<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 2000
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
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. / /
--------------------------
CALCULATION OF REGISTRATION
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
<S> <C> <C>
Common stock, par value $.001 per share.................. $86,250,000 $22,770
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, the number
of shares being registered and the proposed maximum offering price per share
are not included in this table.
(2) Estimated solely for the purpose of calculating the registration fee.
--------------------------
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.
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<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>
PRELIMINARY PROSPECTUS Subject to completion, , 2000
- --------------------------------------------------------------------------------
Shares
[LOGO]
Common Stock
- ---------------------------------------------------------
This is our initial public offering of shares of our common stock. No public
market currently exists for our common stock. We expect the public offering
price to be between $ and $ per share.
We have applied to have our common stock listed on the Nasdaq National Market
under the symbol "VERS."
BEFORE BUYING ANY SHARES YOU SHOULD READ THE DISCUSSION OF MATERIAL RISKS OF
INVESTING IN OUR COMMON STOCK IN "RISK FACTORS" BEGINNING ON PAGE 8.
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.
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
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Public offering price $ $
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Underwriting discounts and commissions $ $
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Proceeds, before expenses, to Versicor $ $
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</TABLE>
The underwriters may also purchase up to shares of common stock
from us at the public offering price, less the underwriting discounts and
commissions, within 30 days from the date of this prospectus. This option may be
exercised only to cover over-allotments, if any. If the option is exercised in
full, the total underwriting discounts and commissions will be $ ,
and the total proceeds, before expenses, to Versicor will be $ .
The underwriters are offering the common stock as set forth under
"Underwriting." Delivery of the shares will be made on or about ,
2000.
Warburg Dillon Read LLC
Lehman Brothers
Pacific Growth Equities, Inc.
<PAGE>
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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, BIOCOR Leads Partnership, Deformylase Inhibitors, VRC-3950,
Improved Molecules and Novel Molecules.
<PAGE>
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Through and including , 2000 (the 25th day after commencement of
this offering), all dealers selling shares of our common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
delivery requirement is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
Prospectus summary.................... 3
The offering.......................... 6
Summary financial and operating
data................................ 7
Risk factors.......................... 8
Forward-looking information........... 21
Use of proceeds....................... 22
Dividend policy....................... 22
Capitalization........................ 23
Dilution.............................. 24
Selected financial data............... 25
Management's discussion and analysis
of financial condition and results
of operations....................... 26
Business.............................. 32
Management............................ 51
Related party transactions............ 60
Principal stockholders................ 62
Description of capital stock.......... 64
Shares eligible for future sale....... 67
Underwriting.......................... 69
Legal matters......................... 71
Experts............................... 71
Where you can find more information... 71
Index to financial statements......... F-1
</TABLE>
You should rely only on the information contained in this document. We have not
authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this document.
Versicor is a trademark of Versicor Inc. This prospectus also refers to
trademarks and trade names of other organizations.
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<PAGE>
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(THIS PAGE INTENTIONALLY LEFT BLANK)
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<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. The market for antiinfective products is large and growing,
reporting nearly $24 billion in 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 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, 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 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 gram-positive infections, particularly STAPHYLOCOCCI.
V-Glycopeptide has potent bactericidal effect. In comparison to Vancomycin,
V-Glycopeptide has a more potent broad spectrum of gram-positive 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
3
<PAGE>
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 against a broad range of
gram-positive pathogens 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
Our product pipeline is fueled by an 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.
4
<PAGE>
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 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
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. We expect to concentrate on products that address the
unmet needs of significant and readily accessible markets. We seek to reduce the
risks associated with new pharmaceutical product development by licensing
promising compounds from others, and by leveraging our technology platform to
expand our product pipeline. 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. Our top management
has over 50 years of experience with large multinational pharmaceutical
companies evaluating preclinical, clinical and marketed antiinfective drugs. We
believe this long experience will give us a competitive advantage in selecting
those product candidates that can be most effectively commercialized.
To accomplish our objectives, we are pursuing the following strategies:
- - in-license compounds and products with demonstrated potential;
- - leverage our internal discovery platform to expand our product pipeline;
- - obtain lead compounds through BIOCOR, our external leads partnership;
- - acquire businesses that can accelerate our development; and
- - target our sales force on the North American hospital market.
5
<PAGE>
The offering
Except as otherwise indicated, you should assume the following when analyzing
information in this prospectus:
- - all outstanding shares of our preferred stock automatically convert into
13,341,710 shares of our common stock upon the closing of this offering; and
- - the underwriters do not exercise the over-allotment option granted by us to
purchase additional shares in the offering.
<TABLE>
<S> <C>
Common stock offered by us..................... shares
Common stock to be outstanding after the shares
offering.....................................
Proposed Nasdaq National Market symbol......... VERS
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."
</TABLE>
The number of shares of common stock outstanding after the offering is based on
shares outstanding as of December 31, 1999. See "Capitalization."
This information excludes shares of capital stock we are obligated to issue upon
exercise of options and warrants outstanding. As of December 31, 1999, these
shares consisted of:
- - 1,653,173 shares of common stock issuable upon the exercise of options at a
weighted average exercise price of $0.54 per share;
- - 36,000 shares of common stock issuable upon the exercise of warrants at an
exercise price of $5.56 per share;
- - 134,500 shares of Series C preferred stock issuable upon the exercise of
warrants at an exercise price of $5.00 per share; and
- - 180,989 shares of Series F preferred stock issuable upon the exercise of
warrants at an exercise price of $5.90 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.
6
<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 and the accumulated deficit as
of December 31, 1999 includes $41,650,000 of deemed dividends related to a
beneficial conversion feature associated with preferred stock issued during
1999. See footnote 7 of notes to financial statements. The pro forma as adjusted
balance sheet 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 shares of our common stock in this offering
at an assumed price to the public of $ 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>
YEAR ENDED DECEMBER 31,
STATEMENT OF OPERATIONS DATA 1997 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Revenues............................................ $-- $-- $4,275
----------- ----------- -----------
Operating expenses:
Research and development............................ 5,403 11,429 25,472
General and administrative.......................... 807 1,386 2,586
----------- ----------- -----------
Total operating expenses............................ 6,210 12,815 28,058
----------- ----------- -----------
Loss from operations................................ (6,210) (12,815) (23,783)
Net interest (expense) income....................... (74) 230 (1,301)
Other............................................... -- -- (14)
----------- ----------- -----------
Net loss............................................ (6,284) (12,585) (25,098)
Preferred stock deemed dividends and accretion to
redemption value.................................. (422) (2,527) (44,713)
----------- ----------- -----------
Net loss available to common stockholders........... $(6,706) $(15,112) $(69,811)
=========== =========== ===========
Net loss per share, basic and diluted............... $(30.39) $(58.88) $(164.80)
=========== =========== ===========
Shares used in computing net loss per share, basic
and diluted....................................... 220,667 256,640 423,610
=========== =========== ===========
Pro forma net loss per share, basic and diluted..... $(2.96)
===========
Shares used in computing pro forma net loss per
share, basic and diluted.......................... 8,490,621
===========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1999
PRO FORMA
BALANCE SHEET DATA ACTUAL AS ADJUSTED
- ------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents................................... $34,619 $
Total assets................................................ 45,233
Term loan payable, less current portion..................... 4,310 4,310
Convertible and redeemable convertible preferred stock...... 125,493 --
Accumulated deficit......................................... (97,530) (97,530)
Total stockholders' equity (deficit)........................ (90,446)
</TABLE>
7
<PAGE>
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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
WE ARE AN EARLY STAGE COMPANY.
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 $25.1 million in 1999. As of December 31, 1999, our
accumulated deficit was approximately $97.5 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.
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8
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
OUR REVENUES WILL BE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
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.
SUCCESSFUL DEVELOPMENT OF OUR PRODUCT CANDIDATES IS UNCERTAIN.
Our development of product candidates is subject to the risks of failure
inherent in the development of new pharmaceutical products and products based on
new technologies. These risks include:
- - delays in product development, clinical testing or manufacturing;
- - unplanned expenditures for product development, clinical testing or
manufacturing;
- - failure of our product candidates to have the desired effect or an
acceptable safety profile;
- - failure to receive regulatory approvals;
- - emergence of superior or equivalent products;
- - inability to manufacture on our own, or through others, product candidates
on a commercial scale;
- - inability to market products due to third-party proprietary rights;
- - election by our collaborative partners not to pursue product development;
and
- - failure by our collaborative partners to successfully develop products.
Because of these risks, our research and development efforts or those of our
collaborative partners may not result in any commercially viable products. If a
significant portion of these development efforts is not successfully completed,
required regulatory approvals are not obtained, or any approved products are not
commercially successful, we are not likely to generate significant revenues or
become profitable.
IF WE CANNOT ENTER INTO NEW LICENSING ARRANGEMENTS, OUR FUTURE PRODUCT PIPELINE
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 pipeline could be
adversely affected.
WE DEPEND ON COLLABORATIVE PARTNERS TO DEVELOP CERTAIN OF OUR 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;
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9
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
- - 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. 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. 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.
If we are not able to establish further collaborative arrangements or any or all
of our existing collaborative arrangements are terminated, we may be required to
seek new collaborative arrangements or to undertake product development and
commercialization at our own expense. Such an undertaking may:
- - limit the number of product candidates that we will be able to develop and
commercialize;
- - reduce the likelihood of successful product introduction;
- - significantly increase our capital requirements; and
- - place additional strain on management's time.
