<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 25, 2000
REGISTRATION NO. 333-33022
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
VERSICOR INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2834 04-3278032
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
34790 ARDENTECH CT.
FREMONT, CALIFORNIA 94555
(510) 739-3000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
GEORGE F. HORNER III
PRESIDENT AND CEO
VERSICOR INC.
34790 ARDENTECH CT.
FREMONT, CALIFORNIA 94555
(510) 739-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Peter T. Healy Donald J. Murray
Stephen A. Cowan Dewey Ballantine LLP
Mark C. Easton 1301 Avenue of the Americas
O'Melveny & Myers LLP New York, New York 10019
Embarcadero Center West (212) 259-8000
275 Battery Street
San Francisco, California
(415) 984-8700
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If the 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 the form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES EXCHANGE COMMISSION, ACTING PURSUANT TO
SAID SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This preliminary prospectus is
not an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 25, 2000
PROSPECTUS
4,600,000 SHARES
[LOGO]
COMMON STOCK
------------------------------------------------------------
This is our initial public offering of shares of our common stock. We are
offering 4,600,000 shares. No public market currently exists for our shares. We
currently anticipate the price range for the common stock to be between $11.00
and $13.00 per share.
We have applied to have our common stock approved for quotation on the Nasdaq
National Market under the symbol "VERS."
INVESTING IN THE SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 7.
<TABLE>
<CAPTION>
Per
Share Total
-------- --------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to Versicor...................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 690,000
shares of common stock to cover any over-allotments.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on
or about August , 2000.
--------------------------------------------------------------------------------
LEHMAN BROTHERS
CHASE H&Q
PACIFIC GROWTH EQUITIES, INC.
UBS WARBURG LLC
, 2000
<PAGE>
Inside Front Cover Graphic:
Horizontal bar chart showing Versicor's proprietary product candidates
and partnered product programs and the development status of each.
The bottom line of the chart shows the different development phases.
From right to left, these are targets, screens, hits, leads, clinical
candidates, Phase I, Phase II, Phase III and Pharmaceutical Products. The top
line of the chart shows value increasing as you read from left to right, or from
targets to Pharmaceutical Products.
The proprietary product candidates and partnered product programs are
located between the value line and the development line. From top and far left
to bottom and far right, these are V-Echinocandin, V-Glycopeptide,
Oxazolidinones, Deformylase Inhibitors, VRC-3950, BIOCOR Leads Partnership,
Improved Molecules and Novel Molecules.
The following text appears below the graphic:
Versicor's product candidates and programs range across three stages of
development and value: (1) product candidates in clinical trials; (2) clinical
candidates and leads; and (3) leads, hits, screens and targets. In the case of
programs, the arrows above indicate the stage of development for the lead
compound in the program.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 7
Special Note Regarding Forward-Looking
Statements............................ 18
Use of Proceeds......................... 19
Dividend Policy......................... 19
Capitalization.......................... 20
Dilution................................ 21
Selected Financial Data................. 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 23
</TABLE>
<TABLE>
Business................................ 28
Management.............................. 46
<CAPTION>
PAGE
--------
<S> <C>
Related Party Transactions.............. 55
Principal Stockholders.................. 56
Description of Capital Stock............ 59
Shares Eligible for Future Sale......... 62
Underwriting............................ 64
Legal Matters........................... 67
Experts................................. 67
Where You Can Find Additional
Information........................... 67
Index to Financial Statements........... F-1
</TABLE>
------------------------
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any jurisdiction where the offer or sale
is not permitted. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the front cover of
this prospectus.
Until , 2000, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
Versicor and the Versicor logo are trademarks of Versicor Inc. Other
trademarks and trade names appearing in this prospectus are the property of
their holders.
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, especially the risks of
investing in our common stock discussed under "Risk Factors." Our principal
executive offices are located at 34790 Ardentech Ct., Fremont, California 94555.
Our telephone number is (510) 739-3000. Our web site is http://www.versicor.com.
We do not intend that the information found on our web site be a part of this
prospectus. Please note that references to "partners" or "collaborative
partners" do not necessarily imply any equity ownership in us by such entities.
OUR BUSINESS
Versicor is a biopharmaceutical company focused on the marketing,
development and discovery of pharmaceutical products for the treatment of
bacterial and fungal infections. We intend to focus on antiinfective products
that have competitive advantages over existing products, such as greater
potency, improved effectiveness against resistant strains and reduced toxicity.
Because the development process for antiinfectives is relatively efficient and
well-defined, we believe the costs and time required to bring new products to
market can be significantly less than other disease categories.
We have a distinct, two-fold approach to product development and marketing.
Our primary strategy is to focus on the development of proprietary products,
concentrating on injectable antibiotic and antifungal products for the hospital
market. We expect to market these products to hospitals in North America through
our own direct sales force, which we believe can be established with a targeted
and cost-effective sales and marketing infrastructure. Our product candidates
target disease indications that represent substantial markets where there is
significant demand for new therapies.
Our secondary strategy is to collaborate with major pharmaceutical companies
to develop orally administered antibiotic and antifungal products. Orally
administered products require substantial development expenditures and extensive
sales and marketing infrastructures to reach their full market potential.
Through these collaborations, we intend to exploit our technology platform to
discover and supply lead compounds while our partners conduct pre-clinical,
clinical development, marketing and sales activities to transform the compounds
into pharmaceutical products. We expect to receive research funding, milestone
payments and equity investments from our collaborative partners, as well as
royalty fees if products are commercialized.
PROPRIETARY PRODUCTS
Our lead product candidate, V-Echinocandin, is an antifungal intended for
the intravenous treatment of serious fungal infections that are systemic,
meaning that they involve the whole body. V-Echinocandin has potent fungicidal
activity, a broad spectrum of activity against CANDIDA (including
fluconazole-resistant strains) and ASPERGILLUS, low potential for developing
resistance and a novel mechanism of action. We believe V-Echinocandin will have
competitive advantages over existing therapies because it combines potent fungus
killing, or fungicidal, activity with a good safety profile. V-Echinocandin is
currently in Phase II clinical trials, where it has shown significant activity
and has been well tolerated. We plan to initiate a Phase III trial in the first
quarter of 2001.
Our second product candidate, V-Glycopeptide, is a second-generation
antibiotic belonging to the same class as Vancomycin and is intended for the
treatment of serious systemic infections, particularly STAPHYLOCOCCI.
V-Glycopeptide has potent bactericidal effect. In comparison to Vancomycin,
V-Glycopeptide has more potent activity, enhanced potency against
methicillin-resistant STAPHYLOCOCCUS strains and appears to be suitable for
once-a-day administration. V-Glycopeptide is currently in Phase I safety and
tolerance studies in the United Kingdom and we expect to begin additional
studies in the United States during the second half of 2000.
3
<PAGE>
PARTNERED PRODUCT PROGRAMS
Our first partnered product program is a collaboration with Pharmacia &
Upjohn aimed at identifying second and third generation oxazolidinones.
Oxazolidinones promise to be the first new major chemical class of antibacterial
products to enter the market in over 20 years. They are active against a broad
range of bacteria, including multidrug resistant STAPHYLOCOCCI, STREPTOCOCCI and
ENTEROCOCCI. We have identified several structurally novel second generation
oxazolidinone candidates that have a broader spectrum of activity (including the
key respiratory pathogen H. INFLUENZAE), improved potency against multidrug
resistant bacteria, and good activity in preclinical IN VIVO studies when
administered orally.
Our second partnered product program is a collaboration with Novartis Pharma
AG to develop deformylase inhibitors. Deformylase is an essential enzyme present
in bacteria but absent in human cells, and thus represents a good target for the
discovery of inhibitors that can serve as broad spectrum antibacterial agents.
We have identified several lead molecules that are active against multidrug
resistant strains, as well as important respiratory pathogens such as S.
PNEUMONIAE, H. INFLUENZAE and M. CATARRHALIS; and have demonstrated activity in
IN VIVO preclinical studies when administered orally.
OUR MARKET OPPORTUNITY
We believe the antiinfective market presents a highly attractive opportunity
for three major reasons:
- LARGE MARKET. The market for antibiotics and antifungals represents the
third largest worldwide pharmaceutical drug market, with 1998 sales of
nearly $24 billion. The hospital antiinfective market, where we will
target our proprietary products, totaled $6.5 billion worldwide in 1998.
- GROWING NEED FOR NEW DRUGS. The number of patients with impaired immune
systems has been increasing dramatically due to the aging of the
population, growing use of therapies such as chemotherapy and organ
transplantation, and the prevalence of AIDS. These patients are
particularly susceptible to serious infection because their immune systems
are impaired, a condition referred to as immunosuppression. In addition,
the increasing resistance of infectious agents has led to an increased
number of serious infections in patients who are not immunosuppressed. As
a result, there is a strong demand for new drugs that are more potent,
more effective against resistant strains and that cause fewer side effects
than existing therapies.
- EFFICIENT AND WELL-DEFINED DRUG DEVELOPMENT PROCESS. IN VITRO and early
IN VIVO testing of antiinfective drugs has been shown to be more
predictive of clinical results than other therapeutic categories.
Moreover, antiinfectives that successfully complete Phase I clinical
testing are more likely to be efficacious and to receive regulatory
approval. As a result, the costs and time required to develop
antiinfectives are greatly reduced in comparison to other major
therapeutic categories.
OUR STRATEGY
Our objective is to be a leader in the marketing and development of
pharmaceutical products for the treatment of bacterial and fungal infections in
the hospital setting. To accomplish our objective, we are pursuing the following
strategies:
- in-license compounds and products with demonstrated potential;
- exploit our internal discovery platform to expand our product portfolio;
- obtain lead compounds through BIOCOR, our external leads partnership with
Biosearch Italia;
- acquire businesses that can accelerate our development; and
- target our sales force on the North American hospital market.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us................... 4,600,000 shares
Common stock to be outstanding after the
offering................................... 22,039,468 shares
Use of proceeds.............................. To fund our operations, including clinical
development of existing product candidates,
acquisition of and development related to new
product candidates, commercialization of
product candidates, and for other working
capital and general corporate purposes. See
"Use of Proceeds."
Risk Factors................................. An investment in our common stock involves
significant risks. See "Risk Factors."
Proposed Nasdaq National Market symbol....... VERS
</TABLE>
Except as otherwise indicated, the information in this prospectus reflects
the following assumptions:
- all outstanding shares of our preferred stock automatically convert into
16,677,138 shares of our common stock upon the closing of this offering;
- the underwriters do not exercise the over-allotment option granted by us
to purchase additional shares in the offering;
- the filing of our amended and restated certificate of incorporation
immediately following the closing of this offering; and
- a 5-for-4 stock split to be completed prior to the closing of this
offering.
The number of shares of common stock outstanding after the offering is based
on shares outstanding as of March 31, 2000. See "Capitalization."
This information excludes shares of capital stock we are obligated to issue
upon exercise of options and warrants outstanding. As of March 31, 2000, these
shares consisted of:
- 1,995,217 shares of common stock issuable upon the exercise of options at
a weighted average exercise price of $0.43 per share;
- 521,646 additional shares of common stock made available for future
issuance under our 1995 and 1997 Equity Incentive Plans;
- 45,000 shares of common stock issuable upon the exercise of warrants at an
exercise price of $4.45 per share;
- 168,125 shares of Series C preferred stock issuable upon the exercise of
warrants at an exercise price of $4.00 per share; and
- 226,236 shares of Series F preferred stock issuable upon the exercise of
warrants at an exercise price of $4.72 per share.
The warrants for Series C and Series F preferred stock described above will
be exercisable for common stock upon completion of this offering.
5
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The pro forma net loss per share and shares used in computing pro forma net
loss per share are calculated as if all of our convertible preferred stock was
converted into shares of our common stock on the date of their issuance. See
footnote 1 of notes to financial statements. The net loss available to common
stockholders for the year ended December 31, 1999 includes $35,112,612 of deemed
dividends related to a beneficial conversion feature associated with preferred
stock issued during 1999. See footnote 8 of notes to financial statements. The
pro forma balance sheet data below reflects the conversion of each outstanding
share of preferred stock into one share of common stock upon the closing of this
offering. The pro forma as adjusted balance sheet data below reflects the
conversion of each outstanding share of preferred stock into one share of common
stock upon the closing of this offering and the issuance and sale of 4,600,000
shares of our common stock in this offering at an assumed price to the public of
$12.00 per share, after deducting the underwriting discounts and commissions and
estimated offering expenses, and our receipt of the net proceeds from that sale.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- ----------------------
1997 1998 1999 1999 2000
-------- -------- ----------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ -- $ -- $ 4,275 $ -- $ 1,258
-------- -------- ----------- -------- -----------
Operating expenses:
Research and development........... 5,403 11,429 25,472 2,209 3,637
General and administrative......... 807 1,386 2,586 268 1,648
-------- -------- ----------- -------- -----------
Total operating expenses........... 6,210 12,815 28,058 2,477 5,285
-------- -------- ----------- -------- -----------
Loss from operations............... (6,210) (12,815) (23,783) (2,477) (4,027)
Net interest (expense) income...... (74) 230 (5,421) (21) 469
Other.............................. -- -- (14) -- --
-------- -------- ----------- -------- -----------
Net loss............................. (6,284) (12,585) (29,218) (2,498) (3,558)
Preferred stock deemed dividends and
accretion to redemption value...... (422) (2,527) (38,176) (1,281) (1,435)
-------- -------- ----------- -------- -----------
Net loss available to common
stockholders....................... $ (6,706) $(15,112) $ (67,394) $ (3,779) $ (4,993)
======== ======== =========== ======== ===========
Net loss per share, basic and
diluted............................ $ (24.31) $ (47.11) $ (127.28) $ (8.72) $ (7.09)
======== ======== =========== ======== ===========
Shares used in computing net loss per
share, basic and diluted........... 275,834 320,800 529,513 433,384 704,789
======== ======== =========== ======== ===========
Pro forma net loss per share, basic
and diluted........................ $ (2.75) $ (0.20)
=========== ===========
Shares used in computing pro forma
net loss per share, basic and
diluted............................ 10,613,276 17,381,926
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 34,003 $ 34,003 $ 84,243
Total assets.............................................. 44,575 44,575 94,815
Term loan payable, less current portion................... 4,095 4,095 4,095
Convertible and redeemable preferred stock................ 85,278 -- --
Accumulated deficit....................................... (59,231) (59,231) (59,231)
Total stockholders' equity (deficit)...................... (51,447) 33,831 84,071
</TABLE>
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK IS VERY RISKY. YOU SHOULD CAREFULLY
CONSIDER THE RISKS DESCRIBED BELOW TOGETHER WITH ALL OF THE OTHER INFORMATION
INCLUDED IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT DECISION. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATIONS COULD BE HARMED. IN SUCH AN EVENT, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE, AND YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
IF WE ARE UNABLE TO DEVELOP AND SUCCESSFULLY COMMERCIALIZE OUR PRODUCT
CANDIDATES, WE MAY NEVER GENERATE SIGNIFICANT REVENUES OR BECOME PROFITABLE.
You must evaluate us in light of the uncertainties and complexities present
in an early stage biopharmaceutical company. All of our product candidates are
in early stages of development, and only two are in clinical trials. To date we
have not commercialized any products or recognized any revenue from product
sales. We will require significant additional investment in research and
development, preclinical testing and clinical trials, regulatory approval, and
sales and marketing activities. Our product candidates, if successfully
developed, may not generate sufficient or sustainable revenues to enable us to
be profitable.
WE EXPECT TO INCUR LOSSES FOR THE FORESEEABLE FUTURE AND MAY NEVER ACHIEVE
PROFITABILITY.
We have incurred net losses since our inception in 1995. Before deemed
dividends and accretion to redemption value of preferred stock, our net losses
were approximately $1.1 million in 1995, $4.8 million in 1996, $6.3 million in
1997, $12.6 million in 1998 and $29.2 million in 1999. As of March 31, 2000, our
accumulated deficit was approximately $59.2 million. Our losses to date have
resulted principally from:
- research and development costs relating to the development of our product
candidates;
- costs of acquiring product candidates; and
- general and administrative costs relating to our operations.
We expect to incur substantial and increasing losses for the foreseeable
future as a result of increases in our research and development costs, including
costs associated with conducting preclinical testing and clinical trials, and
charges related to purchases of technology or other assets. We expect that the
amount of operating losses will fluctuate significantly from quarter to quarter
as a result of increases or decreases in our research and development efforts,
the execution or termination of collaborative arrangements, the initiation,
success or failure of clinical trials, or other factors.
Our chances for achieving profitability will depend on numerous factors,
including success in:
- developing and testing new product candidates;
- receiving regulatory approvals;
- manufacturing products;
- marketing products; and
- competing with products from other companies.
Many of these factors will depend on circumstances beyond our control. We
expect to rely heavily on third parties with respect to many aspects of our
business, including research and development, clinical testing, manufacturing
and marketing. We cannot assure you that we will ever become profitable.
7
<PAGE>
OUR REVENUES WILL BE SUBJECT TO SIGNIFICANT FLUCTUATIONS, WHICH WILL MAKE IT
DIFFICULT TO COMPARE OUR OPERATING RESULTS TO PRIOR PERIODS.
We expect that substantially all of our revenues for the foreseeable future
will result from payments under collaborative arrangements. To date, these
payments have been in the form of upfront payments, reimbursement for research
and development expenses and milestone payments. We may not be able to generate
additional revenues. Furthermore, payments under our existing and any future
collaborative arrangements will be subject to significant fluctuation in both
timing and amount. Our revenues may not be indicative of our future performance
or of our ability to continue to achieve additional milestones. Our revenues and
results of operations for any period may also not be comparable to the revenues
or results of operations for any other period.
IF WE CANNOT ENTER INTO NEW LICENSING ARRANGEMENTS, OUR FUTURE PRODUCT PORTFOLIO
COULD BE ADVERSELY AFFECTED.
An important component of our business strategy is in-licensing drug
compounds developed by other pharmaceutical and biotechnology companies or
academic research laboratories. Competition for promising compounds can be
intense. If we are not able to identify future licensing opportunities or enter
into future licensing arrangements on acceptable terms, our future product
portfolio could be adversely affected.
IF OUR COLLABORATIVE PARTNERS DO NOT PERFORM, WE WILL BE UNABLE TO DEVELOP OUR
PARTNERED PRODUCT CANDIDATES.
We have entered into collaborative arrangements with third parties to
develop certain product candidates. These collaborations are necessary in order
for us to:
- fund our research and development activities;
- fund manufacturing by third parties;
- seek and obtain regulatory approvals; and
- successfully commercialize existing and future product candidates.
Only a limited number of product candidates have been generated pursuant to
our collaborations. We cannot assure you that any of them will result in
commercially successful products. Current or future collaborative arrangements
may not be successful. If we fail to maintain our existing collaborative
arrangements or fail to enter into additional collaborative arrangements, the
number of product candidates from which we could receive future revenues would
decline.
Our dependence on collaborative arrangements with third parties subjects us
to a number of risks. These collaborative arrangements may not be on terms
favorable to us. Agreements with collaborative partners typically allow partners
significant discretion in electing whether to pursue any of the planned
activities. We cannot control the amount and timing of resources our
collaborative partners may devote to the product candidates, and our partners
may choose to pursue alternative products. Our partners may not perform their
obligations as expected. Business combinations or significant changes in a
collaborative partner's business strategy may adversely affect a partner's
willingness or ability to complete its obligations under the arrangement.
Moreover, we could become involved in disputes with our partners, which could
lead to delays or termination of our development programs with them and
time-consuming and expensive litigation or arbitration. Even if we fulfill our
obligations under a collaborative agreement, our partner can terminate the
agreement under certain circumstances. If any collaborative partner were to
terminate or breach our agreement with it, or otherwise fail to complete its
obligations in a timely manner, our chances of successfully commercializing
products would be materially and adversely affected.
8
<PAGE>
IF CLINICAL TRIALS FOR OUR PRODUCTS ARE UNSUCCESSFUL OR DELAYED, WE WILL BE
UNABLE TO MEET OUR ANTICIPATED DEVELOPMENT AND COMMERCIALIZATION TIMELINES,
WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.
Before obtaining regulatory approvals for the commercial sale of any
products, we must demonstrate through preclinical testing and clinical trials
that our product candidates are safe and effective for use in humans. Conducting
clinical trials is a lengthy, time-consuming and expensive process.
Completion of clinical trials may take several years or more. Our
commencement and rate of completion of clinical trials may be delayed by many
factors, including:
- lack of efficacy during the clinical trials;
- unforeseen safety issues;
- slower than expected rate of patient recruitment;
- government or regulatory delays;
- inability to adequately follow patients after treatment; or
- inability to manufacture sufficient quantities of materials for use in
clinical trials.
The results from preclinical testing and early clinical trials are often not
predictive of results obtained in later clinical trials. A number of new drugs
have shown promising results in clinical trials, but subsequently failed to
establish sufficient safety and efficacy data to obtain necessary regulatory
approvals. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations, which may delay, limit or prevent
regulatory approval. In addition, regulatory delays or rejections may be
encountered as a result of many factors, including perceived defects in the
design of clinical trials and changes in regulatory policy during the period of
product development.
As of December 31, 1999, two of our product candidates, V-Echinocandin and
V-Glycopeptide, were in clinical trials. Patient follow-up for these clinical
trials has been limited and more trials will be required before we will be able
to apply for regulatory approvals. Clinical trials conducted by us or by third
parties on our behalf may not demonstrate sufficient safety and efficacy to
obtain the requisite regulatory approvals for V-Echinocandin and V-Glycopeptide
or any other potential product candidates. This failure may delay development of
other product candidates and hinder our ability to conduct related preclinical
testing and clinical trials. Regulatory authorities may not permit us to
undertake any additional clinical trials for our product candidates. Our other
product candidates are in preclinical development, and we have not submitted
investigational new drug applications to commence clinical trials involving
these compounds. Our preclinical development efforts may not be successfully
completed and we may not file further investigational new drug applications. Any
delays in, or termination of, our clinical trials will materially and adversely
affect our development and commercialization timelines, which would cause our
stock price to decline. Any of these events would also seriously impede our
ability to obtain additional financing.
IF OUR THIRD PARTY CLINICAL TRIAL MANAGERS DO NOT PERFORM, CLINICAL TRIALS FOR
OUR PRODUCT CANDIDATES MAY BE DELAYED OR UNSUCCESSFUL.
We have limited experience in conducting and managing clinical trials, and
currently do not employ an experienced clinical trial manager on a full-time
basis. We rely on third parties, including our collaborative partners, clinical
research organizations and outside consultants, to assist us in managing and
monitoring clinical trials. Our reliance on these third parties may result in
delays in completing, or failing to complete, these trials if they fail to
perform under the terms of our agreements with them.
9
<PAGE>
IF OUR PRODUCTS ARE NOT ACCEPTED BY THE MARKET, WE ARE NOT LIKELY TO GENERATE
SIGNIFICANT REVENUES OR BECOME PROFITABLE.
Even if we obtain regulatory approval to market a product, our products may
not gain market acceptance among physicians, patients, healthcare payors and the
medical community. The degree of market acceptance of any pharmaceutical product
that we develop will depend on a number of factors, including:
- demonstration of clinical efficacy and safety;
- cost-effectiveness;
- potential advantages over alternative therapies;
- reimbursement policies of government and third-party payors; and
- effectiveness of our marketing and distribution capabilities.
Physicians will not recommend therapies using our products until clinical
data or other factors demonstrate their safety and efficacy as compared to other
drugs or treatments. Even if the clinical safety and efficacy of therapies using
our products is established, physicians may elect not to recommend the therapies
for any number of other reasons, including whether the mode of administration of
our products is effective for certain indications. For example, many antibiotic
or antifungal products are typically administered by infusion or injection,
which requires substantial cost and inconvenience to patients. Our product
candidates, if successfully developed, will compete with a number of drugs and
therapies manufactured and marketed by major pharmaceutical and other
biotechnology companies. Our products may also compete with new products
currently under development by others. Physicians, patients, third-party payors
and the medical community may not accept and utilize any product candidates that
we or our collaborative partners develop. If our products do not achieve
significant market acceptance, we are not likely to generate significant
revenues or become profitable.
IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS, WE WILL BE
UNABLE TO DEVELOP AND COMMERCIALIZE OUR PRODUCTS.
We are highly dependent on the principal members of our scientific and
management staff. In addition, we have depended to date on third parties to
perform significant management functions. In order to pursue our product
development, marketing and commercialization plans, we will need to hire
personnel with experience in clinical testing, government regulation,
manufacturing, marketing and finance. We may not be able to attract and retain
personnel on acceptable terms given the intense competition for such personnel
among high technology enterprises, including biotechnology, pharmaceutical and
healthcare companies, universities and non-profit research institutions. Most of
our scientific and management staff do not have employment contracts. If we lose
any of these persons, or are unable to attract and retain qualified personnel,
our business, financial condition and results of operations may be materially
and adversely affected.
In addition, we rely on members of our scientific and clinical advisory
boards and other consultants to assist us in formulating our research and
development strategy. All of our consultants and the members of our scientific
and clinical advisory boards are employed by other entities. They may have
commitments to, or advisory or consulting agreements with, other entities that
may limit their availability to us. If we lose the services of these advisors,
the achievement of our development objectives may be impeded. Such impediments
may materially and adversely affect our business, financial condition and
results of operations. In addition, except for work performed specifically for
and at our direction, the inventions or processes discovered by our scientific
and clinical advisory board members and other consultants will not become our
intellectual property, but will be the intellectual
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<PAGE>
property of the individuals or their institutions. If we desire access to these
inventions, we will be required to obtain appropriate licenses from the owners.
We cannot assure you that we will be able to obtain such licenses.
IF OUR THIRD-PARTY MANUFACTURERS FAIL TO DELIVER OUR PRODUCT CANDIDATES,
CLINICAL TRIALS AND COMMERCIALIZATION OF OUR PRODUCT CANDIDATES COULD BE
DELAYED.
We do not have our own manufacturing facilities to produce our product
candidates and anticipate that we will continue to rely on third parties to
manufacture our product candidates and our products. Our contract manufacturers
have a limited number of facilities in which our product candidates can be
produced. These manufacturers have limited experience in manufacturing
V-Echinocandin and V-Glycopeptide in quantities sufficient for conducting
clinical trials or for commercialization.
Contract manufacturers often encounter difficulties in scaling up
production, including problems involving production yields, quality control and
assurance, shortage of qualified personnel, compliance with FDA regulations,
production costs, and development of advanced manufacturing techniques and
process controls. Our contract manufacturers may not perform as agreed or may
not remain in the contract manufacturing business for the time required by us to
successfully produce and market our product candidates. If our contract
manufacturers fail to deliver the required quantities of our product candidates
for clinical use on a timely basis and at commercially reasonable prices, and we
fail to find a replacement manufacturer or develop our own manufacturing
capabilities, clinical trials involving our products, or commercialization of
our products, could be delayed.
IF WE FAIL TO ESTABLISH SUCCESSFUL MARKETING AND SALES CAPABILITIES OR FAIL TO
ENTER INTO SUCCESSFUL MARKETING ARRANGEMENTS WITH THIRD PARTIES, WE WOULD NOT BE
ABLE TO COMMERCIALIZE OUR PRODUCTS AND WE WOULD NOT BECOME PROFITABLE.
We intend to sell a portion of our products through our own sales force.
Versicor currently has no sales and marketing infrastructure and has no
experience in direct marketing, sales and distribution. Our future profitability
will depend in part on our ability to develop a direct sales and marketing force
to sell our products to our customers. We may not be able to attract and retain
qualified salespeople or be able to build an efficient and effective sales and
marketing force. To the extent that we enter into marketing and sales
arrangements with other companies, our revenues will depend on the efforts of
others. These efforts may not be successful. If we are unable to enter into
third-party arrangements, then we must substantially expand our marketing and
sales force in order to achieve commercial success for certain products, and
compete with other companies that have experienced and well-funded marketing and
sales operations.
IF CIRCUMSTANCES REQUIRE US TO OBTAIN ADDITIONAL FUNDING, WE MAY BE FORCED TO
DELAY OR CURTAIL THE DEVELOPMENT OF OUR PRODUCT CANDIDATES.
Our requirements for additional capital may be substantial and will depend
on many factors, some of which are beyond our control, including:
- payments received or made under possible future collaborative partner
agreements;
- continued progress of our research and development of our products;
- costs associated with protecting our patent and other intellectual
property rights;
- development of marketing and sales capabilities; or
- market acceptance of our products.
We have no committed sources of additional capital. To the extent our
capital resources are insufficient to meet future capital requirements, we will
have to raise additional funds to continue the
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<PAGE>
development of our product candidates. We cannot assure you that funds will be
available on favorable terms, if at all. To the extent that additional capital
is raised through the sale of equity or convertible debt securities, the
issuance of those securities could result in dilution to our stockholders.
Moreover, the incurrence of debt financing could result in a substantial portion
of our operating cash flow being dedicated to the payment of principal and
interest on such indebtedness. This could render us more vulnerable to
competitive pressures and economic downturns and could impose restrictions on
our operations. If adequate funds are not available, we may be required to
curtail operations significantly or to obtain funds through entering into
collaboration agreements on unattractive terms. Our inability to raise capital
would have a material adverse effect on our business, financial condition and
results of operations.
IF WE FAIL TO MANAGE OUR GROWTH, OUR BUSINESS COULD BE HARMED.
Our business plan contemplates a period of rapid and substantial growth that
will place a strain on our administrative and operational infrastructure. To
date, our management infrastructure has been very limited and dependent on third
parties, including our former parent company, to provide significant
administrative and operational assistance. Our ability to manage effectively our
operations and growth requires us to expand and improve our operational,
financial and management controls, reporting systems and procedures and to
attract and retain sufficient numbers of talented employees. We may not
successfully implement improvements to our management information and control
systems in an efficient or timely manner and may discover deficiencies in
existing systems and controls.
IF WE MAKE ANY ACQUISITIONS, WE WILL INCUR A VARIETY OF COSTS AND MAY NEVER
REALIZE THE ANTICIPATED BENEFITS.
If appropriate opportunities become available, we may attempt to acquire
products, product candidates or businesses that we believe are a strategic fit
with our business. We currently have no commitments or agreements with respect
to any material acquisitions. If we do undertake any transaction of this sort,
the process of integrating an acquired product, product candidate or business
may result in operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for ongoing development
of our business. Moreover, we may never realize the anticipated benefits of any
acquisition. Future acquisitions could result in potentially dilutive issuances
of equity securities, the incurrence of debt, contingent liabilities and/or
amortization expenses related to goodwill and other intangible assets, which
could adversely affect our business, financial condition and results of
operations.
IF OUR USE OF HAZARDOUS MATERIALS RESULTS IN CONTAMINATION OR INJURY, WE COULD
SUFFER SIGNIFICANT FINANCIAL LOSS.
