
and judicial decisions all as in effect on the date hereof and all of which are
subject to change or different interpretations by the Internal Revenue Service
("IRS") or the courts, any of which changes or interpretations may have
retroactive effect. Cooley Godward LLP has disclaimed any undertaking to advise
as to any change in the law that may affect its opinion, including changes that
may be made under currently pending legislative proposals, and has expressed no
opinion as to the laws of any jurisdictions other than the federal income tax
laws of the United States of America. An opinion of counsel does not bind the
IRS, which could take a contrary position, but represents only counsel's
judgment as to the likely outcome if the issues involved were properly presented
to a court of competent jurisdiction. This discussion assumes that the ASTI
Shares will at all relevant times constitute capital assets of the Holders. This
discussion does not address state, local, or foreign tax considerations. HOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS. Cooley Godward LLP acted as United
States federal income tax counsel to Allergan and assisted in preparing this
Prospectus.
TAXABILITY OF THE DISTRIBUTION TO HOLDERS OF ALLERGAN COMMON STOCK
The fair market value of ASTI Shares, plus the cash intended to represent
the fair market value of a fractional ASTI Share (together, the "Taxable
Amount"), distributed to a Holder of Allergan Common Stock will constitute a
dividend taxable as ordinary income to the extent that Allergan has current or
accumulated "earnings and profits" as of the end of the taxable year in which
the Distribution occurs that are allocable to the Distribution for federal
income tax purposes. Assuming that there will be a public market for the ASTI
Shares at the time of the Distribution, the fair market value of an ASTI Share
to a Holder for this purpose is expected to be the average of the high and low
trading price on the date of the Distribution or if such date is not a trading
day, on the first trading day following the Distribution. However, if the
Taxable Amount exceeds the Holder's allocable share of Allergan's current and
accumulated earnings and profits for federal income tax purposes determined as
of the end of Allergan's fiscal year ending December 31, 1998, the excess will
generally be treated first as a basis-reducing, tax-free return of capital to
the extent of the Holder's basis in the Holder's Allergan Common Stock, and
after this basis is reduced to zero, as either short-term, mid-term or long-term
capital gain. Allergan's management has advised that, based on the information
currently available, Allergan's accumulated earnings and profits at December 31,
1998 is expected to be such that the Taxable Amount will not exceed the Holder's
allocable share of such earnings and profits.
No later than February 2, 1999, Allergan will issue to each Holder of
Allergan Common Stock receiving ASTI Shares in the Distribution an IRS Form
1099-DIV reflecting the fair market value of the ASTI Shares (and any amount of
cash received in lieu of fractional ASTI Shares) distributed to such Holder, as
well as any portion of the Taxable Amount exceeding such Holder's allocable
share of Allergan's current and accumulated earnings and profits.
To the extent that the Taxable Amount constitutes ordinary income, it will
generally be subject to back-up withholding with respect to Holders who, before
the Distribution, have not provided their correct taxpayer identification
numbers to Allergan on an IRS Form W-9 or a substitute therefor. Although this
discussion does not generally address tax consequences of the Distribution to
foreign Holders of Allergan Common Stock, such Holders should note that
distribution of the Taxable Amount will generally be subject to U.S. withholding
tax at the rate of 30%. This rate may be reduced by income tax treaties to which
the United States
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<PAGE> 54
is a party. Non-resident alien individuals, foreign corporations and other
foreign Holders are urged to consult their own tax advisors regarding the
availability of such reductions and the procedures for claiming them.
For corporate Holders of Allergan Common Stock, the Taxable Amount will be
eligible for a "dividends-received" deduction, subject to limitations and
exclusions provided by the Code, if the Purchase Option is "significantly out of
the money" for at least 46 days during the 90-day period beginning 45 days
before the Allergan Common Stock becomes ex-dividend with respect to the
Distribution. However, for corporate Holders of Allergan Common Stock, the
Taxable Amount will be subject to the Code's extraordinary dividend rules, which
could reduce a corporate Holder's basis in its Allergan Common Stock by the
amount of the deduction, if the Taxable Amount equals at least 10% of the
Holder's basis. Moreover, to the extent that the untaxed distribution exceeds
the corporate Holder's basis, gain will be recognized.
SALE OF ASTI SHARES
Upon the sale of ASTI Shares, the Holder will have a capital gain or loss
equal to the difference between the sale price and the Holder's basis in the
ASTI Shares sold. This gain or loss will be short-term if the ASTI Shares have a
holding period of one year or less on the sale date. For individuals, short-term
capital gain is subject to federal income tax at a maximum rate of 39.6%; under
recently enacted federal income tax legislation, capital gain from assets like
ASTI Shares, that have a holding period of more than a year on the sale date, is
subject to federal income tax at rates that vary from 28% to 10%, depending upon
the taxpayer's income level and the length of the holding period. If the holding
period is more than one year but not more than 18 months, the maximum stated
federal income tax rate upon sale is 28% for noncorporate Holders. If the
holding period is more than 18 months, the maximum stated federal income tax
rate is 20% for noncorporate Holders. (The phase-out or elimination of certain
deductions and exemptions at higher income levels has the effect of raising the
marginal tax rate at those levels for other income of the taxpayer.) These rules
are new and complex and have not yet been interpreted by the IRS or the courts.
In addition, the combination of the ASTI Shares and the Purchase Option may be
deemed a "straddle," with the result that the holding period of ASTI Shares
would not begin until such date as the Purchase Option is exercised or expires.
There is presently no difference in federal income tax rates between ordinary
income and capital gains of corporations. Limitations may apply to deduction of
capital loss.
A Holder's initial basis in ASTI Shares received in the Distribution will
be the fair market value of those ASTI Shares at the time of the Distribution.
EXERCISE OF PURCHASE OPTION
If Allergan exercises its Purchase Option, Holders of ASTI Shares will have
a capital gain or loss due to Allergan's exercise of the Purchase Option equal
to the difference between (a) the cash (and any other deemed consideration)
received and (b) the Holder's basis in the ASTI Shares surrendered. Gain or loss
due to the exercise of the Purchase Option should be short-term if the ASTI
Shares have been held for one year or less at the time of the closing of the
exercise of the Purchase Option. If the holding period is more than one year but
not more than 18 months, the maximum stated federal income tax rate is 28% for
noncorporate Holders. If the holding period is more than 18 months, the maximum
stated federal income tax rate is 20% for noncorporate Holders. However, the
combination of the ASTI Shares and the Purchase Option may be deemed a
"straddle," with the result that the holding period of ASTI Shares would not
begin until such date as the Purchase Option is exercised and that capital gain
or loss upon exercise of the Purchase Option would be short-term. Limitations
may apply to deduction of capital loss.
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EXPIRATION OF PURCHASE OPTION
If the Purchase Option expires unexercised, each Holder of ASTI Shares on
the date it expires may have short-term capital gain in the amount of the fair
market value of the portion of the Purchase Option covering the Holder's ASTI
Shares on the date of the Distribution; any such gain would increase the
Holder's basis in the ASTI Shares. Allergan believes that the fair market value
of the Purchase Option is not readily ascertainable. Each Holder of ASTI Shares
should consult his or her own tax adviser as to what amount, if any, should be
reported as gain if the Purchase Option expires unexercised.
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DESCRIPTION OF ASTI CAPITAL STOCK
At the time of the Distribution, ASTI's authorized capital stock will
consist of 6,000,000 ASTI Shares and 1,000 shares of ASTI Class B Common Stock
(together with ASTI Shares, the "ASTI Common Stock").
Holders of ASTI Common Stock will be entitled to receive dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor. Available Funds may not be used to pay dividends. In the event of a
liquidation, dissolution or winding up of ASTI, holders of ASTI Common Stock
will be entitled to receive, pro rata, all remaining assets of ASTI available
for distribution to stockholders.
No preemptive rights, conversion rights or sinking fund provisions will be
applicable to ASTI Shares. Upon completion of this Distribution, all outstanding
ASTI Shares will be fully paid and nonassessable and will not be subject to any
liability for further call. The ASTI Shares will be subject to the Purchase
Option and certificates representing such shares and book-entry account
statements will bear a legend to that effect. See "The Agreements and the
Purchase Option -- Purchase Option."
No preemptive rights, redemption rights or sinking fund provisions will be
applicable to the ASTI Class B Common Stock. Each share of the ASTI Class B
Common Stock, all of which are held by Allergan, will automatically convert into
one ASTI Share upon such date as the Purchase Option expires.
Until the expiration of the Purchase Option, Allergan, as the sole holder
of the ASTI Class B Common Stock, will be entitled to vote separately as a class
with respect to any merger or liquidation of ASTI, the sale, lease, exchange,
transfer or other disposition of any substantial asset of ASTI, and any
amendments to the Restated Certificate of Incorporation of ASTI that would alter
the Purchase Option, ASTI's authorized capitalization, or the provisions of the
Restated Certificate of Incorporation governing ASTI's Board of Directors.
Accordingly, Allergan could preclude the holders of the ASTI Shares from taking
any of the foregoing actions during such period. Prior to exercise of the
Purchase Option, the holders of the ASTI Class B Common Stock, voting as a
separate class, will be entitled to elect one director, and the holders of the
ASTI Shares will be entitled to elect up to four directors. Upon exercise of the
Purchase Option, Allergan, as the sole holder of the ASTI Class B Common Stock,
will have the right to elect all of the ASTI directors and to remove directors
with or without cause. On all other matters, holders of the ASTI Shares and ASTI
Class B Common Stock will vote together as a single class. Holders of ASTI
Common Stock will have one vote for each share of ASTI Common Stock held by
them.
Only the ASTI Board of Directors, the Chairman of the Board or the
President may call special meetings of the ASTI stockholders. The approval of
the holder of the ASTI Class B Common Stock is required to amend the provisions
of ASTI's Restated Certificate of Incorporation and bylaws governing the number
and classification of the Board of Directors and certain related matters. The
provisions of ASTI's Restated Certificate of Incorporation granting special
voting rights to the holder or holders of the ASTI Class B Common Stock and
eliminating the right of ASTI stockholders to call special meetings of
stockholders may inhibit a change in control of ASTI.
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TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the ASTI Shares is First Chicago Trust
Company of New York, P.O. Box 2500, Jersey City, New Jersey 07303-2500, (201)
324-1644; email address: [email protected]; website: http://www.fctc.com.
EXPERTS
The balance sheet of Allergan Specialty Therapeutics, Inc. as of November
17, 1997 has been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
LEGAL MATTERS
The statements included in this Prospectus under the caption "Certain
Federal Income Tax Consequences" have been reviewed by, and the validity of the
ASTI Shares offered hereby will be passed upon by, Cooley Godward LLP, San
Diego, California, ASTI's counsel.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors................................. F-2
Allergan Specialty Therapeutics, Inc. Balance Sheet and Notes to Balance Sheet........ F-3
Allergan Specialty Therapeutics, Inc. Pro Forma Balance Sheet and Notes to Pro Forma
Balance Sheet....................................................................... F-5
</TABLE>
F-1
<PAGE> 59
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Allergan Specialty Therapeutics, Inc.:
We have audited the accompanying balance sheet of Allergan Specialty
Therapeutics, Inc. as of November 17, 1997. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit of a balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in that balance sheet. An audit of a
balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Allergan Specialty Therapeutics,
Inc. as of November 17, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Costa Mesa, California
November 17, 1997
F-2
<PAGE> 60
ALLERGAN SPECIALTY THERAPEUTICS, INC.
BALANCE SHEET
NOVEMBER 17, 1997
ASSETS
<TABLE>
<S> <C>
Cash................................................................................ $1,000
======
STOCKHOLDER'S EQUITY (NOTE 2)
Common Stock, $1.00 par value,
100 shares authorized, 100 shares issued and outstanding.......................... $ 100
Additional paid-in capital.......................................................... 900
------
Total stockholder's equity.......................................................... $1,000
======
</TABLE>
F-3
<PAGE> 61
ALLERGAN SPECIALTY THERAPEUTICS, INC.
NOTES TO BALANCE SHEET
NOVEMBER 17, 1997
1. ORGANIZATION AND OWNERSHIP
Allergan Specialty Therapeutics, Inc. (the "Company") was incorporated on
November 12, 1997 in the state of Delaware for the purpose of conducting
research and development of potential human pharmaceutical products, and to
commercialize such products, most likely through licensing to Allergan, Inc.