Existing or future collaborative partners may pursue alternative product
candidates, including those of our competitors. Disputes may arise with respect
to the ownership of rights to any technology or products developed with any
current or future collaborative partner. Lengthy negotiations with potential new
collaborative partners or disagreements between us and our collaborative
partners may lead to delays in, or termination of, the research, development or
commercialization of product candidates or result in time-consuming and
expensive litigation or arbitration. If our collaborative partners pursue
alternative technologies or fail to develop or commercialize successfully our
product candidates, our competitive position would be materially and adversely
affected.
CLINICAL TRIALS FOR OUR PRODUCT CANDIDATES WILL BE EXPENSIVE AND THEIR OUTCOME
IS UNCERTAIN.
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;
- --------------------------------------------------------------------------------
10
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
- - 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.
WE HAVE LIMITED EXPERIENCE IN CONDUCTING CLINICAL TRIALS.
We have limited experience in conducting and managing clinical trials. We rely
on third parties, including our collaborative partners, 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.
MARKET ACCEPTANCE OF OUR PRODUCTS IS UNCERTAIN.
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
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- - 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.
WE DEPEND ON KEY PERSONNEL AND MUST CONTINUE TO ATTRACT AND RETAIN KEY EMPLOYEES
AND CONSULTANTS.
We are highly dependent on the principal members of our scientific and
management staff. Furthermore, for us 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. 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 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.
WE DO NOT HAVE OUR OWN MANUFACTURING FACILITIES AND RELY ON THIRD-PARTY
MANUFACTURERS.
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
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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.
WE MUST DEVELOP OUR OWN DIRECT SALES AND MARKETING FORCE AND MUST RELY ON THIRD
PARTIES TO PROVIDE ADDITIONAL SALES AND MARKETING EXPERTISE.
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 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 MAY NEED ADDITIONAL FUNDING TO SUPPORT OUR OPERATIONS.
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 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.
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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. Our
ability to manage effectively our operations and growth requires us to continue
to 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 are unable to
manage this growth effectively, our business, results of operations or financial
condition may be harmed.
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.
OUR OPERATIONS INVOLVE HAZARDOUS MATERIALS.
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.
WE FACE UNCERTAINTY WITH YEAR 2000 COMPLIANCE.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields must accept four digit entries to distinguish 21st
century dates from 20th century dates. Products containing this capability are
generally considered to be "Year 2000 compliant." Computer systems and/or
software products used by many companies have required upgrades to be Year 2000
compliant. We may be exposed to a loss of revenues and our operating expenses
could increase if the systems on which we are dependent to conduct our
operations are not Year 2000 compliant. Our potential areas of exposure include
products purchased from or manufactured by third parties, and our internal
management information systems. Although we have expended resources to review
our products and our internal management information systems to remedy those
systems that are not Year 2000 compliant, there can be no assurance that the
modifications we made were successful. To date, we are not aware of any major
Year 2000 compliance problems impacting our business, but we cannot assure you
that there will be no Year 2000 compliance disruptions in the coming months. If
our systems or those of our business partners are not Year 2000 compliant, we
could face serious business disruption.
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RISKS RELATED TO OPERATING IN OUR INDUSTRY
WE FACE INTENSE COMPETITION AND RAPID TECHNOLOGICAL CHANGE.
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 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.
Accordingly, our competitors may succeed in obtaining patent protection,
receiving FDA approval or commercializing products before us. If we commence
commercial product sales, we will be competing against companies with greater
marketing and manufacturing capabilities, areas in which we have limited or no
experience.
We also face, and will continue to face, competition from academic institutions,
government agencies and research institutions. There are numerous competitors
working on products to treat each of the diseases for which we are seeking to
develop therapeutic products. In addition, any product candidate that we
successfully develop may compete with existing therapies that have long
histories of safe and effective use. Competition may also arise from:
- - other drug development technologies and methods of preventing or reducing
the incidence of disease;
- - new molecules; or
- - other classes of therapeutic agents.
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 license to proprietary technology.
These competitors, either alone or with their collaborative partners, may
succeed in developing technologies or products that are more effective than
ours.
OUR PATENT POSITION IS UNCERTAIN AND OUR SUCCESS DEPENDS ON OUR PROPRIETARY
RIGHTS.
Our success depends in part on our ability to:
- - obtain patents or rights to patents;
- - protect trade secrets;
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- - 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.
WE MAY FACE CHALLENGES FROM THIRD PARTIES REGARDING THE VALIDITY OF OUR PATENTS
AND PROPRIETARY RIGHTS.
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
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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.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATIONS AND WE MAY NOT BE ABLE TO
OBTAIN REGULATORY APPROVALS.
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.
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
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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.
WE FACE UNCERTAINTY OVER REIMBURSEMENT AND HEALTHCARE REFORM.
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 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.
WE FACE PRODUCT LIABILITY RISKS AND MAY NOT BE ABLE TO OBTAIN ADEQUATE
INSURANCE.
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 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. 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.
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;
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- - 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.
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.
THERE MAY NOT BE AN ACTIVE, LIQUID TRADING MARKET FOR OUR COMMON STOCK.
Prior to this offering, there has been no public market for our common stock. We
cannot assure you that an active trading market for our common stock will
develop following this offering. You may not be able to sell your shares quickly
or at the market price if trading in our stock is not active. The initial public
offering price will be determined by negotiations between us and representatives
of the underwriters based upon a number of factors. The initial public offering
price may not be indicative of prices that will prevail in the trading market.
See "Underwriting" for more information regarding our arrangement with the
underwriters and the factors considered in setting the initial public offering
price.
OUR PRINCIPAL STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS WILL OWN
APPROXIMATELY % 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, our directors and executive officers will beneficially own approximately
% of our outstanding common stock or % 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 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.
WE HAVE IMPLEMENTED A STOCKHOLDER RIGHTS PLAN AND ARE SUBJECT TO OTHER
ANTI-TAKEOVER PROVISIONS.
Our stockholder rights plan and certain provisions of our amended and restated
certificate of incorporation and amended and restated bylaws may make it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of Versicor. This could limit the price that
certain investors might be willing to pay in the future for our shares of common
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stock. Certain provisions of our amended and restated certificate of
incorporation and amended and restated bylaws provide for:
- - staggering of the election of the board of directors;
- - issuance of preferred stock without any vote or further action by the
stockholders;
- - calling of special stockholder meetings only by the Chairman of the board of
directors, the president, or a majority of the board of directors;
- - elimination of the right of stockholders to act by written consent without a
meeting; and
- - specific procedures for director nominations by stockholders and submission
of other proposals for consideration at stockholder meetings.
We are subject to certain provisions of Delaware law which could also delay or
make more difficult a merger, tender offer or proxy contest involving us. In
particular, Section 203 of the Delaware General Corporation Law prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years unless certain conditions are
met.
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 shares of common stock outstanding immediately after this
offering, or 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 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 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."
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price of our common stock is expected to be
substantially higher than the pro forma net tangible book value per share of our
common stock. Therefore, if you purchase shares of our common stock in this
offering, you will incur immediate dilution of approximately $ in the pro
forma net tangible book value per share of common stock from the price per share
that you pay for the common stock (based upon an assumed initial public offering
price of $ per share). If the holders of outstanding options or
warrants exercise those options or warrants at prices below the initial public
offering price, you will incur further dilution. See "Dilution."
WE DO NOT INTEND TO PAY CASH DIVIDENDS ON OUR COMMON STOCK.
We intend to retain any future earnings to finance the growth and development of
our business and we do not plan to pay cash dividends on our common stock in the
foreseeable future.
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Forward-looking information
Some of the statements under "Prospectus summary," "Risk factors," "Management's
discussion and analysis of financial condition and results of operations,"
"Business" and elsewhere in this prospectus constitute forward-looking
statements. These statements relate to future events or our future financial
performance and involve known and unknown risks, uncertainties and other factors
that may cause our or our industry's actual results, levels of activity,
performance or achievements to be materially different from those expressed or
implied by any forward-looking statements. Some of these factors are listed
under "Risk factors" and elsewhere in this prospectus. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "intends," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of those statements. We are
under no duty to update any of the forward-looking statements after the date of
this prospectus to conform them to actual results.
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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 $ million, assuming an initial public
offering price of $ per share and after deducting the estimated
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 $ million.
We currently intend to use the net proceeds to fund our operations, including
clinical development of existing product candidates, acquisition of and
development related to new product candidates, and commercialization of product
candidates. In addition, we also intend to use a portion 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 intend to use the balance of the net proceeds for
general corporate purposes, including working capital. Our management may spend
the proceeds from this offering in ways which 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.
