<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
CLINICHEM DEVELOPMENT INC.
DEVELOPPEMENT CLINICHEM INC.
(Exact name of registrant as specified in its charter)
------------
CANADA
(State or other jurisdiction
of incorporation or organization)
2834
(Primary Standard Industrial
Classification Code Number)
NOT APPLICABLE
(I.R.S. Employer Identification Number)
275 ARMAND-FRAPPIER BLVD.
LAVAL, QUEBEC, CANADA H7V 4A7
TELEPHONE: (514) 978-7800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------
CT CORPORATION SYSTEM
1633 BROADWAY
NEW YORK, NY 10015
TELEPHONE: (212) 664-1666
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------
Copies to:
LANCE C. BALK, ESQ.
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4675
TELEPHONE: (212) 446-4800
CHARLES-A. TESSIER
BIOCHEM PHARMA INC.
275 ARMAND-FRAPPIER BLVD.
LAVAL, QUEBEC, CANADA H7V 4A7
TELEPHONE: (514) 978-7800
VICE-PRESIDENT, LEGAL AFFAIRS AND CORPORATE SECRETARY
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [X] *
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C>
=============================================
TITLE OF EACH CLASS OF SECURITIES AMOUNT PROPOSED MAXIMUM AGGREGATE PROPOSED MAXIMUM AMOUNT
TO BE REGISTERED TO BE REGISTERED(1) OFFERING PRICE(2) OF REGISTRATION FEE
- ---------------------------------------------
Class A Common Shares........................ 2,800,000 US$105,000,000.00 US$30,975.00
=============================================
</TABLE>
(1) Based on an estimate of the maximum number of shares issuable in connection
with the distribution described herein.
(2) Estimated solely for the purpose of calculating the registration statement
fee pursuant to Rule 457(f)(2) under the Securities Act of 1933 based on the
adjusted book value of the Class A Common Shares of the Registrant after
giving effect to the distribution described herein. No consideration will be
paid by the recipients of the securities. The exchange rate of US$0.7000
used to calculate the adjusted book value of the Class A Common Shares of
the Registrant was based on the noon buying rate on February 6, 1998 in New
York City for cable transfers in Canadian dollars for one United States
dollar as certified for customs purposes by the Federal Reserve Bank of New
York.
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
* Solely with respect to resales by BioChem Pharma Inc. or its custodian of
Class A Common Shares withheld in the distribution described herein in order
to pay Canadian withholding tax.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any jurisdiction in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction.
SUBJECT TO COMPLETION, DATED , 1998
PROSPECTUS
CLINICHEM DEVELOPMENT INC.
CLASS A COMMON SHARES
------------------------
The callable Class A Common Shares (the "CliniChem Common Shares") of
CliniChem Development Inc. ("CliniChem") will be distributed (the
"Distribution") by BioChem Pharma Inc. ("BioChem") to the holders of record (the
"Holders") of BioChem Common Shares (the "BioChem Common Shares") at the close
of business on , 1998 (the "Record Date"). Each Holder will receive
one CliniChem Common Share for every 40 BioChem Common Shares held on the Record
Date. The Distribution will result in all of the then outstanding CliniChem
Common Shares being distributed to the Holders. Assuming that 108,258,990
BioChem Common Shares (the number of BioChem Common Shares outstanding on
January 31, 1998) are outstanding on the Record Date, approximately 2,706,475
CliniChem Common Shares are expected to be issued in the Distribution to
Holders. After the Distribution, BioChem will hold 1,000 Class B Common Shares
(the "Class B Shares") of CliniChem, representing all of the authorized shares
of such class. Prior to the Distribution, BioChem will contribute $150 million
in cash to CliniChem as a capital contribution. As the holder of the majority of
the outstanding Class B Shares following the Distribution, BioChem will have the
option to acquire all (but not less than all) of the outstanding CliniChem
Common Shares under specified conditions. BioChem has also granted certain
technology licenses and agreed to make specified payments on sales of certain
products.
The Distribution is expected to be taxable to the Holders. A portion of the
CliniChem Common Shares otherwise deliverable to certain Holders who are not
residents of Canada will be withheld and sold on such Holders' behalf in order
to pay any Canadian withholding tax for which such Holders are liable. Such
sales of CliniChem Common Shares may be effected, in open-market transactions on
a United States or Canadian stock exchange, through dealers or through
individually negotiated transactions, following the Distribution. See "The
Distribution" and "Income Tax Considerations."
The Distribution is expected to take place on or about , 1998,
subject to certain conditions specified in the Distribution Agreement between
BioChem and CliniChem dated as of , 1998. General Trust of Canada is
acting as distribution agent and will be responsible for distributing share
certificates to CliniChem shareholders. Neither BioChem nor CliniChem will
receive any proceeds in connection with the Distribution. See "The
Distribution."
There has been no previous public market for the CliniChem Common Shares.
Application has been made for the CliniChem Common Shares to be quoted on the
Nasdaq National Market (the "Nasdaq") under the symbol "CCHE" and an application
will be made for the CliniChem Common Shares to be listed for trading on the
Montreal Exchange and The Toronto Stock Exchange.
BioChem will have the option to acquire all (but not less than all) of the
outstanding CliniChem Common Shares at a price determined in accordance with a
formula (the "Purchase Option Exercise Price") specified in the articles of
incorporation of CliniChem (the "Articles") at any time from and after the
Distribution and ending on the earlier of (i) March 31, 2003 or (ii) the 90th
day after the date on which CliniChem provides BioChem with quarterly financial
statements of CliniChem showing cash and cash equivalents of less than $5.0
million (unless extended by BioChem but in no event beyond March 31, 2003). The
Purchase Option Exercise Price may be paid by BioChem in cash, BioChem Common
Shares or any combination of cash and BioChem Common Shares at BioChem's
discretion. See "The Agreements and the Purchase Option--Purchase Option."