("Allergan").
The Company has not yet commenced significant operations, and its only
activity to date has been the initial funding provided by Allergan, which owns
all of the Company's outstanding Common Stock. Accordingly, no statement of
operations or statement of cash flows is presented.
2. COMMON STOCK
Prior to the closing of the distribution contemplated by the Prospectus, of
which this balance sheet is a part (the "Prospectus"), the Company intends to
restate its Certificate of Incorporation to provide for Class A Common Stock and
Class B Common Stock. The common stockholders of Allergan will receive one share
of Allergan Specialty Therapeutics, Inc. Class A Common Stock for each 20 shares
of Allergan Common Stock held on the record date. The shares of the Company's
Common Stock owned by Allergan on the date on which the Restated Certificate of
Incorporation is filed will be converted into 1,000 shares of Class B Common
Stock.
3. CERTAIN TRANSACTIONS WITH ALLERGAN
The Company expects to enter into certain agreements with Allergan in early
1998 including a Technology License Agreement, a Research and Development
Agreement, a License Option Agreement, a Services Agreement and a Distribution
Agreement. In addition, under the Company's Restated Certificate of
Incorporation, Allergan will have an option, for a specified period, to purchase
all of the outstanding shares of Class A Common Stock. For further information
with respect to such agreements and the purchase option, see "The Agreements and
the Purchase Option" in the Prospectus.
F-4
<PAGE> 62
ALLERGAN SPECIALTY THERAPEUTICS, INC.
PRO FORMA BALANCE SHEET
NOVEMBER 18, 1997
The following pro forma balance sheet should be read in conjunction with
the audited balance sheet and notes of Allergan Specialty Therapeutics, Inc. as
of November 17, 1997. The pro forma balance sheet is presented to show the
financial position of ASTI following the receipt of $200,000,000 in cash from
Allergan, the conversion of 100 shares of Common Stock owned by Allergan into
1,000 shares of Class B Common Stock, and the issuance to Allergan of ASTI
Shares prior to the Distribution.
ASSETS
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED
UNADJUSTED ADJUSTMENTS AS OF NOVEMBER 18, 1997
---------- ------------ -----------------------
<S> <C> <C> <C>
Cash........................................... $1,000 $199,999,000(a) $ 200,000,000
------ ------------ ------------
STOCKHOLDER'S EQUITY
Common Stock, $1.00 par value, 100 shares
authorized, 100 shares issued and outstanding
(none as adjusted)........................... $ 100 $ (100)(b) $ --
Class A Common Stock, $.01 par value; 6,000,000
shares authorized; 3,262,400 shares to be
issued and outstanding as adjusted........... -- 32,624(c) 32,624
Class B Common Stock, $1.00 par value;
1,000 shares authorized; 1,000 shares to be
issued and outstanding as adjusted........ -- 1,000(b) 1,000
Additional paid-in capital..................... 900 (32,624)(c)
(900)(b)
199,999,000(a) 199,966,376
------ ------------ ------------
Total stockholder's equity........... $1,000 $199,999,000 $ 200,000,000
====== ============ ============
</TABLE>
- ---------------
(a) To reflect the receipt of the remainder of the $200,000,000 contribution
from Allergan.
(b) To reflect the conversion of 100 shares of Common Stock held by Allergan
into 1,000 shares of Class B Common Stock.
(c) To reflect the issuance of 3,262,400 ASTI Shares.
F-5
<PAGE> 63
EXHIBIT A
Investment Banking
Corporate and
Institutional
Client Group
3300 Hillview Avenue
Suite 150
Palo Alto, California
94304
[LOGO]
, 1998
Board of Directors
Allergan, Inc.
2525 Dupont Drive
Irvine, CA 92612
Ladies and Gentlemen:
You have advised us that Allergan, Inc. ("Allergan") intends to distribute
(the "Distribution") to its stockholders shares (the "ASTI Shares") of Class A
Common Stock of Allergan Specialty Therapeutics, Inc. ("ASTI"). The Distribution
is described in detail in the prospectus (the "Prospectus"), filed as part of a
registration statement on Form S-1 file no. 333- , which is to be sent to
Allergan stockholders in connection with the Distribution. You have asked us for
our opinion as to whether or not (a) from a financial point of view, the
Distribution provides a reasonable structure to pursue the financial objectives
of Allergan as set forth in the Prospectus, and (b) from a financial point of
view, the Distribution is fair to the stockholders of Allergan.
In arriving at the opinion set forth below, we have, among other things:
1. reviewed the Prospectus including the following items as presented
therein: (i) the terms and conditions of the Distribution, (ii) the
Distribution Agreement, (iii) the Technology License Agreement, (iv) the
Research and Development Agreement, (v) the License Option Agreement and
(vi) the Restated Certificate of Incorporation of ASTI including the
Purchase Option;
2. conducted discussions with members of the senior management of
Allergan with respect to the businesses and prospects of Allergan and ASTI
and the strategic objectives of each;
3. conducted discussions concerning the Distribution with other
representatives and advisors of Allergan, including its independent public
accountants;
4. reviewed the financial and other information concerning Allergan
(with and without ASTI) that was publicly available or furnished to us by
Allergan, including information provided during discussions with the senior
management of Allergan;
5. reviewed historical trading prices and volume of the Common Stock
of Allergan ("Allergan Common Stock"); and
6. reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available (including the
information contained in the Prospectus), and we have not assumed any
responsibility for independently verifying such information or undertaken an
independent evaluation or appraisal of any of the assets or liabilities of
Allergan (with or without ASTI) or been furnished with any such evaluation or
appraisal. In addition, we have not assumed any obligation to conduct, nor have
we conducted, any physical inspection of the properties or facilities of
Allergan. With respect to the financial forecast information furnished to or
discussed with us by Allergan, we have assumed it has been reasonably prepared
and reflects the best currently available estimates and judgment of Allergan's
management as to the expected future financial performance of Allergan and ASTI.
A-1
<PAGE> 64
We have also assumed that: (i) the Distribution will occur as described in
the Prospectus, (ii) the Distribution will not be a taxable transaction to
Allergan, and (iii) after the Distribution, ASTI will be accounted for as an
entity independent of Allergan.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We note that trading in shares of Allergan Common
Stock and the ASTI Shares for a period following completion of the Distribution
may be characterized by a redistribution of the shares of Allergan Common Stock
and the ASTI Shares among existing Allergan stockholders and other investors
and, accordingly, during such period, the shares of Allergan Common Stock and
the ASTI Shares may trade at prices below those at which they would trade on a
fully distributed basis. This opinion does not opine on or give assurances of
the price at which the shares of Allergan Common Stock will actually trade after
the announcement date of the Distribution or the price at which the ASTI Shares
will actually trade after the Distribution. In addition, this opinion does not
address the valuation or future performance of ASTI as an independent public
company following the Distribution. We express no opinion as to whether the
funds contributed by Allergan to ASTI will be adequate to accomplish the
objective of successfully developing the intended pharmaceutical products.
We are acting as financial advisor to Allergan in connection with the
Distribution and will receive a fee for our services, which fee is contingent
upon the consummation of the Distribution. In addition, Allergan has agreed to
indemnify us for certain liabilities arising out of our engagement. We have, in
the past, provided financial advisory and financing services to Allergan and may
continue to do so and have received, and may receive, fees for the rendering of
such services. In addition, in the ordinary course of our business, we may
actively trade Allergan Common Stock, and we may, in the future, trade the ASTI
Shares for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of
Allergan.
On the basis of and subject to the foregoing, as of the date hereof, it is
our opinion that (a) from a financial point of view, the Distribution provides a
reasonable structure to pursue the financial objectives of Allergan as set forth
in the Prospectus, and (b) from a financial point of view, the Distribution is
fair to the stockholders of Allergan. Our conclusions are based on information
available to us as of the date of this letter.
Very truly yours,
A-2
<PAGE> 65
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY ASTI. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF ASTI OR THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Summary............................... 3
Glossary.............................. 14
Risk Factors.......................... 17
The Distribution...................... 23
ASTI Capitalization................... 24
Reasons for the Distribution and
Effects on Allergan, Inc............ 25
Business of ASTI...................... 28
Selected Financial Data of ASTI....... 40
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 41
The Agreements and the Purchase
Option.............................. 43
Certain Federal Income Tax
Considerations...................... 50
Description of ASTI Capital Stock..... 53
Transfer Agent and Registrar.......... 54
Experts............................... 54
Legal Matters......................... 54
Index to Financial Statements......... F-1
Opinion of Merrill Lynch, Pierce,
Fenner & Smith Incorporated......... A-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE ASTI CLASS A COMMON STOCK OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS.
======================================================
======================================================
ALLERGAN SPECIALTY
THERAPEUTICS, INC.
CLASS A
COMMON STOCK
------------------------
PROSPECTUS
------------------------
, 1998
======================================================
<PAGE> 66
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses incurred by Allergan
and ASTI in connection with the distribution of the securities being registered
which will be paid by Allergan. All amounts are estimated except the SEC
Registration Fee and the Nasdaq National Market Application Fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 60,607
Nasdaq National Market Application Fee........................... 21,250
Financial Advisory Fees and Expenses............................. $2,625,000
Blue Sky Qualification Fees and Expenses......................... $ 5,000
Accounting Fees and Expenses..................................... $ 100,000
Legal Fees and Expenses (including Blue Sky)..................... $ 275,000
Transfer Agent and Registrar Fees................................ 65,000
Printing and Engraving........................................... 65,000
Miscellaneous.................................................... $ 9,143
--------
Total............................................................ $3,235,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the Delaware General Corporation Law allows a corporation to
eliminate the personal liability of directors of a corporation to the
corporation or to any of its stockholders for monetary damage for a breach of
his or her fiduciary duty as a director, except in the case where the director
breached his or her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the payment of a
dividend or approved a stock repurchase in violation of Delaware corporate law
or obtained an improper personal benefit. ASTI's Restated Certificate of
Incorporation contains a provision that eliminates directors' personal liability
as set forth above.
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may 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, by
reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation or is or was serving at its request in such capacity in
another corporation or business association against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful.
In addition, Article 10 of ASTI's Restated Certificate of Incorporation
provides as follows:
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS.
(A) ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS. No director of this
corporation shall be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a
director except, to the extent provided by applicable law, for liability
(i) for any breach of the director's duty of loyalty to this corporation or
its 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 Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit.
No amendment to or repeal of this article shall apply to or have any effect
on the liability or alleged liability of any director of this corporation
for or with respect to any acts or omissions of such director occurring
prior to such amendment.
(B) INDEMNIFICATION AND INSURANCE.
(1) RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administra-
II-1
<PAGE> 67
tive or investigative (a "proceeding"), because he or she, or a person
of whom he or she is the legal representative, is or was a director or
officer of this corporation or is or was serving at the request of this
corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other
enterprise (including service with respect to employee benefit plans),
whether the basis of the proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall
be indemnified and held harmless by this corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits this
corporation to provide broader indemnification rights than that law
permitted this corporation to provide before such amendment), against
all expense, liability and loss (including attorneys' fees, judgments,
penalties, fines, Employee Retirement Income Security Act of 1974 excise
taxes or penalties, and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith;
provided, however, that this corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if the proceeding (or part
thereof) was authorized by the Board of Directors of this corporation.
Such indemnification shall continue as to a person who has ceased to be
a director or officer of this corporation and shall inure to the benefit
of his or her heirs, executors and administrators. The right to
indemnification conferred by this Section shall be a contract right
which may not be retroactively amended and shall include the right to be
paid by this corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that
the payment of such expenses incurred by a director or officer in his or
her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or
officer, including, without limitation, service with respect to an
employee benefit plan) in advance of the final disposition of the
proceeding shall be made only upon delivery to this corporation of an
undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if ultimately it shall be determined that such
director or officer is not entitled to be indemnified under this Section
or otherwise. This corporation may, by action of its Board of Directors,
provide indemnification to employees and agents of this corporation with
the same scope and effect as the indemnification of directors and
officers.
(2) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Paragraph 1
of this Section is not paid in full by this corporation within ninety
(90) days after a written claim has been received by this corporation,
the claimant may at any time thereafter bring suit against this
corporation to recover the unpaid amount of the claim and, if successful
in whole or in part, the claimant shall be entitled to be paid also the
expense of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition
where the required undertaking, if any, has been tendered to this
corporation) that the claimant has not met the standards of conduct
which make it permissible under the Delaware General Corporation Law for
this corporation to indemnify the claimant for the amount claimed, but
the burden of proving such defense shall be on this corporation. Neither
the failure of this corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because
he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by this
corporation (including its Board of Directors, independent legal
counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant has not met the applicable standard
of conduct.