Our research and manufacturing activities involve the controlled use of
hazardous materials. We cannot eliminate the risk of accidental contamination or
injury from these materials. In the event of an accident or environmental
discharge, we may be held liable for any resulting damages, which may exceed our
financial resources.
RISKS RELATED TO OPERATING IN OUR INDUSTRY
IF WE DO NOT COMPETE SUCCESSFULLY IN THE DEVELOPMENT AND COMMERCIALIZATION OF
PRODUCTS AND KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE, WE WILL BE UNABLE TO
CAPTURE AND SUSTAIN A MEANINGFUL MARKET POSITION.
The biotechnology and pharmaceutical industries are highly competitive and
subject to significant and rapid technological change. We are aware of several
pharmaceutical and biotechnology companies that are actively engaged in research
and development in areas related to antibiotic and antifungal
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<PAGE>
products. These companies have commenced clinical trials or have successfully
commercialized their products. Many of these companies are addressing the same
diseases and disease indications as Versicor or our collaborative partners.
Many of these companies and institutions, either alone or together with
their collaborative partners, have substantially greater financial resources and
larger research and development staffs than we do. In addition, many of these
competitors, either alone or together with their collaborative partners, have
significantly greater experience than we do in:
- developing products;
- undertaking preclinical testing and human clinical trials;
- obtaining FDA and other regulatory approvals of products; and
- manufacturing and marketing products.
Developments by others may render our product candidates or technologies
obsolete or noncompetitive. We face and will continue to face intense
competition from other companies for collaborative arrangements with
pharmaceutical and biotechnology companies for establishing relationships with
academic and research institutions, and for licenses of proprietary technology.
These competitors, either alone or with their collaborative partners, may
succeed in developing technologies or products that are more effective than
ours.
IF OUR INTELLECTUAL PROPERTY DOES NOT ADEQUATELY PROTECT OUR PRODUCT CANDIDATES,
OTHERS COULD COMPETE AGAINST US MORE DIRECTLY, WHICH WOULD HURT OUR
PROFITABILITY.
Our success depends in part on our ability to:
- obtain patents or rights to patents;
- protect trade secrets;
- operate without infringing upon the proprietary rights of others; and
- prevent others from infringing on our proprietary rights.
We will be able to protect our proprietary rights from unauthorized use by
third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets.
The patent position of biopharmaceutical companies involves complex legal and
factual questions and, therefore, enforceability cannot be predicted with
certainty. Patents, if issued, may be challenged, invalidated or circumvented.
Thus, any patents that we own or license from third parties may not provide any
protection against competitors. Our pending patent applications, those we may
file in the future, or those we may license from third parties, may not result
in patents being issued. Also, patent rights may not provide us with adequate
proprietary protection or competitive advantages against competitors with
similar technologies. The laws of certain foreign countries do not protect our
intellectual property rights to the same extent as do the laws of the United
States.
In addition to patents, we rely on trade secrets and proprietary know-how.
We seek protection, in part, through confidentiality and proprietary information
agreements. These agreements may not provide meaningful protection or adequate
remedies for our technology in the event of unauthorized use or disclosure of
confidential and proprietary information. Failure to protect our proprietary
rights could seriously impair our competitive position.
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<PAGE>
IF THIRD PARTIES CLAIM WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY RIGHTS, WE
COULD SUFFER SIGNIFICANT LITIGATION OR LICENSING EXPENSES OR BE PREVENTED FROM
MARKETING OUR PRODUCTS.
Research has been conducted for many years in the areas in which we have
focused our research and development efforts. This has resulted in a substantial
number of issued patents and an even larger number of still-pending patent
applications. Patent applications in the United States are, in most cases,
maintained in secrecy until patents issue. The publication of discoveries in the
scientific or patent literature frequently occurs substantially later than the
date on which the underlying discoveries were made. Our commercial success
depends significantly on our ability to operate without infringing the patents
and other proprietary rights of third parties. Our technologies may infringe the
patents or violate other proprietary rights of third parties. In the event of
such infringement or violation, we and our collaborative partners may be
prevented from pursuing product development or commercialization.
The biotechnology and pharmaceutical industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
The defense and prosecution of intellectual property suits, U.S. Patent and
Trademark Office interference proceedings and related legal and administrative
proceedings in the United States and internationally involve complex legal and
factual questions. As a result, such proceedings are costly and time-consuming
to pursue and their outcome is uncertain. Litigation may be necessary to:
- enforce patents that we own or license;
- protect trade secrets or know-how that we own or license; or
- determine the enforceability, scope and validity of the proprietary rights
of others.
If we become involved in any litigation, interference or other
administrative proceedings, we will incur substantial expense and the efforts of
our technical and management personnel will be significantly diverted. An
adverse determination may subject us to loss of our proprietary position or to
significant liabilities, or require us to seek licenses that may not be
available from third parties. We may be restricted or prevented from
manufacturing and selling our products, if any, in the event of an adverse
determination in a judicial or administrative proceeding or if we fail to obtain
necessary licenses. Costs associated with these arrangements may be substantial
and may include ongoing royalties. Furthermore, we may not be able to obtain the
necessary licenses on satisfactory terms, if at all.
IF WE EXPERIENCE DELAYS IN OBTAINING REGULATORY APPROVALS, OR ARE UNABLE TO
OBTAIN THEM AT ALL, WE COULD BE DELAYED OR PRECLUDED FROM COMMERCIALIZING OUR
PRODUCTS.
Our product candidates under development are subject to extensive and
rigorous domestic government regulation. The FDA regulates, among other things,
the development, testing, manufacture, safety, efficacy, record-keeping,
labeling, storage, approval, advertising, promotion, sale and distribution of
pharmaceutical products. If our products are marketed abroad, they will also be
subject to extensive regulation by foreign governments. None of our product
candidates has been approved for sale in the United States or any foreign
market. The regulatory review and approval process takes many years, requires
the expenditure of substantial resources, involves post-marketing surveillance,
and may involve ongoing requirements for post-marketing studies. Delays in
obtaining regulatory approvals may:
- adversely affect the commercialization of any drugs that we or our
collaborative partners develop;
- impose costly procedures on us or our collaborative partners;
- diminish any competitive advantages that we or our collaborative partners
may attain; and
- adversely affect our receipt of revenues or royalties.
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<PAGE>
Any required approvals, once obtained, may be withdrawn. Further, if we fail
to comply with applicable FDA and other regulatory requirements at any stage
during the regulatory process, we may be subject to sanctions, including:
- delays in clinical trials or commercialization;
- refusal of the FDA to review pending market approval applications or
supplements to approval applications;
- product recalls or seizures;
- suspension of production;
- withdrawals of previously approved marketing applications; and
- fines, civil penalties and criminal prosecutions.
We expect to rely on our collaborative partners to file investigational new
drug applications and generally direct the regulatory approval process for many
of our products. Our collaborative partners may not be able to conduct clinical
testing or obtain necessary approvals from the FDA or other regulatory
authorities for any product candidates. If we fail to obtain required
governmental approvals, we or our collaborative partners will experience delays
in or be precluded from marketing products developed through our research. In
addition, the commercial use of our products will be limited.
We and our contract manufacturers also are required to comply with the
applicable FDA current good manufacturing practice regulations. Good
manufacturing practice regulations include requirements relating to quality
control and quality assurance as well as the corresponding maintenance of
records and documentation. Manufacturing facilities are subject to inspection by
the FDA. These facilities must be approved before we can use them in commercial
manufacturing of our products. We or our contract manufacturers may not be able
to comply with the applicable good manufacturing practice requirements and other
FDA regulatory requirements. If we or our contract manufacturers fail to comply,
we could be subject to fines or other sanctions, or be precluded from marketing
our products.
IF THE GOVERNMENT AND THIRD-PARTY PAYORS FAIL TO PROVIDE ADEQUATE COVERAGE AND
REIMBURSEMENT RATES FOR OUR PRODUCT CANDIDATES, THE MARKET ACCEPTANCE OF OUR
PRODUCTS MAY BE ADVERSELY AFFECTED.
In both domestic and foreign markets, sales of our product candidates will
depend in part upon the availability of reimbursement from third-party payors.
Such third-party payors include government health administration authorities,
managed care providers, private health insurers and other organizations. These
third-party payors are increasingly challenging the price and examining the cost
effectiveness of medical products and services. In addition, significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. We may need to conduct post-marketing studies in order to demonstrate
the cost-effectiveness of our products. Such studies may require us to commit a
significant amount of management time and financial and other resources. Our
product candidates may not be considered cost-effective. Adequate third-party
reimbursement may not be available to enable us to maintain price levels
sufficient to realize an appropriate return on our investment in product
development. Domestic and foreign governments continue to propose and pass
legislation designed to reduce the cost of healthcare. Accordingly, legislation
and regulations affecting the pricing of pharmaceuticals may change before our
proposed products are approved for marketing. Adoption of such legislation could
further limit reimbursement for pharmaceuticals.
IF A SUCCESSFUL PRODUCT LIABILITY CLAIM OR SERIES OF CLAIMS IS BROUGHT AGAINST
US FOR UNINSURED LIABILITIES OR IN EXCESS OF INSURED LIABILITIES, WE COULD BE
FORCED TO PAY SUBSTANTIAL DAMAGE AWARDS.
The use of any of our product candidates in clinical trials, and the sale of
any approved products, may expose us to liability claims and financial losses
resulting from the use or sale of our products. We
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<PAGE>
have obtained limited product liability insurance coverage for our clinical
trials. Our insurance coverage limits are $1 million per occurrence and
$1 million in the aggregate. We intend to expand our insurance coverage to
include the sale of commercial products if marketing approval is obtained for
product candidates in development. We may not be able to maintain insurance
coverage at a reasonable cost or in sufficient amounts or scope to protect us
against losses.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE COULD BE VOLATILE, AND YOUR INVESTMENT COULD SUFFER A DECLINE IN
VALUE.
The trading price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in price in response to various factors,
many of which are beyond our control, including:
- changes in, or failure to achieve, financial estimates by securities
analysts;
- new products or services introduced or announced by us or our competitors;
- announcements of technological innovations by us or our competitors;
- actual or anticipated variations in quarterly operating results;
- conditions or trends in the biotechnology and pharmaceutical industries;
- announcements by us of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
- additions or departures of key personnel; and
- sales of our common stock.
In addition, the stock market in general, and the Nasdaq National Market in
particular, has experienced significant price and volume fluctuations.
Volatility in the market price for particular companies has often been unrelated
or disproportionate to the operating performance of those companies. Further,
there has been particular volatility in the market prices of securities of
biotechnology and pharmaceutical companies. These broad market and industry
factors may seriously harm the market price of our common stock, regardless of
our operating performance. In addition, securities class action litigation has
often been initiated following periods of volatility in the market price of a
company's securities. A securities class action suit against us could result in
substantial costs, potential liabilities and the diversion of management's
attention and resources.
IF CIRCUMSTANCES CAUSE US TO CHANGE OUR ANTICIPATED USE OF THE PROCEEDS OF THIS
OFFERING, WE MAY INVEST OR SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH
WHICH YOU MAY NOT AGREE.
We will retain broad discretion over the use of proceeds from this offering.
You may not agree with how we spend the proceeds, and our use of the proceeds
may not yield a significant return or any return at all. Because of the number
and variability of factors that determine our use of the net proceeds from this
offering, our ultimate use of the proceeds might vary substantially from our
currently planned uses. See "Use of proceeds" for a description of our current
plans for using the proceeds from this offering.
OUR PRINCIPAL STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS WILL OWN
APPROXIMATELY 65% OF OUR COMMON STOCK, WHICH MAY PREVENT NEW INVESTORS FROM
INFLUENCING CORPORATE DECISIONS.
After this offering, our stockholders who currently own over 5% of our
common stock and our directors and executive officers will beneficially own
approximately 65% of our outstanding common stock or 63% if the underwriters
exercise their over-allotment option in full. These stockholders will be able to
exercise significant influence over all matters requiring stockholder approval,
including the
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<PAGE>
election of directors and the approval of significant corporate transactions.
This concentration of ownership may also delay or prevent a change in control of
Versicor even if beneficial to our stockholders and deprive the stockholders of
a control premium for their shares. See "Principal Stockholders" for additional
information on the concentration of ownership of our common stock.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market, or the perception
that these sales could occur. In addition, these factors could make it more
difficult for us to raise funds through future offerings of common stock. There
will be 22,039,468 shares of common stock outstanding immediately after this
offering, or 22,729,468 shares if the underwriters exercise their over-allotment
option in full. All of the shares sold in the offering will be freely
transferable without restriction or further registration under the Securities
Act, except for any shares purchased by our "affiliates," as defined in
Rule 144 of the Securities Act. The remaining 17,439,468 shares of common stock
outstanding will be "restricted securities" as defined in Rule 144. These shares
may be sold in the future without registration under the Securities Act to the
extent permitted by Rule 144 or other exemptions under the Securities Act.
After this offering, we intend to register approximately 4,353,030 shares of
common stock which are reserved for issuance upon exercise of options granted
under our stock option plans. Once we register these shares, they can be sold in
the public market upon issuance, subject to restrictions under the securities
laws applicable to resales by affiliates. See "Shares Eligible for Future Sale."
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains statements which, to the extent that they do not
recite historical fact, constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The words "believe," "expect," "estimate,"
"may," "will," "could," "plan" or "continue" and similar expressions are
intended to identify forward-looking statements. Such forward-looking
information involves important risks and uncertainties that could materially
alter results in the future from those expressed in any forward-looking
statements made by, or on behalf of, us. These risks and uncertainties include,
but are not limited to those listed in this prospectus.
We caution you that such forward-looking statements are only predictions and
that actual events or results may differ materially. In evaluating such
statements, you should specifically consider the various factors which could
cause actual events or results to differ materially from those indicated by such
forward-looking statements, including the factors that we discuss in the section
entitled "Risk Factors."
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of common
stock we are offering will be approximately $50.2 million, assuming an initial
public offering price of $12.00 per share and after deducting the underwriting
discounts and commissions and estimated offering expenses. If the underwriters'
over-allotment option is exercised in full, we estimate that the net proceeds
will be approximately $57.9 million.
We expect to use approximately 75% of the net proceeds for commercialization
activities, approximately 15% for clinical development of drug candidates and
approximately 10% for general corporate purposes, including working capital and
research expenses. In addition, we may use some of the net proceeds to hire
additional personnel. Although we have no current plans, agreements or
commitments with respect to any acquisition, we may, if the opportunity arises,
use an unspecified portion of the net proceeds to acquire or invest in products,
technologies or companies. We do not anticipate any near term milestone payments
and do not currently intend to use proceeds from this offering for any near term
milestone payments. Our management will have significant flexibility in applying
the net proceeds of this offering and may spend the proceeds from this offering
in ways that the stockholders may not deem desirable.
The timing and amount of our actual expenditures will be based on many
factors, including cash flows from operations and the growth of our business.
Until we use the net proceeds of this offering for the above purposes, we
intend to invest the funds in short-term, investment grade, interest-bearing
securities. We cannot predict whether the proceeds invested will yield a
favorable return.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
anticipate that we will retain any earnings to support operations and to finance
the growth and development of our business. Therefore, we do not expect to pay
cash dividends in the foreseeable future. Any future determination relating to
our dividend policy will be made at the discretion of our board of directors and
will depend on a number of factors, including future earnings, capital
requirements, financial conditions and future prospects and other factors the
board of directors may deem relevant.
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CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
- on an actual basis;
- on a pro forma basis to give effect to the automatic conversion of
16,677,138 shares of our preferred stock outstanding as of March 31, 2000
into 16,677,138 shares of common stock upon the closing of this offering
and the change in our authorized capital stock resulting from the filing
of our restated certificate of incorporation; and
- on a pro forma as adjusted basis to give effect to the automatic
conversion of 16,677,138 shares of our preferred stock outstanding as of
March 31, 2000 into 16,677,138 shares of common stock upon the closing of
this offering, and the issuance and the sale of 4,600,000 shares of common
stock offered by this prospectus at an assumed initial public offering
price of $12.00 per share, after deducting the underwriting discounts and
commissions and estimated offering expenses, and our receipt of the net
proceeds from that sale.
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
AND SHARE AMOUNTS)
<S> <C> <C> <C>
Term note payable, less current portion..................... $ 4,095 $ 4,095 $ 4,095
-------- -------- --------
Convertible and redeemable convertible preferred stock, par
value $0.001;
Authorized shares--17,864,723 actual and 5,000,000
pro forma and pro forma as adjusted;
Issued and outstanding shares--16,677,138 actual, none
pro forma or pro forma as adjusted...................... 85,278 -- --
--------
Stockholders' equity (deficit):
Common stock, par value $0.001;
Authorized shares--43,750,000 actual and 100,000,000
pro forma and pro forma as adjusted;
Issued and outstanding shares--762,330 actual, 17,439,468
pro forma and 22,039,468 pro forma as adjusted.......... 1 17 22
Additional paid-in capital.................................. 18,485 103,747 153,982
Deferred stock compensation................................. (10,702) (10,702) (10,702)
Accumulated deficit......................................... (59,231) (59,231) (59,231)
-------- -------- --------
Total stockholders' equity (deficit).................... (51,447) 33,831 84,071
-------- -------- --------
Total capitalization.................................... $ 37,926 $ 37,926 $ 88,166
======== ======== ========
</TABLE>
The table above does not include:
- 1,995,217 shares of common stock issuable upon the exercise of options
outstanding as of March 31, 2000 at a weighted average exercise price of
$0.43 per share;
- 521,646 additional shares of common stock made available for future
issuance under our 1995 and 1997 Equity Incentive Plans;
- 45,000 shares of common stock issuable upon exercise of warrants
outstanding as of March 31, 2000 at $4.45 per share;
- 168,125 shares of Series C preferred stock issuable upon exercise of
warrants outstanding as of March 31, 2000 at $4.00 per share; and
- 226,236 shares of Series F preferred stock issuable upon exercise of
warrants outstanding as of March 31, 2000 at $4.72 per share.
The warrants for Series C and Series F preferred stock described above will
be exercisable for common stock upon completion of this offering. To the extent
that the above options and warrants are exercised, there will be further
dilution to new investors. See "Management--Employee Benefit Plans."
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DILUTION
Our pro forma net tangible book value as of March 31, 2000 was approximately
$33.8 million, or $1.94 per share, based on the pro forma number of shares of
common stock outstanding as of March 31, 2000 of 17,439,468, calculated after
giving effect to the automatic conversion of 16,677,138 shares of our preferred
stock outstanding as of March 31, 2000 into 16,677,138 shares of our common
stock.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the pro forma net tangible book value per
share of our common stock immediately afterwards, after giving effect to the
sale of 4,600,000 shares in this offering at an assumed initial offering price
of $12.00 per share and after deducting underwriting discounts and estimated
commissions and offering expenses. This represents an immediate increase in pro
forma net tangible book value of $1.87 per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $8.19 per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share as of
March 31, 2000.......................................... $1.94
Increase attributable to the offering..................... 1.87
-----
Pro forma net tangible book value per share after the
offering.................................................. 3.81
------
Dilution per share to new investors......................... $ 8.19
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 2000,
after giving effect to this offering, the total number of shares of common stock
purchased from us and the total consideration and the average price per share
paid by existing stockholders and by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL GROSS CONSIDERATION
--------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 17,439,468 79.1% $ 79,323,064 59.0% $ 4.55
New investors........... 4,600,000 20.9 55,200,000 41.0 12.00
---------- ----- ------------ -----
Total................... 22,039,468 100.0% $134,523,064 100.0%
========== ===== ============ =====
</TABLE>
After this offering and assuming the exercise in full of all options and
warrants outstanding and exercisable as of March 31, 2000, the average price per
share of existing stockholders would be reduced by $0.42 per share to $4.13 per
share.
After this offering and assuming the exercise in full of all options and
warrants outstanding and exercisable as of March 31, 2000, our pro forma net
tangible book value per share as of March 31, 2000 would be $3.55 per share,
representing an immediate increase in net tangible book value of $1.61 per share
to existing stockholders and an immediate dilution in net tangible book value of
$8.45 per share to new investors.
If the underwriters exercise their over-allotment option in full, the
following will occur:
- the percentage of shares of our common stock held by existing stockholders
will decrease to approximately 76.7% of the total number of shares of our
common stock outstanding after this offering;
- the number of shares of our common stock held by new public investors will
increase to 5,290,000, or approximately 23.3% of the total number of
shares of our common stock outstanding after this offering; and
- our pro forma net tangible book value will increase to $4.04 per share to
existing stockholders and our pro forma net tangible book value will be
diluted by $7.96 per share to new investors.
21
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and the notes to such statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. The statement of operations data for the
years ended December 31, 1997, 1998 and 1999, and the balance sheet data as of
December 31, 1998 and 1999, are derived from our audited financial statements
which are included elsewhere in this prospectus. The statement of operations
data for the period from May 22, 1995 (inception) to December 31, 1995 and for
the year ended December 31, 1996 and the balance sheet data as of December 31,
1995, 1996 and 1997 are derived from audited financial data not included in this
prospectus. The statement of operations data for the three months ended
March 31, 1999 and 2000 and the balance sheet data at March 31, 2000 are derived
from our unaudited financial statements which are included elsewhere in this
prospectus. Historical results are not necessarily indicative of the results to
be expected in the future. The pro forma net loss per share and shares used in
computing pro forma net loss per share are calculated as if all of our preferred
stock was converted into shares of our common stock on the date of their
issuance. See footnote 1 of notes to financial statements.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 2, 1995 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1999 2000
-------------- -------- -------- -------- ----------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees and milestones........ $ -- $ -- $ -- $ -- $ 525 $ -- $ 8
Collaborative research and
development and contract
services......................... -- -- -- -- 3,750 -- 1,250
Related party research and
development...................... -- 2,965 -- -- -- -- --
-------- -------- -------- -------- ----------- -------- -----------
Total revenues................... -- 2,965 -- -- 4,275 -- 1,258
-------- -------- -------- -------- ----------- -------- -----------
Operating expenses:
Research and development........... 620 5,945 5,403 11,429 25,472 2,209 3,637
General and administrative......... 473 1,405 807 1,386 2,586 268 1,648
-------- -------- -------- -------- ----------- -------- -----------
Total operating expenses......... 1,093 7,350 6,210 12,815 28,058 2,477 5,285
-------- -------- -------- -------- ----------- -------- -----------
Loss from operations................. (1,093) (4,385) (6,210) (12,815) (23,783) (2,477) (4,027)
Interest income...................... -- 10 104 770 749 103 589
Interest expense..................... (17) (418) (178) (540) (6,170) (124) (120)
Other................................ -- 2 -- -- (14) -- --
-------- -------- -------- -------- ----------- -------- -----------
Net loss............................. (1,110) (4,791) (6,284) (12,585) (29,218) (2,498) (3,558)
Preferred stock deemed dividends and
accretion to redemption value...... -- -- (422) (2,527) (38,176) (1,281) (1,435)
-------- -------- -------- -------- ----------- -------- -----------
Net loss available to common
stockholders....................... $ (1,110) $ (4,791) $ (6,706) $(15,112) $ (67,394) $ (3,779) $ (4,993)
======== ======== ======== ======== =========== ======== ===========
Net loss per share, basic and
diluted............................ $ (12.62) $ (20.40) $ (24.31) $ (47.11) $ (127.28) $ (8.72) $ (7.09)
======== ======== ======== ======== =========== ======== ===========
Shares used in computing net loss per
share, basic and diluted........... 87,961 234,844 275,834 320,800 529,513 433,384 704,789
======== ======== ======== ======== =========== ======== ===========
Pro forma net loss per share, basic
and diluted (unaudited)............ $ (2.75) $ (0.20)
=========== ===========
Shares used in computing pro forma
net loss per share, basic and
diluted (unaudited)................ 10,613,276 17,381,926
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------------------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ -- $ -- $ 9,562 $ 4,507 $ 34,619 $ 34,003
Total assets..................................... 333 3,293 26,258 15,865 45,233 44,575
Term loan payable, less current portion.......... -- -- 6,034 5,172 4,310 4,095
Convertible subordinated note to Sepracor........ 1,142 5,066 -- -- -- --
Advance from Sepracor............................ -- 2,680 -- -- -- --
Convertible and redeemable preferred stock....... 60 60 31,472 33,984 83,843 85,278
Accumulated deficit.............................. (1,110) (5,901) (12,536) (26,454) (55,673) (59,231)
Total stockholders' deficit...................... (1,089) (5,880) (12,551) (27,076) (48,796) (51,447)
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the financial statements and the
notes to those statements included elsewhere in this prospectus. This discussion
may contain forward-looking statements that involve risks and uncertainties. As
a result of many factors, such as those set forth under "Risk Factors" and
elsewhere in this prospectus, our actual results may differ materially from
those anticipated in these forward-looking statements.
BACKGROUND
Since we began our operations in May 1995, we have devoted substantially all
of our resources to the discovery and development of pharmaceutical products for
the treatment of bacterial and fungal infections, primarily in the hospital
setting. We have not generated any revenues from product sales. We have one
product candidate in Phase II clinical trials, one product candidate in Phase I
clinical trials and several lead compounds in preclinical studies.
Our revenues in the near term are expected to consist primarily of license
fees, milestone payments and collaborative research payments to be received from
our collaborative partners. These payments are dependent on achievement of
certain milestones. If our development efforts result in clinical success,
regulatory approval and successful commercialization of our products, we will
generate revenues from sales of our products and from receipt of royalties on
sales of licensed products.
Our expenses have consisted primarily of costs incurred in licensing
existing product candidates, research and development of new product candidates
and in conjunction with our collaborative agreements, and from general and
administrative costs associated with our operations. We expect our licensing
costs to increase as certain milestones are achieved, and our research and
development expenses to increase as we continue to develop our product
candidates. We also expect that our general and administrative expenses will
increase as we add personnel and assume the obligations of a public reporting
company. In addition, we expect to incur sales and marketing expenses in the
future when we establish our sales and marketing organization.
We have recorded deferred stock compensation expense in connection with the
grant of stock options to employees and consultants. Deferred stock compensation
for options granted to employees is the difference between the fair value for
financial reporting purposes of our common stock on the date such options were
granted and their exercise price. Deferred stock compensation for options
granted to consultants has been determined in accordance with Statement of
Financial Accounting Standards No. 123 as the fair value of the equity
instruments issued. Deferred stock compensation for options granted to
consultants is periodically remeasured as the underlying options vest in
accordance with Emerging Issues Task Force No. 96-18.
We recorded deferred stock compensation of approximately $1.2 million in the
year ended December 31, 1998, and $15.9 million in 1999. These amounts were
recorded as a component of stockholders' deficit and are being amortized as
charges to operations over the vesting periods of the options. We recorded
amortization of deferred stock compensation of approximately $537,000 for the
year ended December 31, 1998, and $4.4 million in 1999. We recorded $904,000 of
deferred stock compensation for options granted during the first quarter ended
March 31, 2000. For options granted to employees through March 31, 2000, we
expect to record additional amortization expense for deferred compensation as
follows: $3.7 million during the remainder of 2000, $3.1 million in 2001, $1.6
million in 2002 and $0.6 million in 2003. Amortization expense relates to
options awarded to employees and consultants and is assigned to all operating
expense categories in the statements of operations. See footnote 8 of notes to
financial statements. We may record additional deferred compensation expense if
we grant additional options prior to our initial public offering.
23
<PAGE>
Since our inception, we have incurred significant losses. As of March 31,
2000, we had an accumulated deficit of $59.2 million. We anticipate incurring
additional losses, which may increase, for the foreseeable future, including at
least through December 31, 2000.
We have a limited history of operations. We anticipate that our quarterly
results of operations will fluctuate for the foreseeable future due to several
factors, including payments made or received pursuant to licensing or
collaboration agreements, progress of our research and development efforts, and
the timing and outcome of regulatory approvals. Our limited operating history
makes predictions of future operations difficult or impossible.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES. Revenues were $1.3 million in the three months ended March 31,
2000. No revenues were recognized in the three months ended March 31, 1999.
Revenues in the three months ended March 31, 2000 consisted of the recognition
of $0.7 million of collaborative research and development fees and contract
services and licensing fees from Pharmacia & Upjohn and $0.6 million of
collaborative research and development fees from Novartis under our
collaborative agreements.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $3.6 million in the three months ended March 31, 2000 from
$2.2 million in the three months ended March 31, 1999. Research and development
expenses in 2000 included $1.2 million of non-cash stock compensation expense
compared to $277,000 in 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $1.6 million in the three months ended March 31, 2000 from $268,000
in the three months ended March 31, 1999. This increase is primarily due to
non-cash stock compensation expense of $1.1 million in 2000 compared to $1,000
in 1999.
NET INTEREST INCOME (EXPENSE). Net interest income in the three months
ended March 31, 2000 was $469,000 compared to net interest expense of $21,000 in
the three months ended March 31, 1999. The increase was attributable to higher
average cash balances in 2000.
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES. Revenues were $4.3 million in 1999. We did not record any
revenues in 1998. Revenues in 1999 consisted of $2.1 million of collaborative
research and development fees and contract services and licensing fees received
from Pharmacia & Upjohn under our collaborative agreement. We also recorded
revenues during 1999 related to $1.7 million of collaborative research and
development fees and a $500,000 milestone payment received from Novartis under
our collaboration agreement. At December 31, 1999 we had $975,000 of deferred
revenue representing research and development payments from collaborative
partners that will be recognized on a straight line basis through the first
quarter of 2002.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $25.5 million in 1999 from $11.4 million in 1998. Research and
development expenses consist of salaries and related costs of research and
development personnel as well as the costs of consultants, parts and supplies
associated with research and development projects. During 1999 we recorded
$14 million of expense related to license fees and for product inventory to Eli
Lilly and non-cash stock compensation expense of $3.3 million. Research and
development expenses in 1998 included license fees and milestone payments of
$3.6 million relating to our agreements with Biosearch Italia and non-cash stock
compensation expense of approximately $536,000. Excluding these initial license
fees and milestone payments to our collaborative partners and the non-cash stock
compensation expenses, research and
24
<PAGE>
development expenses in 1999 were $8.2 million as compared to $7.3 million in
1998. The increase was primarily attributable to research activities conducted
under our collaborative agreements for which we received collaborative research
funding.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $2.6 million in 1999 from $1.4 million in 1998. General and
administrative expenses consist of salaries and related costs for executive and
other administrative personnel as well as the costs of facilities, insurance,
legal support and administrative service fees paid to Sepracor. General and
administrative expenses included $1.1 million of non-cash stock compensation
expense in 1999. Excluding these non-cash stock compensation charges, general
and administrative expenses were $1.5 million in 1999 as compared to $1.4
million in 1998.