Shareholders of BioChem with inquiries regarding the Distribution should
contact BioChem Pharma Inc., 275 Armand-Frappier Blvd., Laval, Quebec, Canada
H7V 4A7, Attn: Investor Relations; Telephone: (514) 978-7771.
------------------------
THE CLINICHEM COMMON SHARES DISTRIBUTED HEREUNDER INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 17.
------------------------
NO APPROVAL OF THE DISTRIBUTION BY SHAREHOLDERS OF BIOCHEM IS REQUIRED OR
SOUGHT. NO PROXY IS REQUESTED AND NO ACTION IS REQUIRED WITH RESPECT TO THE
DISTRIBUTION.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
ALL REFERENCES IN THIS PROSPECTUS TO "$" AND "DOLLARS" ARE TO CANADIAN DOLLARS,
UNLESS OTHERWISE STATED.
------------------------
The date of this Prospectus is , 1998.
<PAGE> 3
AVAILABLE INFORMATION
As a result of the Distribution, CliniChem is expected to be subject to the
information and reporting requirements of the United States Securities Exchange
Act of 1934, as amended (the "Exchange Act"), applicable to foreign private
issuers, and, in accordance therewith, to file reports and other information
with the Securities and Exchange Commission ("SEC"). Holders of CliniChem Common
Shares will receive annual reports containing financial information including
the report of independent chartered accountants as to the financial statements
of CliniChem. Such financial statements will be prepared in accordance with
generally accepted accounting principles in Canada and will be reconciled to
generally accepted accounting principles in the United States in a note thereto.
CliniChem has filed with the SEC a Registration Statement on Form F-1
(including all amendments thereto, the "Registration Statement") under the
United States Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered by this Prospectus. This Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits thereto. Reference is made to the Registration Statement and to the
exhibits thereto for further information with respect to CliniChem and the
Distribution. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference to such exhibit. The Registration Statement
relates to the securities being offered in the United States and to the
securities being offered outside the United States insofar as they may be resold
from time to time in the United States. The Registration Statement, including
exhibits and schedules thereto, may be inspected without charge at the Public
Reference Room of the SEC, 450 Fifth Street, Washington, D.C. 20549 and at the
SEC's regional offices at 7 World Trade Center, Suite 1300, New York, New York
10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of all or any part thereof may be obtained from the SEC at its principal
offices in Washington, D.C. after payment of fees prescribed by the SEC. The
Registration Statement and the exhibits thereto are available on the SEC's
Internet website (http://www.sec.gov).
ENFORCEABILITY OF CIVIL LIABILITIES
UNDER UNITED STATES FEDERAL SECURITIES LAWS
CliniChem is a Canadian corporation. All of CliniChem's directors, officers
and controlling persons, as well as certain of the experts named herein, reside
outside the United States, and all or a substantial portion of the assets of
such persons and of CliniChem are located outside the United States.
Consequently, it may be difficult or impossible for investors to effect service
of process within the United States upon CliniChem or such persons, or to
realize against them upon judgments of courts of the United States predicated
upon civil liabilities under the federal securities laws of the United States.
There is doubt as to the enforceability in Canada against CliniChem or any of
its directors and officers or experts named herein who are not residents of the
United States in original actions or in actions for enforcement of judgments
rendered by United States courts, of civil liabilities predicated solely on
United States federal securities laws. In addition, investors should not assume
that courts of Canada (i) would enforce judgments of United States courts
obtained in actions against CliniChem in the United States or such persons
predicated upon the civil liability provisions of the United States federal
securities laws or the securities or blue sky laws of any state within the
United States or (ii) would enforce, in original actions, liabilities against
CliniChem or such persons predicated upon the United States federal securities
laws or any such state securities or blue sky laws.
CliniChem has irrevocably appointed CT Corporation System as its agent to
receive service of process solely in actions against it arising out of or in
connection with the United States federal securities laws or out of violations
of such laws in any federal court or state court in New York, New York, relating
to the transactions covered by this Prospectus.
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<PAGE> 4
TRADEMARKS
All company and product names referred to in this document are the property
of their respective owners.
BioChem's discovery to treat Human Immunodeficiency Virus ("HIV"),
including Acquired Immunodeficiency Syndrome ("AIDS"), sold in certain countries
under the brand name 3TC and in others under the brand name Epivir, has the
generic name lamivudine. Lamivudine is also being developed to treat chronic
hepatitis B infection. To avoid confusion herein, 3TC will be used to describe
the product for HIV or AIDS and lamivudine will be used to describe the product
in development for chronic hepatitis B infection. 3TC and Epivir are trademarks
of Glaxo Wellcome plc which, with its subsidiaries, is the worldwide licensee of
3TC and lamivudine, subject to special arrangements for Canada, where a Glaxo
Wellcome -- BioChem partnership is commercializing 3TC and will commercialize
lamivudine.
EXCHANGE RATE DATA
As of February 6, 1998, the date of the balance sheet of CliniChem, and ,
1998, the most recent practicable date prior to the date of this Prospectus, the
exchange rates based on the noon buying rate in New York City for cable
transfers in Canadian dollars for one United States dollar as certified for
customs purposes by the Federal Reserve Bank of New York, were respectively
US$0.7000 and .
ALL REFERENCES IN THIS PROSPECTUS TO "$" AND "DOLLARS" ARE TO CANADIAN DOLLARS,
UNLESS OTHERWISE STATED.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS OR THE REGISTRATION STATEMENT
OF WHICH THIS PROSPECTUS IS A PART.
CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN
THIS PROSPECTUS, INCLUDING IN THE GLOSSARY.
Some of the statements made in this Prospectus and the accompanying letter
to shareholders are forward-looking in nature, including but not limited to,
CliniChem's and BioChem's research and development activities and plans,
particularly with respect to anticipated CliniChem Programs and CliniChem
Products, plans concerning the potential commercialization of the CliniChem
Products, and other statements that are not historical facts. The occurrence of
the events described and the achievement of the intended results are subject to
the future occurrence of many events, some or all of which are not predictable
or within CliniChem's control; therefore, actual results may differ materially
from those anticipated in any forward-looking statements. Many risks and
uncertainties are inherent in the biotechnology and pharmaceutical industry;
others are more specific to CliniChem's business. These risks include the risks
associated with product research and development, including clinical
development, attempts to obtain regulatory clearance to market products and
medical acceptance of products, changes in the health care marketplace, patent
and intellectual property matters, regulatory and manufacturing issues, the
ability to commercialize products effectively, and risks associated with
competition from other companies. Many of the risks are described in "Risk
Factors" beginning on page and/or in documents filed by BioChem under the
Exchange Act or applicable Canadian securities legislation. CliniChem will not
update the information contained in this Prospectus except in the normal course
of its public disclosure practices.
Distributing Company....... BioChem Pharma Inc., a Canadian corporation, is a
leading bio-pharmaceutical company engaged in the
research, development and marketing of therapeutic
products and the research, development,
manufacturing and marketing of vaccine and
diagnostic products for a wide range of infectious
and other diseases.
BioChem conducts its business through BioChem
Therapeutic Inc., BioChem Vaccines Inc., BioChem
ImmunoSystems Inc. and BioChem's foreign
subsidiaries. BioChem's most significant
therapeutic product is a novel nucleoside analog,
marketed under the brand name 3TC, developed with
Glaxo Wellcome plc and its subsidiaries
(hereinafter collectively "Glaxo Wellcome") for the
treatment of patients with HIV infection, including
AIDS. The nucleoside analog is marketed under the
brand names 3TC or Epivir. Lamivudine, a different
dosage regimen of 3TC, is also being developed with
Glaxo Wellcome as a treatment for chronic hepatitis
B infection, including in the pre-and post-liver
transplant setting to prevent graft re-infection by
human hepatitis B virus. BioChem has also
developed, and is manufacturing and marketing, a
line of vaccines including whole virus and split
virus influenza vaccines, a combined diphtheria
tetanus vaccine and a vaccine to prevent
tuberculosis. BioChem has also developed and is
manufacturing an immuno-therapeutic product used in
the treatment of certain superficial bladder
cancers. BioChem's diagnostics operations engage in
the research, development, manufacturing and
marketing of a wide range of diagnostic products
and automated laboratory analyzers for the
detection of a variety of infectious diseases, and
for use in immunology, endocrinology and
hematology.
References herein to "BioChem" include BioChem
Pharma Inc. and its subsidiaries.
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<PAGE> 6
Distributed Company........ CliniChem Development Inc., a Canadian corporation,
is a company recently formed by BioChem to conduct
research and development of potential human
therapeutic and vaccine products primarily for
treatment of cancer and HIV infection and the
prevention of certain infectious diseases.
CliniChem's therapeutic program includes a novel
nucleoside analog to treat various forms of cancer,
a novel nucleoside analog to treat HIV infection
and small molecules to treat solid cancer tumors by
inhibiting angiogenesis. CliniChem's vaccine
program includes vaccines against Neisseria
meningitidis, Streptococcus pneumoniae, Neisseria
gonorrhoeae, Haemophilus influenzae, Streptococcus
Group B and Chlamydia pneumoniae, all bacteria
responsible for infectious diseases. Upon
development and regulatory approval of any such
products, CliniChem expects that the products will
be marketed under distinct brand names. CliniChem
has not yet conducted any business and has no
employees. Its three officers are full-time
employees of BioChem. CliniChem does not intend to
perform any research and development itself, but
rather will contract with BioChem to perform all
such activities pursuant to the terms of the
Research and Development Agreement.
The Distribution........... Each Holder will receive one CliniChem Common Share
for every 40 BioChem Common Shares held on the
Record Date. A total of approximately 2,706,475
CliniChem Common Shares are expected to be
distributed, assuming 108,258,990 BioChem Common
Shares (the number of BioChem Common Shares
outstanding on January 31, 1998) are outstanding on
the Record Date. No Holder will be required to pay
any cash or other consideration for the CliniChem
Common Shares received in the Distribution
(exclusive of applicable Canadian withholding
taxes), nor will any action be required to be taken
by any Holder in order to receive CliniChem Common
Shares. The Distribution is expected to be taxable
to the Holders. See "Income Tax Considerations."
Neither BioChem nor CliniChem will receive any
proceeds in connection with the Distribution. See
"The Distribution." As of January 31, 1998, there
were 97 holders of record of BioChem Common Shares
who were United States residents, representing
approximately 60% of the outstanding BioChem Common
Shares.
CliniChem Common Shares.... All of the Class A Common Shares of CliniChem will
be subject to the Purchase Option. See "The
Agreements and the Purchase Option--Purchase
Option" and "Description of CliniChem's Share
Capital."
Record Date; Distribution
Date....................... The Record Date for the Distribution will be the
close of business on , 1998.
Distribution of the CliniChem Common Shares is
expected to take place on or about ,
1998 (the "Distribution Date"), subject to certain
conditions specified in the Distribution Agreement.