(3) NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, provision of this Restated Certificate of Incorporation, bylaw,
agreement, vote of stockholders or disinterested directors, or
otherwise.
II-2
<PAGE> 68
(4) INSURANCE. This corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent
of this corporation or another corporation, partnership, joint venture,
trust or other enterprise against any such expense, liability or loss,
whether or not this corporation would have the power to indemnify such
person against such expense, liability or loss under the Delaware
General Corporation Law.
ASTI intends to purchase directors and officers liability insurance which
would indemnify the directors and officers of ASTI against damages arising out
of certain kinds of claims which might be made against them based on their
negligent acts or omissions while acting in their capacity as such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In November 1997, ASTI sold 100 shares of Common Stock to Allergan for an
aggregate cash purchase price of $1,000 in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof. In connection with the Distribution contemplated by the Registration
Statement, the 100 shares of Common Stock held by Allergan will be converted
into 1,000 shares of Class B Common Stock in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 3(a)(9)
thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<C> <S>
3.1 Certificate of Incorporation of ASTI*
3.2 Bylaws of ASTI*
3.3 Form of Restated Certificate of Incorporation of ASTI (to be effective prior
to the Distribution)*
4.1 Specimen Certificate of Class A Common Stock of ASTI*
5.1 Opinion of Cooley Godward LLP as to legality of ASTI Shares
8.1 Opinion of Cooley Godward LLP as to tax matters*
10.1 Form of Technology License Agreement between Allergan and ASTI
10.2 Form of Research and Development Agreement between Allergan and ASTI
10.3 Form of License Option Agreement between Allergan and ASTI*
10.4 Form of Services Agreement between Allergan and ASTI*
10.5 Form of Distribution Agreement between Allergan and ASTI*
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1)
23.3 Consent of William C. Shepherd*
23.4 Consent of Gary L. Neil, Ph.D.*
23.5 Consent of Marvin E. Rosenthale, Ph.D.*
23.6 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
24.1 Power of Attorney (Reference is made to pages II-5)
</TABLE>
- ---------------
* Previously filed.
II-3
<PAGE> 69
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers, and controlling persons of the Registrant
pursuant to the provisions set forth in Item 14 above, or otherwise, the
Registrant has been advised in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred, or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and the Registrant will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE> 70
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Allergan
Specialty Therapeutics, Inc. has duly caused this Amendment to the Registration
Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Irvine, State of California on February 12,
1998.
ALLERGAN SPECIALTY THERAPEUTICS, INC.
By: *
-------------------------------------
Lester J. Kaplan, Ph.D.,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ----------------------------------------------- -------------------------- -----------------
<C> <S> <C>
* President, Chief Executive February 12, 1998
- ----------------------------------------------- Officer and Sole Director
Lester J. Kaplan, Ph.D. (Principal Executive
Officer)
* Chief Financial Officer February 12, 1998
- ----------------------------------------------- (Principal Financial and
Dwight J. Yoder Accounting Officer)
*By: /s/ FRANCIS R. TUNNEY, JR.
------------------------------------------
Francis R. Tunney, Jr.
Attorney-in-fact
</TABLE>
II-5
<PAGE> 71
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<C> <S>
3.1 Certificate of Incorporation of ASTI*
3.2 Bylaws of ASTI*
3.3 Form of Restated Certificate of Incorporation of ASTI (to be effective prior
to the Distribution)*
4.1 Specimen Certificate of Class A Common Stock of ASTI*
5.1 Opinion of Cooley Godward LLP as to legality of ASTI Shares
8.1 Opinion of Cooley Godward LLP as to tax matters*
10.1 Form of Technology License Agreement between Allergan and ASTI
10.2 Form of Research and Development Agreement between Allergan and ASTI
10.3 Form of License Option Agreement between Allergan and ASTI*
10.4 Form of Services Agreement between Allergan and ASTI*
10.5 Form of Distribution Agreement between Allergan and ASTI*
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1)
23.3 Consent of William C. Shepherd*
23.4 Consent of Gary L. Neil, Ph.D.*
23.5 Consent of Marvin E. Rosenthale, Ph.D.*
23.6 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
24.1 Power of Attorney (Reference is made to page II-5)
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 5.1
[COOLEY GODWARD LLP LETTERHEAD]
February 11, 1998
Allergan Specialty Therapeutics, Inc.
2525 Dupont Drive
Irvine, CA 92612
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Allergan Specialty Therapeutics, Inc., a Delaware corporation
(the "Company"), of a Registration Statement on Form S-1 (File No. 333-40503)
(the "Registration Statement") with the Securities and Exchange Commission,
including a related prospectus filed with the Registration Statement (the
"Prospectus"), and the distribution, pursuant to the terms of a Distribution
Agreement (the "Distribution Agreement") to be entered into between Allergan,
Inc. ("Allergan") and the Company, of an aggregate of 3,300,000 shares of the
Company's Class A Common Stock, $.01 par value (the "Shares"), by Allergan to
its stockholders.
In connection with this opinion, we have assumed the genuineness and
authenticity of all documents submitted to us as originals, the conformity to
originals of all documents submitted to us as copies thereof and the due
execution and delivery of all documents where due execution and delivery are a
prerequisite to the effectiveness thereof. We have based our opinion upon our
examination of the following records, documents and instruments:
(a) The Certificate of Incorporation of the Company certified by the
Secretary of State of the State of Delaware as of November 12, 1997, and
certified to us by an officer of the Company as being complete and in full force
and effect as of the date of this opinion;
(b) The form of Restated Certificate of Incorporation of the Company filed
as an exhibit to the Registration Statement (the "Restated Certificate");
(c) The Bylaws of the Company certified to us by an officer of the Company
as being complete and in full force and effect as of the date of this opinion;
<PAGE> 2
Allergan Specialty Therapeutics, Inc.
February 11, 1998
Page Two
(d) The form of Distribution Agreement filed as an exhibit to the
Registration Statement;
(e) A Certificate of the Associate General Counsel and Assistant Secretary
of the Company: (i) attaching records certified to us as constituting all
records of proceedings and actions of the Board of Directors of the Company
relating to the issuance and distribution of the Shares; and (ii) certifying as
to certain factual matters;
(f) The Registration Statement and related Prospectus; and
(g) Such other documents, records, certificates, memoranda and other
instruments as we deemed necessary as a basis for this opinion.
This opinion is limited to the general corporation laws of the State of
Delaware. We disclaim any opinion as to any other statute, rule, regulation,
ordinance, order or other promulgation of any other jurisdiction or any regional
or local governmental body.
Based upon the foregoing and our examination of such questions of law as we have
deemed necessary or appropriate for the purpose of this opinion, and assuming
that: (i) the Restated Certificate is filed with and accepted by the Delaware
Secretary of State, (ii) the Company and Allergan enter into and perform their
respective obligations under the Distribution Agreement, (iii) the consideration
for such Shares recited in the Distribution Agreement has been received, and
(iv) appropriate stock certificates evidencing the Shares will be properly
executed and delivered, it is our opinion that the Shares covered by the
Registration Statement when issued by ASTI will be validly issued, fully paid
and nonassessable.
This opinion is rendered to you in connection with the Registration Statement
and is solely for the benefit of the Company and its stockholders. This opinion
may not be relied upon for any other purpose, or relied upon by any other
person, firm, corporation or other entity for any purpose, without our prior
written consent.
<PAGE> 3
Allergan Specialty Therapeutics, Inc.
February 11, 1998
Page Three
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Respectfully,
COOLEY GODWARD LLP
Thomas A. Coll
<PAGE> 1
EXHIBIT 10.1
TECHNOLOGY LICENSE AGREEMENT
This Technology License Agreement (this "Agreement") is made as of the
_____ day of _______, 1998 among Allergan, Inc., a Delaware corporation
("Allergan"), each Allergan Affiliate listed on the signature page hereto (an
"Allergan Affiliate") and Allergan Specialty Therapeutics, Inc., a Delaware
corporation ("ASTI").
BACKGROUND
A. ASTI has been formed for the purpose of researching and developing
human pharmaceutical products, including products using Allergan Technology (as
defined herein), and commercializing such products, most likely through
licensing to Allergan.
B. Allergan and ASTI have entered into the Research and Development
Agreement (as defined herein) for the research and development of such products
and related activities.
C. Allergan is willing to grant to ASTI a license to use Allergan
Technology solely for the purposes set forth above on the terms set forth herein
and in the Research and Development Agreement and the License Option Agreement
(as defined herein).
Now, therefore, the parties agree as follows:
1. DEFINITIONS.
For the purposes of this Agreement, the following terms shall have the
meanings set forth below:
1.1 "Affiliate" shall mean a corporation or any other entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the designated party. "Control"
shall mean ownership of at least 50% of the shares of stock entitled to vote for
the election of directors in the case of a corporation, and at least 50% of the
interests in profits in the case of a business entity other than a corporation.
1.2 "Allergan Technology" shall mean all Proprietary Rights, whether
patented or unpatented, owned by, licensed to or controlled by Allergan, as of
the date of this Agreement or during the term of the Research and Development
Agreement, relating to retinoid and neuroprotective technologies, including but
not limited to Tazarotene, Memantine and other glutamate and ion channel
blockers and Allergan's and each Allergan Affiliate's rights under the
agreements listed on Exhibit A hereto. "Allergan
1.
<PAGE> 2
Technology" shall also include any additional technology which Allergan
designates expressly in a writing delivered to ASTI as Allergan Technology for
purposes of this Agreement. Notwithstanding the foregoing, however, in no event
shall "Allergan Technology" include, and ASTI shall have no rights with respect
to, (i) any topical formulation of Tazarotene or the research, development,
manufacture or commercial sale or other use thereof or (ii) the commercial sale
of Memantine and/or products incorporating or based on Memantine outside of the
United States.
1.3 "ASTI Product" shall mean any dosage form of a compound which is the
subject of research and development as a potential human pharmaceutical product
which has been recommended by Allergan and accepted by ASTI's Board of Directors
for development as such under the Research and Development Agreement. Such
recommendations may be made on a Field of Use basis. The following compounds
have been selected as the initial ASTI Products as of the date hereof: (i)
Tazarotene (oral), (ii) Memantine, (iii) AGN 4310 and (iv) a compound to be
selected from the RAR alpha-selective agonist class of retinoid compounds for
the treatment of various cancers.
1.4 "Developed Technology" shall mean Proprietary Rights that (a) are
first generated, conceived or reduced to practice, as the case may be, by
Allergan or by any third party in the course of performing activities undertaken
pursuant to the Research and Development Agreement or (b) are, in any manner,
acquired by, or otherwise obtained on behalf of, ASTI during the term of the
Research and Development Agreement from persons other than Allergan and are
necessary or useful to the research, development or commercialization of ASTI
Products or Pre-Selection Products.
1.5 "Distribution" shall mean Allergan's distribution of all of the
outstanding shares of Class A Common Stock of ASTI to Allergan stockholders of
record on ________, 1998.
1.6 "Field of Use" shall mean a particular disease state or set of
related disease states.
1.7 "Infringing Product" shall mean any product sold by a third party
which infringes or is alleged to infringe any patent or patents licensed to ASTI
hereunder and covering an ASTI Product.
1.8 "License Agreement" shall mean an exclusive license agreement for a
particular ASTI Product between Allergan and ASTI, entered into as a result of
Allergan's exercise of the License Option for such product.
1.9 "License Option" shall mean the option granted to Allergan pursuant
to the License Option Agreement.
2.
<PAGE> 3
1.10 "License Option Agreement" shall mean the License Option Agreement
dated as of the date hereof between Allergan and ASTI.
1.11 "Pre-Selection Work" shall mean research and pre-clinical
development work involving one or more product candidates owned or controlled by
Allergan or a third party funded by ASTI pursuant to the Research and
Development Agreement and undertaken in order to determine the suitability of
such candidate for research and development.
1.12 "Pre-Selection Product" shall mean a product, other than one which
becomes an ASTI Product, for which ASTI funds Pre-Selection Work.
1.13 "Pre-Existing Rights" shall mean the rights of each party other
than Allergan under the agreements listed on Exhibit A.