NET INTEREST INCOME (EXPENSE). Net interest expense was $5.4 million in
1999 compared to net interest income of $230,000 in 1998. Net interest income
(expense) consists of interest income on cash and cash equivalents and
restricted cash and interest expense on term loans payable, and in 1999, on a
bridge financing. Interest expense in 1999 includes non-cash interest expense of
$5.5 million related to the beneficial conversion feature and the fair value of
warrants issued in connection with the bridge loan financing.
INCOME TAXES. As of December 31, 1999, we had federal net operating loss
carryforwards of approximately $12 million. As of December 31, 1999, we have
recorded a full valuation allowance for our existing net deferred tax assets due
to uncertainties regarding their realization. We also have federal research tax
credit carryforwards of $795,000. The federal net operating loss and credit
carryforwards expire beginning in the year 2010, if not utilized. Utilization of
the federal net operating losses and credit carryforwards may be limited by the
change of ownership provisions contained in Section 382 of the Internal Revenue
Code.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES. We did not record any revenues in either 1998 or 1997.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $11.4 million in 1998 from $5.4 million in 1997. Research and
development expenses in 1998 included $3.6 million of license fees and
milestones payable to Biosearch Italia and non-cash stock compensation expense
of approximately $536,000.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $1.4 million in 1998 from $807,000 in 1997. The increase was
primarily attributable to increased legal expenses.
NET INTEREST INCOME (EXPENSE). Net interest income was $230,000 in 1998
compared to net interest expense of $75,000 in 1997. The increase was
attributable to higher average cash balances.
25
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations principally with the proceeds of
$78.5 million from a series of six preferred stock offerings over the period
1995 through 1999 as follows:
<TABLE>
<CAPTION>
AMOUNT
NO. OF PRICE PER (DOLLARS IN
ISSUE YEAR SHARES SHARE MILLIONS)
----- -------- --------- --------- -----------
<S> <C> <C> <C> <C>
Preferred Stock, Series A............................... 1995 45,000 $1.34 $ 0.06
Preferred Stock, Series B............................... 1997 1,368,750 6.96 9.53
Preferred Stock, Series C............................... 1997 5,500,000 4.00 22.00
Preferred Stock, Series D-1............................. 1999 625,000 6.00 3.75
Preferred Stock, Series E-1............................. 1999 625,000 4.80 3.00
Preferred Stock, Series F............................... 1999 8,513,388 4.72 40.18
------
$78.52
======
</TABLE>
Each share of preferred stock is convertible into one share of our common
stock.
As of March 31, 2000, we have also received $10 million in payments for
collaborative research, contract services and milestone payments, as well as
license fees from our collaborative partners, including Sepracor. Of these
payments, $1.5 million constitutes deferred revenue as of March 31, 2000 that
will be recognized on a straightline basis through the first quarter of 2002.
In addition, we have a $6 million term loan agreement with Fleet National
Bank. This loan bears interest at a rate of prime plus 0.50% and is payable in
15 equal quarterly installments of $215,500, with the balance due on
December 31, 2002. The proceeds of this loan were used to repay Sepracor for
leasehold improvements to our facilities in Fremont, California, and for general
corporate purposes. As of March 31, 2000 there was an outstanding balance of
$5.0 million under this agreement. The loan agreement requires that we maintain
$5 million of cash and cash equivalents, of which $4 million must remain on
deposit with Fleet.
At March 31, 2000, cash and cash equivalents, exclusive of $5 million of
restricted cash, totaled $34.0 million compared to $34.6 million at
December 31, 1999. Our cash reserves and cash equivalents consist mainly of
short term commercial paper and demand accounts with major financial
institutions.
Cash used in operations was $389,000 and $2.1 million for the three months
ended March 31, 2000 and 1999, respectively. The net loss for the three months
ended March 31, 2000 of $3.6 million was partially offset by non-cash charges
for depreciation and stock compensation of $2.5 million. Another source of cash
was an increase in deferred revenue of $507,000. Cash used in investing and
financing activities during the first quarter of 2000 was not significant.
Cash used in operations was $15.4 million and $9.6 million for the years
ended December 31, 1999 and 1998, respectively. The net loss for 1999 of
$25.1 million was partially offset by non-cash charges for depreciation,
amortization and stock compensation of $6.7 million. Other sources of cash were
increases in deferred revenue and other long term liabilities of $3 million.
Financing activities provided $45.8 million of cash during 1999, primarily
from net proceeds of $41.1 million received from the issuance of preferred stock
and $5.5 million from convertible subordinated notes.
Investing activities used $279,000 of cash during 1999, primarily due to the
purchase of property and equipment.
We have budgeted approximately $300,000 for capital expenditures in 2000,
primarily for leasehold improvements.
We expect to have negative cash flow from operations for the foreseeable
future. We expect to incur increasing research and development expenses,
including expenses related to additions to personnel and production and
commercialization efforts. We expect that our general and administrative
26
<PAGE>
expenses will increase in absolute dollar amounts in the future as we expand our
business development, legal and accounting staff, add infrastructure and incur
additional costs related to being a public company, including directors' and
officers' insurance, investor relations programs and increased professional
fees. Our future capital requirements will depend on a number of factors,
including our success in developing markets for our products, payments received
or made under collaborative agreements, the availability of government research
grants, continued progress of our research and development of product
candidates, the timing and outcome of regulatory approvals, the costs involved
in preparing, filing, prosecuting, maintaining, defending and enforcing patent
claims and other intellectual property rights, the need to acquire licenses to
new products or compounds, the status of competitive products and the
availability of other financing. We believe our existing cash and cash
equivalents, together with the net proceeds of this offering, will be sufficient
to fund our operating expenses, debt repayments and capital equipment
requirements for at least the next two years. Without the proceeds from this
offering, we believe that our existing cash and cash equivalents will be
sufficient to fund our operating expenses, debt repayments and capital
expenditure for at least the next twelve months.
Except for the Fleet loan agreement, we have no credit facility or other
committed sources of capital. To the extent our capital resources are
insufficient to meet future capital requirements, we will need to raise
additional capital or incur indebtedness to fund our operations. We cannot
assure you that additional debt or equity financing will be available on
acceptable terms, if at all. If adequate funds are not available, we may be
required to delay, reduce the scope of or eliminate our research and development
programs, reduce our commercialization efforts or obtain funds through
arrangements with collaborative partners or others that may require us to
relinquish rights to certain product candidates or lead compounds that we might
otherwise seek to develop or commercialize. Any future funding may dilute the
ownership of our equity investors.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is currently confined to our cash and cash
equivalents and restricted cash that have maturities of less than three months.
We currently do not hedge interest rate exposure. Because of the short term
maturities of our cash and cash equivalents, we do not believe that an increase
in market rates would have any significant negative impact on the realized value
of our investments, but may negatively impact the interest expense associated
with our long term debt.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes new standards of accounting and reporting for derivative instruments
and hedging activities. SFAS No. 133 requires that all derivative instruments be
recognized at fair value in the statement of financial position, and that the
corresponding gains and losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of relationship
that exists. We have not engaged in significant hedging activities or invested
in derivative instruments. In July 1999, the Financial Accounting Standards
Board issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." SFAS
No. 137 deferred the effective date of SFAS No. 133 until fiscal years beginning
after June 15, 2000.
In March 2000, the FASB issued FIN 44, "Accounting for Certain Transactions
Involving Stock Compensation--An Interpretation of APB 25" which is effective
July 1, 2000. We do not expect FIN 44 to have any material impact on our
financial statements.
27
<PAGE>
BUSINESS
OVERVIEW
Versicor is a biopharmaceutical company focused on the marketing,
development and discovery of pharmaceutical products for the treatment of
bacterial and fungal infections. The market for antiinfective products is large
and growing, reporting nearly $24 billion in worldwide sales in 1998. We intend
to focus on antiinfective products that have competitive advantages over
existing products, such as greater potency, improved effectiveness against
resistant strains and reduced toxicity. Because the development process for
antiinfectives is relatively efficient and well-defined, we believe the costs
and time required to bring new products to market can be significantly less than
other major therapeutic categories.
We have a distinct, two-fold approach to product development and marketing.
Our primary strategy is to focus on the development of proprietary products,
concentrating on injectable antibiotic and antifungal products for the hospital
market, which accounted for $6.5 billion in worldwide sales in 1998. We expect
to market these products to hospitals in North America through our own direct
sales force, which we believe can be established with a targeted and
cost-effective sales and marketing infrastructure. Our product candidates target
disease indications that represent substantial markets where there is
significant demand for new therapies.
Our secondary strategy is to collaborate with major pharmaceutical companies
to develop orally administered antibiotic and antifungal products. Orally
administered products require substantial development expenditures and extensive
sales and marketing infrastructures to reach their full market potential.
Through these collaborations, we intend to leverage our technology platform to
discover and supply lead compounds while our partners conduct pre-clinical,
clinical development, marketing and sales activities to transform the compounds
into pharmaceutical products. We expect to receive research funding, milestone
payments and equity investments from our collaborative partners, as well as
royalty fees if the products are commercialized.
PROPRIETARY PRODUCTS
Our lead product candidate, V-Echinocandin, is an antifungal intended for
the intravenous treatment of serious systemic fungal infections. V-Echinocandin
has potent fungicidal activity, a broad spectrum of activity against CANDIDA
(including fluconazole-resistant strains) and ASPERGILLUS, low potential for
developing resistance and a novel mechanism of action. We believe V-Echinocandin
will have competitive advantages over existing therapies because it combines
potent fungicidal activity with a good safety profile. V-Echinocandin is
currently in Phase II clinical trials, where it has shown significant activity
and has been well tolerated. We plan to initiate a Phase III trial in the first
quarter of 2001.
Our second product candidate, V-Glycopeptide, is a second-generation
antibiotic belonging to the same class as vancomycin and is intended for the
treatment of serious systemic infections, particularly STAPHYLOCOCCI.
V-Glycopeptide has potent bactericidal effect. In comparison to vancomycin,
V-Glycopeptide has more potent activity, enhanced potency against
methicillin-resistant STAPHYLOCOCCUS strains, and appears to be suitable for
once-daily administration. V-Glycopeptide is currently in Phase I safety and
tolerance studies in the United Kingdom and we expect to begin additional
studies in the United States during the second half of 2000.
PARTNERED PRODUCT PROGRAMS
Our first partnered product program is a collaboration with Pharmacia &
Upjohn aimed at identifying second and third generation oxazolidinones.
Oxazolidinones promise to be the first new major chemical class of antibacterial
products to enter the market in over 20 years. They are active
28
<PAGE>
against a broad range of bacteria, including multidrug resistant STAPHYLOCOCCI,
STREPTOCOCCI and ENTEROCOCCI. Pharmacia & Upjohn has filed a new drug
application, independent of us, for the first generation oxazolidinone called
Linezolid-TM-. We have identified several structurally novel second generation
oxazolidinone candidates that have a broader spectrum of activity (including the
key respiratory pathogen H. INFLUENZAE), improved potency against multidrug
resistant bacteria, and good activity in preclinical IN VIVO studies when
administered orally.
Our second partnered product program is a collaboration with Novartis
Pharma AG to develop deformylase inhibitors. Deformylase is an essential enzyme
present in bacteria but absent in human cells, and thus represents a good target
for the discovery of inhibitors that can serve as broad spectrum antibacterial
agents. We have identified several lead molecules that are active against
multidrug resistant strains, as well as important respiratory pathogens such as
S. PNEUMONIAE, H. INFLUENZAE and M. CATARRHALIS. Several lead compounds have
demonstrated activity in IN VIVO preclinical studies when administered orally,
representing a rare example of DE NOVO design of an active antibacterial agent.
DISCOVERY PLATFORM
We intend to expand our product portfolio by exploiting our integrated
discovery platform that combines our proprietary expertise in the critical areas
of genomics and rational drug design, as well as lead optimization. In addition,
we have established a lead optimization partnership called BIOCOR with Biosearch
Italia. Through this partnership, Biosearch contributes lead compounds and we
contribute our expertise in genomics, rational drug design and lead optimization
to generate promising new antiinfective product candidates.
MARKET OPPORTUNITY
Infectious diseases are caused by pathogens such as bacteria and fungi that
enter the body through the skin or mucous membranes of the lungs, nasal passages
or gastrointestinal tract, and overwhelm the body's immune system. These
pathogens then establish themselves in various tissues and organs throughout the
body and cause a number of serious and, in some cases, lethal infections,
including those of the bloodstream, skin and soft tissue, heart, lung, liver and
urinary tract. Patients with impaired immune systems due to age, chemotherapy,
organ transplants or AIDS are particularly susceptible to such infections.
According to the most recent data provided by the U.S. Centers for Disease
Control and Prevention, for the period 1980 to 1992, approximately two million
hospital-acquired infections occurred annually in the United States, accounting
for more than eight million days of extended hospital stay and causing more than
$4 billion in additional health care costs each year. While overall per capita
mortality rates declined in the United States from 1980 to 1992, the per capita
mortality rate due to infectious diseases increased 58% over this period, making
infectious diseases the third leading cause of death in the United States. We
believe that bacterial and fungal infections, especially infections caused by
difficult-to-treat, drug resistant bacteria and fungi, cause or contribute to a
substantial majority of these deaths.
Antiinfective pharmaceutical products work by interfering with specific
targets in a bacterial or fungal pathogen, thereby inhibiting a cell function
essential to its growth or survival. Currently available antiinfective products
can be divided into the following five broad categories, according to the type
of cell function they inhibit: (1) tetracyclines, macrolides and aminoglycosides
(protein synthesis); (2) penicillins, cephalosporins, carbapenems, and
glycopeptides (cell wall synthesis); (3) fluoroquinolones (nucleic acid
synthesis); (4) trimethoprim and sulfonamides (cell metabolism); and (5) azoles
and polyenes (fungal cell membrane synthesis/function).
Currently available antiinfective products have a number of limitations.
Many are not as potent as new products under development, and their efficacy is
fading as the number of multidrug resistant
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strains of bacteria and fungi increases. Many also have severe adverse side
effects. Despite these limitations, there have been no new major classes of
antibiotic or antifungal products brought to the market for over 20 years. We
believe this lack of new products is due to the misperception that bacterial and
fungal infections had been conquered. As a result, most major pharmaceutical
companies de-emphasized their efforts to discover and develop new antiinfective
therapies.
We believe the antiinfective market presents a highly attractive opportunity
for three major reasons:
- LARGE MARKET. The market for antibiotics and antifungals represents the
third largest worldwide pharmaceutical drug market, with 1998 sales of
nearly $24 billion. The hospital antiinfective market, where we will
target our proprietary products, totaled $6.5 billion worldwide in 1998.
- GROWING NEED FOR NEW DRUGS. The number of patients with impaired immune
systems has been increasing dramatically due to the aging of the
population, growing use of therapies such as chemotherapy and organ
transplantation, and the prevalence of AIDS. These patients are
particularly susceptible to serious infection because of their
immunosuppression. In addition, the increasing resistance of infectious
agents has led to an increased number of serious infections in patients
who are not immunosuppressed. As a result, there is a strong demand for
new drugs that are more potent, more effective against resistant strains,
and that cause fewer side effects than existing therapies.
- EFFICIENT AND WELL-DEFINED DRUG DEVELOPMENT PROCESS. IN VITRO and early
IN VIVO testing of antiinfective drugs has been shown to be more
predictive of clinical results than other therapeutic categories.
Moreover, antiinfectives that successfully complete Phase I clinical
testing are more likely to be efficacious and to receive regulatory
approval. As a result, the costs and time required to develop
antiinfectives are greatly reduced in comparison to other major
therapeutic categories.
OUR STRATEGY
Versicor's objective is to be a leader in the marketing and development of
pharmaceutical products for the treatment of bacterial and fungal infections in
the hospital setting. We intend to focus on products that have a competitive
marketing advantage over existing drugs, such as greater potency, effectiveness
against resistant strains and reduced toxicity. We have a distinct, two-fold
approach to product development and marketing. Our primary strategy is to focus
on the development of proprietary products, concentrating on injectable
antibiotic and antifungal products for the hospital market. Our secondary
strategy is to collaborate with major pharmaceutical companies to develop orally
administered products. Versicor's top management has over 50 years of experience
with large multinational pharmaceutical companies evaluating preclinical,
clinical and marketed antiinfective drugs. We believe this extensive experience
will give us a competitive advantage in selecting those products that can be
most effectively commercialized.
To accomplish our objectives we are pursuing the following strategies:
- IN-LICENSE COMPOUNDS AND PRODUCTS WITH DEMONSTRATED POTENTIAL. We intend
to accelerate our product development and revenue generation by
selectively in-licensing compounds for development and products for sale.
We expect to concentrate on antibacterial and antifungal compounds and
products that have demonstrated success in pre-clinical studies, and that
can be differentiated in the market. We also intend to focus on licensing
compounds and products that are synergistic with our existing portfolio in
terms of time to market and product positioning. We believe our
management's knowledge of the industry and personal contacts with major
pharmaceutical companies will be a significant advantage in executing our
licensing strategy. Our
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two lead product candidates, V-Echinocandin and V-Glycopeptide, were both
acquired through in-licensing arrangements.
- EXPLOIT OUR INTERNAL DISCOVERY PLATFORM TO EXPAND OUR PRODUCT
PORTFOLIO. We intend to expand our product portfolio by exploiting our
internal expertise to generate product candidates. Our strategy is to
select lead molecules that are underexploited and can be optimized through
combinatorial chemistry, and to use genomics to select targets that allow
a mechanism-based approach to product design. We believe the successful
integration of this platform will enable us to more rapidly identify and
develop successful products. We believe our collaborations with
Pharmacia & Upjohn and Novartis Pharma AG validate the strength of our
internal discovery platform.
- OBTAIN LEAD COMPOUNDS THROUGH BIOCOR. We intend to further strengthen our
product pipeline through our BIOCOR lead optimization partnership with
Biosearch Italia. The majority of currently marketed antibacterial
products are made by the chemical modification of molecules that are
produced by microbes. Previously, the processes used to perform these
modifications were tedious and slow because of the complex nature of the
molecules. Versicor's expertise in combinatorial chemistry permits a more
rapid optimization approach to chemical modification. However, a
substantial infrastructure is required to produce, isolate and
characterize natural product leads of this type. With over 20 years of
research, Biosearch Italia has accumulated large libraries of lead
compounds. Our BIOCOR partnership allows us to obtain and optimize lead
compounds without incurring the cost of establishing our own
infrastructure.
- ACQUIRE BUSINESSES THAT CAN ACCELERATE OUR DEVELOPMENT. In addition to
developing our portfolio through in-licensing, internal development and
collaborations, we also plan to pursue acquisition opportunities when
market conditions are attractive. Acquisitions in some cases provide the
fastest and most cost-effective means to bolster our product pipeline and
accelerate our product development. We intend to focus on acquiring
companies that can provide us access to new compounds that have
demonstrated potential in preclinical or clinical studies, products that
are synergistic with our existing portfolio, and sales and marketing
capabilities.
- TARGET OUR SALES FORCE ON THE NORTH AMERICAN HOSPITAL MARKET. We believe
we can market and sell our products successfully into the North American
hospital market with a relatively small direct sales force. Our management
has experience in building specialty pharmaceutical sales forces and plans
to do so six to nine months prior to introducing our first product into
the North American market. Outside the North American hospital market, we
expect to partner with multinational pharmaceutical companies to market
our products. This strategy is designed to avoid the cost of a large
international marketing infrastructure, and to take advantage of our
partners' expertise, relationships and product portfolios that service
these large markets.
OUR PRODUCT CANDIDATES
Our product candidates can be divided into two categories: proprietary
products and partnered product programs. Proprietary products are injectable
antibiotics and antifungals developed or acquired by Versicor for the treatment
of serious infections in the hospital setting. Partnered product programs are
orally administered antibiotics and antifungals developed through our
collaborations for the treatment of community-acquired infections that can often
be treated with bacteriostatic agents. The
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table below summarizes our product candidates and programs, their target
infections, their nature of activity and their development status.
[CHART]
PROPRIETARY PRODUCTS
V-ECHINOCANDIN, A NOVEL ANTIFUNGAL FOR THE TREATMENT OF SERIOUS INFECTIONS
TARGET INFECTIONS. Serious fungal infections such as CANDIDA and
ASPERGILLUS generally occur in patients with impaired immune systems. In 1998,
2.5 million patients were hospitalized in the United States for chemotherapy,
organ transplantation or AIDS. Approximately 25% of these patients developed
serious fungal infections, which in these patient populations are associated
with a high percentage of morbidity and mortality. The mortality rate for
CANDIDA infections has been reported to be 38%, and that for ASPERGILLUS ranges
from 65% to 95%.
The number of patients suffering from serious fungal infections is on the
increase and the treatment options remain very limited. Currently, there are
only two major classes of antifungal drugs approved for marketing: the polyenes
(amphotericin B and related compounds) and the azoles (fluconazole and
itraconazole). The polyenes generally are limited by serious side effects,
including chills, diarrhea, nausea, vomiting and metabolic/nutritional
disorders. The azoles are limited by the fact that they inhibit rather than kill
fungi and by an increasing resistance problem. Despite these limitations, these
two drug classes generated over $1 billion in U.S. sales in 1998.
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PRODUCT DESCRIPTION. Versicor is developing V-Echinocandin to target the
need for a new class of antifungal drug that combines the efficacy and killing
effect of the polyenes with the safety profile of the azoles. V-Echinocandin is
a novel intravenous antifungal product candidate derived from a naturally
occurring molecule that has been significantly improved through chemical
modification. We believe V-Echinocandin has the following competitive
advantages:
- POTENT BROAD SPECTRUM ACTIVITY. V-Echinocandin has highly potent IN VITRO
activity against the fungi responsible for serious systemic infections,
and is especially active against CANDIDA, including fluconazole-resistant
strains, and ASPERGILLUS. Figures A and B below illustrates the IN VITRO
potency of V-Echinocandin.
- FUNGICIDAL. Five minutes exposure to V-Echinocandin IN VITRO kills more
than 99% of CANDIDA. By comparison, azoles such as fluconazole are
fungistatic, meaning that they merely inhibit the growth of fungi and do
not kill them. This is an important feature of V-Echinocandin, because its
target patient population is immunosuppressed. Patients that are severely
immunosuppressed can be more effectively treated with a therapy that is
fungicidal rather than fungistatic.
- NOVEL MECHANISM OF ACTIVITY. V-Echinocandin is a new class of antifungal
drug that selectively inhibits a critical enzyme found only in fungi that
is involved in cell wall synthesis. This mechanism is completely different
from that of the polyenes and azoles. Because of this different mechanism,
there is no cross resistance with marketed pharmaceutical products
(products with same mechanism frequently show cross resistance).
- LOW POTENTIAL FOR DEVELOPING RESISTANCE. In the laboratory it has proved
very difficult to develop resistance to V-Echinocandin. Under the same
conditions it is easy to develop resistance to fluconazole.
- WELL TOLERATED IN HUMANS. In five separate clinical trials involving over
100 volunteers and patients, V-Echinocandin was well tolerated and safe.
POTENCY.
FIGURE A
[GRAPHIC]
Description of Figure A: Two vertical bar graphs show the potency of
V-Echinocandin and three comparable drugs against Aspergillus and Candida. The
first graph is labeled Aspergillus and shows the MIC number for V-Echinocandin
around 0.1. All three comparables have an MIC number greater than 0.1. The
second graph, labeled Candida, shows that V-Echinocandin has an MIC number
ranging from less than 0.1 to greater than 1. The three comparables have an MIC
number equal to or greater than 1.
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FIGURE B
[GRAPHIC]
(taken from Espinel-Ingroff, 1998, Journal of Clinical
Microbiology 36(10):2950-2956. CANDIDA data as MIC90;
ASPERGILLUS data as geometric mean MIC)
Figures A and B above illustrate the IN VITRO potency for V-Echinocandin and
three control drugs against CANDIDA and ASPERGILLUS, as measured by the minimal
concentration of drug that inhibits growth, or MIC. The lower the MIC number
(shown by the bar), the more potent the drug. The vertical length of the bar
represents the range of MICs that was obtained when many different varieties of
the same fungus were compared. The results show that V-Echinocandin has superior
potency to the comparative antifungal drugs.
PHASE II RESULTS. V-Echinocandin demonstrated clinical efficacy and was
well tolerated in a non-comparative Phase II clinical trial involving 29
evaluable patients with esophagitis. Esophagitis is an inflammation of the lower
part of the esophagus, usually caused by a fungal infection such as CANDIDA. It
is a disease occurring largely in AIDS patients and is a serious cause of
morbidity. Patients enrolled in this trial were treated with daily intravenous
infusions of V-Echinocandin for up to 21 days. By the end of the treatment, over
80% of evaluable patients were cured or improved as measured by an endoscope, an
instrument permitting visual examination of the esophagus. No significant
drug-related complications were reported. The results of this study are
summarized in the table below:
<TABLE>
<CAPTION>
DOSAGE COMPLETE PARTIAL TREATMENT OBJECTIVE
(LOADING/MAINTENANCE) RESPONSES RESPONSES FAILURES RESPONSE RATE
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
50 mg/25 mg 8 5 3 13/16 (81%)
-------------------------------------------------------------------------------------
70 mg/35 mg 9 2 2 11/13 (85%)
-------------------------------------------------------------------------------------
</TABLE>
A subsequent safety and tolerance study indicated that people can be safely
dosed with twice the amount of V-Echinocandin administered in the
above-mentioned esophagitis trial. We believe V-Echinocandin should achieve
improved efficacy at this higher dose. In the first quarter of 2001, we intend
to initiate a Phase III trial against esophagitis in which this new increased
dose of V-Echinocandin will be compared with fluconazole. We also intend to
initiate additional trials for the treatment of other infections caused by
CANDIDA and ASPERGILLUS.
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V-GLYCOPEPTIDE, A SECOND GENERATION ANTIBIOTIC FOR THE TREATMENT OF SERIOUS
GRAM-POSITIVE INFECTIONS
TARGET INFECTIONS. In 1995, there were 1.9 million nosocomial (occurring in
a hospital) infections and there were 88,000 deaths attributed to them. Bacteria
causing infections are commonly divided into two groups, gram-positive and
gram-negative, based on their ability to retain a colored dye. Clinically
important examples of gram-positive bacteria include STAPHYLOCOCCI, STREPTOCOCCI
and ENTEROCOCCI. Gram-positive cocci, especially STAPHYLOCOCCI, are a
significant cause of nosocomial infections (e.g., they are responsible for 44%
of those that occur in the bloodstream). It has been estimated that the overall
mortality rate for staphylococcal infections is about 25%. The two major
STAPHYLOCOCCI responsible for nosocomial infections are STAPHYLOCOCCUS AUREUS
and STAPHYLOCOCCUS EPIDERMIDIS. There is particular concern about the increasing
prevalence of multidrug resistant forms of these two pathogens, which are
referred to as MRSA and MRSE, respectively. Vancomycin is currently the drug of
choice to treat serious staphylococcal infections caused by MRSA and MRSE in the
hospital setting. Vancomycin is an intravenous drug and, although widely used,
is limited by an infusion related side effect called the "Red Man Syndrome" that
results in a marked flushing of the patient and other more serious effects.
Vancomycin also has a rather short duration of action in the patient after
administration and requires two to four times a day dosing. In 1997, U.S. sales
of Vancomycin were $277 million.
PRODUCT DESCRIPTION. Versicor is developing V-Glycopeptide as an improved
alternative to Vancomycin. V-Glycopeptide is a second generation glycopeptide
intended for the intravenous treatment of serious hospital based infections
caused by gram-positive COCCI, especially those caused by MRSA and MRSE, where
the majority of vancomycin is currently used. V-Glycopeptide will not be
targeted for infections caused by ENTEROCOCCI, which account for only a small
portion of Vancomycin use. This novel glycopeptide has been developed by
chemical modification of a naturally occurring antibiotic. We believe
V-Glycopeptide offers the following competitive advantages over Vancomycin:
- MORE POTENT BROAD SPECTRUM OF GRAM-POSITIVE ACTIVITY. V-Glycopeptide is a
significantly more potent antibiotic IN VITRO against a range of
gram-positive bacteria, including all of the staphylococcal species.
- ENHANCED POTENCY AGAINST MRSA AND MRSE. The most difficult STAPHYLOCOCCI
to treat are multidrug resistant MRSA and MRSE, for which Vancomycin is
virtually the only treatment option available. As shown in Figure C below,
V-Glycopeptide is IN VITRO the most potent antibiotic belonging to the
glycopeptide class against MRSA and MRSE.
- ONCE DAILY DOSING. A variety of different animal model studies have shown
that V-Glycopeptide has a long duration of action after administration,
permitting a less frequent dosing regimen. It is anticipated that
V-Glycopeptide will need to be administered only once a day to patients,
which represents an improvement over Vancomycin, which has to be
administered two to four times a day.
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POTENCY.
FIGURE C
Description of Figure C: Figure C is a vertical bar graph, labeled
Methicillin-Resistant Staphylococci, that shows potency levels for
V-Glycopeptide and three other comparables, Vancomycin, Teicoplanin and
LY-333328. For each glycopeptide, one bar shows potency against MRSA and another
bar shows potency against MRSE. For V-Glycopeptide, both bars start under 0.1
MIC and extend just above 1.0 MIC. The six bars for the three comparables start
no lower than 0.1 MIC and extend beyond 10 MIC.
[LOGO]
Figure C compares the potency of the four major glycopeptides as measured by
their ability to inhibit the growth of MRSA and MRSE IN VITRO. The lower the
amount of drug required to inhibit the bacteria, the greater the potency. The
results show that V-Glycopeptide has significantly greater potency than the
other glycopeptides shown.
PHASE I STATUS. V-Glycopeptide is currently in Phase I testing, during
which its safety and tolerance are being investigated. Initial studies have been
completed in the United Kingdom and we anticipate completing further Phase I
studies in the United States during the second half of 2000. Phase II and
Phase III studies will be carried out in the United States starting in early
2001. These studies will involve indications for bloodstream and skin and soft
tissue infections. In both cases V-Glycopeptide will be compared with
Vancomycin.
VRC-3950, A BROAD SPECTRUM BACTERICIDAL ANTIBIOTIC CLASS FOR HOSPITALS
We are currently developing a new class of broad spectrum bactericidal
antibiotics for hospital-based infections called VRC-3950. We chose to work with
this compound after an extensive search of the literature for lead molecules
that were underexploited, had good IN VIVO activity and were suitable for
optimization by combinatorial chemistry. VRC-3950 has a novel mechanism of
activity and has demonstrated excellent IN VIVO activity in preclinical studies.
It has no cross resistance to existing antibacterial drugs and has a low
frequency of resistance development in the laboratory. Our scientists have
overcome difficulties in measuring the activity of this molecule by developing a
proprietary IN VITRO assay. Although this molecule was originally described as a
microbial product, Versicor's chemists have developed a fully synthetic process.