Contribution by BioChem.... Prior to the Distribution, BioChem will contribute
$150 million in cash to CliniChem as a capital
contribution, thereby reducing the amount of
BioChem's cash and temporary investments by that
amount. As the holder of the majority of the
outstanding Class B Shares following the
Distribution, BioChem will have the option to
acquire all (but not less than all) of the
outstanding CliniChem Common Shares under specified
conditions. See "Business of CliniChem--General."
BioChem has also
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granted certain technology licenses and agreed to
make specified payments on sales of certain
products. See "The Agreements and the Purchase
Option."
The CliniChem Programs..... It is anticipated that CliniChem will initially
conduct its therapeutic development program (the
"Therapeutic Program") and its vaccine development
program (the "Vaccine Program"), the technology for
which will be licensed to CliniChem by BioChem
pursuant to the Technology License Agreement,
subject to certain third-party rights and the
receipt of certain third-party consents and subject
further to the terms and conditions of the Research
and Development Agreement and the Product Option.
See "The Agreements and the Purchase Option". In
addition, BioChem has the right, with the consent
of the Board of Directors of CliniChem, to expand
the scope of the Therapeutic Program and the
Vaccine Program and select additional development
programs as substitutes for, or in addition to, the
Therapeutic Program and the Vaccine Program (any
such development programs, together with the
Therapeutic Program and the Vaccine Program, being
the "CliniChem Programs"). The CliniChem Programs,
which are described more fully in the section
entitled "The Business of CliniChem--The CliniChem
Programs", are the development of:
- BCH-4556, a novel nucleoside analog to treat
cancer;
- BCH-10652, a novel nucleoside analog to treat
HIV infection;
- small molecules to treat solid cancer tumors by
inhibiting angiogenesis through the antagonism
of the a(n)b(3) receptor;
- a recombinant protein vaccine to protect against
infection by Neisseria meningitidis;
- a recombinant protein vaccine to protect against
infection by Streptococcus pneumoniae;
- a recombinant protein vaccine to protect against
infection by Neisseriagonorrhoeae;
- a recombinant protein vaccine to protect against
infection by Haemophilus influenzae non
typeable;
- a recombinant protein vaccine to protect against
infection by Streptococcus Group B; and
- a recombinant protein vaccine to protect against
infection by Chlamydia pneumoniae.
The therapeutic and vaccine products developed
according to the terms of the Research and
Development Agreement and pursuant to the CliniChem
Programs are herein referred to as the "CliniChem
Products". Unless BioChem and CliniChem agree
otherwise and subject to pre-existing third-party
rights and receipt of certain third-party consents,
all of the CliniChem Products will be licensed to
CliniChem pursuant to the Technology License
Agreement. Such license will be limited for each
CliniChem Product to a particular Field of Use. See
"The Agreements and the Purchase Option--Technology
License Agreement."
The Research and Development Agreement provides
that CliniChem will fund Research and Development
Costs from January 1, 1998. Based on CliniChem's
current development schedule, CliniChem does not
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<PAGE> 8
expect that most of the CliniChem Products will
reach commercial marketability prior to expenditure
of the Available Funds. See "The Agreements and the
Purchase Option--Research and Development
Agreement".
CliniChem Board of
Directors.................. All the current directors of CliniChem are also
officers, directors or employees of BioChem.
Subsequent to the Distribution, two of the current
directors will resign as directors of CliniChem and
will be replaced by independent directors. As the
holder of the majority of the outstanding Class B
Shares, BioChem has the right to elect one
director. See "Business of CliniChem--Executive
Officers and Directors" and "Description of
CliniChem's Share Capital."
No Fractional Shares....... No fractional CliniChem Common Shares will be
distributed. Fractional CliniChem Common Shares
will be rounded up to a whole share by CliniChem's
transfer agent and distribution agent for the
Distribution, General Trust of Canada (the
"Distribution Agent").
Reasons for the
Distribution............... BioChem believes that the research and development
work it has undertaken, directly and through
collaborators, in the therapeutic and vaccine areas
has yielded results which justify further research
and development. However, a substantial amount of
additional research and development effort is
required to further develop the CliniChem Products
to their potential commercialization. Such
opportunities involve significantly different
risk/reward profiles as compared to BioChem's
established therapeutic, vaccine and diagnostic
businesses. BioChem believes that the arrangements
with CliniChem will significantly benefit BioChem
shareholders by:
- separating the risks associated with conducting
the CliniChem Programs from those associated
with BioChem's established therapeutic, vaccine
and diagnostic businesses;
- allowing individual shareholders of BioChem to
increase or decrease their level of
participation in the business of conducting the
CliniChem Programs by varying their level of
investment in CliniChem;
- obtaining for BioChem the exclusive right to
commercialize worldwide (subject to pre-existing
third-party rights) any developed CliniChem
Product, assuming BioChem's exercise of the
Product Option with respect to such product or
exercise of the Purchase Option, thereby making
it possible for BioChem to capture a potentially
greater return on the products developed with
CliniChem than would otherwise be possible from
products developed for commercialization in
conjunction with other third parties; and
- allowing BioChem's near-term financial results
to continue to reflect principally its
established therapeutic, vaccine and diagnostic
businesses through CliniChem's payment to
BioChem for the Research and Development Costs.
The foregoing potential benefits to Holders of the
arrangements with CliniChem may, however, be offset
by certain costs and detriments, including but not
limited to the following: BioChem's loss of control
over research and development activities to be
conducted by or on behalf of CliniChem, which
instead will be overseen by CliniChem's Board of
Directors; the administrative costs to BioChem
relating to the establish-
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ment of CliniChem, including accounting and legal
fees and costs; the potential cost of the exercise
of any of BioChem's options and potential royalties
to CliniChem; and the potential loss of income tax
benefits to BioChem which may have been derived
from deductions by BioChem rather than by CliniChem
of research and development expenses attributable
to the CliniChem Programs.