1.14 "Proprietary Rights" shall mean data, inventions, information,
processes, know-how and trade secrets, and patents or patent applications
claiming any of the foregoing, owned by, licensed to or controlled by a person
and which such person has the right to license or sublicense. Proprietary Rights
shall not include trademarks.
1.15 "Purchase Option" shall mean that certain option contained in
ASTI's Restated Certificate of Incorporation pursuant to which Allergan has the
right to purchase all of the outstanding shares of ASTI Class A Common Stock.
1.16 "Research and Development Agreement" shall mean the Research and
Development Agreement dated as of the date hereof between Allergan and ASTI.
1.17 "Therapeutic Agent" shall mean a drug, protein, peptide, gene,
compound or other pharmaceutically active incredient.
2. LICENSE.
2.1 GRANT OF LICENSE. Allergan hereby grants to ASTI, on the terms and
conditions of this Agreement, a worldwide (except as set forth below), exclusive
license (subject to the Pre-Existing Rights), in perpetuity, with the right to
sublicense (as set forth below), to use the Allergan Technology to research and
develop ASTI Products, to conduct related activities (including Pre-Selection
Work), and to commercialize ASTI Products, but for no other purposes whatsoever;
provided, however, that, the foregoing license shall exclude (i) the research,
development, manufacture or commercial sale or other use of any topical
formulation of Tazarotene and (ii) the commercial sale of Memantine and/or
products incorporating or based on Memantine outside of the United States. ASTI
shall not sublicense any Allergan Technology to, or enter into other
3.
<PAGE> 4
arrangements with respect to any Allergan Technology with, any third party for
any purpose, except as set forth in Sections 2.2 and 2.3 hereof.
2.2 PERMITTED SUBLICENSES.
(a) Except as set forth in Section 2.2(b) hereof, ASTI may grant
sublicenses to Allergan and third parties to use the Allergan Technology solely
for the purpose of performing activities in connection with the research and
development of ASTI Products and conducting related activities (including
Pre-Selection Work); provided however, that, during the term of the Research and
Development Agreement, any such sublicenses shall be granted in accordance with
the terms of the Research and Development Agreement.
(b) If the License Option with respect to any ASTI Product in one
or more countries expires unexercised, from and after expiration of such License
Option in any such country, ASTI may sublicense Allergan Technology to a third
party or third parties solely to the extent necessary to complete the
development of, or to make (or have made) and use such ASTI Product, or to sell
(or have sold) such ASTI Product in such country.
2.3 CONDITIONS OF SUBLICENSES. Each sublicensee shall execute such
agreements as Allergan reasonably deems appropriate to protect the Allergan
Technology and to protect Allergan's rights under all agreements between
Allergan and ASTI and under the Purchase Option. Each sublicensee shall have all
the duties of ASTI hereunder with respect to such sublicense, and each
sublicensee shall acknowledge these duties to Allergan in writing. No sublicense
shall have the effect of relieving ASTI of any of its obligations hereunder.
2.4 PRIOR AND FUTURE GRANTS. ASTI understands and acknowledges that
Allergan is in the business of researching and developing products incorporating
the Allergan Technology for its own account and under arrangements with third
parties, and as a result, the license granted hereunder is limited strictly to
use the Allergan Technology for the purpose of researching and developing ASTI
Products and conducting related activities (including Pre-Selection Work) and
commercializing ASTI Products. ASTI acknowledges that Allergan may use and may
grant third party licenses to use the Allergan Technology for any and all other
purposes.
2.5 LICENSE TO ALLERGAN. In addition, in the event that Allergan
provides ASTI with a Reversion Notice (as such term is defined in Section 2.4
of the Research and Development Agreement) with respect to a Pre-Selection
Product, ASTI hereby grants to Allergan, effective upon the date of such
Reversion Notice, a worldwide, exclusive (even as to ASTI), perpetual license,
with the right to sublicense, to conduct research and development with respect
to such Pre-Selection Product and to make, have made, use, sell, have sold,
import and export such Pre-Selection Product, subject to Allergan's obligation
to pay Pre-Selection Product Payments and Developed Technology Royalties (as
such terms as defined in the Research and Development Agreement).
3. COVENANTS OF ASTI.
3.1 DILIGENCE. ASTI promptly shall commence and shall use diligent
efforts to develop ASTI Products in accordance with approved work plans and cost
estimates under the Research and Development Agreement, subject to Allergan
diligently undertaking its obligations thereunder.
4.
<PAGE> 5
3.2 TECHNOLOGY FEE. ASTI shall pay Allergan in arrears the following
Technology Fee payments:
(a) $833,333 thirty days after the date of the Distribution and
$833,333 on the same day of each of the next eleven months;
(b) $558,333 per month on the same day of each of the next twelve
months;
(c) $275,000 per month on the same day of each of the next twelve
months; and
(d) $166,667 per month on the same day of each of the next twelve
months;
provided, however, that ASTI shall no longer be obligated to make such payment
beginning with any month following the date on which the total number of ASTI
Products either under development by ASTI pursuant to the Research and
Development Agreement or licensed to Allergan pursuant to Allergan's exercise of
the License Option is less than two.
3.3 PRE-EXISTING OBLIGATIONS. ASTI agrees to perform and timely
discharge all of Allergan's and/or each Allergan Affiliate's obligations and
duties under each of the agreements listed on Exhibit A, including but not
limited to any and all royalty, milestone, non-disclosure, patent filing and/or
prosecution license grant and/or license back and/or similar or related
obligations and duties.
4. PATENTS.
4.1 INFRINGEMENT. Each party shall promptly notify the other of any
infringement or alleged infringement known to such party of any patent covering
Allergan Technology, by the manufacture, development, use or sale by a third
party of any Infringing Product.
4.2 ACTION BY ALLERGAN. Subject to the provisions of the Research and
Development Agreement and any License Agreement, in the event of any such
alleged infringement, Allergan shall have the right, at its own expense and with
the right to all recoveries, to take appropriate action to restrain such alleged
infringement. If Allergan takes any such action, ASTI shall cooperate fully with
Allergan in its pursuit thereof, at Allergan's expense, to the extent reasonably
requested by Allergan. If Allergan brings an action under this Section 4.2, the
parties shall share equally any recoveries, after Allergan is reimbursed for its
expenses of bringing the action (including reasonable attorneys' fees).
5.
<PAGE> 6
4.3 ACTION BY ASTI. If (a) the Infringing Product is substantially
similar to an ASTI Product (in that the Infringing Product incorporates the same
active Therapeutic Agent or Agents as such ASTI Product and, in the case of an
ASTI Product that utilizes Allergan drug delivery technology, a drug delivery
system substantially similar to the Allergan drug delivery system) for which the
License Option has expired unexercised, and (b) within 90 days after the written
notice from either party described above (or at any time thereafter), Allergan
has not taken appropriate action to restrain such alleged infringement, and (c)
at such time, the annualized unit sales volume of such Infringing Product in a
country over a period of at least two calendar quarters, equals or exceeds 25%
of the annualized unit sales volume of the related ASTI Product in such country
during the same period, then ASTI shall have the right, at its own expense and
with the right to all recoveries, to take such action as it deems appropriate to
restrain such alleged infringement. If ASTI takes any such action, Allergan
shall cooperate with ASTI in its pursuit thereof, at ASTI's expense, to the
extent reasonably requested by ASTI. If the third party in any such action
brings a counteraction for invalidation or misuse of a patent covering the
Allergan Technology or the ASTI Product, ASTI shall promptly notify Allergan,
and Allergan may, within six months after the notification, join and participate
in such action at its own expense. ASTI shall not settle any such action
relating to any alleged infringement which in any manner would adversely affect
Allergan Technology without the prior written consent of Allergan.
5. CONFIDENTIALITY OF INFORMATION.
5.1 CONFIDENTIALITY. During the term of this Agreement and for a period
of ten years following its termination, ASTI shall maintain in confidence all
Allergan Technology; provided, however, that nothing contained herein shall
prevent ASTI from disclosing any Allergan Technology to the extent such Allergan
Technology (a) is required to be disclosed in connection with researching or
developing ASTI Products, conducting Pre-Selection Work, conducting related
activities, securing necessary governmental authorization for the marketing of
ASTI Products, or directly or indirectly making, using or selling ASTI Products,
as permitted or provided for in the agreements between the parties, (b) is
required to be disclosed by law for the purpose of complying with governmental
regulations, (c) is disclosed in connection with any sublicense permitted
hereunder, (d) is known to or used by ASTI prior to the date hereof (other than
through disclosure by or on behalf of Allergan) as evidenced by ASTI's written
records, (e) is lawfully disclosed to ASTI by a third party having the right to
disclose such information to ASTI, or (f) either before or after the time of
disclosure to ASTI, becomes known to the public other than by an unauthorized
act or omission of ASTI or any of ASTI's employees or agents. Any disclosure of
Allergan Technology to third parties shall be made subject to similar
obligations of confidentiality on the part of such third parties. The
obligations of ASTI pursuant to this Section 5.1 shall survive the termination
of this Agreement for any reason. Any breach of this Section 5.1 may result in
irreparable harm
6.
<PAGE> 7
to Allergan, and in the event of a breach, Allergan shall be entitled to seek
injunctive relief (without the need to post a bond) in addition to any other
remedies available at law or in equity .
6. DISCLAIMER.
6.1 DISCLAIMER CONCERNING ALLERGAN TECHNOLOGY. ALLERGAN DISCLAIMS ANY
EXPRESS OR IMPLIED WARRANTY (A) THAT ANY ALLERGAN TECHNOLOGY, OR THE USE
THEREOF, OR ANY PRODUCTS INCORPORATING OR MANUFACTURED BY THE USE THEREOF, WILL
BE FREE FROM CLAIMS OF PATENT INFRINGEMENT, INTERFERENCE OR UNLAWFUL USE OF
PROPRIETARY INFORMATION OF ANY THIRD PARTY AND (B) OF THE ACCURACY, RELIABILITY,
TECHNOLOGICAL OR COMMERCIAL VALUE, COMPREHENSIVENESS OR MERCHANTABILITY OF THE
ALLERGAN TECHNOLOGY OR ITS SUITABILITY OR FITNESS FOR ANY PURPOSE WHATSOEVER
INCLUDING, WITHOUT LIMITATION, THE DESIGN, RESEARCH, DEVELOPMENT, MANUFACTURE,
USE OR SALE OF PRODUCTS. ALLERGAN DISCLAIMS ALL OTHER WARRANTIES OF WHATEVER
NATURE, EXPRESS OR IMPLIED.
7. REPORTS OF ADVERSE REACTIONS.
7.1 REPORTS OF ADVERSE REACTIONS. During the term of this Agreement,
each party shall promptly inform the other party of any information that it
obtains or develops regarding the efficacy or safety of an ASTI Product and
shall promptly report to the other party any information or notice of adverse or
unexpected reactions or side effects related to the utilization or medical
administration of an ASTI Product. Further, during the term of this Agreement,
each party shall promptly inform the other of any information that it obtains or
develops regarding the safety of any Allergan Technology as related to the ASTI
Products. Each such party shall permit the other to comply with the adverse
reaction reporting obligations under the United States Food, Drug and Cosmetic
Act, or similar statutory provisions, and regulations thereunder and shall
assist the other party in complying therewith, with respect to the ASTI
Products. When appropriate, the parties will execute a standard operating
procedure to cover the foregoing. ASTI agrees and acknowledges that Allergan may
provide information it obtains under this Section 7.1 to Allergan's other
clients developing and/or commercializing products incorporating the same
Allergan drug delivery systems as are incorporated in the ASTI Products.
8. EFFECTIVE DATE; TERMINATION.
8.1 EFFECTIVE DATE. This Agreement shall become effective on the date of
the Distribution.
7.
<PAGE> 8
8.2 TERMINATION FOR BREACH. Either party may terminate this Agreement
effective upon the giving of written notice of such termination to the other
party in the event such other party breaches any of its material obligations
hereunder or under the License Option Agreement and such breach continues for a
period of 60 days after written notice thereof by the terminating party to the
other party.
8.3 AUTOMATIC TERMINATION. This Agreement shall automatically terminate
upon termination by ASTI of the Research and Development Agreement other than
due to a breach by Allergan, or upon termination by Allergan of the Research and
Development Agreement due to a breach by ASTI.