This process not only solves the problem of obtaining the molecule, but also
facilitates combinatorial chemistry-aided lead optimization. We are currently
preparing and screening VRC-3950 analog libraries and following up on initial
leads to find new patentable preclinical compounds.
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PARTNERED PRODUCTS
OXAZOLIDINONES
Versicor is collaborating with Pharmacia & Upjohn to identify a second
generation oxazolidinone. The oxazolidinones offer the potential of being the
first major new chemical class of antibacterial products to enter the market in
over 20 years. Pharmacia & & Upjohn has received FDA approval, independent of
us, for a new drug called Zyvox-TM-, the most advanced molecule in this class.
Based on historical precedents for antibiotics, it is likely that the
development of subsequent generations of oxazolidinones with improved potency
and broader spectrum of activity will create a major market opportunity.
Oxazolidinones are active against a broad spectrum of gram-positive pathogens,
including multidrug resistant STAPHYLOCOCCI, STREPTOCOCCI and ENTEROCOCCI. They
have a novel mechanism of action involving inhibition of an early step in
protein biosynthesis. Oxazolidinones are mechanistically novel and have no cross
resistance to other classes of antibiotics. In addition, IN VITRO preclinical
studies have shown that it is very difficult for bacteria to develop resistance
to the oxazolidinones.
Versicor began working on oxazolidinones at a time when several big
pharmaceutical companies were already actively involved in this area. By
leveraging their expertise in combinatorial chemistry, our scientists performed
lead optimization around the core oxazolidinone structure and identified several
novel lead structures with good IN VIVO activity when administered orally. As a
result of Versicor's rapid progress in this area, Pharmacia & Upjohn, the leader
in this field, signed a collaboration agreement with us in March 1999. We have
identified several novel molecules with an enhanced spectrum of activity,
including against the pathogen H. INFLUENZAE, improved potency against multidrug
resistant bacteria including MRSA, MRSE, Vancomycin resistant ENTEROCOCCI and
penicillin resistant STREPTOCOCCUS PNEUMONIAE. Several compounds have also
demonstrated good activity in IN VIVO preclinical studies when administered
orally and are therefore undergoing advanced IN VIVO testing. Advanced IN VIVO
testing includes testing the efficacy of the compounds with increased dosages,
the absorption of the compound in the blood, the differences between the oral
formulation and the intravenous formulation and the toxicity of the compound.
This represents significant progress in our collaborative effort to identify a
product candidate for clinical development.
DEFORMYLASE INHIBITORS
Versicor is collaborating with Novartis Pharma AG to develop deformylase
inhibitors as antibacterial agents. Deformylase is an essential enzyme present
in bacteria but absent in human cells, thus representing a good target for the
discovery of inhibitors that can serve as broad spectrum antibacterial agents.
Deformylase is a metal-containing enzyme, or metalloenzyme. If this metal is
removed or interfered with, the enzyme can no longer function. Since it is
possible to design molecules that bind to metals, this makes it especially
attractive for the design of mechanism based drugs. Captopril, the first drug to
be rationally designed using this approach, is an inhibitor of a metalloenzyme
called Angiotensin Converting Enzyme, or ACE. The design of Captopril
represented a major pharmaceutical breakthrough. Deformylase offers a unique
opportunity for integrating this principle of mechanism based drug design with
our combinatorial chemistry based approach.
Based on our scientists' experience in the Captopril field and with other
metalloenzyme inhibitors, we initiated a highly focused chemistry effort
targeting the rational design and synthesis of deformylase inhibitors. We
designed a set of pharmacophoric libraries specifically suited for metalloenzyme
targets and also developed new synthetic methodologies for the preparation of
these libraries. Screening these libraries against deformylase led to the
identification of several molecules with excellent enzymatic and whole cell
inhibitory activity. Our proprietary Gene to Screen technology helped identify
those leads that inhibited bacterial growth by specifically inhibiting
deformylase. Through proper integration of combinatorial chemistry with
medicinal chemistry, more specific lead series were further optimized with
excellent selectivity, as well as activity against clinically significant
multidrug resistant bacteria. Several
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of these compounds have demonstrated IN VIVO activity in preclinical studies
when administered orally. This represents a rare example of the successful
design and synthesis of an orally administered active antibacterial agent. IN
VIVO active molecules superior to the initial lead are currently undergoing
further pre-clinical evaluation that examines the absorption of the molecules in
the blood over time.
OUR DISCOVERY PLATFORM
We use our capabilities in genomics, rational drug design, lead optimization
and our BIOCOR collaboration to fuel both our proprietary product and partnered
product pipelines. We believe the strength of our discovery platform has been
validated by our corporate collaborations.
GENOMICS AND RATIONAL DRUG DESIGN
The complete genetic blueprints, or genomes, of the majority of clinically
relevant bacteria are now accessible through the Internet. We take a highly
focused and practical approach to using this genomic information by carefully
selecting targets that have a mechanism suited to rational drug design. To
facilitate efficient integration of mechanism based drug discovery with
combinatorial chemistry, we select mechanism based families of targets such as
metalloenzymes. We search genomes for characteristic genetic signatures and
compare different genomes to identify targets that are present in a clinically
relevant spectrum of bacteria. We use genetic techniques to establish that any
target selected is essential for growth, and confirm this in several relevant
bacterial species. Once we have carefully selected the target, we begin a highly
focused chemistry effort using mechanism based drug design. We then apply our
Gene to Screen technology that allows us to increase or decrease the amount of
target gene product (usually an enzyme) inside a cell by use of a special
genetic regulator. Our ability to vary the concentration of a target enzyme
inside a cell has proved an important support tool for our chemists, as they can
then confirm whether a potent enzyme inhibitor stops the growth of bacteria by
inhibiting the same enzyme. Gene to Screen allows our chemists to select leads
that have the correct mechanism, without the inhibition of other enzymes that
could result in toxicity. This integrated approach has been validated by our
metalloenzyme program with Novartis Pharma AG to develop deformylase inhibitors.
We are currently working with four additional metalloenzyme targets to build on
this success in our novel molecules programs.
LEAD OPTIMIZATION
Several members of Versicor's scientific staff are pioneers in the field of
combinatorial chemistry. We have focused our efforts on the practical
applications of this powerful technology for the discovery and development of
new antibacterial agents. We believe that the best use of combinatorial
chemistry is in lead optimization via preparation of hundreds of discrete,
well-characterized compounds based on core lead structures. We have analyzed the
antibacterial field to arrive at potential lead optimization candidates that are
either previously abandoned molecules, or are molecules on which work is still
being done. In both cases, we have chosen molecules that have the potential for
significant improvements in potency, spectrum of activity or other properties.
Our expertise allows us to develop combinatorial methods for analoging
synthetically complex lead structures that would otherwise appear
unapproachable. Once a suitable molecule for lead optimization is selected, we
establish a proprietary position by using combinatorial chemistry to prepare new
analogs that fall outside the patent scope of our likely competitors. Following
the discovery of novel bioactive lead structures, we integrate our combinatorial
and medicinal chemistry efforts to prepare individual molecules that can be
navigated efficiently through preclinical testing. Once an IN VIVO active lead
has been established, we determine whether the molecule best fits our
proprietary product or our partnered product portfolio. The successful execution
of this strategy has been demonstrated by our partnered oxazolidinone project
with Pharmacia & Upjohn, and our proprietary product project on the bactericidal
agent VRC-3950, which came out of our improved molecules programs.
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BIOCOR COLLABORATION
In February 1998, we established an exclusive lead optimization partnership
called BIOCOR with Biosearch Italia of Gerenzano, Italy. Through this
partnership, Biosearch contributes leads and we contribute our combinatorial and
medicinal chemistry expertise to optimize the leads and identify product
candidates. The advantage of working with these leads is that they have already
been shown to inhibit the growth of intact bacterial cells. Penetrating an
intact cell is frequently a major obstacle to the successful development of an
active drug. Biosearch Italia is the management spin-off of an infectious
disease research center that was formerly part of Hoechst Marion Roussel, now
called Aventis. Biosearch has been screening microbial fermentations at this
site for over 20 years. BIOCOR provides us with access to the attractive area of
natural product leads without the expensive infrastructure necessary to generate
them.
LICENSING AND COLLABORATIVE AGREEMENTS
Our strategy includes the selective in-licensing of compounds that have
demonstrated potential, as well as entering into collaborations with major
pharmaceutical companies to develop partnered products targeted for markets
outside the hospital setting. To date, we have entered into license agreements
with Eli Lilly with respect to V-Echinocandin and with Biosearch Italia with
respect to V-Glycopeptide. We have entered into collaboration agreements with
Pharmacia & Upjohn with respect to the development of second generation
oxazolidinones and with Novartis with respect to the development of deformylase
inhibitors. We also have a collaboration agreement with Biosearch Italia with
respect to the generation of leads. In addition, we have a license agreement
with our former parent company, Sepracor.
ELI LILLY
In May 1999, we obtained from Eli Lilly an exclusive worldwide license for
the development and commercialization of V-Echinocandin, which was then known as
LY303366. We paid $11 million for the license and have agreed to pay an
additional $3 million for product inventory. We are obligated to make
$79 million in additional payments to Eli Lilly if specified milestones are
achieved on the oral formulations of V-Echinocandin. We are also obligated to
make $51 million in additional payments to Eli Lilly if specified milestones are
achieved on the intravenous formulations of V-Echinocandin. Of the $51 million
payment for the intravenous formulation, $14 million is contingent on
developments in the United States and Canada, $16 million is contingent on
developments in Japan and Europe and $21 million is contingent on cumulative
sales of the intravenous formulation. We are also required to pay to Eli Lilly
royalties in respect of sales of any product resulting from the compound. We may
terminate this agreement at any time by giving ninety days' written notice.
Otherwise, the license terminates on a country-by-country basis as all of our
royalty obligations are satisfied in each country. We have also granted to Eli
Lilly an option to license the exclusive worldwide development and
commercialization rights to oral formulations of V-Echinocandin, which is
exercisable upon successful completion of Phase II clinical trials. If Eli Lilly
exercises this option, we will have the right to receive royalty payments and
reimbursement of 125% of the prior development expenses and 100% of the
milestone payments attributed to the development and commercialization of the
oral formulation of V-Echinocandin. We will also have the right to co-promote
the oral product with Eli Lilly.
BIOSEARCH ITALIA
In February 1998, we entered into two agreements with Biosearch Italia: a
license agreement and a collaborative agreement. Under the license agreement,
Biosearch granted us an exclusive license to develop and commercialize
V-Glycopeptide, then called BI-397, in the United States and Canada. In exchange
for the license and upon the receipt of favorable results in pre-clinical
studies, we paid $3 million and issued 250,000 shares of our common stock to
Biosearch. We are obligated to make up
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to $9.5 million in additional payments upon the achievement of specified
milestones. We are also required to pay Biosearch royalties in respect of sales
of any product that results from the compound. Subject to certain conditions,
Biosearch has a right of first refusal to manufacture and supply us with our
requirements for V-Glycopeptide. The license agreement terminates upon the later
of the expiration of all licensed patents or the date on which Biosearch is no
longer entitled to royalties.
Under the collaborative agreement with Biosearch Italia, we established a
lead optimization partnership called BIOCOR. Biosearch contributes leads, while
we contribute our combinatorial and medicinal chemistry expertise to optimize
the leads. Biosearch has the exclusive license in Europe to commercialize
intravenous products resulting from this collaboration and will retain all
income derived from commercialization in Europe. We have the exclusive license
in Canada and the United States for the commercialization of intravenous
products in these countries and will retain all income resulting from
commercialization in the United States and Canada. We will share with Biosearch
all revenue from the commercialization of intravenous drugs in all countries
other than the United States and Canada and outside of Europe, as well as from
any oral products that are developed. Subject to certain conditions, Biosearch
has a right of first refusal to manufacture and supply us with our requirements
for products that result from this collaboration. The collaboration agreement
terminates upon the expiration of all licensed patents.
PHARMACIA & UPJOHN
In March 1999, we entered into a collaboration agreement with Pharmacia &
Upjohn pursuant to which we are collaborating to discover second and third
generation oxazolidinone product candidates. In connection with the
collaboration, Pharmacia & Upjohn made an initial equity investment of
$3.75 million and paid research support and license fee payments of
$1.2 million to us. Subject to the approval of certain of our stockholders, we
have the option until December 1, 2000 to require Pharmacia & Upjohn to make an
additional $3.75 million equity investment at a price of $7.08 per share. Under
the terms of the agreement, we are entitled to receive additional research
support payments, and if specified milestones are achieved, up to $14 million in
additional milestone payments. We have assigned to Pharmacia & Upjohn one U.S.
patent application and a corresponding PCT patent application relating to this
collaboration. Both applications involve the methodology of preparing
oxazolidinones, libraries and pharmaceutical compositions. Pharmacia & Upjohn
will conduct the development, manufacture and sale of products resulting from
the collaboration. We are entitled to receive royalties on the sales of any
products developed and commercialized but Pharmacia & Upjohn may offset royalty
payments with previous milestone payments made to us. We also have a right of
first refusal to co-promote North American hospital products with Pharmacia &
Upjohn. This agreement will terminate upon the expiration of all licensed
patents.
NOVARTIS PHARMA AG
In March 1999, we entered into a collaboration agreement with Novartis
Pharma AG pursuant to which we are collaborating to discover and develop novel
deformylase inhibitors. In connection with the collaboration, Novartis has made
a $3 million equity investment and has made $500,000 in milestone payments to
us. Subject to the approval of certain of our stockholders, we have the option
from March 31, 2000 to March 31, 2001 to require Novartis to make an additional
$2 million equity investment in Versicor at a price of $5.66 per share. Under
the terms of this agreement, we are entitled to receive up to $21.25 million in
additional payments from Novartis upon the achievement of specified milestones,
a portion of which may be credited against future royalty payments. We have
granted Novartis an exclusive worldwide license to commercialize products
resulting from this collaboration. The development, manufacture and sale of
products resulting from the collaboration will be conducted by Novartis, and we
will be entitled to receive royalties on the sales of any product developed and
commercialized from this collaboration. A portion of the milestone payments
previously paid may be
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used by Novartis to offset its royalty payments to us. We have the option to
co-promote with Novartis in hospitals in the United States and Canada any
product that contains a Versicor compound as an active ingredient. We will not
be entitled to royalties from sales in the United States and Canada if we choose
to co-promote products with Novartis. This agreement terminates on a
country-by-country basis as all royalty obligations are satisfied in each
country.
SALES AND MARKETING
We intend to market and sell our products through a direct sales force in
the United States and Canada. Because we are targeting the hospital market, we
believe a relatively small sales force will be sufficient to provide full
coverage. We plan to begin hiring this sales force six to nine months prior to
introducing our first product into the North American market. Our management has
experience in building specialty pharmaceutical sales forces. We expect to
partner with other pharmaceutical companies to market our products outside
hospitals in the United States and Canada, and in all overseas markets.
MANUFACTURING
We have no manufacturing facilities. We intend to use contract manufacturers
to produce our drugs rather than develop our own manufacturing capability. We
have not yet selected contract manufacturers for final formulation of
V-Echinocandin. Eli Lilly and Biosearch are our suppliers of bulk drug substance
V-Echinocandin and V-Glycopeptide, respectively. Lilly has supplied us with
sufficient product to finish clinical trials and begin commercialization.
Biosearch has provided us with sufficient product to complete our Phase I
clinical trials. Our reliance on third parties to manufacture our products
subjects us to a number of risks. See "Risk Factors--If third-party
manufacturers fail to deliver our product candidates, clinical trials and
commercialization of our product candidates could be delayed."
INTELLECTUAL PROPERTY
We seek U.S. and international patent protection for our product candidates
and other technology. We also rely on trade secret protection for some of our
confidential and proprietary information. In addition, we use license agreements
to access external products and technologies as well as to convey to others
rights to our own intellectual property. We will be able to protect our
proprietary rights from unauthorized use by third parties only to the extent
that our proprietary rights are covered by valid and enforceable patents or are
effectively maintained as trade secrets. Protection of our intellectual property
rights is subject to a number of risks. See "Risk Factors--If our intellectual
property does not adequately protect our product candidates, others could
compete against us more directly, which would hurt our profitability." and "--If
third parties claim we are infringing their intellectual property rights, we
could suffer significant litigation or licensing expenses or be prevented from
marketing our products."
We own by assignment one issued U.S. patent, six pending U.S. patent
applications, and one PCT patent application. Our license agreement with Eli
Lilly with respect to V-Echinocandin includes 10 U.S. patents, several U.S.
patent applications, 34 foreign patents and several PCT and foreign patent
applications. Our license agreement with Biosearch Italia with respect to
V-Glycopeptide includes three issued U.S. patents, two issued Canadian patents
and several pending U.S. and Canadian patent applications. Our collaborative
agreement with Pharmacia & Upjohn with respect to the development of
oxazolidinones includes one U.S. patent application and one PCT application.
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COMPETITION
We believe our products will face intense competition from both existing
therapies and new generations of antibiotics and antifungals. We expect to
compete against existing therapies on the basis of greater potency, improved
effectiveness against resistant strains and reduced toxicity. Several
pharmaceutical and biotechnology companies are actively engaged in research and
development related to new generations of antibiotic and antifungal products. We
cannot predict the basis upon which we will compete with new products marketed
by others. Many of our competitors have substantially greater financial,
operational, sales and marketing, and research and development resources than we
have. Companies that market or are known to be in active development of
antibiotic or antifungal products in our target markets include Aventis,
Fujisawa, Janssen, J.B. Roerig (Pfizer), Liposome Company and Merck. See "Risk
Factors--If we do not compete successfully in the development and
commercialization of products and keep pace with rapid technological change, we
will be unable to capture and sustain a meaningful market position."
PHARMACEUTICAL PRICING AND REIMBURSEMENT
In both domestic and foreign markets, sales of our product candidates will
depend in part upon the availability of reimbursement from third-party payors.
Third-party payors include government health administrative authorities, managed
care providers, private health insurers and other organizations. These
third-party payors are increasingly challenging the price and examining the
cost-effectiveness of medical products and services. In addition, significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. We may need to conduct post-marketing studies in order to demonstrate
the cost-effectiveness of our products. These studies may require us to provide
a significant amount of resources. Our product candidates may not be considered
cost-effective. Adequate third-party reimbursement may not be available to
enable us to maintain price levels sufficient to realize an appropriate return
on our investment in product development. Domestic and foreign governments
continue to propose and pass legislation designed to reduce the cost of
healthcare. Accordingly, legislation and regulations affecting the pricing of
pharmaceuticals may change before our proposed products are approved for
marketing. Adoption of such legislation could further limit reimbursement for
pharmaceuticals. If the government and third party payors fail to provide
adequate coverage and reimbursement rates for our product candidates, the market
acceptance of our products may be adversely affected. If our products do not
receive market acceptance, our business, financial condition and results of
operations will be materially adversely affected.
NEW DRUG DEVELOPMENT AND APPROVAL PROCESS
Regulation by governmental authorities in the United States and other
countries is a significant factor in the manufacture and marketing of
pharmaceuticals and in our ongoing research and development activities. All of
our products will require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic products are subject to
rigorous preclinical testing and clinical trials and other pre-marketing
approval requirements by the FDA and regulatory authorities in other countries.
In the United States, various federal, and in some cases state statutes and
regulations also govern or impact upon the manufacturing, safety, labeling,
storage, record-keeping and marketing of such products. The lengthy process of
seeking required approvals and the continuing need for compliance with
applicable statutes and regulations, require the expenditure of substantial
resources. Regulatory approval, when and if obtained, may be limited in scope
which may significantly limit the indicated uses for which a product may be
marketed. Further, approved drugs, as well as their manufacturers, are subject
to ongoing review, and discovery of previously unknown problems with such
products may result in restrictions on their manufacture, sale or use or in
their withdrawal from the market.
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The process for new drug approval has many steps, including:
DRUG DISCOVERY. In the initial stages of drug discovery before a compound
reaches the laboratory, tens of thousands of potential compounds are randomly
screened for activity against an assay assumed to be predictive for particular
disease targets. This drug discovery process can take several years. Once a
company locates a "lead compound," or starting point for drug development,
isolation and structural determination may begin. The development process
results in numerous chemical modifications to the screening lead in an attempt
to improve the drug properties of the lead. After a compound emerges from this
process, the next steps are to conduct further preliminary studies on the
mechanism of action, further IN VITRO, or test tube, screening against
particular disease targets and finally, some IN VIVO, or animal, screening. If
the compound passes these barriers, the toxic effects of the compound are
analyzed by performing preliminary exploratory animal toxicology. If the results
demonstrate acceptable levels of toxicity, the compound emerges from the basic
research mode and moves into the preclinical phase.
PRECLINICAL TESTING. During the preclinical testing stage, laboratory and
animal studies are conducted to show biological activity of the compound against
the targeted disease, and the compound is evaluated for safety. These tests
typically take approximately two years to complete, and must be conducted in
compliance with Good Laboratory Practice, or GLP, regulations.
INVESTIGATIONAL NEW DRUG APPLICATION. During the preclinical testing, an
IND is filed with the FDA to begin human testing of the drug. The IND becomes
effective if not rejected by the FDA within 30 days. The IND must indicate the
results of previous experiments, how, where and by whom the new studies will be
conducted, the chemical structure of the compound, the method by which it is
believed to work in the human body, any toxic effects of the compound found in
the animal studies and how the compound is manufactured. All clinical trials
must be conducted in accordance with Good Clinical Practice, or GCP,
regulations. In addition, an Institutional Review Board, or IRB, comprised of
physicians at the hospital or clinic where the proposed studies will be
conducted, must review and approve the IND. The IRB also continues to monitor
the study. Progress reports detailing the results of the clinical trials must be
submitted at least annually to the FDA. In addition, the FDA may, at any time
during the 30-day period or at any time thereafter, impose a clinical hold on
proposed or ongoing clinical trials. If the FDA imposes a clinical hold,
clinical trials cannot commence or recommence without FDA authorization and then
only under terms authorized by the FDA. In some instances, the IND application
process can result in substantial delay and expense.
Some limited human clinical testing may be done under a Physician's IND in
support of an IND application and prior to receiving an IND. A Physician's IND
is an IND application that allows a single individual to conduct a clinical
trial. A Physician's IND does not replace the more formal IND process, but can
provide a preliminary indication as to whether further clinical trials are
warranted, and can, on occasion, facilitate the more formal IND process.
Clinical trials are typically conducted in three sequential phases, but the
phases may overlap.
PHASE I CLINICAL TRIALS. After an IND becomes effective, Phase I human
clinical trials can begin. These tests usually involve between 20 and 80 healthy
volunteers or patients and typically take one to two years to complete. The
tests study a drug's safety profile, and may include the safe dosage range. The
Phase I clinical studies also determine how a drug is absorbed, distributed,
metabolized and excreted by the body, and the duration of its action.
PHASE II CLINICAL TRIALS. In Phase II clinical trials, controlled studies
are conducted on an expanded population of patients with the targeted disease.
The primary purpose of these tests is to evaluate the effectiveness of the drug
on the volunteer patients as well as to determine if there are any side effects.
These studies generally take approximately two years, and may be conducted
concurrently with Phase I
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clinical trials. In addition, Phase I/II clinical trials may be conducted to
evaluate not only the efficacy of the drug on the patient population, but also
its safety.
PHASE III CLINICAL TRIALS. This phase typically lasts two to three years
and involves an even larger patient population. During the Phase III clinical
trials, physicians monitor the patients to determine efficacy and to observe and
report any reactions that may result from long-term use of the drug.
NEW DRUG APPLICATION. After the completion of all three clinical trial
phases, if there is substantial evidence that the drug is safe and effective, an
NDA is filed with the FDA. The NDA must contain all of the information on the
drug gathered to that date, including data from the clinical trials. NDAs are
often over 100,000 pages in length.
The FDA reviews all NDAs submitted before it accepts them for filing and may
request additional information rather than accepting an NDA for filing. In such
an event, the NDA must be resubmitted with the additional information and,
again, is subject to review before filing. Once the submission is accepted for
filing, the FDA begins an in-depth review of the NDA. Under the Federal Food,
Drug and Cosmetic Act, the FDA has 180 days in which to review the NDA and
respond to the applicant. The review process is often significantly extended by
FDA requests for additional information or clarification regarding information
already provided in the submission. The FDA may refer the application to an
appropriate advisory committee, typically a panel of clinicians, for review,
evaluation and a recommendation as to whether the application should be
approved. The FDA is not bound by the recommendation of an advisory committee.
If FDA evaluations of the NDA and the manufacturing facilities are favorable,
the FDA may issue either an approval letter or an approvable letter, which
usually contains a number of conditions that must be met in order to secure
final approval of the NDA. When and if those conditions have been met to the
FDA's satisfaction, the FDA will issue an approval letter, authorizing
commercial marketing of the drug for certain indications. If the FDA's
evaluation of the NDA submission or manufacturing facilities is not favorable,
the FDA may refuse to approve the NDA or issue a not approvable letter.
MARKETING APPROVAL. If the FDA approves the NDA, the drug becomes available
for physicians to prescribe. Periodic reports must be submitted to the FDA,
including descriptions of any adverse reactions reported. The FDA may request
additional studies (Phase IV) to evaluate long-term effects.
PHASE IV CLINICAL TRIALS AND POST MARKETING STUDIES. In addition to studies
requested by the FDA after approval, these trials and studies are conducted to
explore new indications. The purpose of these trials and studies and related
publications is to broaden the application and use of the drug and its
acceptance in the medical community.
ORPHAN DRUG DESIGNATION. The FDA may grant orphan drug designation to drugs
intended to treat a "rare disease or condition," which is generally a disease or
condition that affects fewer than 200,000 individuals in the United States.
Orphan drug designation must be requested before submitting a NDA. After the FDA
grants orphan drug designation, the generic identity of the therapeutic agent
and its potential orphan use are disclosed publicly by the FDA. Orphan drug
designation does not convey any advantage in, or shorten the duration of, the
regulatory review and approval process. If a product that has orphan drug
designation subsequently receives FDA approval for the indication for which it
has such designation, the product is entitled to orphan exclusivity, which means
the FDA may not approve any other applications to market the same drug for the
same indication, except in very limited circumstances, for seven years.
APPROVALS OUTSIDE OF THE UNITED STATES. Steps similar to those in the
United States must be undertaken in virtually every other country comprising the
market for our products before any such product can be commercialized in those
countries. The approval procedure and the time required for approval vary from
country to country and may involve additional testing. There can be no assurance
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that approvals will be granted on a timely basis or at all. In addition,
regulatory approval of prices is required in most countries other than the
United States. There can be no assurance that the resulting prices would be
sufficient to generate an acceptable return to us.
We have limited experience in conducting and managing clinical trials, and
do not currently employ an experienced clinical trial manager on a full-time
basis. Like many other biotechnology companies in our stage of development, we
rely on third parties, including our collaborative partners, clinical research
organizations and outside consultants, to assist us in managing and monitoring
clinical trials. We also have a clinical advisory board that meets periodically
with our staff and management to discuss present and future clinical testing
activities.
EMPLOYEES
As of June 30, 2000, we employed 36 persons, of whom 16 hold Ph.D degrees.
Approximately 32 employees are engaged in research and development, and 4
support administration, finance, management information systems and human
resources. We believe that we maintain good relations with our employees.
FACILITIES
We currently lease 29,384 square feet of office and laboratory facilities in
Fremont, California. We believe that our current facilities are adequate for our
needs for the foreseeable future and that, should it be needed, suitable
additional space will be available to accommodate expansion of our operations on
commercially reasonable terms.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
SCIENTIFIC ADVISORY BOARD
We have established a scientific advisory board to provide specific
expertise in areas of research and development relevant to our business. The
scientific advisory board meets periodically with our scientific and development
personnel and management to discuss our present and long-term research and
development activities. Scientific advisory board members are:
<TABLE>
<CAPTION>
ADVISOR INSTITUTION
------- -----------
<S> <C>
Gordon L. Archer, M.D..................... Professor, Medicine and Microbiology/Immunology,
Virginia Commonwealth University
Jerome Birnbaum, Ph.D..................... Former Senior Vice President of Development, Bristol
Myers Squibb
Robin D.G. Cooper, Ph.D................... Former Research Advisor, Eli Lilly and Company
Robert E.W. Hancock, Ph.D................. Professor, University of British Columbia
Eric N. Jacobsen, Ph.D.................... Professor, Chemistry and Chemical Biology, Harvard
University
Andrew G. Myers, Ph.D..................... Professor, Harvard Medical School
Robert L. Smith, Ph.D..................... Former Senior Director of Chemistry, Merck
</TABLE>
CLINICAL ADVISORY BOARD
We have established a clinical advisory board to provide specific expertise
with respect to clinical testing of our product candidates. The clinical
advisory board meets periodically with our clinical and scientific staff and
management to discuss present and future clinical testing activities. Clinical
advisory board members are:
<TABLE>
<CAPTION>
ADVISOR INSTITUTION
------- -----------
<S> <C>
Henry F. Chambers, M.D.................... Chief of Infectious Diseases, San Francisco General
Hospital
David W. Denning, M.D..................... Head of Infectious Diseases, University of Manchester
(U.K.)
John R. Graybill, M.D..................... Professor of Infectious Diseases, University of Texas
Medical School--San Antonio
Andreas H. Groll, M.D..................... Senior Clinical Fellow, National Cancer
Institute/National Institute of Health
John R. Rex, M.D.......................... Associate Professor of Medicine, University of Texas
Medical School--Houston
</TABLE>
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is the name, age, position and a brief account of the
business experience of each of our executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------
<S> <C> <C>
George F. Horner III...................... 55 President, Chief Executive Officer and
Director
Richard J. White, Ph.D.................... 58 Executive Vice President, Chief Scientific
Officer and Director
Dov A. Goldstein, M.D..................... 32 Vice President, Finance and Chief Financial
Officer
Dinesh V. Patel, Ph.D..................... 43 Vice President, Drug Discovery
Paul F. Truex............................. 31 Vice President, Commercial Development
David V. Milligan, Ph.D................... 59 Chairman of the Board
Timothy J. Barberich...................... 52 Director(2)
James H. Cavanaugh, Ph.D.................. 63 Director(1)
Mark Leschly.............................. 31 Director(2)
Thomas C. McConnell....................... 46 Director(1)(2)
Lori F. Rafield, Ph.D..................... 45 Director(1)
Christopher T. Walsh, Ph.D................ 56 Director
</TABLE>
------------------------
(1) Member of the audit committee
(2) Member of the compensation committee
GEORGE F. HORNER III. Mr. Horner has served as President, Chief Executive
Officer and a member of our board of directors since 1996. Prior to joining
Versicor, Mr. Horner was Corporate Vice President of Ligand Pharmaceuticals from
1993 to 1995. He served in a number of executive positions during his 17 years
at Abbott Laboratories from 1976 to 1993, including President, Canada; Regional
Director, Latin America; General Manager, Mexico; General Manager, Southern
Africa Region; and Regional Manager, Southeast Asia. From 1967 to 1976,
Mr. Horner served in a number of sales and product management positions at E.R.