Technology License
Agreement Pursuant to the Technology License Agreement,
BioChem has granted to CliniChem an exclusive
perpetual license to use BioChem Technology solely
to conduct the CliniChem Programs and related
activities, and to manufacture and to commercialize
the CliniChem Products worldwide. This license is
subject to pre-existing third-party rights, receipt
of certain third-party consents, the terms and
conditions of the Research and Development
Agreement and the Product Option. The license for
each CliniChem Product shall be limited to a
designated Field of Use. See "The Agreements and
the Purchase Option--Technology License Agreement"
and "--Third-Party Consents and Rights."
In consideration for the license to use BioChem
Technology to conduct the CliniChem Programs,
CliniChem will pay a fee (the "Technology Fee") to
BioChem. The Technology Fee will be payable monthly
over a period of four years and will be $500,000
for each of the 12 months following the
Distribution, $408,333 per month for the following
12 months, $300,000 per month for the following 12
months and $200,000 per month for the following 12
months; provided that the Technology Fee will no
longer be payable at such time as the number of
CliniChem Products being researched or developed by
or on behalf of CliniChem, plus the number of
CliniChem Products having been acquired by BioChem
pursuant to the exercise of the Product Option, is
less than two.
Pursuant to the terms of the Technology License
Agreement, CliniChem's right to obtain
manufacturing will be subject to a right of first
offer and a right of first refusal on the part of
BioChem to manufacture and, in the event BioChem
does not exercise such right of first offer or
right of first refusal, then BioChem has the right
to approve any proposed manufacturer, which
approval may be withheld only if any such
manufacturer has insufficient or inadequate
manufacturing capability (including lack of
compliance with Good Manufacturing Practices
("GMP") regulations) or if any such manufacturer's
activities are likely to have a material adverse
effect on BioChem's overall competitive position in
the pharmaceutical industry. In the event that
BioChem exercises its right to reject a
manufacturer, BioChem will be obligated to
manufacture or obtain manufacturing for any such
CliniChem Product for CliniChem at prevailing
market rates, but not less than BioChem's cost of
manufacture plus 15% of such cost.
Pursuant to the Technology License Agreement,
CliniChem shall not have the right to grant a
sublicense with respect to the BioChem Technology
to anyone other than BioChem until such time as the
Product Option with respect to any CliniChem
Product in one or more countries expires
unexercised. From and after the expiration of such
Product Option in any such country, CliniChem may
sublicense BioChem Technology to one or more third
parties solely to the extent necessary to complete
the development of, or to make or have made and
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use such Clinichem Product, or to sell or have sold
such CliniChem Product in such country. BioChem
shall have the right to approve any proposed
sublicensee or any manufacturer on behalf of a
sublicensee but such approval may only be withheld
if any such sublicensee or manufacturer has
insufficient manufacturing capability (including
lack of compliance with GMP regulations) or if any
such sublicensee's or manufacturer's activities are
likely to have a material adverse effect on
BioChem's overall competitive position in the
pharmaceutical industry.
Research and Development
Agreement................ CliniChem and BioChem have entered into the
Research and Development Agreement pursuant to
which BioChem will conduct the CliniChem Programs.
Until the exercise or the expiration of the
Purchase Option, CliniChem is required to utilize
the Available Funds only in accordance with the
Research and Development Agreement, the Technology
License Agreement and the Services Agreement.
CliniChem is expected to utilize substantially all
of the Available Funds to make payments to BioChem
for its Research and Development Costs. Research
and Development Costs will be charged in a manner
consistent with industry practices, and payments
for all reasonable, fully-burdened costs will be
recognized by BioChem as contract research and
development revenue.
The Research and Development Agreement provides
that CliniChem will fund Research and Development
Costs from January 1, 1998, including an estimated
$6 million incurred from January 1, 1998 through
the Distribution Date. It is anticipated that
CliniChem will spend the Available Funds under the
Research and Development Agreement over a period of
approximately four to five years. Based on
CliniChem's current development schedule, CliniChem
does not expect that most of the CliniChem Products
will reach commercial marketability prior to
expenditure of the Available Funds. Currently,
other than the Available Funds, CliniChem has no
other source for the funding that may be needed to
complete the development and commercialization of
the CliniChem Products. CliniChem's use of the
Available Funds is subject to the terms of the
BioChem/CliniChem Agreements. All technology
developed or otherwise obtained pursuant to the
Research and Development Agreement ("Developed
Technology") will be owned by BioChem and licensed
to CliniChem pursuant to the terms of the
Technology License Agreement.
The Research and Development Agreement will
terminate upon the exercise or expiration of the
Purchase Option, which will expire on the earlier
of March 31, 2003 or 90 days after CliniChem
provides BioChem with notification that there are
less than $5.0 million of Available Funds (unless
extended by BioChem but in no event beyond March
31, 2003). However, BioChem's obligation to make
payments to CliniChem with respect to
AcquiredProducts will continue if the Purchase
Option expires unexercised. See "The Agreements and
the Purchase Option--Research and Development
Agreement."