8.4 TERMINATION OF SUBLICENSES. Termination by Allergan of this
Agreement shall automatically terminate any sublicenses granted by ASTI
hereunder.
9. FORCE MAJEURE.
9.1 FORCE MAJEURE. Neither party to this Agreement shall be liable for
failure or delay in the performance of any of its obligations hereunder if such
failure or delay is due to causes beyond its reasonable control, including,
without limitation, acts of God, earthquakes, fires, strikes, acts of war, or
intervention of any governmental authority, but any such delay or failure shall
be remedied by such party as soon as possible after the removal of the cause of
such failure or delay.
10. INDEMNIFICATION.
10.1 INDEMNITY. ASTI shall indemnify, defend and hold Allergan harmless
from and against any and all liabilities, claims, demands, damages, costs,
expenses or money judgments incurred by or rendered against Allergan and its
Affiliates, which arise out of the use, design, labeling, manufacture,
processing, packaging, sale or commercialization of the ASTI Products by ASTI,
its Affiliates and permitted subcontractors and sublicensees (other than
Allergan and its Affiliates, subcontractors, sublicensees, distributors and
others operating under arrangements with or through Allergan). Allergan shall
permit ASTI's attorneys, at ASTI's discretion and cost, to control the defense
of any claims or suits as to which Allergan may be entitled to indemnity
hereunder, and Allergan agrees not to settle any such claims or suits without
the prior written consent of ASTI. Allergan shall have the right to participate,
at its own expense, in the defense of any such claim or demand to the extent it
so desires.
10.2 NOTICE. Allergan shall give ASTI prompt notice in writing, in the
manner set forth in Section 11.7 below, of any claim or demand made against
Allergan for which Allergan may be entitled to indemnification under Section
10.1.
8.
<PAGE> 9
11. MISCELLANEOUS.
11.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto
of a breach of any provisions of this Agreement shall not be implied and shall
not be valid unless such waiver is recited in writing and signed by such party.
Failure of any party to require, in one or more instances, performance by the
other party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future performance of any
such terms or conditions or of any other terms and conditions of this Agreement.
A waiver by either party of any term or condition of this Agreement shall not be
deemed or construed to be a waiver of any other term or condition of this
Agreement. All rights, remedies, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be a
limitation of any other remedy, right, undertaking, obligation or agreement of
either party. This Agreement may not be amended except in a writing signed by
both parties.
11.2 ASSIGNMENT. Neither party may assign its rights and obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld; provided, however, that Allergan may assign
such rights and obligations hereunder to an Affiliate of Allergan or to any
person or entity with which Allergan is merged or consolidated or which acquires
all or substantially all of the assets of Allergan.
11.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall
refer such dispute to the CEO of ASTI and the CEO of Allergan for attempted
resolution by good faith negotiations within sixty (60) days after such referral
is made. During such period of good faith negotiations, any applicable time
periods under this Agreement shall be tolled. In the event such executives are
unable to resolve such dispute within such sixty (60) day period, the parties
shall submit their dispute to binding arbitration before a retired California
Superior Court Judge at J.A.M.S./Endispute located in Orange, California, such
arbitration to be conducted pursuant to the J.A.M.S./Endispute procedure rules
for commercial disputes then in effect. The award of the arbitrator shall
include an award of reasonable attorneys' fees and costs to the prevailing
party.
11.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
11.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California as applied to residents of
that state entering into contracts to be performed in that state.
9.
<PAGE> 10
11.6 HEADINGS. The section headings contained in this Agreement are
included for convenience only and form no part of the Agreement between the
parties.
11.7 NOTICES. Notices required under this Agreement shall be in writing
and sent by registered or certified mail, postage prepaid, or by facsimile and
confirmed by registered or certified mail, postage prepaid, and addressed as
follows:
If to Allergan
and/or any
Allergan Affiliate: Allergan, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: Corporate Vice President,
General Counsel
If to ASTI: Allergan Specialty Therapeutics, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: President and Chief
Executive Officer
All notices shall be deemed to be effective five days after the date of
mailing or upon receipt if sent by facsimile (but only if followed by certified
or registered confirmation). Either party may change the address at which notice
is to be received by written notice pursuant to this Section 11.7.
11.8 SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid or unenforceable, it shall be modified,
if possible, to the minimum extent necessary to make it valid and enforceable
or, if such modification is not possible, it shall be stricken and the remaining
provisions shall remain in full force and effect.
11.9 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, ASTI
and Allergan shall be deemed to be independent contractors, and anything in this
Agreement to the contrary notwithstanding, nothing herein shall be deemed to
constitute ASTI and Allergan as partners, joint venturers, co owners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever. Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way obligate the other party, except as expressly authorized in
writing by the other party. Anything in this Agreement to the contrary
notwithstanding,
10.
<PAGE> 11
no party hereto shall assume or be liable for any liabilities or obligations of
the other party, whether past, present or future.
11.10 SURVIVAL. The provisions of Sections 1, 5, 6, 7, 10, 11.1, 11.3,
11.5, 11.6, 11.7, 11.8, 11.9 and this Section 11.10 shall survive the
termination for any reason of this Agreement. Any payments due under this
Agreement with respect to any period prior to its termination shall be made
notwithstanding the termination of this Agreement. Neither party shall be liable
to the other due to the termination of this Agreement as provided herein,
whether in loss of good will, anticipated profits or otherwise.
11.
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
ALLERGAN SPECIALTY
THERAPEUTICS, INC.
By: ____________________________________________
Title: _________________________________________
ALLERGAN, INC.
By: ____________________________________________
Title: _________________________________________
ALLERGAN AFFILIATES:
ALLERGAN AMERICA, INC.
By: ____________________________________________
Title: _________________________________________
ALLERGAN PHARMACEUTICALS (IRELAND) LTD., INC.
By: ____________________________________________
Title: _________________________________________
12.
<PAGE> 13
VISION PHARMACEUTICALS, L.P.
A Texas limited partnership, dba Allergan,
by Allergan General, Inc.,
its general partner
By: ____________________________________________
Title: _________________________________________
13.
<PAGE> 14
EXHIBIT A
Exclusive License Agreement dated August 23, 1995 among Children's
Medical Center Corporation, Allergan, Allergan America, Inc. ("Allergan
America") and Allergan Pharmaceuticals (Ireland) Ltd., Inc.
("Allergan-Ireland").
License and Supply Agreement dated February 28, 1997 among Merz + Co.
GmbH & Co., Vision Pharmaceuticals L.P. ("Vision"), Allergan America,
Allergan-Ireland and Allergan.
Collaborative Research, Development and Marketing Agreement dated
November 20, 1996 between Cambridge NeuroScience, Inc. and Vision.
Amended and Restated Technology Cross License Agreement dated September
24, 1997 among Ligand Pharmaceuticals Incorporated, Allergan and Allergan Ligand
Retinoid Therapeutics, Inc.
Cross License Agreement dated ________, 1998 among Allergan, Allergan
America, Allergan-Ireland and Vision.
14.
<PAGE> 1
EXHIBIT 10.2
RESEARCH AND DEVELOPMENT AGREEMENT
This Research and Development Agreement (the "Agreement") is made as of
the ____ day of ________, 1998 between Allergan, Inc., a Delaware corporation
("Allergan"), and Allergan Specialty Therapeutics, Inc., a Delaware corporation
("ASTI").
BACKGROUND
A. ASTI has been formed for the purpose of research and developing human
pharmaceutical products, including products using Allergan Technology (as
defined below) and commercializing such products, most likely through licensing
to Allergan.
B. Allergan is engaged in the business of performing research,
development, marketing, manufacture and distribution of therapeutic and
prophylactic products.
C. ASTI desires that Allergan perform, on behalf of ASTI, research and
development activities directed toward the research and development of ASTI
Products (as defined below) and related activities.
Now, therefore, the parties agree as follows:
1. DEFINITIONS.
For the purposes of this Agreement, the following terms shall have the
meanings set forth below:
1.1 "Affiliate" shall mean a corporation or any other entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the designated party. "Control"
shall mean ownership of at least 50% of the shares of stock entitled to vote for
the election of directors in the case of a corporation, and at least 50% of the
interests in profits in the case of a business entity other than a corporation.
1.2 "Allergan Technology" shall mean all Proprietary Rights licensed
and/or sublicensed by Allergan and/or its Affiliates pursuant to the Technology
License Agreement.
1.3 "ALRT" shall mean Allergan Ligand Retinoid Therapeutics, Inc, a
Delaware corporation.
1.4 "ASTI Product" shall mean any dosage form of a compound which is the
subject of research and development as a potential human pharmaceutical product
which has been recommended by Allergan and accepted by ASTI's Board of Directors
for
1.
<PAGE> 2
development as such under this Agreement. Such recommendations may be made on a
Field of Use basis. The following compounds have been selected as the initial
ASTI Products as of the date hereof: (i) Tazarotene (oral), (ii) Memantine,
(iii) AGN 4310 and (iv) a compound to be selected from the RAR alpha-selective
agonist class of retinoid compounds for the treatment of various cancers.
1.5 "Available Funds" shall mean, as of any date of determination, $200
million plus any investment income earned thereon less (a) the aggregate amount
of all Research and Development Costs paid or incurred by ASTI as of such date,
(b) ASTI's aggregate reasonable ongoing administrative expenses paid or incurred
as of such date and, (c) the aggregate amount of all Technology Fee payments
paid or incurred by ASTI as of such date.
1.6 "Developed Technology" shall mean Proprietary Rights that (a) are
first generated, conceived or reduced to practice, as the case may be, by
Allergan or by any third party in the course of performing activities undertaken
pursuant to this Agreement or (b) are, in any manner, acquired by, or otherwise
obtained on behalf of, ASTI during the term of this Agreement from persons other
than Allergan and are necessary or useful to the research, development or
commercialization of ASTI Products or Pre-Selection Products.
1.7 "Developed Technology Product" shall mean any product (other than an
ASTI Product) (i) covered, at the time of sale in a country by one or more
unexpired patents issued in such country that are included in Developed
Technology and (ii) with respect to which Allergan receives any consideration.
1.8 "Developed Technology Royalties" shall mean the payments made by
Allergan to ASTI with respect to Net Sales of Developed Technology Products.
1.9 "Distribution" shall mean Allergan's distribution of all of the
outstanding shares of Class A Common Stock of ASTI to Allergan stockholders of
record on ________, 1998.
1.10 "Distribution Agreement" shall mean the Distribution Agreement
dated as of the date hereof between Allergan and ASTI.
1.11 "FDA" shall mean the United States Food and Drug Administration or
any successor agency whose clearance is necessary to market an ASTI Product in
the United States.
1.12 "Field of Use" shall mean a particular disease state or set of
related disease states.
2.
<PAGE> 3
1.13 "License Option" shall mean the option granted to Allergan pursuant
to the License Option Agreement.
1.14 "License Option Agreement" shall mean the License Option Agreement
dated as of the date hereof between Allergan and ASTI.
1.15 "Major Market Country" shall mean any of the following countries:
United States, France, Germany, Italy, Japan or the United Kingdom.
1.16 "Net Sales" shall mean, with respect to any Licensed Product,
Developed Technology Product or Pre-Selection Product, the amount billed by
Allergan or its Affiliates to a third party which is not an Affiliate of the
selling party (unless such Affiliate is the end user of such product, in which
case the amount billed therefor shall be deemed to be the amount that would be
billed to a third party in an arm's length transaction) for sales of such
Licensed Product, Developed Technology Product or Pre-Selection Product to third
parties less the following items, as allocable to such Licensed Product,
Developed Technology Product or Pre-Selection Product: (i) trade discounts,
credits or allowances, (ii) credits or allowances additionally granted upon
returns, rejections or recalls (except where any such recall arises out of
Allergan's or its Affiliate's gross negligence, willful misconduct or fraud),
(iii) freight, shipping and insurance charges, (iv) taxes, duties or other
governmental tariffs (other than income taxes) and (v) government mandated
rebates.
1.17 "Pre-Selection Work" shall mean research and pre-clinical
development work involving one or more product candidates owned or controlled by
Allergan or a third party undertaken in order to determine the suitability of
such candidate for research and development by ASTI.
1.18 "Pre-Selection Product" shall mean a product, other than one which
becomes an ASTI Product, for which ASTI funds Pre-Selection Work.