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
Capitalization
The following table sets forth our capitalization as of December 31, 1999:
- - on an actual basis;
- - on a pro forma as adjusted basis to give effect to the automatic conversion
of 13,341,710 shares of our preferred stock outstanding as of December 31,
1999 into 13,341,710 shares of common stock upon the closing of this
offering, and the issuance and the sale of shares of common
stock offered by this prospectus at an assumed initial public offering price
of $ 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>
PRO FORMA
ACTUAL AS ADJUSTED
(IN THOUSANDS, EXCEPT PER
SHARE AND SHARE AMOUNTS)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents................................... $34,619 $
================ ================
Term note payable, less current portion..................... $4,310 $4,310
---------------- ----------------
Convertible and redeemable convertible preferred stock, par
value $0.001;
Authorized shares--14,292,111 actual, 950,401 pro forma as
adjusted
Issued and outstanding shares--13,341,710 actual, none pro
forma as adjusted....................................... 125,493 --
----------------
Stockholders' equity (deficit):
Common stock, par value $0.001;
Authorized shares--35,000,000 actual and pro forma as
adjusted
Issued and outstanding shares--546,681 actual, 13,888,391
pro forma as adjusted................................... 1 14
Additional paid-in capital.................................. 19,191
Deferred stock compensation................................. (12,108) (12,108)
Accumulated deficit......................................... (97,530) (97,530)
---------------- ----------------
Total stockholders' equity (deficit).................... (90,446)
---------------- ----------------
Total capitalization.................................... $39,357 $
================ ================
</TABLE>
The table above does not include:
- - 1,653,173 shares of common stock issuable upon the exercise of options
outstanding as of December 31, 1999 at a weighted average exercise price of
$0.54 per share;
- - 206,649 additional shares of common stock made available for future issuance
under our 1997 Equity Incentive Plan;
- - 36,000 shares of common stock issuable upon exercise of warrants outstanding
as of December 31, 1999 at $5.56 per share;
- - 134,500 shares of Series C preferred stock issuable upon exercise of
warrants outstanding as of December 31, 1999 at $5.00 per share; and
- - 180,989 shares of Series F preferred stock issuable upon exercise of
warrants outstanding as of December 31, 1999 at $5.90 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."
- --------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
Dilution
Our pro forma net tangible book value as of December 31, 1999 was approximately
$35 million, or $2.52 per share, based on the pro forma number of shares of
common stock outstanding as of December 31, 1999 of 13,888,391, calculated after
giving effect to the automatic conversion of 13,341,710 shares of our preferred
stock outstanding as of December 31, 1999 into 13,341,710 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 shares in this offering at an assumed initial offering price of
$ per share and after deducting underwriting discounts and commissions and
offering expenses. This represents an immediate increase in pro forma net
tangible book value of $ per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $ per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
Assumed initial public offering price per share. $
<S> <C> <C>
Pro forma net tangible book value per share as of December
31,
1999.................................................... $2.52
Increase attributable to the offering.....................
-----
Pro forma net tangible book value per share after the
offering..................................................
-----
Dilution per share to new investors......................... $
=====
</TABLE>
The following table summarizes, on a pro forma basis as of December 31, 1999,
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 CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 13,888,391 % $ % $
New investors............................
---------- --- ----------- ---
Total.................................... 100% $ 100% $
========== === =========== ===
</TABLE>
After this offering and assuming the exercise in full of all options and
warrants outstanding and exercisable as of December 31, 1999, the average price
per share of existing stockholders would be reduced by $ per share to
$ per share.
After this offering and assuming the exercise in full of all options and
warrants outstanding and exercisable as of December 31, 1999, our pro forma net
tangible book value per share as of December 31, 1999 would be $ per share,
representing an immediate increase in net tangible book value of $ per
share to existing stockholders and an immediate dilution in net tangible book
value of $ 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 % 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 , or approximately % 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 $ per share to
existing stockholders and our pro forma net tangible book value will be
diluted by $ per share to new investors.
- --------------------------------------------------------------------------------
24
<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. 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
(INCEPTION) TO
DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1996 1997 1998 1999
STATEMENT OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
License fees and milestones............ $-- $-- $-- $-- $525
Collaborative research and development
and contract services................ -- -- -- -- 3,750
Intercompany research and
development.......................... -- 2,965 -- -- --
---------- -------- -------- -------- ----------
Total revenues....................... -- 2,965 -- -- 4,275
---------- -------- -------- -------- ----------
Operating expenses:
Research and development............... 620 5,945 5,403 11,429 25,472
General and administrative............. 473 1,405 807 1,386 2,586
---------- -------- -------- -------- ----------
Total operating expenses............. 1,093 7,350 6,210 12,815 28,058
---------- -------- -------- -------- ----------
Loss from operations..................... (1,093) (4,385) (6,210) (12,815) (23,783)
Interest income.......................... -- 10 104 770 749
Interest expense......................... (17) (418) (178) (540) (2,050)
Other.................................... -- 2 -- -- (14)
---------- -------- -------- -------- ----------
Net loss................................. (1,110) (4,791) (6,284) (12,585) (25,098)
Preferred stock deemed dividends and
accretion to redemption value.......... -- -- (422) (2,527) (44,713)
---------- -------- -------- -------- ----------
Net loss available to common
stockholders........................... $(1,110) $(4,791) $(6,706) $(15,112) $(69,811)
========== ======== ======== ======== ==========
Net loss per share, basic and diluted.... $(15.77) $(25.50) $(30.39) $(58.88) $(164.80)
========== ======== ======== ======== ==========
Shares used in computing net loss per
share, basic and diluted............... 70,369 187,875 220,667 256,640 423,610
========== ======== ======== ======== ==========
Pro forma net loss per share, basic and
diluted (unaudited).................... $(2.96)
==========
Shares used in computing pro forma net
loss per share, basic and diluted
(unaudited)............................ 8,490,621
==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1995 1996 1997 1998 1999
BALANCE SHEET DATA (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................ $-- $-- $9,562 $4,507 $34,619
Total assets............................. 333 3,293 26,258 15,865 45,233
Term loan payable, less current
portion................................ -- -- 6,034 5,172 4,310
Convertible subordinated note to
Sepracor............................... 1,142 5,066 -- -- --
Advance from Sepracor.................... -- 2,680 -- -- --
Convertible and redeemable convertible
preferred stock........................ 60 60 31,472 33,984 125,493
Accumulated deficit...................... (1,110) (5,901) (12,607) (27,719) (97,530)
Total stockholders' deficit.............. (1,089) (5,880) (12,551) (27,076) (90,446)
</TABLE>
- --------------------------------------------------------------------------------
25
<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 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 deemed 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 equity 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. For options granted to
employees through December 31, 1999, we expect to record additional amortization
expense for deferred compensation as follows: $5.8 million in 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
- --------------------------------------------------------------------------------
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
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.
Since our inception, we have incurred significant losses. As of December 31,
1999, we had an accumulated deficit of $97.5 million, which includes a charge of
$41.7 million for deemed dividends related to a beneficial conversion feature
associated with preferred stock issued during 1999. We anticipate incurring
additional losses, which may increase, for the foreseeable future.
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
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUE
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 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
- --------------------------------------------------------------------------------
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
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 $1.3 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 $1.4 million related to the deemed 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
REVENUE
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 taxes and
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.
- --------------------------------------------------------------------------------
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
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 36,000 $1.67 $0.06
Preferred Stock, Series B............................ 1997 1,095,000 8.70 9.53
Preferred Stock, Series C............................ 1997 4,400,000 5.00 22.00
Preferred Stock, Series D-1.......................... 1999 500,000 7.50 3.75
Preferred Stock, Series E-1.......................... 1999 500,000 6.00 3.00
Preferred Stock, Series F............................ 1999 6,810,710 5.90 40.18
------
$78.52
======
</TABLE>
Each share of preferred stock is convertible into one share of our common stock.
We have also received $8.2 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, $975,000
constitutes deferred revenue as of December 31, 1999 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 December 31, 1999 there was an outstanding balance of $5.2
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 December 31, 1999, cash, cash equivalents, exclusive of $5 million of
restricted cash, totaled $34.6 million compared to $4.5 million at December 31,
1998. 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 $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.
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. 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
- --------------------------------------------------------------------------------
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
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, cash equivalents and short-term investments, together
with the net proceeds of this offering, will be sufficient to fund our operating
expenses and capital equipment requirements for at least the next two years.
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.
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.
YEAR 2000 MATTERS
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields must accept four digit entries to distinguish 21st
century dates from 20th century dates. Products containing this capability are
generally considered to be "Year 2000 compliant." Computer systems and/or
software products used by many companies have required upgrades to be Year 2000
compliant. We may be exposed to a loss of revenues and our operating expenses
could increase if the systems on which we are dependent to conduct our
operations are not Year 2000 compliant. Our potential areas of exposure include
our products, products purchased from or manufactured by third parties, and our
internal management information systems. Although we have expended resources to
review our products and our internal management information systems to remedy
those systems that are not Year 2000 compliant, we cannot assure you that the
modifications we made were successful. To date, we are not aware of any major
Year 2000 compliance problems impacting our business, but we cannot assure you
that there will be no Year 2000 compliance disruptions in the coming months.
THE ABOVE STATEMENT IS A YEAR 2000 READINESS DISCLOSURE WITHIN THE MEANING OF
THE YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT.
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
- --------------------------------------------------------------------------------
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
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.
On March 31, 1999, the FASB issued an exposure draft entitled "Accounting for
Certain Transactions Involving Stock Compensation," which is a proposed
interpretation of APB Opinion No. 25 which has an effective date for certain
transactions of December 15, 1998. However, the exposure draft has not been
finalized. Once finalized and issued, the current accounting practices for
transactions involving stock compensation may need to change and such changes
could effect our future earnings.