Product Option............. CliniChem has granted BioChem an option to acquire
all rights to each CliniChem Product (the "Product
Option"). Upon exercise of the Product Option,
BioChem will make Product Payments to CliniChem
with respect to each CliniChem Product as to which
the Product Option
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<PAGE> 11
is exercised (an "Acquired Product"). The Product
Option for each CliniChem Product is exercisable on
a country-by-country basis at any time until (i)
with respect to the United States, 30 days after
clearance by the United States Food and Drug
Administration (the "FDA") to commercially market
such CliniChem Product in the United States and
(ii) with respect to any other country, 30 days
after the clearance by the appropriate regulatory
agency to commercially market the CliniChem Product
in such country. The Product Option will expire, to
the extent not previously exercised, 30 days after
the expiration of the Purchase Option. If and to
the extent the Product Option is exercised as to
any Acquired Product, CliniChem's license to such
Acquired Product in the country or countries as to
which the Product Option is exercised shall
terminate and BioChem shall be subject to the
obligation to make Product Payments.
Product Payments........... BioChem will make Product Payments to CliniChem
with respect to each Acquired Product as follows:
(a) royalties of up to a maximum of 6% of Net Sales
of the Acquired Product determined as follows:
(i) 1% of such Net Sales, plus (ii) an
additional 0.1% of such Net Sales for each full
$1 million of Research and Development Costs of
the Acquired Product paid by CliniChem; plus
(b) licensing fees of up to a maximum of 25% of
Licensing Revenues with respect to such
Acquired Product determined as follows: (i) 10%
of such Licensing Revenues, plus (ii) an
additional 1% of such Licensing Revenues for
each full $1 million of Research and
Development Costs of the Acquired Product paid
by CliniChem.
Because the marketing expenses associated with
newly introduced products during the first few
years after launch are generally significantly
higher than those for established products, the
Product Option provides that the Product Payments
described above will be capped at 3% of Net Sales
plus 12.5% of Licensing Revenues, on a quarterly
basis, for the first twelve calendar quarters
during which the Acquired Product is commercially
sold in the first Major Market Country. Subject to
BioChem's Product Payment Buy-Out Option described
below, Product Payments will be payable, with
respect to all countries for which the Product
Option has been exercised, until 10 years after the
first commercial sale of the Acquired Product in
the first Major Market Country in which such
product is commercially sold. To the extent BioChem
does not exercise the Product Option with respect
to any CliniChem Product, CliniChem will retain the
rights to research and develop (subject to the
terms of the Technology License Agreement and the
Research and Development Agreement) and
commercialize such CliniChem Product. Until the
exercise or the expiration of the Purchase Option,
all Product Payments paid to CliniChem as described
above will become part of the Available Funds and
may be used to pay BioChem for its Research and
Development Costs.
Product Payment Buy-Out
Options.................. BioChem has the option to buy out CliniChem's right
to receive Product Payments for any Acquired
Product on a country-by-country or global basis. A
country-by-country buy-out option may be exercised
for any Acquired Product in any country at any time
after the end of the twelfth
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<PAGE> 12
calendar quarter following the date on which the
Acquired Product was first commercially sold in
such country. The buy-out price will be 15 times
the Product Payments made by or due from BioChem to
CliniChem with respect to such Acquired Products in
such country for the four calendar quarters
immediately preceding the quarter in which the
buy-out option is exercised. The global buy-out
option may be exercised for any Acquired Product,
for all countries for which BioChem has exercised
the Product Option, at any time after the end of
the twelfth calendar quarter following the date on
which the Acquired Product was first commercially
sold in either the United States or two other Major
Market Countries. The buy-out price in the case of
a global buy-out will be (i) 20 times (a) the
Product Payments made by or due from BioChem to
CliniChem with respect to the Acquired Product,
plus (b) such Product Payments as would have been
made by or due from BioChem to CliniChem if BioChem
had not exercised any country-specific buy-out
option with respect to such Acquired Product, in
each case for the four calendar quarters
immediately preceding the quarter in which the
global buy-out option is exercised, less (ii) any
amount previously paid to exercise any
country-specific buy-out option with respect to
such Acquired Product. In either case, the buy-out
price will be computed as if Product Payments were
not limited to 3% of Net Sales or 12.5% of
Licensing Revenues (as applicable) during early
marketing as described above.
Purchase Option............ BioChem, as the holder of the majority of the
outstanding Class B Shares after the Distribution,
has the right, provided for in CliniChem's
Articles, to acquire all (but not less than all) of
the outstanding CliniChem Common Shares (the
"Purchase Option"). The Purchase Option will be
exercisable by written notice given at any time
from and after the Distribution Date and ending on
the earlier of (i) March 31, 2003 or (ii) the
90(th) day after the date CliniChem provides
BioChem (as the holder of the majority of the
outstanding Class B Shares) with quarterly
financial statements of CliniChem showing cash or
cash equivalents of less than $5.0 million,
although BioChem may, at its election, extend such
period by providing additional funding, including
through loans, for the continued conduct of any or
all of the CliniChem Programs (but in no event
beyond March 31, 2003). If the Purchase Option is
exercised, the Purchase Option Exercise Price will
be the greatest of:
(a) (i) 25 times the aggregate of (a) all worldwide
payments made by and all worldwide payments due
to be made by BioChem to CliniChem with respect
to all Acquired Products for the four calendar
quarters immediately preceding the quarter in
which the Purchase Option is exercised (the
"Base Period") and (b) all payments that would
have been made and all payments due to be made
by BioChem to CliniChem during the Base Period
if BioChem had not previously exercised its
Product Payment Buy-Out Option with respect to
any CliniChem Product; less (ii) any amounts
previously paid to exercise any Product Payment
Buy-Out Option for any CliniChem Product;
(b) the fair market value of 420,000 BioChem Common
Shares;
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<PAGE> 13
(c) $150 million plus any additional funds
contributed to CliniChem by BioChem, less the
aggregate amount of all Technology Fee
payments, Research and Development Costs and
Services Agreement payments paid or incurred by
CliniChem as of the date the Purchase Option is
exercised; and
(d) $50 million.