1.19 "Pre-Selection Product Payments" shall mean the payments made by
Allergan to ASTI pursuant to Section 7.4 with respect to Net Sales of
Pre-Selection Products.
1.20 "Product Candidate" shall mean a potential ASTI Product or
potential Pre-Selection Product for which Allergan proposes a Work Plan in
accordance with Section 2.2.
1.21 "Product Research and Development Program" shall mean a program to
conduct research and development with respect to an ASTI Product.
3.
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1.22 "Proprietary Rights" shall mean data, inventions, information,
processes, know-how and trade secrets, and patents or patent applications
claiming any of the foregoing, owned by, licensed to or controlled by a person
and which such person has the right to license or sublicense. Proprietary Rights
shall not include trademarks.
1.23 "Purchase Option" shall mean that certain option contained in
ASTI's Restated Certificate of Incorporation pursuant to which Allergan has the
right to purchase all of the outstanding shares of ASTI Class A Common Stock.
1.24 "Research and Development Costs" shall mean the cost of the
activities undertaken pursuant to this Agreement, determined in accordance with
Exhibit A hereto.
1.25 "Specialty Royalty Payments" shall mean front-end distribution
fees, prepaid royalties or similar one-time, infrequent or special payments from
a sublicensee to Allergan with respect to a Licensed Product, a Developed
Technology Product or a Pre-Selection Product.
1.26 "Sublicensing Revenues" shall mean percentage-of-sales payments and
Specialty Royalty Payments received by Allergan from sublicensees with respect
to a Licensed Product, a Developed Technology Product or a Pre-Selection
Product.
1.27 "Technology Fee" shall mean payments to be made over a maximum
period of four (4) years by ASTI to Allergan pursuant to the Technology License
Agreement.
1.28 "Technology License Agreement" shall mean the Technology License
Agreement dated as of the date hereof between Allergan and ASTI.
1.29 "Therapeutic Agent" shall mean a drug, protein, peptide, gene,
compound or other pharmaceutically active ingredient.
1.30 "Work Plan" shall mean a work plan for research and development of
a potential ASTI Product or potential Pre-Selection Product including cost
estimates.
2. PRODUCT RESEARCH AND DEVELOPMENT PROGRAM.
2.1 PRODUCT CANDIDATE IDENTIFICATION PROCESS. On or before March 31,
1998 and at least annually thereafter, Allergan shall provide ASTI with a
proposed Work Plan covering activities to be undertaken by Allergan to identify
and conduct research and development with respect to Product Candidates for
consideration by ASTI under Sections 2.2, 2.3 and, as applicable, Section 2.4.
Promptly after Allergan provides ASTI with such proposed Work Plan, ASTI shall
notify Allergan of its acceptance or rejection of such proposed Work Plan.
4.
<PAGE> 5
2.2 PRODUCT CANDIDATE SELECTION.
(a) From time to time during the term of this Agreement, Allergan
shall present ASTI with Product Candidates recommended by Allergan for research
and development as ASTI Products, together with preliminary lifetime plans that
provide, for each such Product Candidate, an estimate of the total Research and
Development Costs for the Product Research and Development Program for such
Product Candidate through FDA review for clearance to market the resulting
product, milestones (including the timetable for the development of the
resulting product), detailed Work Plans for the first proposed stage of the
Product Research and Development Program and any other factors that Allergan
deems appropriate to determine whether to recommend the Product Candidate for
research and development.
(b) Promptly after Allergan recommends a Product Candidate for
research and development to ASTI, ASTI shall notify Allergan in writing of its
acceptance (in whole or in part) or rejection (in whole or in part) of the
initial Work Plan included with such recommendation. Upon written acceptance (in
whole or in part) of a Work Plan for a Product Candidate under this Section 2.2,
such Product Candidate shall be deemed to be an ASTI Product.
(c) If ASTI fails to accept a recommended Product Candidate for
research and development as an ASTI Product within 120 days of recommendation by
Allergan, then, subject to Section 7.4, ASTI shall have no rights with respect
to such Product Candidate; provided, however, that, at any time during the term
of this Agreement, ASTI may request Allergan to perform a Product Research and
Development Program for such Product Candidate and Allergan shall undertake its
duties with respect to such Product Research and Development Program, all in
accordance with this Section 2 and Section 3, unless, at the time of such
request, Allergan is then undertaking the research and development of such
Product Candidate for its own account or with a third party, or Allergan is
otherwise not permitted to undertake such research or development hereunder
because of an arrangement with a third party.
2.3 ASTI PRODUCTS AND PRE-SELECTION WORK. ASTI shall fund the Research
and Development Costs under Allergan approved Work Plans in accordance with
Section 4.1 for each of the initial ASTI Products specified in Section 1.4 and
for the Pre-Selection Work described in Exhibit B during the period from the
date on which ALRT ceased such funding (October 23, 1997) through March 31,
1998. On or before March 31, 1998, Allergan shall provide ASTI with a proposed
Work Plan and a lifetime plan for the continued development of each of such
initial ASTI Products and such initial Pre-Selection Work. On or before March
31, 1998, ASTI shall notify Allergan in writing of its acceptance (in whole or
in part) or rejection (in whole or in part) thereof.
5.
<PAGE> 6
2.4 PRE-SELECTION WORK. From time to time during the term of this
Agreement, Allergan may provide ASTI with a proposed Work Plan covering one or
more Pre-Selection Work projects with respect to Product Candidates which
Allergan designates as Pre-Selection Products. Promptly after Allergan provides
ASTI with such proposed Work Plan, ASTI shall notify Allergan of its acceptance
(in whole or in part) or rejection (in whole or in part) of such proposed Work
Plan. Allergan may propose to ASTI at any time that any Pre-Selection Product
(including any Pre-Selection Product relating to the Pre-Selection Work referred
to on Exhibit B) become an ASTI Product by complying with the procedures set
forth in Section 2.2. So long as an IND has not been filed with respect to a
Pre-Selection Product, Allergan may at any time, by providing notice to ASTI
(the "Reversion Notice"), cause all rights with respect to such Pre-Selection
Product to revert to Allergan, subject to Allergan's obligations to pay
Pre-Selection Product Payments and Developed Technology Royalties.
2.5 PARTIAL ACCEPTANCE. If ASTI accepts or rejects a Work Plan in part,
Allergan may either (i) perform the activities under the Work Plan as approved
by ASTI or (ii) propose a modified Work Plan to ASTI for approval.
3. RESEARCH AND DEVELOPMENT PROGRAMS; ALLERGAN SERVICES.
3.1 PRODUCT DEVELOPMENT--ASTI OBLIGATIONS. Once ASTI accepts a Work Plan
for an ASTI Product or a Pre-Selection Work pursuant to Section 2.2, 2.3 or 2.4,
ASTI shall use diligent efforts to complete such Work Plan, as amended from time
to time. ASTI shall request that Allergan or a third party perform the
activities under each such Work Plan; provided, however, that Allergan's prior
written consent shall be required for a third party to perform any activities
that involve Allergan Technology or that could affect Allergan's rights under
any agreement between Allergan and ASTI or Allergan's rights as holder of the
Class B Common Stock of ASTI. ASTI shall use diligent efforts to cause each
third party other than Allergan (or a third party engaged by Allergan) to
perform diligently the activities assigned it under a Work Plan.
3.2 PRODUCT DEVELOPMENT--ALLERGAN OBLIGATIONS; OTHER ALLERGAN
ACTIVITIES. ASTI hereby engages Allergan to perform product identification,
evaluation, research, development and related activities in accordance with the
tasks assigned to Allergan under the Work Plans accepted under Section 2, and to
undertake such other activities as the parties may agree. Allergan diligently
shall perform or cause to be performed such activities. In connection therewith,
Allergan shall make available such of its scientific and other personnel, and
shall take such steps as it deems necessary in order to perform its obligations
in accordance with the terms hereof, but Allergan is not obligated to devote any
specific amount of time or resources to activities hereunder. Allergan shall
have full discretion to determine from time to time the allocation of resources
of Allergan (facilities, equipment and personnel) that are available for
activities hereunder, and to determine from time to time the allocation of
resources of Allergan among such activities. ASTI understands, acknowledges and
agrees that Allergan may devote substantial time and resources to research and
development activities for other persons and for its own account, and as a
result, Allergan may develop and commercialize, or have
6.
<PAGE> 7
commercialized, products competitive with ASTI Products, Pre-Selection Products
and Developed Technology Products.
3.3 WORK PLANS. The parties understand and acknowledge that it is
difficult to predict accurately the activities that will be necessary to
complete any Work Plan, including the Research and Development Costs thereof,
and that significant uncertainties exist in any product development effort. ASTI
and Allergan shall cooperate in good faith to devise mutually acceptable Work
Plans for Product Research and Development Programs, Pre-Selection Work,
candidate identification activities and such other activities as the parties may
agree. Allergan and ASTI shall review each such Work Plan from time to time, and
with respect to a Work Plan for an ASTI Product no less often than at the end of
each stage of research and development, and shall revise each Work Plan as
appropriate such that each Work Plan remains a best estimate of the work to be
performed to complete the development objectives identified therein and of the
Research and Development Costs thereunder. ASTI shall not be obligated to pay
Research and Development Costs in excess of those provided for in approved Work
Plans, and Allergan shall not be obligated to perform work which would result in
Research and Development Costs exceeding those in approved Work Plans.
3.4 CONSULTATION. ASTI shall consult with Allergan and shall review with
Allergan from time to time the progress toward completion of the activities
under the Work Plans for each ASTI Product and Pre-Selection Work, including
without limitation, the status in each country for each ASTI Product for which
marketing clearance is being sought.
3.5 THIRD PARTY RIGHTS. Subject to the terms and conditions of this
Agreement, ASTI shall have discretion to attempt to obtain, using Available
Funds, any Proprietary Rights from any third party that ASTI reasonably
determines to be necessary or useful to conduct any Product Research and
Development Program, Pre-Selection Work or related activities under this
Agreement. Such Proprietary Rights shall be included in the Developed
Technology. The costs of obtaining any such Proprietary Rights shall be included
in the calculation of Research and Development Costs paid by ASTI pursuant to
this Agreement.
3.6 DEVELOPMENT ASSETS. Allergan shall own and have the right to use any
clinical supplies, materials and other assets purchased, manufactured or
developed pursuant to approved Work Plans ("Development Assets") and, until such
time as the License Option is exercised with respect to the product to which any
particular Development Asset pertains, shall use such Development Assets solely
in the development of ASTI Products under approved Work Plans.
7.
<PAGE> 8
3.7 NO USE OF AVAILABLE FUNDS. After either (i) such time as the License
Option for an ASTI Product in a country expires unexercised as to such country
or (ii) an investigational new drug application ("IND") is filed with the FDA
with respect to a Pre-Selection Product which has not been recommended by
Allergan and accepted by ASTI's Board of Directors as an ASTI Product, no
additional Available Funds shall be expended for the research or development of
such ASTI Product for sale in such country or such Pre-Selection Product, as
applicable.
3.8 NOTICES. Allergan shall notify ASTI within three business days after
Allergan receives notice of clearance to market any ASTI Product in any country.
Allergan shall promptly notify ASTI of the first commercial sale of an ASTI
Product, Developed Technology Product or Pre-Selection Product in any country.
4. PAYMENT FOR SERVICES; TIMING OF PAYMENTS.
4.1 PAYMENT OF RESEARCH AND DEVELOPMENT COSTS. In consideration of the
work to be carried out by Allergan hereunder, ASTI shall reimburse Allergan for
all Research and Development Costs incurred by Allergan in accordance with
accepted Work Plans. ASTI shall also reimburse Allergan for (i) Research and
Development Costs incurred with respect to the initial ASTI Products referred to
in Section 1.4 and (ii) Pre-Selection Work described in Exhibit B, which costs
are incurred from the date on which ALRT ceased such funding (October 23, 1997)
through March 31, 1998 in accordance with the Allergan approved Work Plans
therefor in effect as of the date hereof.
4.2 TIMING OF PAYMENTS. ASTI shall pay to Allergan monthly, in arrears,
all such Research and Development Costs incurred by Allergan during the
preceding calendar month, within 30 days after Allergan's invoice therefor.
4.3 SUFFICIENCY OF FUNDS. Neither ASTI nor Allergan makes any warranty,
express or implied, that Available Funds will be sufficient to complete the
development of any or all ASTI Products or the other activities contemplated
hereunder.