- --------------------------------------------------------------------------------
31
<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 gram-positive infections, particularly STAPHYLOCOCCI.
V-Glycopeptide has potent bactericidal effect. In comparison to vancomycin,
V-Glycopeptide has a more potent broad spectrum of gram-positive 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.
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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
gram-positive pathogens 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
Our product pipeline is fueled by an 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 survival. Currently available antiinfective
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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 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 nearly 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.
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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 two lead
product candidates, V-Echinocandin and V-Glycopeptide, both were acquired
through in-licensing arrangements.
- - LEVERAGE OUR INTERNAL DISCOVERY PLATFORM TO EXPAND OUR PRODUCT PIPELINE. We
intend to fuel our product pipeline 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.
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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 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 fungal
strains were compared. The results show that V-Echinocandin has superior potency
to the comparative antifungal drugs.
PHASE II RESULTS
In a non-comparative Phase II clinical trial involving 29 evaluable patients
with esophagitis, V-Echinocandin demonstrated clinical efficacy and was well
tolerated. Esophagitis is caused by a fungal infection of the esophageal
surface, usually 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
defined by endoscopy). 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. 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. 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 to
achieve efficacy. 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 Vancomycin-Resistant
ENTEROCOCCI, or VRE, which accounts for only 9% 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/III studies will be
carried out in the United States starting in early 2001. These studies will
involve indications for bacteremia 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 filed, independent of us, a new drug
application for Linezolid-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 to develop bacteria 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 and demonstrated good activity in
IN VIVO preclinical studies when administered orally. 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 metalloenzyme, making 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 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
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active antibacterial agent. IN VIVO active molecules superior to the initial
lead are currently undergoing further pre-clinical evaluation.
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 majority of clinically relevant bacterial genomes 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, serine proteases or prenyl transferases. 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.
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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 additional
payments to Eli Lilly upon the achievement of specified milestones. We are also
required to pay to Eli Lilly royalties in respect of sales of any product
resulting from the compound. We have 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, we will have the right to
receive royalty payments and reimbursement of prior development expenses and
milestone payments. We will also have the right to co-promote the 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 200,000 shares of our common stock to
Biosearch. We also are obligated to make 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.
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.
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 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 $8.85 per share. Under the terms of the agreement, we are entitled
to receive additional research support payments, and if specified milestones are
achieved, additional payments, which may be credited against future royalty
payments. We have assigned to Pharmacia & Upjohn certain patents and exclusively
licensed, on a worldwide basis, other patents relating to this collaboration.
Pharmacia & Upjohn will conduct the development, manufacture and sale of
products resulting from the collaboration. We are entitled to
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receive royalties on the sales of any products developed and commercialized. We
also have a right of first refusal to co-promote North American hospital
products with Pharmacia & Upjohn.
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 $7.08 per share. Under
the terms of this agreement, we are entitled to receive 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. 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.
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."
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 certain 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
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property rights is subject to a number of risks. See "Risk factors--Our patent
position is uncertain and our success depends on our proprietary rights" and
"--We may face challenges from third parties regarding the validity of our
patents and proprietary rights."
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.
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--We face intense competition and rapid technological change."
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.
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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.
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
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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 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.
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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
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.
EMPLOYEES
As of February 29, 2000, we employed 31 persons, of whom 16 hold Ph.D degrees.
Approximately 27 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
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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
Dinesh V. Patel, Ph.D..................... 43 Vice President, Drug Discovery
David V. Milligan, Ph.D................... 59 Chairman of the Board(1)
Timothy J. Barberich...................... 52 Director(1)(2)
James H. Cavanaugh, Ph.D.................. 63 Director
Mark Leschly.............................. 31 Director(2)
Thomas C. McConnell....................... 46 Director(1)(2)
Lori F. Rafield, Ph.D..................... 45 Director
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.
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.
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.
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TIMOTHY J. BARBERICH Mr. Barberich has served as a member of our board of
directors since . 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 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.
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BOARD COMPOSITION
We currently have nine authorized directors. In accordance with the terms of our
amended and restated certificate of incorporation, the terms of office of the
directors are 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 are Messrs. Barberich, Leschly and McConnell, the
Class II directors are Messrs. Cavanaugh and White and Ms. Rafield, and the
Class III directors are 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. Barberich, McConnell,
Milligan 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.
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
- --------------------------------------------------------------------------------
53
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
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 amended and restated certificate of incorporation and our amended and
restated bylaws 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 amended
and 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>
ANNUAL LONG-TERM COMPENSATION
COMPENSATION AWARDS
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
George Horner, III.... 1999 $249,615 $71,625 $-- 366,365 $ 4,956
President, Chief 1998 225,000 65,000 -- -- 32,073
Executive Officer 1997 225,000 -- -- 233,635 13,107
Richard J. White(1)... 1999 231,935 38,200 -- 100,000 2,355
Executive Vice 1998 206,538 23,333 -- 55,000 6,630
President and 1997 132,307 -- -- 145,619 41,067
Chief Scientific
Officer
Dinesh V. Patel(2).... 1999 192,406 19,280 -- 41,739 6,078
Vice President, Drug 1998 155,377 97,500 -- 20,000 2,651
Discovery 1997 133,250 65,000 -- 32,861 2,234
</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.
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54
<PAGE>
Management
- --------------------------------------------------------------------------------
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. In the year ended
December 31, 1999, we granted options to purchase an aggregate of 746,101 shares
of common stock to various officers, employees, directors and consultants.
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.
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 from the fair market value on the
date of grant. 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
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF
SECURITIES GRANTED EXERCISE APPRECIATION OF STOCK
UNDERLYING TO PRICE PER EXPIRATION PRICE FOR OPTION TERM
NAME OPTION GRANTED EMPLOYEES SHARE DATE 5% 10%
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
George F. Horner III.... 366,365 49% $0.60 12/02/09
Richard J. White,
Ph.D.................. 100,000 13 0.60 12/02/09
Dinesh V. Patel, Ph.D... 41,739 6 0.60 12/02/09
</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 $ 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
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS AT
UPON VALUE DECEMBER 31, 1999 DECEMBER 31, 1999
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
George F. Horner, III..... -- $-- 125,818 474,182 $ $
Richard J. White, Ph.D.... -- -- 96,750 203,869
Dinesh V. Patel, Ph.D..... 1,499 26,732 71,769
</TABLE>
- --------------------------------------------------------------------------------
55
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENTS
In April 2000, we will enter into employment agreements with Messrs. Horner,
White and Patel. The agreements provide for annual base salaries of $ ,
$ and $ , 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 Company employees. If the Company terminates an agreement other
than for cause or as a result of death or disability, the Company will make
payments equal to the three employee's annual base salary. If a change in
control of the Company occurs within one year, and either the Company terminates
an agreement other than for cause or an employee terminates his agreement for
good reason, the Company will pay an amount equal to three times the sum of
(1) the highest annual base salary paid to the employee during the three 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 279,000 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 February 29, 2000, we
had 14,277 options to purchase common stock under this plan outstanding to
employees, directors and consultants with a weighted average exercise price of
$0.13 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 22,500
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
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56
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
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.
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. Up to
2,110,424 shares of common stock may be issued under the 1997 plan. As of
February 29, 2000, we had 1,507,937 options to purchase common stock under this
plan outstanding to employees, directors and consultants with a weighted average
exercise price of $0.54 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
300,000 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.
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57
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
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 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.
2000 EMPLOYEE STOCK PURCHASE PLAN
In April 2000, our board will adopt the 2000 Employee Stock Purchase Plan,
subject to stockholder approval.
SHARE RESERVE
We have authorized the issuance of shares of our common stock pursuant to
purchase rights granted to eligible employees under the purchase plan. On the
anniversary of the effective date of this offering, starting with the
anniversary of this offering in 2001, the share reserve will automatically be
increased by a number of shares equal to the lesser of:
- - 1% of our then outstanding shares of common stock;
- - shares; or
- - a number determined by our board of directors.
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.
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58
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
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 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.
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59
<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:
- - 1,095,000 shares of our Series B redeemable convertible preferred stock, at
a purchase price of $8.7033 per share, for cancellation of indebtedness of
$9,530,113.50 on December 9, 1997;
- - 4,400,000 shares of our Series C redeemable convertible preferred stock, at
a purchase price of $5.00 per share, for an aggregate purchase price of
$22,000,000 on December 9, 1997;
- - 500,000 shares of our Series D-1 convertible preferred stock, at a purchase
price of $7.50 per share, for an aggregate purchase price of $3,750,000 on
March 31, 1999;
- - 500,000 shares of our Series E-1 convertible preferred stock, at a purchase
price of $6.00 per share, for an aggregate purchase price of $3,000,000 on
March 31, 1999; and
- - 6,810,710 shares of our Series F redeemable Convertible preferred stock, at
a purchase price of $5.90 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 Versicor 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 36,000 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 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 certain 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.
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60
<PAGE>
RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
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.