In each case, the amount payable as the Purchase
Option Exercise Price will be reduced to the
extent, if any, that CliniChem's liabilities at the
time of exercise (other than liabilities under the
Research and Development Agreement, the Services
Agreement and the Technology License Agreement and
any debt owed to BioChem) exceed CliniChem's cash
and cash equivalents, and short-term and long-term
investments (excluding the amount of Available
Funds remaining at such time). BioChem may pay the
Purchase Option Exercise Price in cash, in BioChem
Common Shares or in any combination of cash and
BioChem Common Shares.
Under the Articles and the by-laws of ClinChem (the
"By-laws"), CliniChem is prohibited from taking or
permitting any action inconsistent with, or which
would in any way alter, BioChem's rights under the
Purchase Option. In addition, until the expiration
of the Purchase Option, CliniChem may not, without
the consent of BioChem as the sole holder of the
majority of the outstanding Class B Shares,
amalgamate or liquidate, amend its Articles to
alter the Purchase Option, CliniChem's authorized
capitalization, or certain provisions of its
Articles governing the right of the holders of the
majority of the outstanding Class B Shares to elect
one director.
Income Tax
Considerations............. The Distribution will be a taxable dividend to
Holders who are resident in Canada. The normal
rules concerning the taxation of dividends paid by
a taxable Canadian corporation to its shareholders
will be applicable. A Holder who is not resident in
Canada and receives CliniChem Common Shares as a
dividend-in-kind will be subject to Canadian
withholding tax. A portion of the CliniChem Common
Shares otherwise deliverable to a non-resident
Holder will be sold on behalf of the non-resident
in order to pay any Canadian withholding tax for
which such non-resident is otherwise liable. See
"Income Tax Considerations--Canadian Federal Income
tax Considerations".
The Distribution of CliniChem Common Shares to a
U.S. Holder (as defined below) will be treated as a
dividend for United States Federal income tax
purposes to the extent of BioChem's current and
accumulated earnings and profits (as determined for
United States tax purposes). Any excess of the
value of the CliniChem Common Shares distributed
over BioChem's current and accumulated earnings and
profits will be treated first as a return of a U.S.
Holder's tax basis in its BioChem Common Shares,
and then (once such basis is reduced to zero) as a
capital gain. For these purposes, a U.S. Holder
will be considered to have received a distribution
equal to the aggregate fair market value on the
date of the Distribution of the CliniChem Common
Shares actually received by such U.S. Holder plus
those shares which are withheld to satisfy such
U.S. Holder's Canadian withholding tax liability.
BioChem believes that it does not have any
accumulated earnings and profits, but cannot
determine whether it has current earnings and
profits
12
<PAGE> 14
until the close of its 1998 tax year. BioChem will
notify U.S. Holders of any amount which they must
include in income as a dividend.
A. U.S. Holder will not be entitled to claim a
dividends-received deduction with respect to the
CliniChem Common Shares received in the
Distribution, or on dividends, if any, that
CliniChem pays on CliniChem Common Shares.
It is expected that CliniChem will initially be
classified as a "passive foreign investment
company" ("PFIC") for United States Federal income
tax purposes. If CliniChem is so classified, a U.S.
Holder of CliniChem Common Shares will be subject
to a special United States tax regime with respect
to certain distributions received from CliniChem as
well as with respect to any gain from the
disposition of CliniChem Common Shares, unless such
U.S. Holder elects to include currently in gross
income a pro rata share of the earnings of
CliniChem each year (a "qualified election").
Failure to make such qualified election could be
disadvantageous to certain United States investors.
Therefore, prospective investors who are United
States corporations, United States citizens or
residents, or otherwise subject to the United
States tax jurisdiction should consult their tax
advisors to decide whether to make a qualified
election with respect to their CliniChem Common
Shares. See "Income Tax Considerations--United
States Federal Income Tax Considerations."
The status of CliniChem as a foreign corporation
may pose special tax risks to United States
investors. Certain material United States Federal
income tax consequences of the Distribution and
receipt of CliniChem Common Shares are discussed
under "Income Tax Considerations--United States
Federal Income Tax Considerations."
A U.S. Holder will be subject to Canadian
withholding tax on the Distribution, and will have
a portion of the CliniChem Common Shares otherwise
deliverable to it withheld from the Distribution,
in order for some or all of such withheld shares to
be sold and the proceeds used to satisfy Canadian
withholding tax for which such U.S. Holder is
liable. After sufficient shares are sold to satisfy
such liability, any remaining withheld shares which
have not been so sold will be distributed to such
U.S. Holder. Such U.S. Holder will recognize a
short-term capital gain or loss on the sale of such
withheld shares equal to the difference between the
sale price realized and the sum of the fair value
of the shares on the Distribution Date plus any
expenses incurred in relation to the sale. See
"Income Tax Considerations" and "The Distribution."
HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE TAX CONSEQUENCES OF THE
DISTRIBUTION AND THE OWNERSHIP AND DISPOSITION OF
CLINICHEM COMMON SHARES.