Squibb, Inc.
RICHARD J. WHITE, PH.D. Dr. White has served as Executive Vice President,
Chief Scientific Officer and a member of our board of directors since 1998. He
joined Versicor in 1997 as Senior Vice President of Biology. Prior to joining
Versicor, Dr. White was Vice President for Infectious Diseases at Bristol Myers
Squibb from 1985 to 1997. Dr. White has also held research management positions
at Lederle Laboratories, Glaxo Group Research in the United Kingdom, and Lepetit
Research in Italy.
DOV A. GOLDSTEIN, M.D. Dr. Goldstein has served as Vice President, Finance
and Chief Financial Officer since July 2000. Prior to joining Versicor,
Dr. Goldstein was Director of Venture Analysis at HealthCare Ventures from 1998.
Dr. Goldstein served as Vice President, Biotechnology Research Analysis at Brean
Murray & Co. from 1997 to 1998. He completed his internship in the Department of
Medicine of Columbia-Presbyterian Hospital from 1996 to 1998 and received his
Master of Business Administration from Columbia Business School in 1998 and his
Doctor of Medicine from Yale University in 1995.
DINESH V. PATEL, PH.D. Dr. Patel has served as Vice President of Drug
Discovery since 1998, and previously served as Senior Director of Chemistry
since joining Versicor in 1996. From 1993 to 1996, he was Director at Affymax
Research Institute. From 1985 to 1993, Dr. Patel held various positions,
including group leader, at Bristol Myers Squibb.
PAUL F. TRUEX. Mr. Truex has served as Vice President of Commercial
Development since April 2000. Prior to joining Versicor, he held both corporate
business development and sales management positions at Eli Lilly from 1998.
Prior to his experience at Eli Lilly, Mr. Truex had sales and
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management experience in the electronics industry. He served as a new business
manager at Telamon Corporation Inc. from 1996 to 1997, and a brand manager at
W.C. Wood Company, Inc. from 1994 to 1995. He has his Master of Business
Administration from Indiana University.
DAVID V. MILLIGAN, PH.D. Dr. Milligan has served as the Chairman of our
board of directors and has been a member of our scientific advisory board since
1997. From 1979 to 1996, he served in several executive positions at Abbott
Laboratories, most recently as Senior Vice President and Chief Scientific
Officer from 1994 to 1996. Dr. Milligan is chairman of the board of directors of
Caliper Technologies Inc. and serves as a member of the board of directors of
ICOS Corporation, Diametrics Medical, Maxia Pharmaceuticals and Reliant
Pharmaceuticals. He also serves on the University of California, Berkeley and
Princeton University Chemistry Department Advisory Boards. In addition,
Dr. Milligan is a Vice President with Bay City Capital, a San Francisco venture
bank.
TIMOTHY J. BARBERICH. Mr. Barberich has served as a member of our board of
directors since May 1995. Since 1984, he has served as President and Chief
Executive Officer of Sepracor Inc. Prior to forming Sepracor in 1984,
Mr. Barberich spent 10 years at Millipore Corporation where he held a variety of
marketing, sales and general management positions. Mr. Barberich is also a
director of two publicly traded Sepracor spin-off companies, HemaSure and
BioSphere Medical Inc.
JAMES H. CAVANAUGH, PH.D. Dr. Cavanaugh has served as a member of our board
of directors since 1999. Since 1989, he has served as General Partner,
Healthcare Ventures based in Princeton, New Jersey. Prior to joining Healthcare
Ventures, Dr. Cavanaugh was President of SmithKline and French Laboratories--US,
the domestic pharmaceutical division of SmithKline Beecham Corporation, as well
as President of Allergan International. Dr. Cavanaugh served as Staff Assistant
to President Nixon for Health Affairs and then as Deputy Director, Domestic
Council. Under President Ford, he was Deputy Assistant to the President for
Domestic Affairs and then, Deputy Chief of the White House Staff. Dr. Cavanaugh
currently serves on the Board of Trustees of the National Committee for Quality
Health Care, the National Center for Genome Resources and a Trustee Emeritus of
the California College of Medicine. He is a member of the board of directors of
Diversa Corporation and MedImmune, Inc., and is non-executive Chairman of Shire
Pharmaceuticals Group PLC. He is a past Director of the Pharmaceutical Research
and Manufacturers Association.
MARK LESCHLY. Mr. Leschly has served as a member of our board of directors
since 1997. Since 1999 he has served as a managing director of Rho Management
Company, Inc., a New York based international investment management firm. From
1994 to 1999, Mr. Leschly was a general partner at Healthcare Ventures. Prior to
joining Healthcare Ventures, he worked at McKinsey & Company. He is a member of
the board of directors of a number of companies including Confer, Delsys,
Diversa, Medical Present Value, Memory Pharmaceuticals, more.com, NitroMed and
Personal Health Technology. He is also a member of the advisory board of the
Harvard AIDS Institute.
THOMAS C. MCCONNELL. Mr. McConnell has served as a member of our board of
directors since 1997. Since 1989 he has served as General Partner, New
Enterprise Associates. Mr. McConnell is chairman-elect of the National Venture
Capital Association and served as President of the Western Association of
Venture Capitalists from 1995-96. He also serves on the board of directors of
Applied Imaging and a number of privately-held companies.
LORI F. RAFIELD, PH.D. Dr. Rafield has served as a member of our board of
directors since 1999. Since 1999, she has served as Managing Director of
Patricof & Co. Ventures, Inc., and was a principal from 1998 to 1999. From 1996
to 1997, Dr. Rafield was a principal at Robertson Stephens. From 1992 to 1995,
she was an affiliate at Institutional Venture Partners. She is a member of the
board of directors of Corvascular, Inc. and Optimize, Inc.
CHRISTOPHER T. WALSH, PH.D. Dr. Walsh has served as a member of our board
of directors since 1998. Since 1991, he has served as the Hamilton Kuhn
Professor of Biological Chemistry and Molecular
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Pharmacology at the Harvard Medical School. He was the President of the
Dana-Farber Cancer Institute from 1992 to 1995. From 1987 to 1995 he served as
the Chairman of the Department of Biological Chemistry and Molecular
Pharmacology at the Harvard Medical School. Dr. Walsh is a member of the
scientific advisory boards for Caliper Technologies, Dyax, Epix Medical,
HealthCare Investment Corporation, KOSAN Biosciences and Millennium
Pharmaceuticals. He is a member of the board of directors for Diacrin and KOSAN
Biosciences. He has also held various positions at Massachusetts Institute of
Technology including the Chairman, Chemistry Department and has served on the
editorial boards of various scientific publications.
BOARD COMPOSITION
We currently have nine authorized directors. In accordance with the terms of
our restated certificate of incorporation to be filed prior to the completion of
this offering, the terms of office of the directors will be divided into three
classes:
- Class I, whose term will expire at the annual meeting of stockholders to
be held in 2001;
- Class II, whose term will expire at the annual meeting of stockholders to
be held in 2002; and
- Class III, whose term will expire at the annual meeting of stockholders to
be held in 2003.
The Class I directors will be Messrs. Barberich, Leschly and McConnell, the
Class II directors will be Messrs. Cavanaugh and White and Ms. Rafield, and the
Class III directors will be Messrs. Horner, Milligan and Walsh. At each annual
meeting of stockholders after the initial classification or special meeting in
lieu thereof, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election or special meeting held in lieu thereof. The
authorized number of directors may be changed only by resolution of the board of
directors or a super-majority vote of the stockholders. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of Versicor.
BOARD COMMITTEES
The audit committee of the board of directors was established in
December 1997 and reviews, acts on and reports to the board of directors on
various auditing and accounting matters, including the recommendation of our
independent auditors, the scope of the annual audits, fees to be paid to the
independent auditors, the performance of our independent auditors and our
accounting practices. The members of our audit committee are Messrs. Cavanaugh,
McConnell, and Ms. Rafield.
The compensation committee of the board of directors was established in
December 1997 and determines the salaries and benefits for our employees,
consultants, directors and other individuals compensated by us. The compensation
committee also administers our stock option plans, including determining the
stock option grants for our employees, consultants, directors and other
individuals. The members of the compensation committee are Messrs. Barberich,
Leschly, McConnell and Ms. Rafield.
DIRECTOR COMPENSATION
We reimburse our non-employee directors for expenses incurred in connection
with attending board and committee meetings but do not compensate them for their
services as board or committee members. We have in the past granted non-employee
directors options to purchase our common stock pursuant to the terms of our 1995
Stock Option Plan and 1997 Equity Incentive Plan, and our board continues to
have discretion to grant options to new non-employee directors. We anticipate
that we will continue to grant options from time to time under the Stock
Incentive Plan to our non-employee directors.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Messrs. Barberich, Leschly
and McConnell. No member of the compensation committee has been an officer or
employee of ours at any time. None of our executive officers serves as a member
of the board of directors or compensation committee of any other company that
has one or more executive officers serving as a member of our board of directors
or compensation committee. Prior to the formation of the compensation committee
in December 1997, the board of directors as a whole made decisions relating to
compensation of our executive officers.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our restated certificate of incorporation and our amended and restated
bylaws will provide that our directors and officers will be indemnified by us to
the fullest extent authorized by Delaware law, as it now exists or may in the
future be amended, against all expenses and liabilities reasonably incurred in
connection with their service for or on our behalf. In addition, the restated
certificate of incorporation provides that our directors will not be personally
liable for monetary damages to us for breaches of their fiduciary duty as
directors, unless they violated their duty of loyalty to us or our stockholders,
acted in bad faith, knowingly or intentionally violated the law, authorized
illegal dividends or redemptions or derived an improper personal benefit from
their action as directors. We have obtained insurance which insures our
directors and officers against specified losses and which insures us against
specific obligations to indemnify our directors and officers.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND OTHER COMPENSATION
The following table shows all compensation received during the year ended
December 31, 1999 by our Chief Executive Officer and our other executive
officers, collectively referred to as the Named Executive Officers.
SUMMARY COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- -------------------------
SECURITIES
OTHER ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
--------------------------- -------- -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
George Horner, III............ 1999 $249,615 $71,625 $-- 457,956 $ 4,956
President, Chief Executive
Officer
Richard J. White(1)........... 1999 231,935 38,200 -- 125,000 2,355
Executive Vice President and
Chief Scientific Officer
Dinesh V. Patel(2)............ 1999 192,406 19,280 -- 52,173 6,078
Vice President, Drug
Discovery
</TABLE>
------------------------
(1) We issued a non-interest bearing note to Richard White on May 15, 1997. The
note was in the amount of $200,000 and is due on May 15, 2002. The note is
secured by Mr. White's residence and his stock options in Versicor.
(2) We issued a 5% note to Dinesh Patel on April 24, 1996. The note was in the
amount of $100,000. Principal and interest are due on April 24, 2001. The
note is secured by Mr. Patel's residence.
49
<PAGE>
OPTIONS
The following table shows information regarding options granted to the
executive officers listed in the summary compensation table above during the
fiscal year ended December 31, 1999. We have not granted any stock appreciation
rights.
Each option represents the right to purchase one share of our common stock.
The options generally become vested over four years. See "Management-Employee
Benefit Plans" for more details regarding these options. The percentage of total
options set forth below is based on an aggregate of 932,626 options granted to
employees during the year ended December 31, 1999.
The potential realizable value at assumed annual rates of stock price
appreciation for the option term represents hypothetical gains that could be
achieved for the respective options if exercised at the end of the option term.
Potential realizable values are net of exercise price, but before taxes
associated with exercise. The 5% and 10% assumed annual rates of compounded
stock price appreciation are required by rules of the SEC and do not represent
our estimate or projection of our future common stock prices. These amounts
represent assumed rates of appreciation in the value of our common stock, based
on the assumed initial public offering price of $12.00 per share. Actual gains,
if any, on stock option exercises are dependent on the future performance of our
common stock and overall stock market conditions. The amounts reflected in the
table may not necessarily be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------- POTENTIAL REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF
NUMBER OF OPTIONS APPRECIATION OF STOCK PRICE
SECURITIES GRANTED EXERCISE FOR OPTION TERM
UNDERLYING TO PRICE PER EXPIRATION ------------------------------
NAME OPTION GRANTED EMPLOYEES SHARE DATE 5% 10%
---- -------------- ---------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
George F. Horner III...... 457,956 49% $0.48 12/02/09 $8,731,726 $14,034,020
Richard J. White, Ph.D.... 125,000 13 0.48 12/02/09 2,383,342 3,830,614
Dinesh V. Patel, Ph.D..... 52,173 6 0.48 12/02/09 994,769 1,598,837
</TABLE>
The following table shows information as of December 31, 1999 concerning the
number and value of unexercised options held by each of the executive officers
listed in the summary compensation table above. Options shown as exercisable in
the table below are immediately exercisable. However, we have rights to
repurchase shares of the common stock underlying some of these options upon
termination of the holder's employment with us. There was no public trading
market for the common stock as of December 31, 1999. Accordingly, the value of
unexercised in-the-money options listed below has been calculated on the basis
of the assumed initial public offering price of $12.00 per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying such options.
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1999 AND YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1999 DECEMBER 31, 1999
UPON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George F. Horner, III........... -- $-- 157,273 592,728 $1,824,367 $6,838,997
Richard J. White, Ph.D.......... -- -- 120,938 254,836 1,402,881 2,946,098
Dinesh V. Patel, Ph.D........... 1,874 22,319 33,415 89,711 387,614 1,036,474
</TABLE>
50
<PAGE>
EMPLOYMENT AGREEMENTS
In July 2000, we entered into employment agreements with Messrs. Horner,
White, Patel, Goldstein, Truex, Gordeev, Trias and Yuan. The agreements provide
for annual base salaries of $271,250, $248,454, $205,119, $205,000, $190,000,
$121,836, $122,429 and $136,905, respectively, which are subject to
discretionary increases and annual review. The duration of each agreement is
three years; however, each agreement contains an automatic renewal provision
that takes effect every six months unless notice that the agreement will not be
renewed is given at least 30 days prior to a renewal date. The agreements
provide for participation in all annual bonus, incentive, savings and retirement
and benefit plans offered generally to our employees. If we terminate an
agreement other than for cause or as a result of death or disability, we will
make payments equal to the three employee's annual base salary. If a change in
control of us occurs, and within two years either we terminate an agreement
other than for cause or an employee terminates his agreement for good reason, we
will pay an amount equal to two times the sum of (1) the highest annual base
salary paid to the employee during the two most recent calendar years ending
prior to the year the change in control occurs and (2) the amount of the highest
bonus or bonuses paid to the employee for any calendar year ending prior to the
year the change in control occurs. If benefit payments are deemed to be
contingent on a change in control we may not be permitted to deduct a portion of
the benefits if certain threshold limits are exceeded. Generally, if benefit
payments that are deemed to be contingent on a change in control equal or exceed
three times the recipient's average annual taxable compensation determined over
the five calendar years preceding the year in which the change in control
occurs, we will not be permitted to deduct the portion of the benefits that
exceeds one time the recipient's average annual compensation determined over
that period. The recipient will be subject to a 20% non-deductible federal
excise tax (in addition to any income tax payable) on that portion. The
employment agreements provide that, if a change in control occurs and an
executive is subject to the excise tax, we will make an additional payment to
the executive equal to the amount necessary to offset any federal or state
excise taxes resulting from the change in control, including additional excise
taxes that may result from such payment. We anticipate that we will enter into
employment agreements with certain non-executive employees that will provide for
payments in the event of a change of control.
EMPLOYEE BENEFIT PLANS
1995 STOCK OPTION PLAN
Our 1995 Stock Option Plan was approved by our board of directors in
August 1995 and subsequently amended by our stockholders in 1996 and 1997. Our
1995 plan authorizes the issuance of up to 348,750 shares of our common stock as
either incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986 or nonqualified stock options. As of June 30, 2000, we had
17,846 options to purchase common stock under this plan outstanding to
employees, directors and consultants with a weighted average exercise price of
$0.10 per share.
The board of directors, or a board committee, has the power to determine the
terms of the options, including the exercise price of the options, the number of
shares subject to each option, the exercisability thereof, and the form of
consideration payable on such exercise, provided that the exercise price for
incentive stock options must be at least 100% of fair market value. The term of
all options granted under the 1995 plan cannot exceed ten years. No person is
eligible to be granted options under the 1995 Plan covering more than 28,125
shares of common stock in any calendar year. The exercise price of incentive
stock options granted to any person who at the time of grant owns stock
representing more than 10% of the total combined voting power of all classes of
our capital stock must be at least 110% of the fair market value of such stock
on the date of grant and the term of such incentive stock options cannot exceed
five years.
51
<PAGE>
The 1995 plan provides that in the event of a merger of our company all
options and other awards shall be assumed or a substitute option or award issued
by the acquiring company unless the board determines in its sole discretion to
accelerate vesting or remove any restrictions.
The maximum term of options granted under the 1995 Plan is ten years. The
aggregate fair market value, determined at the time of grant, of the shares of
common stock with respect to which incentive stock options are exercisable for
the first time by an optionee during any calendar year (under all of our
incentive plans) may not exceed $100,000 or the options or portion thereof which
exceed such limit shall be treated as nonstatutory stock options. Stock options
granted under the 1995 Plan generally are non-transferable. Pursuant to the 1995
Plan, shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full again become available for grant, and
shares tendered in payment of the exercise of an option again become available
for grant (other than as an incentive stock option and other than to a person
required to report under Section 16 of the Exchange Act). The board of directors
has the authority to amend or terminate the 1995 Plan.
1997 EQUITY INCENTIVE PLAN
Our 1997 Equity Incentive Plan was approved by our board of directors on
November 24, 1997 and approved by our stockholders December 2, 1997. The 1997
plan was subsequently amended by our board of directors in July 2000. Up to
4,038,030 shares of common stock may be issued under the 1997 plan. As of
March 31, 2000, we had 1,995,217 options to purchase common stock under this
plan outstanding to employees, directors and consultants with a weighted average
exercise price of $0.43 per share.
The 1997 plan provides for the discretionary grant of incentive stock
options, within the meaning of Section 422 of the Internal Revenue Code of 1986,
to employees and for the grant of nonqualified stock options, stock appreciation
rights, stock bonuses, and restricted stock to employees, outside directors and
consultants.
The 1997 plan is administered by the board of directors or a board
committee. The administrator has the power to determine the terms of the options
or other awards granted, including the exercise price of the options or other
awards, the number of shares subject to each option or other award, the
exercisability thereof and the form of consideration payable upon exercise. In
addition, the administrator has the authority to amend, suspend or terminate the
1997 plan, provided that no such action may affect any share of common stock
previously issued and sold or any option previously granted under the 1997 plan
without the consent of the holder.
The exercise price of all incentive stock options granted under the 1997
plan must be at least equal to 100% of the fair market value of the common stock
on the date of grant. The exercise price of nonqualified stock options and other
awards granted under the 1997 plan is determined by the administrator, but the
exercise price must be at least 85% of the fair market value of the common stock
on the date of grant. The term of all options granted under the 1997 plan may
not exceed ten years. After the first meeting of stockholders at which directors
are elected which occurs after the close of the third calendar year following
the year in which the offering occurs, no person is eligible to be granted stock
options or stock appreciation rights under the 1997 Plan covering more than
375,000 shares of common stock in any 12 month period. The exercise price of
incentive stock options granted to any person who at the time of grant owns
stock representing more than 10% of the total combined voting power of all
classes of our capital stock must be at least 110% of the fair market value of
such stock on the date of grant and the term of such incentive stock options
cannot exceed five years.
Each option and other award are exercisable during the lifetime of the
optionee only by such optionee. Options granted under the 1997 plan must
generally be exercised within 90 days after the end of optionee's status as an
employee, director or consultant, within one year after such optionee's
termination by disability, or within 18 months after such optionee's termination
by death, but in no
52
<PAGE>
event later than the expiration of the option's term. The maximum term of
options granted under the 1997 Plan is ten years. The aggregate fair market
value, determined at the time of grant, of the shares of common stock with
respect to which incentive stock options are exercisable for the first time by
an optionee during any calendar year (under all of our incentive plans) may not
exceed $100,000 or the options or portion thereof which exceed such limit shall
be treated as nonstatutory stock options. Stock options granted under the 1997
Plan generally are non-transferable. Pursuant to the 1997 Plan, shares subject
to stock awards that have expired or otherwise terminated without having been
exercised in full again become available for grant. The board of directors has
the authority to amend or terminate the 1997 Plan.
An optionee may be issued an option which provides that if the exercise
price for such option is paid by delivering previously-owned shares, the
optionee shall be entitled to an additional option for the number of shares
delivered by the optionee in payment of the exercise price.
The 1997 plan provides that in the event of a merger of our company all
options and other awards shall be assumed or a substitute option or award issued
by the acquiring company unless the board determines in its sole discretion to
accelerate vesting or remove any restrictions.
Upon the closing of the offering, the option agreements for Messrs. Horner,
White, Patel, Goldstein, Truex, Gordeev, Trias and Yuan provide that if a change
in control of our company occurs and within one year after the change in
control, our company terminates the optionee other than for cause, death or
disability, then the options granted to the optionee will vest immediately.
2000 EMPLOYEE STOCK PURCHASE PLAN
Prior to completion of this offering, our board will adopt the 2000 Employee
Stock Purchase Plan, subject to stockholder approval.
SHARE RESERVE. We have authorized the issuance of 1,100,000 shares of our
common stock pursuant to purchase rights granted to eligible employees under the
purchase plan.
ELIGIBILITY. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the internal Revenue Code.
The purchase plan provides a means by which eligible employees may purchase our
common stock through payroll deductions. We implement the purchase plan by
offerings of purchase rights to eligible employees. Generally, all of our
full-time employees and full-time employees of our affiliates incorporated in
the United States may participate in offerings under the purchase plan. However,
no employee may participate in the purchase plan if, immediately after we grant
the employee a purchase right, the employee has voting power over 5% or more of
our outstanding capital stock. As of the date hereof, no shares of common stock
had been purchased under the purchase plan.
ADMINISTRATION. Under the purchase plan, the board may specify offerings of
up to 27 months. Unless the board otherwise determines, common stock will be
purchased for accounts of participating employees at a price per share equal to
the lower of:
- 85% of the fair market value of a share on the first day of the offering;
or
- 85% of the fair market value of a share on the purchase date.
For the first offering, which will begin on the effective date of this
initial public offering, we will offer shares registered on a Form S-8
registration statement. The fair market value of the shares on the first date of
this offering will be the price per share at which our shares are first sold to
the public as specified in the final prospectus with respect to our initial
public offering. Otherwise, fair market value generally means the closing sales
price (rounded up where necessary to the nearest whole cent) for
53
<PAGE>
such shares (or the closing bid, if no sales were reported) as quoted on the
Nasdaq National Market on the trading day prior to the relevant determination
date, as reported in The Wall Street Journal.
The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:
- 85% of the fair market value of a share on the day they began
participating in the purchase plan; or
- 85% of the fair market value of a share on the purchase date.
If authorized by the board, participating employees may authorize payroll
deductions of up to 15% of their base compensation for the purchase of stock
under the purchase plan. Generally employees may end their participation in the
offering at any time up to 10 days before a purchase period ends. Their
participation ends automatically on termination of their employment or loss of
full-time status.
OTHER PROVISIONS. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights, together with any other
purchase rights granted under other employee stock purchase plans established by
us or by our affiliates, if any, do not permit the employee's rights to purchase
our stock to accrue at a rate which exceeds $25,000 of fair market value of our
stock for each calendar year in which the purchase rights are outstanding.
Upon a change in control, a surviving corporation may assume outstanding
purchase rights or substitute other purchase rights therefor. If the surviving
corporation does not assume or substitute the purchase rights, the offering
period will be shortened and our stock will be purchased for the participants
immediately before the change in control.
DESCRIPTION OF 401(K) PLAN
We maintain a retirement and deferred savings plan for our employees. The
retirement and deferred savings plan is intended to qualify as a tax-qualified
plan under Section 401 of the Internal Revenue Code. The retirement and deferred
savings plan provides that each participant may contribute up to 20% of his or
her pre-tax compensation (up to a statutory limit, which is $10,500 in calendar
year 2000). Under the plan, each employee is fully vested in his or her deferred
salary contributions. Employee contributions are held and invested by the plan's
trustee. The retirement and deferred savings plan also permits us to make
discretionary contributions, subject to established limits and a vesting
schedule.
54
<PAGE>
RELATED PARTY TRANSACTIONS
SALES OF SECURITIES
Since January 1, 1997 through February 29, 2000, we have issued the
following securities in private placement transactions:
- 1,368,750 shares of our Series B redeemable convertible preferred stock,
at a purchase price of $6.96 per share, for cancellation of indebtedness
of $9,530,150 on December 9, 1997;
- 5,500,000 shares of our Series C redeemable convertible preferred stock,
at a purchase price of $4.00 per share, for an aggregate purchase price of
$22,000,000 on December 9, 1997;
- 625,000 shares of our Series D-1 convertible preferred stock, at a
purchase price of $6.00 per share, for an aggregate purchase price of
$3,750,000 on March 31, 1999;
- 625,000 shares of our Series E-1 convertible preferred stock, at a
purchase price of $4.80 per share, for an aggregate purchase price of
$3,000,000 on March 31, 1999; and
- 8,513,388 shares of our Series F redeemable Convertible preferred stock,
at a purchase price of $4.72 per share, for an aggregate purchase price of
$40,183,189 on October 29, 1999.
Each share of preferred stock is convertible into one share of common stock.
All preferred stock was issued to accredited investors in reliance upon
exemption from registration under Regulation D of the Securities Act. No
director of Versicor purchased more than $60,000 of these securities.
For additional information regarding the ownership of securities by
executive officers, directors and stockholders who beneficially own 5% or more
of our outstanding common stock, please see "Principal Stockholders."
OTHER TRANSACTIONS
In December 1997, we entered into an administrative services agreement with
our former parent company, Sepracor Inc. Under this agreement, Sepracor agreed
to provide us with certain administrative services for a monthly fee of $6,500
plus direct out-of-pocket expenses incurred by Sepracor. These services include
human resources services (compensation and benefits, employee record keeping and
insurance), financial services (accounting and tax matters) and management
information systems services (consulting only). Although this agreement
terminated on June 30, 1998, the companies continue to operate under its terms.
In July 1995, we obtained an exclusive license from Sepracor for the rights
to certain technology and intellectual property. In exchange for the license, we
issued 45,000 shares of Series A Preferred Stock to Sepracor. We also agreed to
allow third parties to use our lead seeking libraries and related technology
upon the request of Sepracor. In return, Sepracor agreed to pay a 5% royalty fee
on all net sales of products resulting from our screening process, plus all
reasonable costs incurred. This license is scheduled to terminate on July 18,
2000. We do not rely on the intellectual property covered by this license
agreement.
In January 1997, we entered into a consulting agreement with Dr. David V.
Milligan, the chairman of our board of directors. Under this agreement,
Dr. Milligan agreed to provide consulting and advising services to us. We agreed
to pay Dr. Milligan an annual fee of $100,000. The agreement terminated in
December 1997 but has continued through mutual consent of Dr. Milligan and
Versicor.
In March 1998, we entered into a scientific agreement with Dr. Christopher
Walsh, a member of our board of directors. Under this agreement, Dr. Walsh
agreed to provide consulting and advising services to us. We agreed to pay
Dr. Walsh an annual fee of $50,000, plus an annual laboratory gift of $50,000 in
1998, and $25,000 annually thereafter. This agreement terminates in
January 2001.
On May 15, 1997, we issued a non-interest bearing note for $200,000 to
Mr. Richard J. White. The note is due and payable on May 15, 2002. The note is
secured by Mr. White's home and his stock options in Versicor.
On April 24, 2006, we issued a 5% note for $100,000 to Mr. Dinesh V. Patel
on April 24, 2006. The principal and interest are due on April 24, 2001. The
note is secured by Mr. Patel's home.
In March 2000, we agreed to issue a non-interest bearing note for $300,000
to Mr. Paul F. Truex. The note is payable in equal annual installments over the
first four years. We have not yet issued this note.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table shows information known to us with respect to the
beneficial ownership of our common stock as of June 30, 2000, and as adjusted to
reflect the sale of the shares of common stock offered under this prospectus by:
- each person or group of affiliated persons who is known by us to own
beneficially 5% or more of our common stock;
- each of our directors;
- each executive officer listed in the "Summary Compensation" table above;
and
- all of our directors and executive officers as a group.
Except as indicated in the footnotes to this table and subject to community
property laws where applicable, the persons named in the table have sole voting
and investment power with respect to all shares of our common stock shown as
beneficially owned by them. Beneficial ownership and percentage ownership are
determined in accordance with the rules of the SEC. The table below includes the
number of shares underlying options and warrants which are exercisable within
60 days from June 30, 2000 and assumes the conversion of all shares of our
preferred stock into shares of our common stock prior to this offering. It is
therefore based on 17,439,468 shares of our common stock outstanding prior to
this offering and 22,039,468 shares outstanding immediately after this offering.
The address for those individuals for which an address is not otherwise
indicated is: 34790 Ardentech Court, Fremont, California 94555.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT PERCENT
NUMBER OF UNDERLYING OWNED OWNED
SHARES OPTIONS OR BEFORE THIS AFTER THIS
BENEFICIAL OWNER OUTSTANDING WARRANTS OFFERING OFFERING
---------------- ----------- ---------------- ----------- ----------
<S> <C> <C> <C> <C>
FIVE PERCENT STOCKHOLDERS
Abingworth Bioventures SICAV(1)............ 1,046,944 31,161 5.82% 4.89%
c/o Sanne & Cie s.a r.l
231, Val des Bons Malades
PO Box 566
L-2015 Luxembourg
Attn: Karl Sanne
APA Excelsior V, LP(2)..................... 1,814,125 -- 9.71 8.23
2100 Geng Road
Palo Alto, CA 94303
Attn: Lori Rafield, Ph.D
Apax Europe IV GP Co. Limited(3)........... 1,836,158 -- 9.92 8.33
PO Box 431
13-15 Victoria Road
St. Peter Port
Guernsey
Channel Islands GYI 32D
H&Q Healthcare Investors(4)................ 1,046,941 31,160 5.82 4.89
H&Q Life Sciences Investors
50 Rowes Warf
Boston, MA 02110
Attn: Alan G. Carr
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT PERCENT
NUMBER OF UNDERLYING OWNED OWNED
SHARES OPTIONS OR BEFORE THIS AFTER THIS
BENEFICIAL OWNER OUTSTANDING WARRANTS OFFERING OFFERING
---------------- ----------- ---------------- ----------- ----------
<S> <C> <C> <C> <C>
Healthcare Ventures V, L.P.(5)............. 2,442,869 145,868 13.99% 11.75%
44 Nassau Street
Princeton, NJ 08542
Attn: Jeffrey Steinberg
New Enterprise Associates VII, L.P.(6)..... 1,744,906 51,999 9.71 8.15
2490 Sand Hill Road
Menlo Park, CA 94025
Attn: Thomas C. McConnell
Schroder Ventures International Life
Sciences Fund II(7)........................ 1,624,294 -- 8.78 7.37
c/o Schroder Venture Management, Ltd.