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61
<PAGE>
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Principal stockholders
The following table shows information known to us with respect to the beneficial
ownership of our common stock as of February 29, 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 March 31, 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 14,590,156 shares of our common stock outstanding prior to
this offering and 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 SICA V......... 837,555 24,929 5.82
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................... 1,451,300 -- 9.71
2100 Geng Road
Palo Alto, CA 94303
Attn: Lori Rafield, Ph.D
Apax Europe IV GP Co. Limited......... 1,468,926 -- 9.92
PO Box 431
13-15 Victoria Road
St. Peter Port
Guernsey
Channel Islands GYI 32D
</TABLE>
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62
<PAGE>
PRINCIPAL STOCKHOLDERS
- --------------------------------------------------------------------------------
<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>
H&Q Healthcare Investors.............. 837,553 24,928 5.82
H&Q Life Sciences Investors
50 Rowes Warf
Boston, MA 02110
Attn: Alan G. Carr
Healthcare Ventures V, L.P............ 1,954,295 116,694 13.99
44 Nassau Street
Princeton, NJ 08542
Attn: Jeffrey Steinberg
New Enterprise Associates VII, L.P.... 1,395,925 41,599 9.71
2490 Sand Hill Road
Menlo Park, CA 94025
Attn: Thomas C. McConnell
Schroder Ventures International Life
Sciences Fund II...................... 1,299,435 -- 8.78
c/o Schroder Venture Management,
Ltd.
22 Church Street
HM11 Hamilton
Bermuda
Attn: Nicola Lawson
Sepracor Inc.......................... 1,447,314 61,000 10.19
111 Locke Drive
Marlboro, MA 01752
Attn: Timothy J. Barberich
DIRECTORS AND NAMED EXECUTIVE OFFICERS
David V. Milligan, Ph.D............... 18,000 29,905 *
George F. Horner, III................. 14,000 150,153 1.07
Richard J. White, Ph.D................ 5,000 117,639 *
Dinesh V. Patel, Ph.D................. 5,998 32,231 *
Timothy J. Barberich.................. 4,950 5,195 *
James H. Cavanaugh, Ph.D.............. -- -- --
Mark Leschly.......................... -- -- --
Thomas C. McConnell................... -- -- --
Lori F. Rafield, Ph.D.................
Christopher T. Walsh, Ph.D............ -- 40,745 *
All directors and executive officers
as a group (9 persons).............. 47,948 375,868 2.86
</TABLE>
- ---------
* Less than 1.0%.
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63
<PAGE>
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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
shares of common stock, par value $.001 per share, and
shares of preferred stock, par value $.001 per share.
COMMON STOCK
As of February 29, 2000, there were 590,977 shares of common stock outstanding
and held of record by 42 stockholders. There will be shares of
common stock outstanding upon the closing of this offering, which gives effect
to the issuance of 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
Our restated certificate of incorporation authorizes the issuance of 14,292,111
shares of preferred stock, par value $.001 per share. As of February 29, 2000,
there were 13,341,710 shares of convertible preferred stock outstanding. All
outstanding shares of convertible preferred stock will be converted into
13,341,710 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
- --------------------------------------------------------------------------------
64
<PAGE>
DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
in which holders of common stock might receive a premium for their shares over
the then market price.
WARRANTS
As of February 29, 2000, warrants to purchase 36,000 shares of common stock at
$5.56 per share, 134,500 shares of Series C preferred stock at $5.00 per share
and 180,989 shares of Series F preferred stock at $5.90 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 STOCKHOLDER RIGHTS PLAN AND PROVISIONS OF THE
CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
In March 2000, our board of directors adopted a stockholder rights plan. The
stockholder rights plan provides for a dividend distribution of one preferred
share purchase right on each outstanding share of our common stock. Each right
entitles stockholders to buy 1/1000th of a share of our Series A participating
preferred stock at an exercise price of $ . Each right will become
exercisable following the tenth day after a person or group, announces an
acquisition of % or more of our common stock, or announces commencement of
a tender offer, the consummation of which would result in ownership by the
person or group of % or more of our common stock. We will be entitled to
redeem the rights at $0.01 per right at any time on or before the close of
business on the tenth day following acquisition by a person or group of %
or more of our common stock. The stockholder rights plan may have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of Vesicor.
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 amended restated certificate of incorporation provides 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
- --------------------------------------------------------------------------------
65
<PAGE>
DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
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. The restated
certificate of incorporation also provides 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 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 shares that could result
from actual or rumored takeover attempts. Such provisions also may have the
effect of preventing changes in our management.
Our bylaws 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 further 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 .
- --------------------------------------------------------------------------------
66
<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
outstanding shares of common stock. Of these shares, the shares being
offered hereby are freely tradable. This leaves shares eligible for
sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES DATE
- ------------------------------------------------------------------------
<S> <C>
After the date of this prospectus
At various times after 90 days from the date of this
prospectus under Rules 701 and 144
At various times after days from the date of this
prospectus, subject, in some cases, to volume limitations
under Rule 144
</TABLE>
Our directors and officers and certain of our stockholders, together with
certain holders of options to purchase shares of common stock and the
holders of warrants to purchase 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 Warburg Dillon Read LLC.
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 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 February 29, 2000, options to purchase a total of 1,522,214 shares of
common stock were outstanding, 461,190 of which were currently exercisable
Upon the closing of this offering, we intend to file a registration statement to
register for resale the 2,110,424 shares of common stock reserved for issuance
under our 1997 Equity Incentive Plan. We expect the registration statement to
become effective immediately upon filing. Shares issued upon the
- --------------------------------------------------------------------------------
67
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
- --------------------------------------------------------------------------------
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.
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 170,500 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."
- --------------------------------------------------------------------------------
68
<PAGE>
- --------------------------------------------------------------------------------
Underwriting
Versicor and the underwriters for the offering named below have entered into an
underwriting agreement concerning the shares being offered. Subject to
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Warburg Dillon Read LLC, Lehman
Brothers Inc. and Pacific Growth Equities, Inc. are the representatives of the
underwriters.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- -------------------------------------------------------------------------
<S> <C>
Warburg Dillon Read LLC.....................................
Lehman Brothers Inc.........................................
Pacific Growth Equities, Inc................................
----------
Total...................................................
==========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have a 30-day option to buy from us up to an
additional shares at the initial public offering price less the
underwriting discounts and commissions to cover these sales. If any shares are
purchased under this option, the underwriters will severally purchase shares in
approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase up to
an additional shares.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Per share................................................... $ $
Total................................................... $ $
</TABLE>
We estimate that the total expenses of the offering payable by us, excluding
underwriting discounts and commissions, will be approximately $ .
Shares sold by the underwriters to the public will initially be offered at the
initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any of
these securities dealers may resell any shares purchased from the underwriters
to other brokers or dealers at a discount of up to $ per share from
the initial public offering price. If all the shares are not sold at the initial
public offering price, the representatives may change the offering price and the
other selling terms.
The underwriters have informed us that they do not expect discretionary sales to
exceed 5% of the shares of common stock to be offered.
Our directors and officers and certain of our stockholders, together with
certain holders of options or warrants to purchase common stock, have entered
into lockup 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 Warburg Dillon Read LLC.
- --------------------------------------------------------------------------------
69
<PAGE>
UNDERWRITING
- --------------------------------------------------------------------------------
The underwriters have reserved for sale, at the initial public offering price,
up to shares of our common stock being offered for sale to our customers
and business partners. At the discretion of our management, other parties,
including our employees, may participate in the reserve shares program. The
number of shares available for sale to the general public in the offering will
be reduced to the extent these persons purchase reserved shares. Any reserved
shares not so purchased will be offered by the underwriters to the general
public on the same terms as the other shares in this offering.
Prior to this offering, there has been no public market for our common stock.
The initial public offering price will be negotiated by us and the
representatives. The principal factors to be considered in determining the
initial public offering price include:
- - the information set forth in this prospectus and otherwise available to the
representatives;
- - the history and the prospects for the industry in which we compete;
- - the ability of our management;
- - our prospects for future earnings, the present state of our development, and
our current financial position;
- - the general condition of the securities markets at the time of this
offering; and
- - the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
In connection with the offering, 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. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress.
The underwriters also may 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 that underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise affect
the market price of the common stock. As a result, the price of the common stock
may be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on the Nasdaq National Market, in
the over-the-counter market or otherwise.
We have agreed to indemnify the several underwriters against some liabilities,
including liabilities under the Securities Act of 1933, and to contribute to
payments that the underwriters may be required to make in respect thereof.
- --------------------------------------------------------------------------------
70
<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 statistical data that were obtained from industry
publications. These industry publications generally indicate that the authors of
these publications have obtained information from sources believed to be
reliable, but do not guarantee the accuracy and completeness of their
information. While we believe these industry publications to be reliable, we
have not independently verified their data.
- --------------------------------------------------------------------------------
71
<PAGE>
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
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.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
March 20, 2000
- --------------------------------------------------------------------------------
F-2
<PAGE>
VERSICOR INC.