5. REPORTS AND RECORDS.
5.1 PRODUCT RESEARCH AND DEVELOPMENT PROGRAM REPORTS. Within 45 days
after the end of each calendar quarter, Allergan shall provide to ASTI, and ASTI
shall require each third party engaged by ASTI pursuant to Section 3.1 to
provide to ASTI and to Allergan, a reasonably detailed report setting forth (a)
a summary of the work performed hereunder by Allergan or such third party, as
appropriate, and its employees and agents during such quarter; and (b) the total
Research and Development Costs of such activities during such quarter and
cumulatively to date, for each Work Plan.
8.
<PAGE> 9
5.2 AVAILABLE FUNDS STATEMENT. Within 45 days after the end of each
calendar quarter, ASTI shall provide to Allergan a statement setting forth, as
of the end of such quarter, the Available Funds remaining.
5.3 PAYMENT REPORTS. Within 90 days after the end of each calendar
quarter for which payments are due under Section 7.4, Allergan shall render an
accounting to ASTI, on a product-by-product and country-by-country basis, with
respect to all payments due for such quarter under Section 7.4. Such report
shall indicate, for such quarter, the quantity and dollar amount of Net Sales
of, and Sublicensing Revenues with respect to, each Developed Technology Product
and each Pre-Selection Product by Allergan and its Affiliates, sublicensees,
distributors and marketing partners (and their Affiliates), with respect to
which payments are due; provided, however, that if Allergan shall not have
received from any foreign sublicensee, distributor or marketing partner a report
of its (and its Affiliates') sales for such quarter, then such sales shall be
included in the next quarterly report, and payments with respect to such report
shall be due in the next quarter. In case no payment is due for any calendar
quarter, Allergan shall so report. Allergan shall keep accurate records in
sufficient detail to enable the payments due hereunder to be determined.
5.4 RECORDS; REVIEW BY ACCOUNTANTS. Each of ASTI and Allergan shall keep
and maintain, in accordance with generally accepted accounting principles,
proper and complete records and books of account documenting all Research and
Development Costs and amounts paid or payable by Allergan to ASTI under this
Agreement, in the case of Allergan, and remaining Available Funds, in the case
of ASTI. Each of ASTI and Allergan shall have the right, once in each calendar
year during regular business hours and upon reasonable notice to the other
party, and at its own expense, to examine or to have examined by a certified
public accountant or similar person reasonably acceptable to the other party,
pertinent books and records of one another, for the sole purpose of determining
the correctness of amounts invoiced, paid or due under this Agreement and the
application of Available Funds by ASTI. Such examination shall take place not
later than two years following the year in question, and only one examination
may take place with respect to any period as to which such books and records are
examined. Each party shall obtain, for itself and for the other party, similar
reasonable rights to audit the Research and Development Costs of, and payments
with respect to Net Sales by, each third party engaged by ASTI pursuant to
Section 3.1 or appointed or permitted by Allergan to commercialize any product
as to which payments are due to ASTI hereunder.
6. TECHNOLOGY LICENSED FOR DEVELOPMENT.
6.1 LICENSE TO USE ALLERGAN TECHNOLOGY. ASTI hereby grants to Allergan a
sublicense to use the Allergan Technology and the Developed Technology solely
for the purpose of conducting the activities contemplated hereunder.
9.
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6.2 TERMINATION OF LICENSE. Termination of the license granted under the
Technology License Agreement automatically shall terminate the sublicense to the
Allergan Technology granted to Allergan pursuant to Section 6.1.
7. OWNERSHIP OF ASTI PRODUCTS AND DEVELOPED TECHNOLOGY; PATENTS; PAYMENTS TO
ASTI.
7.1 OWNERSHIP OF ASTI PRODUCTS. Unless ASTI agrees otherwise, all ASTI
Products will be owned by ASTI or, in the case of a product licensed from a
third party (or a product incorporating a Therapeutic Agent licensed from a
third party), exclusively licensed to ASTI on a worldwide basis, with the right
to sublicense, and otherwise on terms granting rights substantially similar to
those rights ASTI would have as an owner, in either case subject to the License
Option.
7.2 OWNERSHIP OF DEVELOPED TECHNOLOGY. As between Allergan and ASTI,
Allergan shall own all Developed Technology, subject to the Technology License
Agreement.
7.3 PATENTS COVERING DEVELOPED TECHNOLOGY. Allergan shall determine
whether and to what extent to seek and maintain United States and/or foreign
patents covering any Developed Technology. Any such patents and applications
therefor shall be in Allergan's name and shall be owned by Allergan. In the
event that Allergan declines to seek patent protection for any Developed
Technology, ASTI will not have the right to do so. ASTI and Allergan each shall
pay one-half of the costs of obtaining and maintaining any such patents during
the term of this Agreement.
7.4 PAYMENTS BASED ON SALES OF DEVELOPED TECHNOLOGY PRODUCTS AND
PRE-SELECTION PRODUCTS.
(a) Allergan shall pay Developed Technology Royalties to ASTI, on a
country-by-country basis, equal to the sum of (i) 1% of Allergan's Net Sales in
the relevant country of each Developed Technology Product plus (ii) 10% of any
Sublicensing Revenues with respect to such Developed Technology Product. Only
one payment under this Section 7.4 shall be payable by Allergan to ASTI with
respect to Net Sales of each Developed Technology Product in any country,
regardless of the number of patents covering such Developed Technology Product
in such country. Subject to Section 7.5, payments with respect to sales of a
Developed Technology Product in any country shall be made by Allergan until the
expiration of the last to expire of the patent or patents covering such
Developed Technology Product in any country.
(b) Allergan shall make Pre-Selection Product Payments to ASTI equal
to the sum of (i) 1% of Allergan's Net Sales of each Pre-Selection Product plus
(ii) 10% of any Sublicensing Revenues with respect to such Pre-Selection
Product. Subject to
10.
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Section 7.5, payments with respect to sales of a Pre-Selection Product shall be
made by Allergan until seven years after the first commercial sale of such
Pre-Selection Product in the first Major Market Country in which such product is
commercially sold.
(c) In determining payments due under this Section 7.4, Net Sales by
Allergan shall be reduced by the dollar amount of any license or similar
payments made by or due from Allergan or its Affiliates to third parties with
respect to any such sales of such Developed Technology Product or Pre-Selection
Product. If license or similar payments are made to third parties with respect
to sales of such products and to sales of other products, Allergan shall
allocate such payments, if necessary, in a commercially reasonable manner.
(d) Notwithstanding the foregoing, if a product is both a Developed
Technology Product and a Pre-Selection Product, amounts payable under this
Section 7.4 with respect to such product for any period of time shall be limited
to the sum of (i) 1% of Allergan's Net Sales plus (ii) 10% of any Sublicensing
Revenues.
7.5 BUY-OUT OF PAYMENTS BASED ON SALES OF DEVELOPED TECHNOLOGY PRODUCTS
AND PRE-SELECTION PRODUCTS.
(a) Allergan shall have the option with respect to each Developed
Technology Product and each Pre-Selection Product, in its discretion, at any
time after the end of the twelfth calendar quarter during which such product was
commercially sold in a country, to buy out its remaining obligation to make
payments under Section 7.4 with respect to sales of such Developed Technology
Product or Pre-Selection Product in such country. The buy out price shall be an
amount equal to 15 times the payments made by or due from Allergan to ASTI under
Section 7.4 with respect to sales of such Developed Technology Product or
Pre-Selection Product in such country for the four calendar quarters immediately
preceding the quarter in which the buy out option is exercised.
(b) Allergan shall have the option with respect to each Developed
Technology Product and each Pre-Selection Product, in its discretion, at any
time after the end of the twelfth calendar quarter during which such product was
commercially sold in either the United States or two other Major Market
Countries, to buy out its remaining worldwide obligations to make payments under
Section 7.4 with respect to sales of such Developed Technology Product or
Pre-Selection Product. The buyout price shall be an amount equal to (i) 20 times
(A) the payments made by or due from Allergan to ASTI under Section 7.4 with
respect to sales of such Developed Technology Product or Pre-Selection Product,
plus (B) such payments as would have been made by or due from Allergan to ASTI
if Allergan had not exercised any country-specific buy-out option with respect
to such Developed Technology Product or Pre-Selection Product, in each case, for
the four calendar quarters immediately preceding the quarter in which the
buy-out option
11.
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is exercised, less (ii) any amounts previously paid to exercise any country-
specific buy-out option with respect to such Developed Technology Product or
Pre-Selection Product.
7.6 PAYMENTS. Payments shown by each calendar quarter report described
in Section 5.3 to have accrued shall be due and payable on the date the report
is due and shall be paid in United States dollars. Any and all taxes due or
payable on such payments or with respect to the remittance thereof shall be
deducted from such payments and shall be paid by Allergan to the proper taxing
authorities, and proof of payment shall be secured and sent to ASTI as evidence
of such payment. The rate of exchange to be used in computing the amount of
United States dollars due to ASTI in satisfaction of payment obligations with
respect to sales in foreign countries shall be calculated by converting the
amount due in such foreign currency into United States dollars based on the rate
for the purchase of United States dollars with such currency as published in the
Wall Street Journal on the last business day of the calendar quarter for which
payment is being made.
7.7 CERTAIN FOREIGN PAYMENTS. If governmental regulations prevent
remittance from any foreign country of any amounts due under Section 7.4 with
respect to that country, Allergan shall so notify ASTI in writing, and the
obligation under this Agreement to make payments with respect to sales in that
country shall be suspended (but the amounts due but not paid shall continue to
accrue) until such remittances are possible. ASTI shall have the right, upon
written notice to Allergan, to receive payment in any such country in the local
currency.
7.8 LATE PAYMENTS. Any payments due hereunder that are not made when due
shall accrue interest at the lesser of 10% per annum or the maximum rate as may
be allowed by law, beginning on the date when ASTI notifies Allergan that such
payments are overdue.
8. ACCESS TO INFORMATION; CONFIDENTIALITY.
8.1 ACCESS. Subject to the terms of this Agreement, each party shall be
permitted access to the premises of the other during normal business hours, for
the purpose of monitoring the progress of activities under this Agreement. Each
party shall keep full and complete records and notebooks containing all
experiments performed during its work under this Agreement and the results
thereof. Such items and copies of all documentation shall be available during
normal business hours for inspection by the other party. In addition, each party
shall provide to the other such other information as reasonably may be
requested.
8.2 THIRD PARTIES. ASTI and Allergan shall cause each third party
engaged pursuant to Section 3.1 or 3.2 to provide access similar to that to be
provided pursuant to Section 8.1, for the benefit of both ASTI and Allergan.
12.
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8.3 PRODUCT LISTS. Allergan shall maintain a complete list of ASTI
Products, Developed Technology Products and Pre-Selection Products at all times.
Confirmation of the completeness and accuracy of such list shall be made at any
time upon the reasonable request of ASTI.
8.4 CONFIDENTIALITY. During the term of this Agreement and for a period
of ten years following its termination, each party shall maintain in confidence
all Proprietary Rights of the other; provided, however, that nothing contained
herein shall prevent either party from disclosing any Proprietary Rights to the
extent that such Proprietary Rights (a) are required to be disclosed in
connection with researching and developing ASTI Products, conducting
Pre-Selection Work, conducting related activities, securing necessary
governmental authorization for the marketing of ASTI Products or Pre-Selection
Products, or directly or indirectly making, using or selling ASTI Products or
Pre-Selection Products, as permitted or provided for in the agreements between
the parties, (b) are required to be disclosed by law for the purpose of
complying with governmental regulations, (c) are disclosed to sublicensees,
distributors or marketing partners or potential sublicenses, distributors or
marketing partners permitted under the agreements between the parties in
connection with the proposed or actual research, development, manufacturing or
marketing of ASTI Products or Pre-Selection Products, subject to similar
obligations of confidentiality on the part of such third parties as required by
the agreements between the parties, (d) are known to or used by the recipient
prior to the date hereof (other than through disclosure by or on behalf of the
other party) as evidenced by the recipient's written records, (e) are lawfully
disclosed to the recipient by a third party having the right to disclose such
information to the recipient, or (f) either before or after the time of
disclosure to the recipient, become known to the public other than by an
unauthorized act or omission of the recipient or any of the recipient's
employees or agents; provided that clause (d) does not give Allergan the right
to disclose Proprietary Rights that relate exclusively to ASTI Products;
provided further that, ASTI may disclose Allergan Proprietary Rights to third
parties only in accordance with the provisions of Section 10.3 hereof and in
accordance with the provisions of the Technology License Agreement. The
obligations of each of the parties pursuant to this Section 8.4 shall survive
the termination of this Agreement for any reason. Any breach of this Section 8.4
may result in irreparable harm, and in the event of a breach, the aggrieved
party shall be entitled to seek injunctive relief (without the need to post a
bond) in addition to any other remedies available at law or in equity.