22 Church Street
HM11 Hamilton
Bermuda
Attn: Nicola Lawson
Sepracor Inc.(8)........................... 1,809,143 76,250 10.19 8.55
111 Locke Drive
Marlboro, MA 01752
Attn: Timothy J. Barberich
DIRECTORS AND NAMED EXECUTIVE OFFICERS
David V. Milligan, Ph.D.................... 22,500 41,250 * *
George F. Horner, III...................... 17,500 205,945 1.07 1.01
Richard J. White, Ph.D..................... 131,250 37,727 * *
Dinesh V. Patel, Ph.D...................... 40,945 8,277 * *
Timothy J. Barberich....................... 6,188 7,166 * *
James H. Cavanaugh, Ph.D................... -- -- -- --
Mark Leschly............................... -- -- -- --
Thomas C. McConnell........................ -- -- -- --
Lori F. Rafield, Ph.D......................
Christopher T. Walsh, Ph.D................. -- 56,200 * *
All directors and executive officers as a
group (9 persons)........................ 218,383 356,565 2.86 2.60
</TABLE>
------------------------
* Less than 1.0%.
(1) Mr. Karl Sanne is Director of Abingworth Bioventures SICAV and disclaims
beneficial ownership of these shares, except to the extent of his pecuniary
interest in these shares.
(2) Ms. Lori Rafield is managing director of Patricof & Co. Ventures, which is
the general partner of APA Excelsior V, LP. Ms. Rafield disclaims beneficial
ownership of these shares, except to the extent of her pecuniary interest in
these shares.
(3) Dr. Stephen Thompson has voting and investment power of Apax
Europe IV GP Co. Limited and disclaims his beneficial ownership of these
shares, except to the extent of his pecuniary interest in these shares.
57
<PAGE>
(4) H&Q Healthcare Investors and H&Q Life Sciences Investors are closed and
registered investment companies for which Hambrecht & Quist Capital
Management Incorporated is the investment advisor. Mr. Alan G. Carr is
president of Hambrecht & Quist Capital Management Incorporated and disclaims
his beneficial ownership of these shares, except to the extent of his
pecuniary interest in these shares.
(5) Healthcare Ventures LLC is the general partner of Healthcare Ventures, L.P.
and James H. Cavanaugh is the president of Healthcare Ventures LLC.
Mr. Cavanaugh disclaims his beneficial ownership of these shares, except to
the extent of his pecuniary interest in these shares.
(6) Thomas C. McConnell is the general partner of New Enterprise Associates
Venture Capital, which is the general partner of New Enterprise
Associates VII, L.P. Mr. McConnell disclaims his beneficial ownership of
these shares, except to the extent of his pecuniary interest in these
shares.
(7) Nicola Lawson and Peter Everson are directors of Schroder Venture Managers
Limited, which acts as manager of the Schroder Ventures International Life
Sciences Fund II. Ms. Lawson and Mr. Everson each disclaim his or her
beneficial ownership of these shares, except to the extent of his or her
pecuniary interest in these shares.
(8) Timothy J. Barberich is chief executive officer and chairman of the board of
directors for Sepracor Inc. Mr. Barberich disclaims his beneficial ownership
of these shares, except to the extent of his pecuniary interest in these
shares.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following information describes our common stock and preferred stock, as
well as options and warrants to purchase our common stock, and provisions of our
restated certificate of incorporation and our amended and restated bylaws, all
as will be in effect upon the closing of this offering. This description is only
a summary. You should also refer to the certificate and bylaws which have been
filed with the SEC as exhibits to our registration statement, of which this
prospectus forms a part. The descriptions of the common stock and preferred
stock, as well as options and warrants to purchase our common stock, reflect
changes to our capital structure that will occur upon the closing of this
offering in accordance with the terms of the certificate.
Upon completion of this offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, par value $.001 per share, and 5,000,000
shares of preferred stock, par value $.001 per share.
COMMON STOCK
As of March 31, 2000, there were 762,330 shares of common stock outstanding
and held of record by 42 stockholders. There will be 22,039,468 shares of common
stock outstanding upon the closing of this offering, which gives effect to the
issuance of 4,600,000 shares of common stock offered by us under this prospectus
and the conversion of preferred stock discussed below.
Each share of common stock has identical rights and privileges in every
respect. The holders of our common stock are entitled to vote upon all matters
submitted to a vote of our stockholders and are entitled to one vote for each
share of common stock held.
Subject to the prior rights and preferences, if any, applicable to shares of
preferred stock or any series of preferred stock, the holders of common stock
are entitled to receive such dividends, payable in cash, stock or otherwise, as
may be declared by our board out of any funds legally available for the payment
of dividends.
If we voluntarily or involuntarily liquidate, dissolve or wind-up, the
holders of common stock will be entitled to receive after distribution in full
of the preferential amounts, if any, to be distributed to the holders of
preferred stock or any series of preferred stock, all of the remaining assets
available for distribution ratably in proportion to the number of shares of
common stock held by them. Holders of common stock have no preferences or any
preemptive conversion or exchange rights.
PREFERRED STOCK
As of March 31, 2000, there were 16,677,138 shares of convertible preferred
stock outstanding. All outstanding shares of convertible preferred stock will be
converted into 16,677,138 shares of our common stock upon the closing of this
offering and these shares of convertible preferred stock will no longer be
authorized, issued or outstanding.
Our board is authorized to provide for the issuance of shares of preferred
stock in one or more series, and to fix for each series voting rights, if any,
designations, preferences and relative, participating, optional or other special
rights and such qualifications, limitations or restrictions as provided in a
resolution or resolutions adopted by the board. The board may authorize the
issuance of shares of preferred stock with terms and conditions which could
discourage a takeover or other transaction that holders of some or a majority of
shares of common stock might believe to be in their best interests or in which
holders of common stock might receive a premium for their shares over the then
market price.
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<PAGE>
WARRANTS
As of June 30, 2000, warrants to purchase 45,000 shares of common stock at
$4.45 per share, 168,125 shares of Series C preferred stock at $4.00 per share
and 226,236 shares of Series F preferred stock at $4.72 per share were
outstanding. The warrants for the common stock and Series C preferred stock
expire on March 10, 2002 and December 9, 2002, respectively. The warrants for
the Series F preferred stock expire on the date which is five years following
the completion of this offering. The warrants contain anti-dilution provisions
providing for adjustments of the exercise price and the number of shares
underlying the warrants upon the occurrence of certain events, including any
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction. The warrants grant to the holders
registration rights with respect to the common stock issuable upon their
exercise, which are described below. The Series C and Series F preferred stock
will be exercisable for common stock upon completion of this offering.
ANTI-TAKEOVER EFFECTS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE
LAW
We are subject to Section 203 of the Delaware General Corporation Law, or
DGCL Section 203, which regulates corporate acquisitions. DGCL Section 203
prevents certain Delaware corporations, including those whose securities are
listed for trading on the Nasdaq National Market, from engaging, under certain
circumstances in a "business combination" with any "interested stockholder" for
three years following the date that such stockholder became an interested
stockholder. For purposes of DGCL Section 203, a "business combination"
includes, among other things, a merger or consolidation involving Versicor and
the interested stockholder and the sale of more than ten percent (10%) of
Versicor's assets. In general, DGCL Section 203 defines an "interested
stockholder" as any entity or person beneficially owning 15% or more of the
outstanding voting stock of Versicor and any entity or person affiliated with or
controlling or controlled by such entity or person. A Delaware corporation may
"opt out" of DGCL Section 203 with an express provision in its original
certificate of incorporation or an express provision in its certificate of
incorporation or bylaws resulting from amendments approved by the holders of at
least a majority of the corporation's outstanding voting shares. We have not
"opted out" of the provisions of DGCL Section 203.
Our restated certificate of incorporation will provide that the board of
directors is divided into three classes of directors, with each class serving a
staggered three-year term. The classification system of electing directors may
tend to discourage a third party from making a tender offer or otherwise
attempting to obtain control of Versicor and may maintain the incumbency of the
board of directors, as the classification of the board of directors generally
increases the difficulty of replacing a majority of the directors. Our restated
certificate of incorporation will also authorize our board of directors to issue
blank check preferred stock to increase the amount of outstanding shares without
stockholders approval. The restated certificate of incorporation also will
provide that all stockholder actions must be effected at a duly called meeting
and not by a consent in writing. Further, certain provisions of our restated
certificate of incorporation will provide that the stockholders may amend the
bylaws or certain provisions of the restated certificate of incorporation only
with the affirmative vote of 75% of our capital stock. These provisions of the
restated certificate of incorporation and amended and restated bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of Versicor. These provisions are intended to enhance the likelihood
of continuity and stability in the composition of the board of directors and in
the policies formulated by the board of directors and to discourage certain
types of transactions that may involve an actual or threatened change of control
of Versicor. These provisions are designed to reduce our vulnerability to an
unsolicited acquisition proposal. The provisions also are intended to discourage
certain tactics that may be used in proxy fights. However such provisions could
have the effect of discouraging others from making tender offers for our shares
and, as a consequence, they also may inhibit fluctuations in the market price of
our
60
<PAGE>
shares that could result from actual or rumored takeover attempts. Such
provisions also may have the effect of preventing changes in our management.
Our amended and restated bylaws will provide that any action required or
permitted to be taken by our stockholders at an annual meeting or special
meeting of stockholders may only be taken if each stockholder is given proper
advance notice of the action. The amended and restated bylaws will also provide
that special meetings of stockholders may only be called by a majority of our
board of directors, our Chairman of the board of directors or our President. The
foregoing provisions could have the effect of delaying until the next
stockholders meeting stockholder actions which are favored by the holders of a
majority of our outstanding voting securities.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. The market price of our common stock after this offering could decline as
a result of the sale of a large number of shares of our common stock in the
market, or the perception that such sales could occur. Such sales also could
make it more difficult for us to sell equity securities in the future at a time
and price that we deem appropriate. After this offering, we will have 22,039,468
outstanding shares of common stock. Of these shares, the shares being offered
hereby are freely tradable. The remaining 17,439,468 shares of common stock
outstanding upon completion of this offering and held by existing stockholders
will be restricted securities. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rule 144 or 701, the limitations of which are summarized below.
Our directors and officers and certain of our stockholders, together with
certain holders of options to purchase 512,799 shares of common stock and the
holders of warrants to purchase 336,438 shares of common stock, have entered
into lock-up agreements under which they have agreed with the underwriters not
to offer, sell, contract to sell, hedge or otherwise dispose of, directly or
indirectly, or file with the SEC a registration statement under the Securities
Act relating to, shares of common stock or securities convertible into or
exchangeable for shares of common stock during the period from the date of this
prospectus continuing through the date 180 days after the date of this
prospectus, without the prior written consent of Lehman Brothers Inc.
In general, under Rule 144 of the Securities Act of 1933, a person or
persons whose shares are required to be aggregated, including an affiliate,
whose shares have been owned for at least one year is entitled to sell, within
any three-month period starting 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of common stock, approximately 220,395 shares immediately after this
offering, or the average weekly trading volume in our common stock during the
four calendar weeks preceding the date on which notice of such sale is filed,
subject to certain restrictions. In addition, a person who is not deemed to have
been an affiliate of ours at any time during the 90 days preceding a sale and
whose shares have been beneficially owned by nonaffiliates for at least two
years would be entitled to sell such shares under Rule 144(k) without regard to
the requirements described above. To the extent that shares were acquired from
one of our affiliates, such person's holding period for the purpose of effecting
a sale under Rule 144 commences on the date of transfer from the affiliate.
Following 90 days after the date of this prospectus, shares issued upon
exercise of options that we granted prior to the date of this offering will also
be available for sale in the public market pursuant to Rule 701 under the
Securities Act of 1933. Rule 701 permits resales of such shares in reliance upon
Rule 144 under the Securities Act of 1933 but without compliance with the
restrictions, including the holding-period requirement, imposed under Rule 144.
As of March 31, 2000, options to purchase a total of 1,995,217 shares of common
stock were outstanding, 384,159 of which were currently exercisable.
Upon the closing of this offering, we intend to file a registration
statement to register for resale the 4,353,030 shares of common stock reserved
for issuance under our 1995 and 1997 Equity Incentive Plans. We expect the
registration statement to become effective immediately upon filing. Shares
issued upon the exercise of stock options granted under our Stock Incentive Plan
will be eligible for resale in the public market from time to time subject to
vesting and, in the case of certain options, the expiration of the lock-up
agreements referred to above.
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REGISTRATION RIGHTS
All of our shares of preferred stock will convert to common stock upon
completion of this offering. At any time after six months following the
effective date of this offering, the holders of Series A, B, C and F preferred
stock will be entitled to demand the registration of their shares of common
stock received after conversion of their preferred stock under the Securities
Act of 1933. The holders of Series D and E preferred stock will be entitled to
demand registration of their shares after the exercise by Series A, B, C and F
preferred stock of their demand registration rights. We are not required to
effect more than two registrations for Series A, B, C and F preferred
stockholders and more than one registration each for Series D and E preferred
stockholders pursuant to these demand registration rights. In addition, after
the closing of this offering the holders of all series of preferred stock will
be entitled to piggyback registration rights. If we propose to register any
shares of common stock either for our account or for the account of other
security holders, the holders of shares having piggyback rights are entitled to
receive notice of the registration and are entitled to include their shares in
the registration. Further, holders of all series of preferred stock may require
us to file registration statements on Form S-3 when we are eligible to use that
form. These registration rights are subject to conditions and limitations, among
which is the right of the underwriters of an offering to limit the number of
shares of common stock held by security holders with registration rights to be
included in such registration. We are generally required to bear all of the
expenses of all these registrations, including the reasonable fees of a single
counsel acting on behalf of all selling stockholders, except underwriting
discounts and selling commissions.
In addition, stockholders holding warrants to purchase 213,125 shares of
common stock have the right, subject to various conditions and limitations, to
include their shares in registration statements relating to our securities.
Registration of any of the shares of our common stock held by security holders
with registration rights would result in such shares becoming freely tradable
without restriction under the Securities Act of 1933 immediately upon
effectiveness of such registration. By exercising their registration rights and
causing a large number of shares to be registered and sold in the public market,
these holders may cause the price of the common stock to fall. In addition, any
demand to include such shares in our registration statements could have a
material adverse effect on our ability to raise needed capital. See "Principal
Stockholders," and "Underwriting."
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<PAGE>
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., Chase Securities Inc., Pacific Growth
Equities, Inc., UBS Warburg LLC and Fidelity Capital Markets, a division of
National Financial Services Corporation, are acting as representatives, have
each agreed to purchase from us the respective number of shares of common stock
shown opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ----------
<S> <C>
Lehman Brothers Inc.........................................
Chase Securities Inc........................................
Pacific Growth Equities, Inc................................
UBS Warburg LLC.............................................
Fidelity Capital Markets, a division of National Financial
Services Corporation......................................
----------
Total................................................... 4,600,000
==========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement. It also provides that, if any of the
shares of common stock are purchased by the underwriters under the underwriting
agreement, all of the shares of common stock that the underwriters have agreed
to purchase under the underwriting agreement must be purchased. The conditions
contained in the underwriting agreement include the requirement that:
- the representations and warranties made by us to the underwriters are
true;
- that there is no material change in the financial markets; and
- we deliver to the underwriters customary closing documents.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus, and to dealers, who may include
the underwriters, at this public offering price less a selling concession not in
excess of $ per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $ per share to brokers and dealers.
After completion of the offering, the underwriters may change the offering price
and other selling terms.
We have granted the underwriters an option to purchase up to 690,000
additional shares of common stock, exercisable solely to cover over-allotments,
if any, at the public offering price less the underwriting discount shown on the
cover page of this prospectus. The underwriters may exercise this option at any
time until 30 days after the date of the underwriting agreement. If this option
is exercised, each underwriter will be committed, so long as the conditions of
the underwriting agreement are satisfied, to purchase a number of additional
shares of common stock proportionate to the underwriter's initial commitment as
indicated in the table above, and we will be obligated, under the over-allotment
option, to sell the shares of common stock to the underwriters.
We have agreed not to, without the prior consent of Lehman Brothers Inc.,
directly or indirectly, offer, sell or otherwise dispose of any shares of common
stock or any securities which may be converted into or exchanged for any such
shares of common stock for a period of 180 days from the date of this
prospectus. All of our executive officers and directors, and some of our
stockholders holding an aggregate of at least 90% of the shares of our capital
stock, have agreed under lock-up agreements that, without the prior written
consent of Lehman Brothers Inc., they will not, directly or indirectly, offer,
sell or otherwise dispose of any shares of common stock or any securities which
may
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<PAGE>
be converted into or exchanged for any such shares for the period ending 180
days after the date of this prospectus. See "Shares Eligible for Future Sale."
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions:
- our historical performance and capital structure;
- estimates of our business potential and earning prospects;
- an overall assessment of our management; and
- the consideration of the above factors in relation to market valuations of
companies in related businesses.
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "VERS."
The underwriters have informed us that they do not intend to confirm sales
to discretionary accounts that exceed 5% of the total number of shares of common
stock offered by them.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
the sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
of this prospectus.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering and will be
facilitating electronic distribution through the Internet.
At our request, the underwriters have reserved up to 230,000 shares of the
common stock offered by this prospectus for sale to our officers, directors,
employees and their family members and to our business associates at the initial
public offering price set forth on the cover page of this prospectus. These
persons must commit to purchase no later than the close of business on the day
following the date of this prospectus. The number of shares available for sale
to the general public will be reduced to the extent these persons purchase the
reserved shares.
The underwriters may purchase and sell shares of common stock in the open
market. These transactions may include short sales, stabilizing transactions and
purchases to cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares than they are required to
purchase in the offering. "Covered" short sales are sales made in an amount not
greater than the underwriters' option to purchase additional shares from the
issuer in the offering. The underwriters may close out any covered short
position by either exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. "Naked" short sales are any sales in excess of such
option. The underwriters must close out any naked short position by purchasing
shares in the open market. A
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naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the common stock
in the open market after pricing that could adversely affect investors who
purchase in the offering. Stabilizing transactions consist of various bids for
or purchases of common stock made by the underwriters in the open market prior
to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
Similar to other purchase transactions, the underwriters' purchases to cover
the syndicate short sales may have the effect of raising or maintaining the
market price of the common stock or preventing or retarding a decline in the
market price of the common stock. As a result, the price of the common stock may
be higher than the price that might otherwise exist in the open market.
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreement, and
to contribute to payments that the underwriters may be required to make for
these liabilities.
In the Republic of Italy the offering is exclusively destined and reserved
to Messrs. Francesco Parenti, Claudio Quarta, and Adriano Malabarba (the
"Italian Offerees"). Accordingly, no Shares will be offered, sold or delivered
and no copies of this prospectus or of shares and the offering will be
distributed in the Republic of Italy except to the Italian Offerees; PROVIDED
THAT any such offer, sale or delivery of the shares or distribution of copies of
this prospectus or any other document relating to the shares in the Republic of
Italy be:
(a) made by investment firms, banks or financial intermediaries permitted to
conduct such activities in the Republic of Italy in accordance with
Legislative Decree No. 385 of 1 September, 1993 (the "Decree No. 385"),
Decree No. 58, CONSOB Regulation No. 11522 of 1 July, 1998, as amended
and supplemented, and any such other applicable laws and regulations;
(b) in compliance with Article 129 of Legislative Decree No. 385 of
1 September 1993 and the relevant implementing instructions of the Bank
of Italy, pursuant to which the issue and offer of securities in Italy is
subject to a prior and/or subsequent notification to, and/or
authorisation by, the Bank of Italy, unless an exemption, depending,
among other things, on the amount of the issue and the characteristics of
the securities, applies; and
(c) in compliance with any other applicable notification requirement or
limitation which may be imposed by CONSOB or the Bank of Italy.
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<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Versicor Inc. by O'Melveny & Myers LLP, San Francisco, California.
Dewey Ballantine LLP, New York, New York, is acting as counsel for the
underwriters in connection with various legal matters relating to the shares of
common stock offered by this prospectus.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for each of
the three years in the period ended December 31, 1999 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 (including
exhibits, schedules and amendments) under the Securities Act with respect to the
shares of common stock to be sold in this offering. This prospectus does not
contain all the information set forth in the registration statement. For further
information with respect to us and the shares of common stock to be sold in this
offering, reference is made to the registration statement. Statements contained
in this prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. Whenever a reference is made
in this prospectus to any contract or other document of ours, the reference may
not be complete, and you should refer to the exhibits that are apart of the
registration statement for a copy of the contract or document.
You may read and copy all or any portion of the registration statement or
any other information Versicor files at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings, including the registration statement, are also
available to you on the SEC's web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act, and, in accordance with
those requirements, will file periodic reports, proxy statements and other
information with the SEC.
This prospectus includes data that were obtained from scientific studies.
While we believe these studies to be reliable, we have not independently
verified their data.
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VERSICOR INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Deficit......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The stock split described in Note 1 to the financial statements has not been
completed at June 30, 2000. When it has been completed, we will be in a position
to furnish the following report:
"To the Board of Directors and Stockholders of
Versicor Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of Versicor Inc. at December 31, 1998
and 1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2, the Company has revised its 1999 financial
statements to report a beneficial conversion feature on convertible bridge loans
issued in the second quarter and to revise the beneficial conversion feature
reported on its Series F preferred stock issued in the fourth quarter of 1999."
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
March 20, 2000, except as to
Note 2 which is as of July 21, 2000
and the fifth paragraph of Note 1 which
is as of , 2000
F-2
<PAGE>
VERSICOR INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, MARCH 31, EQUITY AT
--------------------------- ------------- MARCH 31,
1998 1999 2000 2000
------------ ------------ ------------- -------------
RESTATED (UNAUDITED)
RESTATED
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 4,506,643 $ 34,619,110 $ 34,003,307
Other current assets............................. 124,451 44,246 176,079
------------ ------------ -------------
Total current assets........................... 4,631,094 34,663,356 34,179,386
Restricted cash.................................... 5,000,000 5,000,000 5,000,000
Property and equipment, net........................ 5,496,821 4,817,151 4,638,053
Employee notes receivable.......................... 568,780 592,998 600,233
Other assets....................................... 168,493 159,256 156,946
------------ ------------ -------------
Total assets................................... $ 15,865,188 $ 45,232,761 $ 44,574,618
============ ============ =============
LIABILITIES, CONVERTIBLE AND REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................. $ 205,418 $ 86,248 $ 153,331
Accrued liabilities.............................. 2,671,028 1,931,666 2,105,960
Related party payable............................ 46,813 20,543 45,938
Current portion of term loan payable............. 862,000 862,000 862,000
Deferred revenue................................. -- 433,333 1,048,333
------------ ------------ -------------
Total current liabilities...................... 3,785,259 3,333,790 4,215,562
Deferred revenue................................... -- 541,667 433,334
Term loan payable.................................. 5,172,000 4,310,000 4,094,500
Other long-term liabilities........................ -- 2,000,000 2,000,000
------------ ------------ -------------
Total liabilities.............................. 8,957,259 10,185,457 10,743,396
------------ ------------ -------------
Convertible and Redeemable Convertible Preferred
Stock, $0.001 par value, 7,101,250, 17,864,723
and 17,864,723 shares authorized at December 31,
1998 and 1999 and March 31, 2000 (unaudited),
respectively; 6,913,750, 16,677,138 and
16,677,138 shares issued and outstanding at
December 31, 1998 and 1999 and March 31, 2000
(unaudited), respectively; none issued and
outstanding pro forma (aggregate liquidation
preference $84,946,250 and $86,381,646 at
December 31, 1999 and March 31, 2000 (unaudited),
respectively).................................... 33,984,298 83,843,100 85,278,496 $ --
------------ ------------ ------------- -------------
Commitments (Notes 6 and 11)
Stockholders' (deficit) equity:
Common Stock, $0.001 par value, 16,250,000,
43,750,000 and 43,750,000 shares authorized at
December 31, 1998 and 1999 and March 31, 2000
(unaudited), respectively; 385,926, 683,351 and
762,330 shares issued and outstanding at
December 31, 1998 and 1999 and March 31, 2000
(unaudited), respectively; 17,439,468 shares
outstanding pro forma.......................... 386 683 762 17,439
Additional paid-in capital....................... -- 18,984,084 18,484,476 103,746,295
Deferred stock compensation...................... (622,798) (12,107,993) (10,701,682) (10,701,682)
Accumulated deficit.............................. (26,453,957) (55,672,570) (59,230,830) (59,230,830)
------------ ------------ ------------- -------------
Total stockholders' (deficit) equity........... (27,076,369) (48,795,796) (51,447,274) $ 33,831,222
------------ ------------ ------------- =============
Total liabilities, convertible and redeemable
convertible preferred stock and
stockholders' deficit...................... $ 15,865,188 $ 45,232,761 $ 44,574,618
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
VERSICOR INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ------------ ------------ ----------- -----------
RESTATED (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees and milestones... $ -- $ -- $ 525,000 $ -- $ 8,333
Collaborative research and
development and contract
services.................... -- -- 3,750,000 -- 1,250,000
----------- ------------ ------------ ----------- -----------
Total revenues.............. -- -- 4,275,000 -- 1,258,333
----------- ------------ ------------ ----------- -----------
Operating expenses:
Research and development...... 5,402,628 11,428,576 25,472,118 2,209,255 3,637,445
General and administrative.... 807,377 1,386,575 2,585,749 267,905 1,647,724
----------- ------------ ------------ ----------- -----------
Total operating expenses.... 6,210,005 12,815,151 28,057,867 2,477,160 5,285,169
----------- ------------ ------------ ----------- -----------
Loss from operations............ (6,210,005) (12,815,151) (23,782,867) (2,477,160) (4,026,836)
Other income (expense):
Interest income............... 103,382 769,725 749,313 103,396 588,610
Interest expense.............. (178,082) (539,573) (6,170,569) (124,451) (120,034)
Other......................... 310 -- (14,490) -- --
----------- ------------ ------------ ----------- -----------
Net loss........................ (6,284,395) (12,584,999) (29,218,613) (2,498,215) (3,558,260)
Deemed dividends related to
beneficial conversion feature
of preferred stock............ -- -- (35,112,612) (750,000) --
Accretion of dividends on
preferred stock............... (421,201) (2,527,212) (3,062,988) (530,553) (1,435,396)
----------- ------------ ------------ ----------- -----------
Net loss available to common
stockholders.................. $(6,705,596) $(15,112,211) $(67,394,213) $(3,778,768) $(4,993,656)
=========== ============ ============ =========== ===========
Net loss per share:
Basic and diluted............. $ (24.31) $ (47.11) $ (127.28) $ (8.72) $ (7.09)
=========== ============ ============ =========== ===========
Weighted average shares....... 275,834 320,800 529,513 433,384 704,789
=========== ============ ============ =========== ===========
Pro forma net loss per share
(unaudited):
Basic and diluted............. $ (2.75) $ (0.20)
============ ===========
Weighted average shares....... 10,613,276 17,381,926
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
VERSICOR INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED
------------------- PAID-IN STOCK ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
-------- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996..... 235,125 $235 $ 20,665 $ -- $ (5,901,207) $ (5,880,307)
Exercise of common stock
options....................... 64,090 64 50,190 -- -- 50,254
Accretion of dividends on
preferred stock............... (70,855) -- (350,346) (421,201)
Net loss........................ -- -- -- -- (6,284,395) (6,284,395)
------- ---- ------------ ------------ ------------ ------------
Balances, December 31, 1997..... 299,215 299 -- -- (12,535,948) (12,535,649)
Exercise of common stock
options....................... 86,711 87 34,662 -- -- 34,749
Deferred stock
compensation.................. -- -- 1,159,540 (1,159,540) -- --
Amortization of deferred stock
compensation.................. -- -- -- 536,742 -- 536,742
Accretion of dividends on
preferred stock............... -- -- (1,194,202) -- (1,333,010) (2,527,212)
Net loss........................ -- -- -- -- (12,584,999) (12,584,999)
------- ---- ------------ ------------ ------------ ------------
Balances, December 31, 1998..... 385,926 386 -- (622,798) (26,453,957) (27,076,369)
Exercise of common stock
options....................... 47,425 47 18,917 -- -- 18,964
Issuance of common stock under
license agreement............. 250,000 250 646,550 -- -- 646,800
Issuance of warrants............ -- -- 622,704 -- -- 622,704
Issuance of bridge loans with
beneficial conversion
feature....................... -- -- 4,877,296 -- -- 4,877,296
Deferred stock
compensation.................. -- -- 15,881,605 (15,881,605) -- --
Amortization of deferred stock
compensation.................. -- -- -- 4,396,410 -- 4,396,410
Accretion of dividends on
preferred stock............... -- -- (3,062,988) -- -- (3,062,988)
Issuance of preferred stock with
beneficial conversion
feature....................... -- -- 35,112,612 -- -- 35,112,612
Deemed dividends on preferred
stock......................... -- -- (35,112,612) -- -- (35,112,612)
Net loss........................ -- -- -- -- (29,218,613) (29,218,613)
------- ---- ------------ ------------ ------------ ------------
Balances, December 31, 1999..... 683,351 683 18,984,084 (12,107,993) (55,672,570) (48,795,796)
Exercise of common stock options
(unaudited)................... 78,979 79 31,509 -- -- 31,588
Deferred stock compensation
(unaudited)................... -- 904,279 (904,279) -- --
Amortization of deferred stock
compensation (unaudited)...... -- -- -- 2,310,590 -- 2,310,590
Accretion of dividends on
preferred stock (unaudited)... -- -- (1,435,396) -- -- (1,435,396)
Net loss (unaudited)............ -- -- -- -- (3,558,260) (3,558,260)
------- ---- ------------ ------------ ------------ ------------
Balances, March 31, 2000
(unaudited)................... 762,330 $762 $ 18,484,476 $(10,701,682) $(59,230,830) $(51,447,274)
======= ==== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
VERSICOR INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------------
1997 1998 1999 1999 2000
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $ (6,284,395) $(12,584,999) $(29,218,613) $(2,498,215) $ (3,558,260)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation.................................. 469,120 860,745 943,625 234,936 224,642
Noncash stock compensation.................... -- 536,742 4,396,410 277,860 2,310,590
Accrued interest on convertible note.......... -- -- 181,731 -- --
Non cash interest expense on bridge loans..... -- -- 5,500,000 -- --
Changes in operating assets and liabilities:
Other current assets........................ 553,121 12,648 104,423 (1,156,716) (131,833)
Employee notes receivable................... (551,401) (17,379) (24,218) (4,403) (7,235)
Restricted cash............................. (5,000,000) -- -- -- --
Accounts payable............................ (116,598) (68,768) (119,170) (89,470) 67,083
Accrued liabilities......................... (26,465) 1,723,934 (92,562) (160,381) 174,294
Related party payable....................... 78,679 (34,416) (26,270) (15,822) 25,395
Deferred revenue............................ -- -- 975,000 1,300,000 506,666
Other long-term liabilities................. -- -- 2,000,000 -- --
------------ ------------ ------------ ----------- ------------
Net cash used in operating activities..... (10,877,939) (9,571,493) (15,379,644) (2,112,211) (388,658)
------------ ------------ ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities.............. (4,928,590) -- -- -- --
Sales of marketable securities.................. -- 4,928,590 -- -- --
Additions to property and equipment............. (3,644,911) (448,273) (263,955) (45,336) (45,543)
(Increase) decrease in other assets............. (301,060) 1,487 (14,981) 2,309 2,310
------------ ------------ ------------ ----------- ------------
Net cash provided by (used in) investing
activities.............................. (8,874,561) 4,481,804 (278,936) (43,027) (43,233)
------------ ------------ ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bridge loans and warrants......... -- -- 5,500,000 -- --
Proceeds from advance from parent............... 7,818,094 -- -- -- --
Proceeds from issuance of common stock.......... 50,254 34,749 18,964 4,275 31,588
Borrowings of long-term debt.................... 6,034,000 -- -- -- --
Repayments of long-term debt.................... -- -- (862,000) (215,500) (215,500)
Repayments of convertible subordinated notes.... (6,034,000) -- -- -- --
Proceeds from issuance of preferred stock,
net........................................... 21,445,735 -- 41,112,591 3,000,000 --
Other........................................... -- -- 1,492 -- --
------------ ------------ ------------ ----------- ------------
Net cash provided by (used in) financing
activities.............................. 29,314,083 34,749 45,771,047 2,788,775 (183,912)
------------ ------------ ------------ ----------- ------------
Net change in cash and cash equivalents........... 9,561,583 (5,054,940) 30,112,467 633,537 (615,803)
Cash and cash equivalents at beginning of
period.......................................... -- 9,561,583 4,506,643 4,506,643 34,619,110
------------ ------------ ------------ ----------- ------------
Cash and cash equivalents at end of period........ $ 9,561,583 $ 4,506,643 $ 34,619,110 $ 5,140,180 $ 34,003,307
============ ============ ============ =========== ============
NONCASH TRANSACTIONS:
Conversion of advance from parent to convertible
subordinated note............................... $ 10,497,986 $ -- $ -- $ -- $ --
============ ============ ============ =========== ============
Conversion of convertible subordinated note into
Series B Preferred Stock........................ $ 9,530,150 $ -- $ -- $ -- $ --
============ ============ ============ =========== ============
Conversion of convertible subordinated note and
accumulated interest into Series F Preferred
Stock........................................... $ -- $ -- $ 5,683,216 $ -- $ --
============ ============ ============ =========== ============
Issuance of common stock under license
agreement....................................... $ -- $ -- $ 646,800 $ 127,900 $ --
============ ============ ============ =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest........ $ -- $ 539,573 $ 650,570 $ 124,451 $ 120,031
============ ============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Versicor Inc. ("Versicor" or the "Company") is a biopharmaceutical company
focused on the marketing, development and discovery of drugs for the treatment
of serious bacterial and fungal infections, primarily in the hospital setting.