- --------------------------------------------------------------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
---------------------------- DECEMBER 31,
1998 1999 1999
------------ ------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $4,506,643 $34,619,110
Other current assets...................................... 124,451 44,246
------------ ------------
Total current assets.................................... 4,631,094 34,663,356
Restricted cash............................................. 5,000,000 5,000,000
Property and equipment, net................................. 5,496,821 4,817,151
Employee notes receivable................................... 568,780 592,998
Other assets................................................ 168,493 159,256
------------ ------------
Total assets............................................ $15,865,188 $45,232,761
============ ============
LIABILITIES, CONVERTIBLE AND REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $205,418 $86,248
Accrued liabilities....................................... 2,671,028 1,931,666
Related party payable..................................... 46,813 20,543
Current portion of term loan payable...................... 862,000 862,000
Deferred revenue.......................................... -- 433,333
------------ ------------
Total current liabilities............................... 3,785,259 3,333,790
Deferred revenue............................................ -- 541,667
Term loan payable........................................... 5,172,000 4,310,000
Other long-term liabilities................................. -- 2,000,000
------------ ------------
Total liabilities....................................... 8,957,259 10,185,457
------------ ------------
Convertible and Redeemable Convertible Preferred Stock,
$0.001 par value, 5,681,000 and 14,292,111 shares
authorized at December 31, 1998 and 1999, respectively;
5,531,000 and 13,341,710 shares issued and outstanding at
December 31, 1998 and 1999, respectively; none issued and
outstanding pro forma
(aggregate liquidation preference $84,962,170 at December
31, 1999)............................................... 33,984,298 125,493,115 $--
------------ ------------ ------------
Commitments (Notes 6 and 11)
Stockholders' deficit:
Common Stock, $0.001 par value, 13,000,000 and 35,000,000
shares authorized at December 31, 1998 and 1999,
respectively; 308,741 and 546,681 shares issued and
outstanding at December 31, 1998 and 1999, respectively;
13,888,391 shares outstanding pro forma................. 309 547 13,888
Additional paid-in capital................................ 1,265,134 19,191,401 144,671,175
Deferred stock compensation............................... (622,798) (12,107,993) (12,107,993)
Accumulated deficit....................................... (27,719,014) (97,529,766) (97,529,766)
------------ ------------ ------------
Total stockholders' deficit............................. (27,076,369) (90,445,811) $35,047,304
------------ ------------ ============
Total liabilities, convertible and redeemable
convertible preferred stock and stockholders'
deficit............................................. $15,865,188 $45,232,761
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
F-3
<PAGE>
VERSICOR INC.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
License fees and milestones..................... $-- $-- $525,000
Collaborative research and development and
contract services............................. -- -- 3,750,000
----------- ------------ ------------
Total revenues................................ -- -- 4,275,000
----------- ------------ ------------
Operating expenses:
Research and development........................ 5,402,628 11,428,576 25,472,118
General and administrative...................... 807,377 1,386,575 2,585,749
----------- ------------ ------------
Total operating expenses...................... 6,210,005 12,815,151 28,057,867
----------- ------------ ------------
Loss from operations.............................. (6,210,005) (12,815,151) (23,782,867)
Other income (expense):
Interest income................................. 103,382 769,725 749,313
Interest expense................................ (178,082) (539,573) (2,049,705)
Other........................................... 310 -- (14,490)
----------- ------------ ------------
Net loss.......................................... (6,284,395) (12,584,999) (25,097,749)
Deemed dividends related to beneficial conversion
feature of preferred stock...................... -- -- (41,650,015)
Accretion of dividends on preferred stock......... (421,201) (2,527,212) (3,062,988)
----------- ------------ ------------
Net loss available to common stockholders......... $(6,705,596) $(15,112,211) $(69,810,752)
=========== ============ ============
Net loss per share:
Basic and diluted............................... $(30.39) $(58.88) $(164.80)
=========== ============ ============
Weighted average shares......................... 220,667 256,640 423,610
=========== ============ ============
Pro forma net loss per share (unaudited):
Basic and diluted............................... $(2.96)
============
Weighted average shares.........................
8,490,621
============
</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.................... 188,100 $187 $20,713 $-- $(5,901,207) $(5,880,307)
Exercise of common stock
options................. 51,272 52 50,202 -- -- 50,254
Accretion of dividends on
preferred stock......... -- -- (421,201) (421,201)
Net loss.................. -- -- -- -- (6,284,395) (6,284,395)
------- ---- ----------- ------------ ------------ ------------
Balances, December 31,
1997.................... 239,372 239 70,915 -- (12,606,803) (12,535,649)
Exercise of common stock
options................. 69,369 70 34,679 -- -- 34,749
Accretion of dividends on
preferred stock......... -- -- -- -- (2,527,212) (2,527,212)
Deferred stock
compensation............ -- -- 1,159,540 (1,159,540) -- --
Amortization of deferred
stock compensation...... -- -- -- 536,742 -- 536,742
Net loss.................. -- -- -- -- (12,584,999) (12,584,999)
------- ---- ----------- ------------ ------------ ------------
Balances, December 31,
1998.................... 308,741 309 1,265,134 (622,798) (27,719,014) (27,076,369)
Exercise of common stock
options................. 37,940 38 18,926 -- -- 18,964
Issuance of common stock
under license
agreement............... 200,000 200 646,600 -- -- 646,800
Accretion of dividends on
preferred stock......... -- -- -- -- (3,062,988) (3,062,988)
Issuance of warrants...... -- -- 1,379,136 -- -- 1,379,136
Deemed dividends related
to beneficial conversion
feature of preferred
stock................... -- -- -- -- (41,650,015) (41,650,015)
Deferred stock
compensation............ -- -- 15,881,605 (15,881,605) -- --
Amortization of deferred
stock compensation...... -- -- -- 4,396,410 -- 4,396,410
Net loss.................. -- -- -- -- (25,097,749) (25,097,749)
------- ---- ----------- ------------ ------------ ------------
Balances, December 31,
1999.................... 546,681 $547 $19,191,401 $(12,107,993) $(97,529,766) $(90,445,811)
======= ==== =========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
F-5
<PAGE>
VERSICOR INC.
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(6,284,395) $(12,584,999) $(25,097,749)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation............................................ 469,120 860,745 943,625
Noncash stock compensation.............................. -- 536,742 4,396,410
Accrued interest on convertible note.................... -- -- 181,731
Issue of warrants....................................... -- -- 1,379,136
Changes in operating assets and liabilities:
Other current assets.................................. 553,121 12,648 104,423
Employee notes receivable............................. (551,401) (17,379) (24,218)
Restricted cash....................................... (5,000,000) -- --
Accounts payable...................................... (116,598) (68,768) (119,170)
Accrued liabilities................................... (26,465) 1,723,934 (92,562)
Related party payable................................. 78,679 (34,416) (26,270)
Deferred revenue...................................... -- -- 975,000
Other long-term liabilities........................... -- -- 2,000,000
----------- ------------ ------------
Net cash used in operating activities............... (10,877,939) (9,571,493) (15,379,644)
----------- ------------ ------------
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)
(Increase) decrease in other assets....................... (301,060) 1,487 (14,981)
----------- ------------ ------------
Net cash provided by (used in) investing
activities........................................ (8,874,561) 4,481,804 (278,936)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible subordinated notes.............. -- -- 5,501,492
Proceeds from advance from parent......................... 7,818,094 -- --
Proceeds from issuance of common stock.................... 50,254 34,749 18,964
Borrowings of long-term debt.............................. 6,034,000 -- --
Repayments of long-term debt.............................. -- -- (862,000)
Repayments of convertible subordinated notes.............. (6,034,000) -- --
Proceeds from issuance of preferred stock, net............ 21,445,735 -- 41,112,591
----------- ------------ ------------
Net cash provided by financing activities........... 29,314,083 34,749 45,771,047
----------- ------------ ------------
Net change in cash and cash equivalents..................... 9,561,583 (5,054,940) 30,112,467
Cash and cash equivalents at beginning of year.............. -- 9,561,583 4,506,643
----------- ------------ ------------
Cash and cash equivalents at end of year.................... $9,561,583 $4,506,643 $34,619,110
=========== ============ ============
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.................... $-- $-- $5,683,223
=========== ============ ============
Issuance of common stock under license agreement............ $-- $-- $646,800
=========== ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................ $-- $539,573 $650,570
=========== ============ ============
</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. (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 the 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.
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.
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.
- --------------------------------------------------------------------------------
F-7
<PAGE>
VERSICOR INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
REVENUE RECOGNITION
The Company recognizes revenues as they are earned. Revenue from license fees
and contract services are recognized on a straight-line basis over the initial
license or contract service term. Nonrefundable and noncreditable milestone
payments received are recognized upon the completion of specified milestones as
specified in the related collaboration agreements. 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 11).
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.
- --------------------------------------------------------------------------------
F-8
<PAGE>
VERSICOR INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 deemed 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.
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 included in the Company's statements of operations are calculated as
if it 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 because
their effect was antidilutive:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- --------- ---------
<S> <C> <C> <C>
Convertible and redeemable convertible preferred stock..... 493,917 5,531,000 8,067,011
Stock options outstanding.................................. 192,916 1,076,516 1,066,144
Common stock warrants outstanding.......................... 36,000 36,000 36,000
Convertible and redeemable convertible preferred stock
warrants outstanding..................................... 134,500 134,500 194,830
Common stock subject to repurchase......................... 8,850 30,900 23,700
------- --------- ---------
866,183 6,808,916 9,387,685
======= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
F-9
<PAGE>
VERSICOR INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 December 31, 1999.
Pro forma net loss per share for the year ended December 31, 1999 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 8,067,011 shares for
the year ended December 31, 1999 and excludes the deemed and accretion of
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.
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.