9. PUBLIC DISCLOSURE.
9.1 PUBLIC DISCLOSURE. The parties will work together with respect to
public statements disclosing the status of and results under Product Research
and Development Programs and related matters. Except to the extent previously
disclosed pursuant to the terms hereof, neither party shall disclose to third
parties nor originate any publicity, news
13.
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release or public announcement, written or oral, whether to the public, the
press, stockholders or otherwise, referring to activities conducted, or the
parties' performance under, this Agreement, except such announcements, as in the
opinion of the counsel for the party making such announcement, are required by
law, including United States securities laws, rules or regulations, without the
prior written consent of the other party. If a party decides to make an
announcement it believes to be required by law with respect to this Agreement,
it will give the other party such notice as is reasonably practicable and an
opportunity to comment upon the announcement.
10. COVENANTS.
10.1 USE OF AVAILABLE FUNDS. Unless Allergan agrees otherwise, ASTI
agrees to expend all Available Funds for activities undertaken pursuant to this
Agreement. Pending application of all Available Funds as set forth above,
Available Funds shall be invested in securities issued or guaranteed as to
principal and interest by the United States, or by a person controlled or
supervised by or acting as an instrumentality of the government of the United
States pursuant to authority granted by the Congress of the United States, or
any certificate of deposit for any of the foregoing, or any other types of high
quality marketable investment securities that are proposed by ASTI and are
approved by Allergan in its sole discretion.
10.2 NEGATIVE PLEDGE. ASTI shall not create, incur, assume or suffer to
exist any lien upon or with respect to, or otherwise take any action with
respect to, Available Funds so as to prevent or interfere with full expenditure
of such funds for activities under this Agreement in accordance with Section
10.1.
10.3 NO INCONSISTENT AGREEMENTS. Without the written consent of
Allergan, ASTI shall not enter into any agreement or arrangement that is in any
way inconsistent with or that could adversely affect Allergan Technology or
Allergan's rights under any agreement between Allergan and ASTI, or that is in
any way inconsistent with or that could adversely affect Allergan's rights as
holder of the Class B Common Stock of ASTI. ASTI must include in any agreement
between ASTI and a third party relating to ASTI Products and/or activities
hereunder such provisions as Allergan reasonably deems appropriate to protect
Allergan Technology and to protect Allergan's rights under any agreement between
Allergan and ASTI and as a holder of the Class B Common Stock of ASTI (including
Allergan's rights under the Purchase Option).
11. EFFECTIVE DATE; TERM AND TERMINATION.
11.1 EFFECTIVE DATE. The effective date of this Agreement shall be the
date of the Distribution.
14.
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11.2 AUTOMATIC TERMINATION. This Agreement shall terminate upon exercise
or expiration of the Purchase Option, except that Allergan's obligations to make
payments to ASTI with respect to Developed Technology Products and Pre-Selection
Products shall continue after expiration of the Purchase Option as provided in
Section 7 hereof.
11.3 OTHER TERMINATION. Either party may, in its discretion, terminate
this Agreement in the event that the other party:
(a) breaches any material obligation hereunder or under the
Technology License Agreement, the License Option Agreement, or any license
thereunder, and such breach continues for a period of 60 days after written
notice thereof by the terminating party to the other party; or
(b) enters into any proceeding, whether voluntary or otherwise, in
bankruptcy, reorganization or arrangement for the appointment of a receiver or
trustee to take possession of its assets or any other proceeding under any law
for the relief of creditors, or makes an assignment for the benefit of its
creditors.
12. FORCE MAJEURE.
12.1 FORCE MAJEURE. Neither party to this Agreement shall be liable for
failure or delay in the performance of any of its obligations hereunder, if such
failure or delay is due to causes beyond its reasonable control including,
without limitation, acts of God, earthquakes, fires, strikes, acts of war, or
intervention of any governmental authority, but any such delay or failure shall
be remedied by such party as soon as possible after the removal of the cause of
such failure or delay.
13. MISCELLANEOUS.
13.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto
of a breach of any provisions of this Agreement shall not be implied and shall
not be valid unless such waiver is recited in writing and signed by such party.
Failure of any party to require, in one or more instances, performance by the
other party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future performance of any
such terms or conditions or of any other terms and conditions of this Agreement.
A waiver by either party of any term or condition of this Agreement shall not be
deemed or construed to be a waiver of any other term or condition of this
Agreement. All rights, remedies, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be a
limitation of any other remedy, right, undertaking, obligation or agreement of
either party. This Agreement may not be amended except in a writing signed by
both parties.
15.
<PAGE> 16
13.2 ASSIGNMENT. Neither party may assign its rights and obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld; provided, however, that Allergan may assign
such rights and obligations hereunder to an Affiliate of Allergan or to any
person or entity with which Allergan is merged or consolidated or which acquires
all or substantially all of the assets of Allergan.
13.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall
refer such dispute to the CEO of ASTI and the CEO of Allergan for attempted
resolution by good faith negotiations within sixty (60) days after such referral
is made. During such period of good faith negotiations, any applicable time
periods under this Agreement shall be tolled. In the event such executives are
unable to resolve such dispute within such sixty (60) day period, the parties
shall submit their dispute to binding arbitration before a retired California
Superior Court Judge at J.A.M.S./Endispute located in Orange, California, such
arbitration to be conducted pursuant to the J.A.M.S./Endispute procedure rules
for commercial disputes then in effect. The award of the arbitrator shall
include an award of reasonable attorneys' fees and costs to the prevailing
party.
13.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
13.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California as applied to residents of
that state entering into contracts to be performed in that state.
13.6 HEADINGS. The section headings contained in sections of this
Agreement are included for convenience only and form no part of the Agreement
between the parties.
13.7 NOTICES. Notices required under this Agreement shall be in writing
and sent by registered or certified mail, postage prepaid, or by facsimile and
confirmed by registered or certified mail, postage prepaid, and addressed as
follows:
If to Allergan: Allergan, Inc.
2525 Dupont Drive
Irvine, CA 92715
Facsimile: (714) 246-4774
Attention: Corporate Vice President,
General Counsel
16.
<PAGE> 17
If to ASTI: Allergan Specialty Therapeutics, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: President and Chief
Executive Officer
All notices shall be deemed to be effective five days after the date of mailing
or upon receipt if sent by facsimile (but only if followed by certified or
registered confirmation). Either party may change the address at which notice is
to be received by written notice pursuant to this Section 13.7.
13.8 SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid or unenforceable, it shall be modified,
if possible, to the minimum extent necessary to make it valid and enforceable
or, if such modification is not possible, it shall be stricken and the remaining
provisions shall remain in full force and effect.
13.9 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, ASTI
and Allergan shall be deemed to be independent contractors, and anything in this
Agreement to the contrary notwithstanding, nothing herein shall be deemed to
constitute ASTI and Allergan as partners, joint venturers, coowners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever. Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way obligate the other party, except as expressly authorized in
writing by the other party. Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume or be liable for any liabilities
or obligations of the other party, whether past, present or future.
13.10 SURVIVAL. The provisions of Sections 1, 7, 8.3, 8.4, 11, 13.1,
13.3, 13.5, 13.6, 13.7, 13.8, 13.9, and this Section 13.10, and of Sections 4
and 5 to the extent of obligations under such sections relating to periods prior
to termination of this Agreement, shall survive the termination for any reason
of this Agreement. Any payments due under this Agreement with respect to any
period prior to its termination shall be made notwithstanding the termination of
this Agreement. Neither party shall be liable to the other due to the
termination of this Agreement as provided herein, whether in loss of good will,
anticipated profits or otherwise.
17.
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
ALLERGAN, INC.
By: ____________________________________
Title: _________________________________
ALLERGAN SPECIALTY THERAPEUTICS, INC.
By: ____________________________________
Title: _________________________________
18.
<PAGE> 19
EXHIBIT A
CALCULATION OF RESEARCH AND DEVELOPMENT COSTS
Allergan shall charge ASTI for both "direct" and "indirect" Research and
Development Costs based on Allergan's internal R&D Project Accounting System or
such other comparable successor system as Allergan may use to gather such costs.
Direct costs include third party contract costs, such as those expenses paid to
outside vendors which can be directly identified to a specific research and
development program or project (see Exhibit A1). Indirect costs include the
fully absorbed cost of labor (labor plus overhead) which can be specifically
identified with or physically traced to a project using the Allergan Project
Reporting System. The allocation of such indirect costs is based on timecards
which all Allergan R&D employees who work directly on research and development
projects complete each month (see Exhibit A2).
In order to fully and fairly allocate all allocable overhead to projects
undertaken by Allergan hereunder, an amount equal to 10% of the total Research
and Development Costs determined in accordance with the above provisions
(exclusive of the costs charged to Allergan or ASTI pursuant to contracts with
third parties for the performance of services related to research and
development hereunder) will also be added to the amount charged to ASTI.
19.
<PAGE> 20
EXHIBIT A1
RESEARCH AND DEVELOPMENT DIRECT COSTS
The following is a list of the types of expenses which are considered as
"direct" in Exhibit A and would be billable to ASTI when they can be directly
identified with ASTI research and development:
Collaborative research agreement payments
Payments for compound supply
Payments for biologicals
Payments for chemical precursors
Payment for clinical studies
Payment for toxicological, pharmacokinetic studies and other outside services
Payment for other Allergan functions (non-R&D) which provide services
Payment for research grants
Payment for consulting services
Hiring expenses for people who will work predominantly on ASTI projects
Milestone payments to third parties
Project travel, entertainment and related expenses
Capital equipment purchased exclusively for ASTI projects
Miscellaneous project expenses
Regulatory and filing fees
Telephone and communications
Patent and trademark expenses
Software
20.
<PAGE> 21
EXHIBIT A2
RESEARCH AND DEVELOPMENT INDIRECT COSTS
The following is a list of the types of expenses which are considered as
"indirect" in Exhibit A and would be billable to ASTI when they can be
identified with ASTI research and development:
Salaries and fringe benefits of people working directly on ASTI projects
Salaries and fringe benefits of people managing and supporting those working
directly on ASTI projects
General supplies and chemicals
General Information Systems and communications support
General equipment depreciation
General facilities depreciation, utilities, rent
Miscellaneous indirect expenses
Miscellaneous general and administrative expenses
21.
<PAGE> 22
EXHIBIT B
PRE-SELECTION WORK
During the period from the date on which ALRT ceased funding (October 23, 1997)
through March 31, 1998, ASTI shall, in addition to funding research and
development of the four initial ASTI Products, fund research and development of
certain classes of receptor-selective and function-selective retinoid compounds
as well as compounds for use in the field of ion channel blockers, including
compounds that may shut down the operation of voltage-activated sodium channels
and/or NMDA channels, for the treatment of ophthalmic diseases and disorders. It
is anticipated that the total Research and Development Costs to be incurred in
connection with such additional research and development will be between $4
million and $5 million during such period.
22.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Allergan Specialty Therapeutics, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Costa Mesa, California
February 12, 1998
<PAGE> 1
EXHIBIT 23.6
[Merrill Lynch LOGO]
February 11, 1998
Allergan, Inc.
2525 Dupont Drive
P.O. Box 19534
Irvine, CA 92623-9534
Gentlemen:
We hereby consent to the use of our opinion letter, dated January 27,
1998, to the Board of Directors of Allergan, Inc. ("Allergan") included as
Exhibit A to the Prospectus of Allergan Specialty Therapeutics, Inc. ("ASTI")
which forms a part of the Registration Statement on Form S-1 of ASTI originally
filed on November 19, 1997, with the Securities and Exchange Commission and to
the references therein to such opinion and to Merrill Lynch, Pierce, Fenner &
Smith Incorporated under the captions "Summary" and "Reasons for the
Distribution and Effects on Allergan, Inc." In giving such consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, nor do we
thereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BY: /s/ D. Casey Safreno
---------------------------------
Managing Director
Investment Banking Group