Since its inception on May 2, 1995 as a wholly-owned subsidiary of
Sepracor Inc. ("Sepracor"), the Company has devoted substantially all of its
efforts to establishing its business and carrying on research and development
activities related to proprietary product candidates, including V-Echinocandin
and V-Glycopeptide, as well as partnered product candidates. Since 1996, the
Company has been operating as an independent company located in California.
As a result, of the recent series of preferred financing, Sepracor's
ownership of Versicor is approximately 10% at December 31, 1999. Certain
facilities and support services of the Company, including administrative
support, have been provided by Sepracor under a corporate services agreement.
For these facilities and services, the Company was charged approximately
$138,000, $84,000, and $78,000 for the years ended December 31, 1997, 1998 and
1999, respectively. For the period from inception through December 10, 1997,
these changes represent the Company's proportionate share of Sepracor's overhead
and costs using allocation formulas which management believes are reasonable
based upon the Company's use of such services and facilities. The Company and
Sepracor terminated the Corporate Services Agreement and on December 9, 1997
signed an Administrative Services Agreement to provide certain accounting and
other administrative services to the Company. Although this agreement expired on
June 30, 1998, the companies continued to operate under the terms of that
agreement. As a result of these allocations and agreements, the financial
statements presented may not be indicative of the results that would have been
achieved had the Company operated as a nonaffiliated entity. General and
administrative costs on a stand-alone basis would not have been materially
different from those recorded in the Company's statements of operations for the
periods presented.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The financial statements for the three months ended March 31, 1999 and 2000
are unaudited. Such interim financial statements have been prepared in
conformity with the rules and regulations of the Securities and Exchange
Commission. Certain disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations pertaining to
interim financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
have been included. The results of operations of any interim period are not
necessarily indicative of the results of operations for the full year or any
other period.
INITIAL PUBLIC OFFERING
In March 2000, the Board of Directors authorized management of the Company
to file a registration statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public.
Prior to the completion of the Company's initial public offering, the
Company intends to split its common and preferred stock 5-for-4, and to increase
the authorized number of common shares to 100,000,000 shares and to decrease the
authorized number of preferred shares to 5,000,000 shares; subject to
shareholder approval. All preferred stock data, common stock data and option
plan information in this report has been restated retroactively to reflect the
split.
F-7
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CERTAIN RISKS AND UNCERTAINTIES
The Company is subject to risks common to companies in the industry
including, but not limited to, new technological innovations, dependence on key
personnel, protection of proprietary technology, compliance with government
regulations, uncertainty of market acceptance of products, product liability and
the need to obtain financing.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
purchase maturity of three months or less to be cash equivalents. Included in
cash equivalents are commercial paper instruments aggregating $2,992,150 and
$32,853,930 at December 31, 1998 and 1999, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents and accounts payable approximate fair value
due to their short maturities. Based on borrowing rates currently available to
the Company for loans with similar terms, the carrying value of its debt
obligations approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the assets, generally 3 to 10 years, or
the lease term of the respective assets, if shorter. Gains and losses upon asset
disposal are reflected in operations in the year of disposal.
OTHER ASSETS
Deferred finance costs relating to expenses incurred to complete the term
loan financing are being amortized over the five-year life of the loan.
LONG-LIVED ASSETS
The Company periodically reviews the value of long-lived assets for
impairment whenever events or changes in business circumstances indicate that
the carrying amount of the assets may not be fully recoverable or that the
useful lives of these assets are no longer appropriate. Each impairment test is
based on a comparison of the future undiscounted cash flows arising from the
assets with the carrying value of the asset. If an impairment is indicated, the
asset is written down to its estimated fair value on a discounted cash flow
basis.
F-8
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenues as they are earned. Revenue from license
fees and contract services are recognized over the initial license or contract
service term as the related work is performed, which generally is on a
straight-line basis. Nonrefundable and noncreditable milestone payments received
are recognized upon the completion of specified milestones as specified in the
related collaboration agreements. Milestone payments received which may be
credited to future royalty payments are not recognized as revenues until such
time that the royalties are credited against the milestone payments and the
amounts are non-refundable. Collaborative research and development payments are
recognized as the related work is performed. Deferred revenue is comprised of
cash received in advance of the related revenue being recognized (see Note 12).
All revenues recognized to date under research and development collaborations
are not refundable if the relevant research effort is not successful.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
Certain research and development projects are funded by research and development
contracts, and the expenses related to these activities are included in research
and development costs.
BUSINESS SEGMENTS
The Company operates as a single business segment as defined in SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
STOCK-BASED COMPENSATION
The Company accounts for its stock-based employee compensation arrangements
in accordance with the provisions of Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees" and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB 25, unearned compensation expense is based on the
difference, if any, on the date of the grant, between the fair value of the
Company's stock and the exercise price. Unearned compensation is amortized and
expensed in accordance with Financial Accounting Standards Board Interpretation
No. 28. The Company accounts for stock issued to non-employees in accordance
with the provisions of SFAS No. 123 and Emerging Issue Task Force No. 96-18,
"Accounting for Equity Instruments that are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services."
INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
F-9
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
All of the Company's operations, through December 10, 1997, were included in
Sepracor's federal and state consolidated income tax returns. The income tax
provisions have been calculated as if the Company had been required to file
separate tax returns.
NET LOSS PER SHARE
Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding. Diluted loss per share does not differ from
basic loss per share since potential common shares are antidilutive for all
periods presented and therefore are excluded from the calculation of diluted
loss per share. The following weighted potentially dilutive common shares were
excluded from the computation of net loss per share because their effect was
antidilutive:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1997 1998 1999 1999 2000
--------- --------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Convertible and redeemable convertible
preferred stock...................... 617,396 6,913,750 10,083,764 6,913,750 16,677,138
Stock options.......................... 241,145 1,345,645 1,332,680 1,290,109 2,012,735
Common stock warrants.................. 45,000 45,000 45,000 45,000 45,000
Convertible and redeemable convertible
preferred stock warrants............. 168,125 168,125 243,538 168,125 394,361
Common stock subject to repurchase..... 11,063 38,625 29,625 33,000 24,000
--------- --------- ---------- --------- ----------
1,082,729 8,511,145 11,734,607 8,449,984 19,153,234
========= ========= ========== ========= ==========
</TABLE>
The restricted shares subject to repurchase are excluded from the loss per
share calculations until the restrictions lapse.
PRO FORMA STOCKHOLDERS' EQUITY AND PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Immediately prior to the effective date of the offering, all of the
convertible and redeemable convertible preferred stock outstanding will
automatically convert into common stock at a one-to-one ratio. The pro forma
effects of these transactions are unaudited and have been reflected in the
accompanying Pro Forma Stockholders' Equity as of March 31, 2000.
Pro forma net loss per share for the year ended December 31, 1999 and the
three months ended March 31, 2000 is computed using the weighted average number
of common shares outstanding including the pro forma effects of the automatic
conversion of the Company's convertible and redeemable convertible preferred
stock into shares of the Company's common stock effective upon the closing of
the Company's initial public offering as if such conversion occurred on
January 1, 1999, or at the date of original issue, if later. The resulting pro
forma adjustments include an increase in the weighted average shares used to
compute basic net loss per share of 10,083,763 shares for the year ended
December 31, 1999 and 16,677,137 shares for the three months ended March 31,
2000 and excludes the deemed and accreted dividends related to the preferred
stock. The calculation of pro forma diluted net loss per share excludes
incremental common stock issuable upon the exercise of stock options, restricted
stock subject to repurchase and warrants as the effect would be anti-dilutive.
F-10
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes new standards of accounting and reporting for derivative instruments
and hedging activities. SFAS No. 133 requires that all derivatives be recognized
at fair value in the statement of financial position, and that the corresponding
gains or losses be reported either in the statement of operations or as a
component of comprehensive income, depending on the type of relationship that
exists. In July 1999, the Financial Accounting Standards Board issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement No. 133." SFAS No. 137 deferred the
effective date until fiscal years beginning after June 15, 2000. The Company has
not engaged in significant hedging activities or invested in derivative
instruments.
In March 2000, the FASB issued FIN 44, "Accounting for Certain Transactions
Involving Stock Compensation--an interpretation of APB 25," which is effective
July 1, 2000. The Company does not expect FIN 44 to have any material impact on
its financial statements.
NOTE 2--BENEFICIAL CONVERSION FEATURES:
The Company has revised its 1999 financial statements to account for a
beneficial conversion feature embedded in a bridge loan financing (the "Bridge
Loans") entered into on June 25, 1999. The beneficial conversion feature,
amounting to $4,877,296, represents an additional interest yield on the debt
which may be converted at any time at the option of the holders into immediately
convertible preferred stock. Accordingly, the beneficial conversion feature has
been recorded as an immediate charge to interest expense in June 1999. Under the
terms of the loan agreement, the Bridge Loans, and associated accrued interest,
were converted into the Company's convertible Series F preferred stock
("Series F shares") in October 1999.
The Company sold the Bridge Loans, in the aggregate face amount of
$5,500,000, bearing a stated interest rate of 9.75% and a maturity date one year
from the date of issuance together with detachable warrants to purchase
226,236 shares of the Company's preferred stock for gross proceeds of
$5,500,000. In determining the amount of beneficial conversion feature, the
Company first allocated the gross proceeds from the sale of the Bridge Loans and
the warrants based on their relative fair values at the June 25, 1999 issuance
date; resulting in $4,877,296 of the proceeds assigned to the Bridge Loans and
$622,704 assigned to the warrants. The warrants were valued at the issuance date
using the Black Scholes option pricing model. Interest expense of $622,704
relating to the discount on the convertible debt associated with the warrants
was recognized as interest expense over the period that the Bridge Loans were
outstanding. As the value of the beneficial conversion feature exceeded the
amount of the proceeds assigned to the Bridge Loans, the amount of the
beneficial conversion feature is limited to the $4,877,296 allocated to the
Bridge Loans.
The Company also revised its accounting for the beneficial conversion
feature associated with its October 1999 issuance of the Series F shares. The
Company sold 7,309,316 shares of Series F shares for net cash proceeds of
$34,362,612. Concurrently, the Company issued 1,204,072 Series F shares upon the
conversion of the Bridge Loans and associated interest as discussed above. As
the value of the beneficial conversion feature associated with the Series F
shares sold exceeded the amount of the net cash proceeds received, the amount of
the beneficial conversion feature was limited to the net cash
F-11
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--BENEFICIAL CONVERSION FEATURES: (CONTINUED)
proceeds received. The Series F shares are convertible into shares of the
Company's common stock at any time. Accordingly, the Company has recognized
$34,362,612 as a charge to additional paid in capital to account for the deemed
dividend on the preferred stock as of the issuance date.
The Company also revised its December 31, 1999 and March 31, 2000 balance
sheets to reclassify the beneficial conversion feature associated with the
issuance of the Company's Series F and Series E-1 preferred stock from preferred
stock to additional paid in capital.
The effect of these revisions on the financial statements is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
---------------------------
AS REPORTED REVISED
------------ ------------
<S> <C> <C>
Interest expense............................................ $ 2,049,705 $ 6,170,569
Net loss.................................................... (25,097,749) (29,218,613)
Deemed dividends related to beneficial conversion feature of
preferred stock .......................................... 41,650,015 35,112,612
Net loss available to common stockholders................... (69,810,752) (67,394,213)
Net loss per share, basic and diluted....................... $ (131.84) $ (127.28)
Pro forma net loss per share, basic and diluted
(unaudited)............................................... $ (2.36) $ (2.75)
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS' EQUITY AT
MARCH 31, 2000 MARCH 31, 2000
DECEMBER 31, 1999 (UNAUDITED) (UNAUDITED)
--------------------------- --------------------------- ---------------------------
AS REPORTED REVISED AS REPORTED REVISED AS REPORTED REVISED
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Convertible and Redeemable
Convertible Preferred
Stock........................ $125,493,115 $ 83,843,100 $126,928,511 $ 85,278,496
Additional paid-in capital..... -- 18,984,084 -- 18,484,476 $126,911,834 $103,746,295
Accumulated deficit............ (78,338,501) (55,672,570) (82,396,369) (59,230,830) (82,396,369) (59,230,830)
Total stockholders' (deficit)
equity....................... (90,445,811) (48,795,796) (93,097,289) (51,447,274)
</TABLE>
NOTE 3--PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1998 1999 2000
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements................. $ 3,709,216 $ 3,709,216 $ 3,709,216
Laboratory equipment................... 2,328,184 2,529,999 2,531,089
Computers, software and office
equipment............................ 682,675 742,452 785,337
Furniture and fixtures................. 156,695 159,058 160,623
----------- ----------- -----------
6,876,770 7,140,725 7,186,265
Less: Accumulated depreciation......... (1,379,949) (2,323,574) (2,548,212)
----------- ----------- -----------
Property and equipment, net............ $ 5,496,821 $ 4,817,151 $ 4,638,053
=========== =========== ===========
</TABLE>
Depreciation expense was $469,120, $860,745 and $943,625 for the years ended
December 31, 1997, 1998 and 1999, respectively.
F-12
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--EMPLOYEE NOTES RECEIVABLE AND RELATED PARTY TRANSACTIONS:
In 1996 and 1997, the Company made an aggregate of $525,000 of loans to
certain key employees and officers. The loans all accrue interest at 5% with the
exception of one loan which is interest free. The Company has imputed an
interest rate of 5% for this loan. The loans are secured by the stock options of
the employees and/or the deeds to the employees' residences. The loans become
payable between April 2001 and May 2002 and at December 31, 1999 are carried at
$592,998 including accrued interest.
In January 1997, the Company entered into a consulting agreement with a
Director of the Company. Under this agreement, the Company pays the Director an
annual fee of $100,000. The agreement terminated in December 1997, but has
continued through mutual consent of the Company and the Director.
In March 1998, the Company entered into a scientific agreement with a
Director. Under this agreement, the Company pays the Director an annual fee of
$50,000 plus an annual laboratory gift of $50,000 in 1998, and $25,000 annually
thereafter. The agreement terminates in January 2001.
NOTE 5--ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1998 1999 2000
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Research and development................. $1,824,925 $1,000,000 $1,000,000
Employee compensation.................... 450,485 507,486 764,661
Legal.................................... 166,928 107,179 107,681
Other.................................... 228,690 317,001 233,618
---------- ---------- ----------
$2,671,028 $1,931,666 $2,105,960
========== ========== ==========
</TABLE>
NOTE 6--BORROWINGS:
In December 1997, the Company and a commercial bank entered into a term
loan, which is evidenced by two term notes in principal amounts of $2,000,000
and $4,034,000. The term loan is payable quarterly in fifteen equal
installments, with each installment equal to $215,500 plus accrued interest,
commencing on March 31, 1999 with the final payment of the balance of $2,801,500
payable on December 31, 2002. The term notes bear interest at the prime rate
plus 0.50% (9.0% at December 31, 1999). The term loan requires that the Company
keep $4 million on deposit with the lender and maintain an additional
$1 million of cash and cash equivalents. These amounts have been shown as
restricted cash on the accompanying balance sheet. These loans are
collateralized by certain assets of the Company. In conjunction with the term
loan, Sepracor entered into a put agreement with a commercial bank pursuant to
which Sepracor agreed to purchase $2,000,000 of indebtedness of the Company in
the event of a default by the Company under the term loan with the bank. In the
event that the put right is exercised by the bank, the bank will assign its
security interest in the fixed assets of the Company to Sepracor. The put
agreement expires upon the Company's initial public offering or when the
principal amount and related accrued interest of the term loans falls below
$4,000,000. There was $6,034,000 and $5,172,000 outstanding under this loan at
December 31, 1998 and 1999, respectively.
F-13
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--BORROWINGS: (CONTINUED)
Future principal payments on the term loan were as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
2000........................................................ $ 862,000
2001........................................................ 862,000
2002........................................................ 3,448,000
----------
$5,172,000
==========
</TABLE>
Interest expense associated with the term loan was $0, $539,573 and $488,844
in the years ended December 31, 1997, 1998 and 1999, respectively.
In 1997, the Company converted an advance of $10,497,986 from Sepracor into
a convertible subordinated note.
NOTE 7--COMMITMENTS:
Future minimum lease payments under all noncancelable operating leases in
effect at December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 872,234
2001........................................................ 905,234
2002........................................................ 932,984
2003........................................................ 960,734
2004........................................................ 986,642
Thereafter.................................................. 5,294,850
----------
Total....................................................... $9,952,678
==========
</TABLE>
Future minimum lease payments under operating leases primarily relate to
Versicor's principal office and laboratory space in California. Rental expense
under these leases amounted to $359,340, $807,719 and $841,134 for the years
ended December 31, 1997, 1998 and 1999, respectively.
NOTE 8--STOCKHOLDERS' (DEFICIT) EQUITY:
In December 1997, Versicor issued 1,368,750 shares of Series B Preferred
Stock to Sepracor upon conversion of approximately $9,530,150 of its convertible
subordinated notes. Issuance costs associated with the conversion were $167,529.
In December 1997, Versicor sold 5,500,000 shares of Series C Preferred Stock
for $22,000,000 to private investors. Issuance costs associated with the
transaction were $386,736.
In March 1999, the Company sold 625,000 shares of Series D-1 Preferred Stock
to a strategic investor for $3,750,000.
In March 1999, the Company sold 625,000 shares of Series E-1 Preferred Stock
to another strategic investor for $3,000,000.
F-14
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCKHOLDERS' (DEFICIT) EQUITY: (CONTINUED)
In June 1999, Versicor entered into a Note and Warrant Purchase Agreement
(the "Agreement") with a group of investors, including Sepracor. Under the
Agreement, the group of investors agreed to loan Versicor $11,000,000, of which
$5,500,000 was paid to Versicor in June at the first closing. The outstanding
principal amount of the notes was due and payable to the investors by Versicor
in June 2000. Interest on the notes accrued at 9.75% and was payable annually.
In October 1999, the Note holders converted the notes and accrued interest of
$181,216 into the Company's Series F Preferred Stock. In connection with the
financing, the investors were granted warrants to purchase 226,236 shares of
Series F Preferred Stock at $4.00 per share (see Note 9).
On October 29, 1999, Versicor completed a private equity financing of
approximately $40 million. The Company converted its $5.5 million of bridge
loans, plus accrued interest, into 1,204,072 shares of Series F Preferred Stock
and issued 7,309,316 shares of Series F Preferred Stock at $4.72 per share, for
$34,499,998 in cash. Issuance costs associated with the transaction were
$137,386.
F-15
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCKHOLDERS' (DEFICIT) EQUITY: (CONTINUED)
PREFERRED STOCK
Convertible and redeemable convertible preferred stock consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999 MARCH 31, 2000
----------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
Series A: 45,000 shares authorized, issued and
outstanding at December 31, 1998 and 1999 and
March 31, 2000 (unaudited), respectively
(liquidation preference $80,560 and $81,762 at
December 31, 1999 and March 31, 2000 (unaudited),
respectively)..................................... $65,600 $70,400 $71,602
Series B: 1,368,750 shares authorized, issued and
outstanding at December 31, 1998 and 1999 and
March 31, 2000 (unaudited), respectively
(liquidation preference $11,178,392 and
$11,368,922 at December 31, 1999 and March 31,
2000 (unaudited), respectively)................... 10,252,101 11,014,513 11,205,043
Series C: 5,687,500 shares authorized, 5,500,000
shares issued and outstanding at December 31, 1998
and 1999 and March 31, 2000 (unaudited)
(liquidation preference $25,813,333 and
$26,253,333 at December 31, 1999 and March 31,
2000 (unaudited), respectively)................... 23,666,597 25,426,603 25,866,603
Series D-1: 0 and 625,000 shares authorized, issued
and outstanding at December 31, 1998 and 1999 and
March 31, 2000 (unaudited) (liquidation preference
$3,975,000 at December 31, 1999 and March 31, 2000
(unaudited))...................................... -- 3,000,000 3,000,000
Series D-2: 0 and 416,250 shares authorized, 0
shares issued and outstanding at December 31, 1998
and 1999.......................................... -- -- --
Series E-1: 0 and 625,000 shares authorized, issued
and outstanding at December 31, 1998 and 1999 and
March 31, 2000 (unaudited) (liquidation preference
$3,180,000 at December 31, 1999 and March 31, 2000
(unaudited))...................................... -- 3,750,000 3,750,000
Series E-2: 0 and 347,223 shares authorized, 0
shares issued and outstanding at December 31, 1998
and 1999.......................................... -- -- --
Series F: 0 and 8,750,000 shares authorized, 0,
8,513,388 and 8,513,388 shares issued and
outstanding at December 31, 1998 and 1999 and
March 31, 2000 (unaudited), respectively,
(liquidation preference of $40,718,965 and
$41,522,629 at December 31, 1999 and March 31,
2000 (unaudited), respectively)................... -- 40,581,584 41,385,248
----------- ------------ ------------
$33,984,298 $ 83,843,100 $ 85,278,496
=========== ============ ============
</TABLE>
F-16
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCKHOLDERS' EQUITY: (CONTINUED)
In March 1999, the Company issued 625,000 shares of Series E-1 Preferred
Stock to a strategic investor at $4.80 per share for gross proceeds of
$3,000,000. The issuance resulted in a beneficial conversion feature of
$750,000, calculated in accordance with Emerging Issues Task Force Topic D-60,
"Accounting for the Issuance of Convertible Preferred Stock and Debt Securities
with a Nondetachable Conversion Feature." The beneficial conversion feature was
reflected as a deemed preferred stock dividend in the Statement of Operations
for 1999.
In June 1999, the Company issued convertible bridge loans with detachable
warrants for gross proceeds of $5,500,000. The issuance resulted in a beneficial
conversion feature of $4,877,296 calculated in accordance with Emerging Issues
Task Force No. 98-5, "Accounting for Convertible Securities with Beneficial
Conversion Features." The beneficial conversion feature was recognized as
interest expense in the Statement of Operations for 1999.
In October 1999, the Company issued 8,513,388 shares of Series F Preferred
Stock to a group of investors, including Sepracor, at $4.72 per share for gross
proceeds of $40,183,189, inclusive of the conversion of the bridge loans. The
issuance resulted in a beneficial conversion feature of $34,362,612, calculated
in accordance with Emerging Issues Task Force No. 98-5, "Accounting for
Convertible Securities with Beneficial Conversion Features." The beneficial
conversion feature was reflected as a deemed preferred stock dividend in the
Statement of Operations for 1999.
The preferred stock has the following characteristics:
CONVERSION RIGHTS
Each share of preferred stock is convertible into common stock at the option
of the holder based on a formula which currently would result in a 1-for-1
exchange for all of the preferred shares. The preferred stock will automatically
convert to common stock upon the closing of a public offering of the Company's
common stock where the pre-money valuation is not less than $175 million and net
proceeds to the Company are at least $25 million.
DIVIDENDS
The holders of the Series A, Series B, Series C, Series D-1, Series E-1 and
Series F preferred stock are entitled to receive dividends at a rate of 8%,
based upon the issuance price, and are entitled to participate in dividends on
common stock, based on the number of shares of common stock held on an as-if
converted basis. Dividends are non-cumulative and payable only when, as, and if
declared by the Board of Directors. No dividends on preferred stock or common
stock have been declared by the Board of Directors of the Company.
REDEMPTION
The holders of at least 66 2/3% of the then outstanding shares of Series A,
Series B, Series C and Series F preferred stock may require the Company to
redeem such series in three annual installments beginning six years from their
original issuance, at a price equal to their original issuance price, plus any
accrued but unpaid dividends. Dividends on these series have been accreted in
the accompanying financial statements.
F-17
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCKHOLDERS' EQUITY: (CONTINUED)
LIQUIDATION
In the event of any liquidation dissolution or winding up of the affairs of
the Company, the holders of Series F preferred stock are entitled to receive,
prior and in preference to the holders of any other class of stock, an amount
equal to $4.72 per share, plus any accrued but unpaid dividends. After the
payment of the full liquidation preference of the Series F preferred stock, the
holders of Series C preferred stock are entitled to receive, prior and in
preference to the holders of any other remaining class of stock, an amount equal
to $4.00 per share plus any accrued but unpaid dividends. After the payment of
the full liquidation preference of the Series F and Series C preferred stock,
the holders of the Series A, Series B, Series D-1 and Series E-1 preferred stock
are entitled to receive, prior to and in preference to the holders of common
stock, an amount equal to $1.60, $6.96, $6.00 and $4.80 per share, respectively,
plus any accrued but unpaid dividends. A liquidation includes any
recapitalization or redemption or any consolidation or corporate reorganization
in which the stockholders of the Company immediately prior to such event, own
less than 50% of the Company's voting power immediately after such an event.
VOTING RIGHTS
Each preferred stockholder is entitled to a number of votes equal to the
number of shares of common stock into which such holder's shares are
convertible. These votes are counted together with the common stockholders'
votes as a single class.
Additionally, so long as at least 125,000 shares of Series A, Series B,
Series C and Series F preferred stock remain outstanding, in addition to any
other vote or consent required, the vote of at least 55% of such outstanding
preferred stockholders is required for certain actions.
COMMON STOCK
At December 31, 1998 and 1999, 34,500 and 25,500 shares of common stock were
subject to repurchase, respectively. The common stock is subject to repurchase
at the original issuance price of $0.001 per share.
NOTE 9--STOCK OPTIONS AND WARRANTS:
STOCK OPTIONS
The 1995 Stock Option Plan (the "1995 Plan") permits the Company to grant up
to 315,000 shares of common stock as incentive stock options ("ISOs") and
nonstatutory stock options ("NSOs"). The 1995 Plan was amended in 1997 to
increase the maximum number of shares to be issued to 348,750. The 1995 Plan
provides for the granting of ISOs to officers and key employees of Versicor and
NSOs to officers, key employees, consultants and directors of Versicor. ISOs and
NSOs granted under the 1995 Plan have a maximum term of ten years from the date
of grant. Vesting provisions may vary but in each case will provide for vesting
of at least 20% per year of the total number of shares subject to the option and
have an exercise price not less than fair value of the stock at the date of
grant.
The 1997 Equity Incentive Plan (the "1997 Plan") permits the Company to
grant up to 1,401,250 shares of common stock as ISOs, NSOs, stock bonuses,
rights to purchase restricted stock, and stock appreciation rights. In 1999, the
1997 Plan was amended to increase the maximum number of shares
F-18
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--STOCK OPTIONS AND WARRANTS: (CONTINUED)
available to 2,638,030. All options shall be separately designated ISOs to
officers and key employees and NSOs to officers, key employees, consultants and
directors. ISOs granted under the 1997 Plan have a maximum term of ten years
from the date of grant and have an exercise price of not less than fair value of
the stock at the date of the grant, as determined by the Company's Board of
Directors. NSOs granted under the 1997 Plan have a maximum term of ten years
from the date of grant and have an exercise price of not less than 85% of fair
market value of the stock at the date of the grant, as determined by the
Company's Board of Directors. Vesting provisions of ISOs and NSOs may vary but
in each case will provide for vesting of at least 20% per year of the total
number of shares subject to the option.