On March 31, 1999, the FASB issued an exposure draft entitled "Accounting for
Certain Transactions Involving Stock Compensation," which is a proposed
interpretation of APB Opinion No. 25 which has an effective date for certain
transactions of December 15, 1998. However, the exposure draft has not been
finalized. Once finalized and issued, the current accounting practices for
transactions involving stock compensation may need to change and such changes
could affect the Company's future earnings.
- --------------------------------------------------------------------------------
F-10
<PAGE>
VERSICOR INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Leasehold improvements............................ $3,709,216 $3,709,216
Laboratory equipment.............................. 2,328,184 2,529,999
Computers, software and office equipment.......... 682,675 742,452
Furniture and fixtures............................ 156,695 159,058
----------- -----------
6,876,770 7,140,725
Less: Accumulated depreciation.................... (1,379,949) (2,323,574)
----------- -----------
Property and equipment, net....................... $5,496,821 $4,817,151
=========== ===========
</TABLE>
Depreciation expense was $469,120, $860,745 and $943,625 for the years ended
December 31, 1997, 1998 and 1999, respectively.
NOTE 3--EMPLOYEE NOTES RECEIVABLE:
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 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.
NOTE 4--ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Research and development........................... $1,824,925 $1,000,000
Employee compensation.............................. 450,485 507,486
Legal.............................................. 166,928 107,179
Other.............................................. 228,690 317,001
---------- ----------
$2,671,028 $1,931,666
========== ==========
</TABLE>
NOTE 5--TERM LOAN PAYABLE:
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
- --------------------------------------------------------------------------------
F-11
<PAGE>
VERSICOR INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
Principal payments on the term loan at December 31, 1999 were as follows:
<TABLE>
<S> <C>
2000........................................................ $862,000
2001........................................................ 862,000
2002........................................................ 3,448,000
----------
$5,172,000
==========
</TABLE>
Interest expense associated with this loan was $0, $539,573 and $488,844 in the
years ended December 31, 1997, 1998 and 1999, respectively.
NOTE 6--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 7--STOCKHOLDERS' EQUITY:
In December 1997, Versicor issued 1,095,000 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 4,400,000 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 500,000 shares of Series D-1 Preferred Stock to
a strategic investor for $3,750,000.
In March 1999, the Company sold 500,000 shares of Series E-1 Preferred Stock to
another strategic investor for $3,000,000.
- --------------------------------------------------------------------------------
F-12
<PAGE>
VERSICOR INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In June 1999, Versicor entered into a Note and Warrant Purchase Agreement with a
group of investors, including Sepracor. Under the Agreement, the group of
investors agreed to loan Versicor $11,000,000, of which $5,501,492 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 into the Company's Series F
Preferred Stock. In connection with the financing, the investors were granted
warrants to purchase 180,989 shares of Series F Preferred Stock at $5.00 per
share (see Note 8).
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 963,257 shares of Series F Preferred Stock
and issued 5,847,453 shares of Series F Preferred Stock at $5.90 per share, for
$34,499,973 in cash. Issuance costs associated with the transaction were
$137,386.
PREFERRED STOCK
Convertible and redeemable convertible preferred stock consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1999
------------ -------------
<S> <C> <C>
Series A: 36,000 shares authorized, issued and outstanding
at December 31, 1998 and 1999, respectively (liquidation
preference $80,560)....................................... $65,600 $70,400
Series B: 1,095,000 shares authorized, issued and
outstanding at December 31, 1998 and 1999, respectively
(liquidation preference $11,178,392)...................... 10,252,101 11,014,513
Series C: 4,550,000 shares authorized, 4,400,000 shares
issued and outstanding at December 31, 1998 and 1999
(liquidation preference $25,813,333)...................... 23,666,597 25,426,603
Series D-1: 0 and 500,000 shares authorized, issued and
outstanding at December 31, 1998 and 1999 (liquidation
preference $3,975,000).................................... -- 3,750,000
Series D-2: 0 and 333,000 shares authorized, 0 shares issued
and outstanding at December 31, 1998 and 1999............. -- --
Series E-1: 0 and 500,000 shares authorized, issued and
outstanding at December 31, 1998 and 1999 (liquidation
preference $3,180,000).................................... -- 3,750,000
Series E-2: 0 and 277,778 shares authorized, 0 shares issued
and outstanding at December 31, 1998 and 1999............. -- --
Series F: 7,000,000 shares authorized, 0 and 6,810,710
shares issued and outstanding at December 31, 1998 and
1999, respectively, (liquidation preference of
$40,718,965).............................................. -- 81,481,599
----------- ------------
$33,984,298 $125,493,115
=========== ============
</TABLE>
- --------------------------------------------------------------------------------
F-13
<PAGE>
VERSICOR INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In March 1999, the Company issued 500,000 shares of Series E-1 Preferred Stock
to a strategic investor at $6.00 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 No. 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features."
In October 1999, the Company issued 6,810,710 shares of Series F Preferred Stock
to a group of investors, including Sepracor, at $5.90 per share for gross
proceeds of $40,183,189, inclusive of the conversion of the bridge notes. The
issuance resulted in a beneficial conversion feature of $40,900,015, calculated
in accordance with Emerging Issues Task Force No. 98-5, "Accounting for
Convertible Securities with Beneficial Conversion Features."
The beneficial conversion features are reflected as deemed preferred stock
dividends 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.
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
$5.90 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 $5.00 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
- --------------------------------------------------------------------------------
F-14
<PAGE>
VERSICOR INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
preference to the holders of common stock, an amount equal to $2.00, $8.70,
$7.50 and $6.00 per share, respectively, plus any accrued but unpaid dividends.
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 100,000 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, 27,600 and 20,400 shares of common stock were
subject to repurchase, respectively.
NOTE 8--STOCK OPTIONS AND WARRANTS:
STOCK OPTIONS
The 1995 Stock Option Plan (the "1995 Plan") permits Versicor to grant up to
252,000 shares of common stock under incentive stock options ("ISOs") and
nonstatutory stock options ("NSOs"). This plan was amended in 1997 to increase
the maximum number of shares to be issued to 279,000. The 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 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 Versicor to grant up to
1,121,000 shares of common stock under ISOs, NSOs, stock bonuses, rights to
purchase restricted stock, and stock appreciation rights. In 1999, the plan was
amended to increase the maximum number of shares available to 2,110,424. All
options shall be separately designated ISOs to officers and key employees of
Versicor and NSOs to officers, key employees, consultants and directors of
Versicor. 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 market value
of the stock at the date of the grant. 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.
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.
- --------------------------------------------------------------------------------
F-15
<PAGE>
VERSICOR INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Stock option activity for the years ended December 31, 1997, 1998 and 1999 is as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
PRICE PRICE PRICE
NUMBER PER SHARE NUMBER PER SHARE NUMBER PER SHARE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1.............. 214,825 $0.67 1,166,240 $0.48 1,025,610 $0.49
Granted........................... 1,172,202 0.52 130,175 0.50 746,101 0.59
Exercised......................... (95,372) 0.11 (69,369) 0.34 (37,940) 0.44
Canceled.......................... (125,415) 0.04 (201,436) 0.48 (80,598) 0.46
--------- --------- ---------
Balance at December 31............ 1,166,240 0.48 1,025,610 0.49 1,653,173 0.54
========= ========= =========
Options exercisable at December
31.............................. 44,192 262,876 522,140
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ------------------------
WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE PRICE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PER SHARE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------------- ----------- ------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
0.11 ...... ............................. 14,187 6.18 0.11 12,567 0.11
0.50 ...... ............................. 955,995 8.11 0.50 509,483 0.50
0.60 ...... ............................. 682,901 9.92 0.60 -- 0.60
1.11 ...... ............................. 90 6.72 1.11 90 1.11
- ----------------- ----------- -----------
$0.11 - $1.11.... ............................. 1,653,173 0.54 522,140 0.49
=========== ===========
</TABLE>
There were 206,649 options available for future grant as of December 31, 1999.
13,341,710 shares of common stock have been reserved for the conversion of
preferred stock and 2,211,311 shares have been reserved for the exercise of
stock options and warrants.
- --------------------------------------------------------------------------------
F-16
<PAGE>
VERSICOR INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FAIR VALUE DISCLOSURES
The Company applies the measurement principles of APB 25 in accounting for its
stock option plans. Had compensation expense for options granted been determined
based on fair value at the grant date as prescribed by SFAS No. 123, the
Company's 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) $(69,810,752)
=========== ============ ============
Pro forma....................................... $(6,719,541) $(15,095,471) $(68,311,638)
=========== ============ ============
Basic and diluted net loss per share:
As reported..................................... $(30.39) $(58.88) $(164.80)
=========== ============ ============
Pro forma....................................... $(30.45) $(58.82) $(161.26)
=========== ============ ============
</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 $0.20, $3.32 and $17.72 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 deemed values of common stock between $0.50 and
$19.03 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 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 36,000 shares of common stock at $5.56 per share and
134,500 shares of Series C Preferred Stock at $5.00 per share were outstanding
at December 31, 1998 and 1999. During
- --------------------------------------------------------------------------------
F-17
<PAGE>
VERSICOR INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1999, warrants to purchase 180,989 shares of Series F preferred stock at $5.90
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 fair value of these warrants of
$1,379,136 has been reflected as interest expense in the accompanying statement
of operations. The fair value of warrants granted prior to December 31, 1997
were 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 9--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 company
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.
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 10--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
- --------------------------------------------------------------------------------
F-18
<PAGE>
VERSICOR INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
limit. In addition, the Company can make a matching contribution at its
discretion. Versicor 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 11--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 200,000 shares of its common stock to Biosearch.
Versicor also has agreed to make certain milestone payments if the milestones
are achieved of which $1 million has been paid. Versicor will also pay royalties
to Biosearch on a product-by-product and country-by-country basis. 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
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
- --------------------------------------------------------------------------------
F-19
<PAGE>
VERSICOR INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. 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 36,000 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-20
<PAGE>
[LOGO]
<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.............................
Transfer agent and registrar fees...........................
Miscellaneous...............................................
--------
Total................................................... $
========
</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
- --------------------------------------------------------------------------------
II-1
<PAGE>
PART II
- --------------------------------------------------------------------------------
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 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:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICES
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
January 1, 1997 to December 31, 1997........................ 1,172,202 $0.67
January 1, 1998 to December 31, 1998........................ 130,175 0.50
January 1, 1999 to December 31, 1999........................ 746,101 0.59
January 1, 2000 to February 29, 2000........................ 16,000 0.60
</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 1,995,740
shares of Common Stock under its 1997 Equity Incentive Plan at a weighted
average exercise price of $0.535.
(2) On December 9, 1997, the Registrant issued a warrant to purchase 58,500
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 61,000
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 15,000
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 1,095,000 shares of its
Series B convertible preferred stock to individuals and entities for an
aggregate purchase price of $9,530,113.50.
(6) In December 1997, the Registrant issued 4,400,000 shares of its
Series C convertible preferred stock to individuals and entities for an
aggregate purchase price of $22,000,000.
- --------------------------------------------------------------------------------
II-2
<PAGE>
PART II
- --------------------------------------------------------------------------------
(7) In March 1999, the Registrant issued 500,000 shares of its Series D
convertible preferred stock to individuals and entities for an aggregate
price of $3,750,000.
(8) In March 1999, the Registrant issued 500,000 shares of its Series E
convertible preferred stock to an entity for an aggregate purchase price
of $3,000,000.
(9) In October 1999, the Registrant issued 6,810,710 shares of its Series F
convertible preferred stock to individuals and entities for an aggregate
purchase price of $40,183,189.
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. Other than the placement agent
utilized in connection with sales 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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of the
Registrant
3.2* Amended and Restated Bylaws of the 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 by and
between and Registrant
4.4* Form of Warrant for the Purchase of Shares of Series F
Preferred Stock dated as of , 1999 by and
between and Registrant
4.5* Third Amended and Restated Investor Rights Agreement
5.1* Opinion of O'Melveny & Myers LLP
10.1* 1995 Stock Option Plan of the Registrant
10.2* Form of 1995 Stock Option Award Agreement of the Registrant
10.3* 1997 Equity Incentive Plan
10.4* Form of 1997 Stock Option Award Agreement
10.5* 2000 Employee Stock Purchase Plan
10.6*+ License Agreement dated as of February 12, 1998 by and
between Biosearch Italia, S.p.A. and Registrant
10.7*+ License Agreement dated as of May 17, 1999 by and between
Eli Lilly and Company
10.8*+ Collaboration and License Agreement dated as of March 31,
1999 by and between Novartis Pharma AG and Registrant
</TABLE>
- --------------------------------------------------------------------------------
II-3
<PAGE>
PART II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------------------------------------------------------------------
<C> <S>
10.9*+ Collaboration and License Agreement dated as of March 31,
1999 by and between Pharmacia & Upjohn Company and
Registrant
10.10*+ Collaboration Agreement dated as of February 12, 1998 by and
between Biosearch Italia, S.p.A. and Registrant
10.11* Administrative Services Agreement dated as of December 1997
by and between Sepracor Inc. and Registrant
10.12* Employment Agreement dated as of by and between
George F. Horner III and Registrant
10.13* Employment Agreement dated as of by and between
Richard J. White and Registrant
10.14* Employment Agreement dated as of by and between
Dinesh V. Patel and Registrant
10.15* Promissory Note dated as of by and between
Richard J. White and Registrant
10.16* Promissory Note dated as of by and between
Dinesh V. Patel and Registrant
10.17* Consulting Agreement dated as of March , 1998 by and
between Dr. Christopher Walsh and Registrant
10.18* Term Loan Agreement dated as of by and between
Fleet National Bank and Registrant
10.19* Industrial Lease dated as of by and between
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>
- ---------
* To be filed by amendment.
+ 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.
(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
- --------------------------------------------------------------------------------
II-4
<PAGE>
PART II
- --------------------------------------------------------------------------------
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-5
<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 March 22, 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 MARCH 22,
2000 IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C>
/s/ DAVID V. MILLIGAN, PH.D
--------------------------------- Chairman of the Board March 22, 2000
David V. Milligan, Ph.D
*
--------------------------------- President and Chief Executive Officer March 22, 2000
George F. Horner, III (and principal accounting officer)
/s/ RICHARD J. WHITE, PH.D
--------------------------------- Executive Vice President and Chief March 22, 2000
Richard J. White, Ph.D Scientific Officer
</TABLE>
- --------------------------------------------------------------------------------
II-6
<PAGE>
SIGNATURES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C>
/s/ DINESH V. PATEL, PH.D
--------------------------------- Vice President-Drug Discovery March 22, 2000
Dinesh V. Patel, Ph.D
/s/ TIMOTHY J. BARBERICH
--------------------------------- Director March 22, 2000
Timothy J. Barberich
/s/ JAMES H. CAVANAUGH, PH.D
--------------------------------- Director March 22, 2000
James H. Cavanaugh, Ph.D
/s/ MARK LESCHLY
--------------------------------- Director March 22, 2000
Mark Leschly
/s/ THOMAS C. MCCONNELL
--------------------------------- Director March 22, 2000
Thomas C. McConnell
/s/ LORI F. RAFIELD, PH.D
--------------------------------- Director March 22, 2000
Lori F. Rafield, Ph.D
/s/ CHRISTOPHER T. WALSH, PH.D
--------------------------------- Director March 22, 2000
Christopher T. Walsh, Ph.D
</TABLE>
- --------------------------------------------------------------------------------
II-7
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of the
Registrant
3.2* Amended and Restated Bylaws of the 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 by and
between and Registrant
4.4* Form of Warrant for the Purchase of Shares of Series F
Preferred Stock dated as of , 1999 by and
between and Registrant
4.5* Third Amended and Restated Investor Rights Agreement
5.1* Opinion of O'Melveny & Myers LLP
10.1* 1995 Stock Option Plan of the Registrant
10.2* Form of 1995 Stock Option Award Agreement of the Registrant
10.3* 1997 Equity Incentive Plan
10.4* Form of 1997 Stock Option Award Agreement
10.5* 2000 Employee Stock Purchase Plan
10.6*+ License Agreement dated as of February 12, 1998 by and
between Biosearch Italia, S.p.A. and Registrant
10.7*+ License Agreement dated as of May 17, 1999 by and between
Eli Lilly and Company
10.8*+ Collaboration and License Agreement dated as of March 31,
1999 by and between Novartis Pharma AG and Registrant
10.9*+ Collaboration and License Agreement dated as of March 31,
1999 by and between Pharmacia & Upjohn Company and
Registrant
10.10*+ Collaboration Agreement dated as of February 12, 1998 by and
between Biosearch Italia, S.p.A. and Registrant
10.11* Administrative Services Agreement dated as of December 1997
by and between Sepracor Inc. and Registrant
10.12* Employment Agreement dated as of by and between
George F. Horner III and Registrant
10.13* Employment Agreement dated as of by and between
Richard J. White and Registrant
10.14* Employment Agreement dated as of by and between
Dinesh V. Patel and Registrant
10.15* Promissory Note dated as of by and between
Richard J. White and Registrant
10.16* Promissory Note dated as of by and between
Dinesh V. Patel and Registrant
10.17* Consulting Agreement dated as of March , 1998 by and
between Dr. Christopher Walsh and Registrant
10.18* Term Loan Agreement dated as of by and between
Fleet National Bank and Registrant
10.19* Industrial Lease dated as of by and between
</TABLE>
<PAGE>
EXHIBIT INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------------------------------------------------------------------
<C> <S>
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>
- ---------
* To be filed by amendment.
+ 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.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 20, 2000 relating to the financial statements of
Versicor Inc., which appears in such Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
March 22, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR VERSICOR INC. AT DECEMBER 31, 1998 AND 1999 AND FOR THE
3 YEARS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 34,619,110
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,663,356
<PP&E> 7,140,725
<DEPRECIATION> 2,323,574
<TOTAL-ASSETS> 45,232,761
<CURRENT-LIABILITIES> 3,333,790
<BONDS> 4,310,000
0
125,493,115
<COMMON> 547
<OTHER-SE> (90,446,358)
<TOTAL-LIABILITY-AND-EQUITY> 45,232,761
<SALES> 0
<TOTAL-REVENUES> 4,275,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 28,057,867
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,049,705
<INCOME-PRETAX> (25,097,749)
<INCOME-TAX> 0
<INCOME-CONTINUING> (25,097,749)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,097,749)
<EPS-BASIC> (164.80)
<EPS-DILUTED> (164.80)
</TABLE>