Stock option activity for the years ended December 31, 1997, 1998 and 1999
and the three months ended March 31, 2000 (unaudited) is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1997 1998 1999 2000
-------------------- -------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
PRICE PRICE PRICE PRICE
PER PER PER PER
NUMBER SHARE NUMBER SHARE NUMBER SHARE NUMBER SHARE
--------- -------- --------- -------- --------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of
period.................. 268,531 $0.54 1,457,800 $0.38 1,282,013 $0.39 2,066,466 $0.43
Granted................... 1,465,253 0.42 162,719 0.40 932,626 0.47 20,000 0.48
Exercised................. (119,215) 0.09 (86,711) 0.27 (47,425) 0.35 (78,979) 0.40
Canceled.................. (156,769) 0.03 (251,795) 0.38 (100,748) 0.37 (12,270) 0.42
--------- --------- --------- ---------
Balance at end of
period.................. 1,457,800 0.38 1,282,013 0.39 2,066,466 0.43 1,995,217 0.43
========= ========= ========= =========
Options exercisable at end
of year................. 55,240 328,595 652,675
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
REMAINING ----------------------
EXERCISE PRICE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PER SHARE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$0.09 ...... .............................. 17,734 6.18 $0.09 15,709 $0.09
0.40 ...... .............................. 1,194,994 8.11 0.40 636,854 0.40
0.48 ...... .............................. 853,626 9.92 0.48 -- 0.48
0.89 ...... .............................. 112 6.72 0.89 112 0.89
--------- -------
$0.09 - $0.89.... .............................. 2,066,466 0.43 652,675 0.43
========= =======
</TABLE>
F-19
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--STOCK OPTIONS AND WARRANTS: (CONTINUED)
There were 258,311 options available for future grant as of December 31,
1999. The Company has reserved 16,677,138 shares of common stock for the
conversion of preferred stock and 2,764,139 shares have been reserved for the
exercise of stock options and warrants.
FAIR VALUE DISCLOSURES
The Company applies the measurement principles of APB 25 in accounting for
its employee stock options. Had compensation expense for options granted to
employees been determined based on fair value at the grant date as prescribed by
SFAS No. 123, the Company's net loss and net loss per share would have been
(increased) decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Net loss available to common stockholders:
As reported........................................ $(6,705,596) $(15,112,211) $(67,394,213)
=========== ============ ============
Pro forma.......................................... $(6,748,336) $(15,189,147) $(67,468,523)
=========== ============ ============
Basic and diluted net loss per share:
As reported........................................ $ (24.31) $ (47.11) $ (127.28)
=========== ============ ============
Pro forma.......................................... $ (24.47) $ (47.35) $ (127.42)
=========== ============ ============
</TABLE>
The value of each option grant is estimated on the date of grant using the
minimum value method with the following weighted assumptions:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate........................... 6.0% 5.2% 6.3%
Expected average life............................. 8 years 8 years 6 years
Expected dividends................................ -- -- --
</TABLE>
The risk-free interest rate was calculated in accordance with the grant date
and expected average life. The weighted-average fair value of options granted
during the years ended December 31, 1997, 1998 and 1999 was $0.16, $2.66 and
$14.18 per share, respectively.
DEFERRED STOCK-BASED COMPENSATION
During the period from January 1997 through December 31, 1999, the Company
recorded $17,041,145 of deferred stock compensation in accordance with APB 25,
SFAS 123 and Emerging Issues Task Force 96-18, related to stock options granted
to consultants and employees. For options granted to consultants, the Company
determined the fair value of the options using the Black-Scholes option pricing
model with the following assumptions: expected lives of four years; weighted
average risk-free rate between 5.4% and 6.2%; expected dividend yield of zero
percent; volatility of 60% and values of common stock between $0.40 and $15.22
per share. Stock compensation expense is being recognized in accordance with FIN
28 over the vesting periods of the related options, generally four years. The
F-20
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--STOCK OPTIONS AND WARRANTS: (CONTINUED)
Company recognized stock compensation expense of $536,742 and $4,396,410 for the
years ended December 31, 1998 and 1999, respectively.
WARRANTS
Warrants to purchase 45,000 shares of common stock at $4.45 per share and
168,125 shares of Series C Preferred Stock at $4.00 per share were outstanding
at December 31, 1998 and 1999. During 1999, warrants to purchase 226,236 shares
of Series F preferred stock at $4.72 per share were issued in connection with a
bridge loan financing. These warrants, which were still outstanding as of
December 31, 1999, were valued using the Black-Scholes pricing model. The
allocated fair value of these warrants of $622,704 has been reflected as
interest expense in the accompanying statement of operations. The fair value of
warrants granted prior to December 31, 1997 was not material. The warrants to
purchase the common stock and Series C preferred stock expire on March 10, 2002
and December 9, 2002, respectively. The warrants for the Series F preferred
stock expire on the date which is five years following the completion of the
Company's initial public offering.
NOTE 10--INCOME TAXES:
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to tax benefit carryforwards and to differences
between the financial statement amounts of assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates. A valuation allowance is established if it is more likely
than not that all or a portion of the deferred tax asset will not be realized.
Accordingly, a valuation allowance has been established for the full amount of
the deferred tax asset.
The statutory and effective tax rates were 34% and 0%, respectively, for all
periods presented. The effective tax rate resulted from net operating losses and
nonrecognition of any deferred tax asset. At December 31, 1999, the Company had
federal and state tax net operating loss carryforwards ("NOL") of approximately
$12,000,000 and $6,000,000, which will expire beginning in the year 2010 and
2000, respectively. Based upon the Internal Revenue Code and changes in the
Company's ownership, utilization of the NOL will be subject to an annual
limitation. The Company had federal and state research and experimentation
credit carryforwards of approximately $795,000 and $550,000 at December 31,
1999, which will expire beginning in the year 2011 and 2013, respectively.
F-21
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES: (CONTINUED)
The components of net deferred taxes were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
ASSETS:
NOL carryforwards.............................. $ 4,572,000 $ 4,835,000
Capitalized research and development........... 4,884,000 7,568,000
Tax credit carryforward........................ 832,000 1,346,000
Accrued expenses and other liabilities......... 158,000 170,000
Deferred revenue............................... -- 393,000
Capitalized in-process R&D..................... -- 4,282,000
LIABILITIES:
Property and equipment......................... (439,000) (355,000)
------------ ------------
Less: Valuation allowance........................ (10,007,000) (18,239,000)
------------ ------------
Net deferred taxes............................... $ -- $ --
============ ============
</TABLE>
NOTE 11--EMPLOYEES' SAVINGS PLAN:
The Company's employees can participate in Sepracor's 401(k) savings plan.
Under the provisions of the plan, employees may voluntarily contribute up to 15%
of their compensation up to the statutory limit. In addition, the Company can
make a matching contribution at its discretion. The Company matches 50% of the
first $3,000 up to a maximum of $1,500 per employee. Contributions made during
1997, 1998 and 1999 were $31,365, $40,729 and $38,797, respectively.
NOTE 12--AGREEMENTS:
In February 1998, Versicor entered into two agreements with Biosearch
Italia: a license agreement and a collaborative agreement. Under the license
agreement, Biosearch granted to Versicor an exclusive license to develop and
commercialize V-Glycopeptide (then called BI-397) in the United States and
Canada. In exchange for the license and upon the favorable results of
preclinical studies, Versicor paid $2 million and issued 250,000 shares of its
common stock to Biosearch. The $2 million license fee payment was expensed as
research and development in 1998. The fair value of the common stock issued to
Biosearch Italia was $646,800 and was expensed to research and development in
1998. Versicor also has agreed to make certain milestone payments if the
milestones are achieved of which $1 million was recognized as research and
development expense in 1998. Versicor will also pay royalties to Biosearch on a
product-by-product and country-by-country basis relating to future sales of
products resulting from this agreement. Under the collaborative agreement,
Versicor established a target and lead optimization arrangement with Biosearch
Italia entitled BIOCOR. Biosearch contributes leads and targets, while Versicor
contributes its combinatorial and medicinal chemistry expertise to optimize such
leads. Biosearch has the exclusive license in Europe to commercialize
intravenous drugs resulting from this collaboration and will retain all income
derived from such commercialization in Europe. Versicor has the exclusive
license in Canada and the United States for the commercialization of intravenous
drugs in these countries and will retain all income resulting from such
commercialization in the United States and Canada. Biosearch and Versicor will
share all revenue from the commercialization of
F-22
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--AGREEMENTS: (CONTINUED)
intravenous drugs in all countries other than the United States and Canada and
outside of Europe as well as any oral drugs that are developed. Versicor will
make certain milestone payments to Biosearch Italia if the milestones are
reached.
In March 1999, Versicor and Pharmacia and Upjohn entered into a
collaboration agreement pursuant to which they agreed to collaborate to discover
second and third generation oxazolidinone product candidates. In connection with
the collaboration, Pharmacia and Upjohn has made a $3.75 million equity
investment in Versicor and has made research support and license fee payments to
Versicor. Under the terms of the agreement, Versicor is entitled to receive
additional research support payments, and if certain milestones are achieved,
milestone payments from Pharmacia and Upjohn, which may be creditable against
future royalty payments. Versicor has assigned to Pharmacia and Upjohn an
exclusive worldwide license to commercialize drugs resulting from this
collaboration. The development, manufacture and worldwide sale of drugs
resulting from the collaboration will be conducted by Pharmacia and Upjohn, and
Versicor will be entitled to receive royalties on the worldwide sales of any
drug developed and commercialized. During 1999, the Company recognized
$2,087,500 of revenue related to this agreement consisting of $325,000 of
contract service and license fees and $1,762,500 of collaborative research and
development fees. At December 31, 1999, deferred revenue consists of $975,000 of
contract service and license fees which are being recognized over a three year
period. Subject to approval of certain Versicor preferred stockholders, Versicor
has a put option to sell Pharmacia and Upjohn additional equity and receive
additional research support payments aggregating $3,750,000. This option expires
on December 1, 2000.
In March 1999, Versicor entered into a collaboration agreement with Novartis
Pharma AG pursuant to which the Company is collaborating to discover and develop
novel deformylase inhibitors. In connection with the collaboration, Novartis has
made a $3 million equity investment in Versicor and provides research support
payments to Versicor. Under the terms of this agreement, Versicor is entitled to
receive additional research support payments and milestone payments from
Novartis if the milestones are achieved. A portion of certain milestone payments
received are creditable towards future royalties. Versicor has granted Novartis
an exclusive worldwide license to commercialize drugs resulting from this
collaboration. However, Versicor has the option to co-promote with Novartis in
hospitals in the United States and Canada any drug that contains a Versicor
compound as an active ingredient. The development, manufacture and worldwide
sale of drugs resulting from collaboration will be conducted by Novartis, and
Versicor will be entitled to receive royalties on the worldwide sales of any
drug developed and commercialized from this collaboration. Versicor will not be
entitled to royalties from sales in the United States and Canada if Versicor
chooses to co-promote the drugs with Novartis. In addition to a $500,000
milestone payment, the Company recognized $1,687,500 of collaborative research
and development fees as revenue in 1999. Subject to the approval of certain of
Versicor's preferred stockholders, Versicor has a put option to sell $2 million
of additional equity securities to Novartis.
In May 1999, Eli Lilly granted an exclusive worldwide license to Versicor
for development and commercialization of V-Echinocandin (then called
LY 303366). Versicor paid $11 million for the license, and has agreed to pay an
additional $3 million for product inventory, which it has received, over a three
year period. The Company recognized $14 million of research and development
costs related to these amounts in 1999. At December 31, 1999, the Company has $1
million and $2 million of current and long-term liabilities, respectively,
relating to amounts due to Eli Lilly for the product inventory.
F-23
<PAGE>
VERSICOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--AGREEMENTS: (CONTINUED)
Versicor will make certain milestone payments to Eli Lilly if the milestones are
achieved and are obligated to make royalty payments to Eli Lilly in respect of
sales of any product resulting from the compound. The Company has granted to Eli
Lilly an option to license the exclusive development and commercialization
rights to oral formulations of V-Echinocandin, which is exercisable upon
successful completion of Phase II clinical trials. If Eli Lilly exercises this
option, the Company will have the right to receive royalty payments and
reimbursement of prior development expenses and milestone payments. The Company
will also have the right to co-promote the product with Eli Lilly.
Sepracor granted an exclusive license to Versicor for the rights to certain
technology and intellectual property in July 1995. In exchange for the license,
Versicor issued 45,000 shares of Series A Preferred Stock to Sepracor. Versicor
also agreed to allow third parties to use its lead seeking libraries and related
technology upon the request of Sepracor. In return, Sepracor agreed to pay a 5%
royalty fee on all net sales of products resulting from Versicor's screening
process plus all reasonable costs incurred by Versicor. This license is
scheduled to terminate on July 18, 2000.
F-24
<PAGE>
[GRAPHIC -- BACKGROUND MAP]
4,600,000 SHARES
[LOGO]
COMMON STOCK
-------------
PROSPECTUS
, 2000
---------------------
LEHMAN BROTHERS
CHASE H&Q
PACIFIC GROWTH EQUITIES, INC.
UBS WARBURG LLC
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the amounts of all expenses
payable by the Registrant in connection with the registration of the common
stock offered hereby (estimated except for the Registration Fee, NASD Filing Fee
and Nasdaq National Market listing fee), other than underwriting discounts and
commissions:
<TABLE>
<S> <C>
Registration Fee--Securities and Exchange Commission........ 22,700
NASD Filing Fee............................................. 9,125
Nasdaq National Market listing fee.......................... 95,000
Blue Sky fees and expenses.................................. 7,000
Accountants' fees and expenses.............................. 350,000
Legal fees and expenses..................................... 375,000
Printing and engraving expenses............................. 225,000
Transfer agent and registrar fees........................... 12,500
----------
Total................................................... $1,096,325
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Sections 102(b)(7) and 145 of the Delaware General Corporation
Law, our Restated Certificate of Incorporation and Amended and Restated Bylaws
include provisions eliminating or limiting the personal liability of the members
of our board of directors to our company and our stockholders for monetary
damages for breach of fiduciary duty as a director. This does not apply for any
breach of a director's duty of loyalty to our company or our stockholders, for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, for paying an unlawful dividend or approving an
illegal stock repurchase, or for any transaction from which a director derived
an improper personal benefit.
Our Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws also provide that we have the power to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding (other than an action by or in the right
of our company) by reason of the fact that the person is or was a director;
officer, employee or agent of any corporation, partnership, joint venture, trust
or other enterprise, against any and all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement and reasonably incurred in
connection with such action, suit or proceeding. Our power to indemnify applies
only if the person acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of our corporation, and with respect
to any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful.
In the case of an action by or in the right of our company, no
indemnification may be made with respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to us unless and only to
the extent that the court in which such action or suit was brought shall
determine that despite the adjudication of liability such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. To the extent a director or officer of our company has been successful
in the defense of any action, suit or proceeding referred to above or in the
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorney's fees) actually and reasonably incurred by him in
connection therewith.
We have the power to purchase and maintain insurance on behalf of any person
covering any liability incurred by such person in his capacity as a director,
officer, employee or agent of our
II-1
<PAGE>
company, or arising out of his status as such, whether or not we would have the
power to indemnify him against such liability.
The foregoing summaries are necessarily subject to the complete text of the
statute, Amended and Restated Bylaws and Restated Certificate of Incorporation
referred to above and are qualified in their entirety by reference thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
A. In the three years preceding the filing of this registration statement, the
Registrant from time to time has granted stock options to employees and
consultants in reliance upon exemption from registration pursuant to either
(1) Section 4(2) of the Securities Act of 1933 or (2) Rule 701 promulgated
under the Securities Act of 1933. The following table sets forth certain
information regarding such grants and reflect the effect of a 5-for-4 stock
split to be completed prior to the closing of this offering:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICES
---------------- ---------------
<S> <C> <C>
January 1, 1997 to December 31, 1997........................ 1,465,252 $0.42
January 1, 1998 to December 31, 1998........................ 162,718 0.40
January 1, 1999 to December 31, 1999........................ 932,626 0.47
January 1, 2000 to June 30, 2000............................ 20,000 0.48
</TABLE>
For additional information concerning these transactions, please see
"Management--Employee benefit plans" in the prospectus included in this
registration statement.
B. Set forth in chronological order is information regarding all securities
sold by the Registrant in the three years preceding the filing of this
registration statement.
(1) Since January 1, 1997, the Registrant has granted to employees,
directors and consultants options to purchase an aggregate of 2,908,737
shares of Common Stock under its 1997 Equity Incentive Plan at a weighted
average exercise price of $0.43.
(2) On December 9, 1997, the Registrant issued a warrant to purchase 73,125
shares of Series C Preferred Stock to Healthcare Ventures V or its
permitted assigns for an aggregate purchase price of $292,500.
(3) On December 9, 1997, the Registrant issued warrants to purchase 76,250
shares of Series C Preferred Stock to Sepracor Inc. or its permitted
assigns for an aggregate purchase price of $305,000.
(4) On December 9, 1997, the Registrant issued a warrant to purchase 18,750
shares of Series C Preferred Stock to Paul Rubin or its permitted assigns
for an aggregate purchase price of $75,000.
(5) In December 1997, the Registrant issued 1,368,750 shares of its
Series B convertible preferred stock to Sepracor Inc. for an aggregate
purchase price of $9,530,113.50.
(6) In December 1997, the Registrant issued 5,500,000 shares of its
Series C convertible preferred stock to the following individuals and
entities for an aggregate purchase price of $22,000,000:
New Enterprise Associates VII, LP
NEA Presidents Fund, LP
NEA Ventures 1997, LP
HealthCare Ventures V
Abingworth Bioventures SICA V
H&Q Healthcare Investors
H&Q Life Sciences
S.R. One Limited
Rho Management Trust II
Versicor Management and Employees
II-2
<PAGE>
(7) In March 1999, the Registrant issued 625,000 shares of its Series D-1
convertible preferred stock to Pharmacia & Upjohn for an aggregate price
of $3,750,000.
(8) In March 1999, the Registrant issued 625,000 shares of its Series E-1
convertible preferred stock to Novartis Pharma AG for an aggregate
purchase price of $3,000,000.
(9) In June 1999, the Registrant issued warrants for the purchase of
226,236 shares of Series F preferred stock at an exercise price of $4.72
to the following entities.
Abingworth Bioventures SICA V
H&Q Healthcare Investors
H&Q Life Sciences Investors
HealthCare Ventures V
New Enterprise Associates VII, L.P.
Rho Management Trust II
S.R. One Limited
(10) In October 1999, the Registrant issued 8,513,387 shares of its
Series F convertible preferred stock to the following entities for an
aggregate purchase price of $40,183,189:
APA Excelsior V, LP
Patricof Private Investment Club II, LP
Apax Europe IV GP Co. Limited
Apax France V-A
Apax France V-B
Altamir & Cie
Schroeder Ventures Intl. Life Sciences Fund II
HealthCare Ventures V, LP
New Enterprise Associates VII, Limited
Abingworth Bioventures SICA V
H&Q Healthcare Investors
H&Q Life Sciences Investors
Sepracor Inc.
S.R. One Limited
Rho Management Trust II
The sale of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or, with respect to issuances to employees,
directors and consultants, Rule 701 promulgated under Section 3(b) of the
Securities Act as transactions by an issuer not involving a public offering or
transactions pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients of securities in
each such transaction represented their intention to acquire the securities for
investment only and not with a view to offer for sale in connection with any
distribution thereof. Other than the engagement of Smith Barney Inc. and Vector
Securities International as placement agents for the offering of our Series B
and C preferred stock, no underwriters were involved in the foregoing sales of
securities. Each share of the Registrant's convertible preferred stock listed
above will convert automatically into ten shares of the Registrant's common
stock upon the effectiveness of this registration statement.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Form of Restated Certificate of Incorporation of the
Registrant, to be filed immediately following the closing
of the offering made under the Registration Statement
3.2** Amended and Restated Bylaws of Registrant
4.1* Form of Common Stock Certificate
4.2** Warrant for the Purchase of Shares of Common Stock dated as
of March 10, 1997 by and between Genome Therapeutics, Inc.
and Registrant
4.3** Form of Warrant for the Purchase of Shares of Series C
Preferred Stock dated as of December 9, 1997
4.4** Form of Warrant for the Purchase of Shares of Series F
Preferred Stock dated as of June 25, 1999
4.5** Second Amended and Restated Investor Rights Agreement
5.1* Opinion of O'Melveny & Myers LLP
10.1** 1995 Stock Option Plan
10.2** Form of 1995 Incentive Stock Option Agreement
10.3** Form of 1995 Non-Statutory Stock Option Agreement
10.4* 1997 Equity Incentive Plan
10.5** Form of 1997 Stock Option Award Agreement
10.6** 2000 Employee Stock Purchase Plan
10.7+** License Agreement dated as of February 12, 1998 by and
between Biosearch Italia, S.p.A. and Registrant
10.8+** License Agreement dated as of May 17, 1999 by and between
Eli Lilly and Company
10.9+** Collaboration and License Agreement dated as of March 31,
1999 by and between Novartis Pharma AG and Registrant
10.10+** Collaboration and License Agreement dated as of March 31,
1999 by and between Pharmacia & Upjohn Company and
Registrant
10.11+** Collaboration Agreement dated as of February 12, 1998 by and
between Biosearch Italia, S.p.A. and Registrant
10.12** Administrative Services Agreement dated as of December 1997
by and between Sepracor Inc. and Registrant
10.13* Employment Agreement dated as of July 28, 2000 by and
between George F. Horner III and Registrant
10.14* Employment Agreement dated as of July 28, 2000 by and
between Richard J. White and Registrant
10.15* Employment Agreement dated as of July 28, 2000 by and
between Dinesh V. Patel and Registrant
10.16* Employment Agreement dated as of July 28, 2000 by and
between Paul F. Truex and Registrant
10.17** Promissory Note dated as of May 15, 1997 by and between
Richard J. White and Registrant
10.18** Promissory Note dated as of April 24, 1996 by and between
Dinesh V. Patel and Registrant
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.19** Consulting Agreement dated as of March 11, 1998 by and
between Dr. Christopher Walsh and Registrant
10.20** Consulting Agreement dated as of January 1, 1997 by and
between Dr. David Milligan and Registrant
10.21** Term Loan Agreement dated as of December 30, 1997 by and
between Fleet National Bank and Registrant
10.22** Industrial Lease dated as of November 18, 1996 by and
between Arcadia-Tavistock, L.C. and Registrant
10.23** Indemnity Agreement dated as of October 29, 1999 by and
between Thomas C. McConnell and Registrant
10.24** Indemnity Agreement dated as of October 29, 1999 by and
between Mark Leschly and Registrant
10.25** Indemnity Agreement dated as of October 29, 1999 by and
between George F. Horner III and Registrant
10.26** Indemnity Agreement dated as of October 29, 1999 by and
between James H. Cavanaugh and Registrant
10.27** Indemnity Agreement dated as of October 29, 1999 by and
between Christopher T. Walsh and Registrant
10.28** Indemnity Agreement dated as of October 29, 1999 by and
between Richard J. White and Registrant
10.29** Indemnity Agreement dated as of October 29, 1999 by and
between David V. Milligan and Registrant
10.30** Indemnity Agreement dated as of October 29, 1999 by and
between Lori Rafield and Registrant
10.31** Indemnity Agreement dated as of October 29, 1999 by and
between Timothy J. Barberich and Registrant
10.32* Employment Agreement dated as of July 28, 2000 by and
between Dov A Goldstein and Registrant
10.33* Employment Agreement dated as of July 28, 2000 by and
between Mikhail F. Gordeev and Registrant
10.34* Employment Agreement dated as of July 28, 2000 by and
between Joaquim Trias and Registrant
10.35* Employment Agreement dated as of July 28, 2000 by and
between Zhengyu Yuan and Registrant
23.1* Consent of O'Melveny & Myers LLP (included as part of
Exhibit 5.1 hereto)
23.2* Consent of Independent Accountants
24.1* Power of Attorney (included on signature page of the
Registration Statement hereto)
27.1** Financial Data Schedule
</TABLE>
------------------------
* Filed herewith.
** Previously filed.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act, which portions
are omitted and filed separately with the Securities and Exchange
Commission.
II-5
<PAGE>
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters,
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
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 foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC 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 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 Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fremont, State of
California, on July 25, 2000.
<TABLE>
<S> <C>
VERSICOR INC.
By: /s/ GEORGE F. HORNER, III
--------------------------------------------
George F. Horner, III
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose names
appear below appoint and constitute George F. Horner, III, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to execute any and all amendments to the within Registration
Statement, and to sign any and all registration statements relating to the same
offering of securities as this Registration Statement that are filed pursuant to
Rule 462(b) of the Securities Act of 1933, as amended, and to file the same,
together with all exhibits thereto, with the Securities and Exchange Commission,
the National Association of Securities Dealers, Inc., and such other agencies,
offices and persons as may be required by applicable law, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each said attorney-in-fact and
agent may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON JULY 25, 2000
IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
*
--------------------------------- Chairman of the Board July 25, 2000
David V. Milligan, Ph.D
*
--------------------------------- President and Chief Executive Officer July 25, 2000
George F. Horner, III (and principal accounting officer)
*
--------------------------------- Executive Vice President and Chief July 25, 2000
Richard J. White, Ph.D Scientific Officer
*
--------------------------------- Vice President-Drug Discovery July 25, 2000
Dinesh V. Patel, Ph.D
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
*
--------------------------------- Director July 25, 2000
Timothy J. Barberich
*
--------------------------------- Director July 25, 2000
James H. Cavanaugh, Ph.D
*
--------------------------------- Director July 25, 2000
Mark Leschly
*
--------------------------------- Director July 25, 2000
Thomas C. McConnell
*
--------------------------------- Director July 25, 2000
Lori F. Rafield, Ph.D
*
--------------------------------- Director July 25, 2000
Christopher T. Walsh, Ph.D
</TABLE>
<TABLE>
<S> <C> <C> <C>
* /s/ GEORGE F. HORNER III
--------------------------------------
George F. Horner III
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Form of Restated Certificate of Incorporation of the
Registrant, to be filed immediately following the closing
of the offering made under the Registration Statement
3.2** Amended and Restated Bylaws of Registrant
4.1* Form of Common Stock Certificate
4.2** Warrant for the Purchase of Shares of Common Stock dated as
of March 10, 1997 by and between Genome Therapeutics, Inc.
and Registrant
4.3** Form of Warrant for the Purchase of Shares of Series C
Preferred Stock dated as of December 9, 1997
4.4** Form of Warrant for the Purchase of Shares of Series F
Preferred Stock dated as of June 25, 1999
4.5** Second Amended and Restated Investor Rights Agreement
5.1* Opinion of O'Melveny & Myers LLP
10.1** 1995 Stock Option Plan
10.2** Form of 1995 Incentive Stock Option Agreement
10.3** Form of 1995 Non-Statutory Stock Option Agreement
10.4* 1997 Equity Incentive Plan
10.5** Form of 1997 Stock Option Award Agreement
10.6** 2000 Employee Stock Purchase Plan
10.7+** License Agreement dated as of February 12, 1998 by and
between Biosearch Italia, S.p.A. and Registrant
10.8+** License Agreement dated as of May 17, 1999 by and between
Eli Lilly and Company
10.9+** Collaboration and License Agreement dated as of March 31,
1999 by and between Novartis Pharma AG and Registrant
10.10+** Collaboration and License Agreement dated as of March 31,
1999 by and between Pharmacia & Upjohn Company and
Registrant
10.11+** Collaboration Agreement dated as of February 12, 1998 by and
between Biosearch Italia, S.p.A. and Registrant
10.12** Administrative Services Agreement dated as of December 1997
by and between Sepracor Inc. and Registrant
10.13* Employment Agreement dated as of July 28, 2000 by and
between George F. Horner III and Registrant
10.14* Employment Agreement dated as of July 28, 2000 by and
between Richard J. White and Registrant
10.15* Employment Agreement dated as of July 28, 2000 by and
between Dinesh V. Patel and Registrant
10.16* Employment Agreement dated as of July 28, 2000 by and
between Paul F. Truex and Registrant
10.17** Promissory Note dated as of May 15, 1997 by and between
Richard J. White and Registrant
10.18** Promissory Note dated as of April 24, 1996 by and between
Dinesh V. Patel and Registrant
10.19** Consulting Agreement dated as of March 11, 1998 by and
between Dr. Christopher Walsh and Registrant
10.20** Consulting Agreement dated as of January 1, 1997 by and
between Dr. David Milligan and Registrant
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.21** Term Loan Agreement dated as of December 30, 1997 by and
between Fleet National Bank and Registrant
10.22** Industrial Lease dated as of November 18, 1996 by and
between Arcadia-Tavistock, L.C. and Registrant
10.23** Indemnity Agreement dated as of October 29, 1999 by and
between Thomas C. McConnell and Registrant
10.24** Indemnity Agreement dated as of October 29, 1999 by and
between Mark Leschly and Registrant
10.25** Indemnity Agreement dated as of October 29, 1999 by and
between George F. Horner III and Registrant
10.26** Indemnity Agreement dated as of October 29, 1999 by and
between James H. Cavanaugh and Registrant
10.27** Indemnity Agreement dated as of October 29, 1999 by and
between Christopher T. Walsh and Registrant
10.28** Indemnity Agreement dated as of October 29, 1999 by and
between Richard J. White and Registrant
10.29** Indemnity Agreement dated as of October 29, 1999 by and
between David V. Milligan and Registrant
10.30** Indemnity Agreement dated as of October 29, 1999 by and
between Lori Rafield and Registrant
10.31** Indemnity Agreement dated as of October 29, 1999 by and
between Timothy J. Barberich and Registrant
10.32* Employment Agreement dated as of July 28, 2000 by and
between Dov A Goldstein and Registrant
10.33* Employment Agreement dated as of July 28, 2000 by and
between Mikhail F. Gordeev and Registrant
10.34* Employment Agreement dated as of July 28, 2000 by and
between Joaquim Trias and Registrant
10.35* Employment Agreement dated as of July 28, 2000 by and
between Zhengyu Yuan and Registrant
23.1* Consent of O'Melveny & Myers LLP (included as part of
Exhibit 5.1 hereto)
23.2* Consent of Independent Accountants
24.1* Power of Attorney (included on signature page of the
Registration Statement hereto)
27.1** Financial Data Schedule
</TABLE>
------------------------
* Filed herewith.
** Previously filed.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act, which portions
are omitted and filed separately with the Securities and Exchange
Commission.