Risk Factors............... Ownership of CliniChem Common Shares involves a
high degree of investment risk which should be
considered carefully in evaluating the ownership of
CliniChem Common Shares including:
(i) No prior operating history; no assurance of
profitability, (ii) common management, (iii) lack
of arm's-length negotiations, (iv) the Product
Option, (v) the Purchase Option Exercise Price;
transferability of Class B Shares, (vi) no
assurance of exercise of options, (vii) no
13
<PAGE> 15
assurance of successful development of the
CliniChem Products, (viii) no assurance of
sufficient funds, (ix) no assurance of successful
manufacturing or marketing, (x) third-party
consents, (xi) potential competition from BioChem,
(xii) relationship between CliniChem and BioChem
may limit CliniChem's activities and market value,
(xiii) directors not initially elected by
shareholders, (xiv) limitation on CliniChem's
ability to license products to third parties, (xv)
uncertainty regarding sufficient availability of
BioChem research and development personnel and
facilities, (xvi) limitation or termination of
rights and obligations in bankruptcy, (xvii)
dependence on BioChem, (xviii) highly competitive
industry; rapid and significant technological
change, (xix) government regulation, (xx)
uncertainty regarding patents and proprietary
technology; unpredictability of patent protection,
(xxi) uncertainty of pharmaceutical pricing and
third-party reimbursement, (xxii) CliniChem product
liability exposure and insurance, (xxiii) possible
dilution; reduction of per share Purchase Option
Exercise Price, and (xxiv) no assurance of trading
value or markets for CliniChem Common Shares; sale
of withheld shares. See "Risk Factors."
Principal Offices.......... CliniChem's registered and principal executive
office is located at 275 Armand-Frappier Boulevard,
Laval, Quebec, Canada H7V 4A7.
Reasons for Furnishing this
Prospectus............... This Prospectus is being furnished solely to
provide information for Holders, each of whom will
receive CliniChem Common Shares in the
Distribution. It is not to be construed as an
inducement or encouragement to buy or sell any
securities of CliniChem or BioChem. The information
contained herein is provided as of the date of this
Prospectus unless otherwise indicated.
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<PAGE> 16
GLOSSARY
Acquired Product........... A CliniChem Product as to which the Product Option
has been exercised by BioChem.
Available Funds............ All of the funds contributed or paid to CliniChem
by BioChem, plus any investment income earned
thereon, less (i) Research and Development Costs,
(ii) CliniChem's ongoing administrative expenses
and income taxes paid (less income taxes refunded),
(iii) the Technology Fee and (iv) payments made
pursuant to the Services Agreement.
BioChem/CliniChem
Agreements............... The Research and Development Agreement, the
Technology License Agreement, the Product Option
Agreement, the Services Agreement, the Distribution
Agreement and the Purchase Option, collectively.
BioChem Technology......... All proprietary technology, whether patented or
unpatented, owned by, licensed to or controlled by
BioChem and related to the CliniChem Programs,
including any Developed Technology, which BioChem
has the right to license or sublicense without the
consent of any third party and
without incurring additional liability to any third
party, and any additional technology which BioChem
chooses to designate as BioChem Technology.
Developed Technology....... All technology developed or otherwise obtained
pursuant to the Research and Development Agreement.
Distribution............... BioChem's distribution of all the outstanding
CliniChem Common Shares to the Holders.
Distribution Agreement..... The agreement between BioChem and CliniChem
relating to the terms and conditions of the
Distribution.
Distribution Date.......... , 1998, the date of
commencement of the Distribution.
Field of Use............... The treatment of a particular disease or, in the
case of a vaccine, vaccination against a particular
bacterium.
Holders.................... The holders of record, on the Record Date, of
BioChem Common Shares.
Licensing Revenues......... Percentage-of-sales payments and Special Royalty
Payments received by BioChem from unrelated third
parties with respect to Acquired Products.
Major Market Country....... Any one of the following countries: Canada, France,
Germany, Italy, Japan, the United Kingdom or the
United States.
Net Sales.................. The total amount invoiced, net of taxes, on sales
of an Acquired Product by BioChem to unrelated
third parties, such as wholesalers, hospitals
distributors, marketing partners and others, in
bona fide arm's-length transactions, less
discounts, allowances, credits and charges for
freight or insurance as customarily determined
under BioChem's accounting policies.
Product Option............. The option granted by CliniChem to BioChem to
acquire all rights to each CliniChem Product (and
to terminate CliniChem's corresponding license with
respect thereto), exercisable on a
product-by-product and country-by-country basis and
freely assignable by BioChem.
Product Option Agreement... The agreement between BioChem and CliniChem
granting the Product Option.
15
<PAGE> 17
Product Payment Buy-Out
Option................... BioChem's option to buy out CliniChem's right to
receive Product Payments for any Acquired Product
on a country-by-country or global basis.
Product Payments........... Payments to be made by BioChem to CliniChem with
respect to Net Sales of Acquired Products and
Licensing Revenues with respect to Acquired
Products.
Purchase Option............ The option of BioChem (as the holder of the
majority of the outstanding Class B Shares) to
acquire all (but not less than all) of the
outstanding CliniChem Common Shares.
Purchase Option Exercise
Price.................... The amount payable by BioChem to exercise the
Purchase Option.
Record Date................ , 1998, the date as of which
Holders will be eligible to receive CliniChem
Common Shares in the Distribution.
Research and Development
Agreement................ The agreement between BioChem and CliniChem
providing for the conduct by BioChem of the
CliniChem Programs.
Research and Development
Costs.................... The fully-burdened cost of activities undertaken
pursuant to the Research and Development Agreement,
including research expenses, general and
administrative expenses, capital asset costs, costs
for licenses or acquisition of technology, products
or therapeutic agents from third parties for the
CliniChem Programs and costs of third-party
collaborations or contract research undertaken for
the CliniChem Programs.
Services Agreement......... The agreement between BioChem and CliniChem
pursuant to which BioChem has agreed to provide
CliniChem with administrative services.
Specialty Royalty
Payments................... Front-end distribution fees, prepaid royalties,
one-time, infrequent or special payments or
non-monetary consideration (including licenses of
technology) from a licensee, distributor or
marketing partner to BioChem with respect to an
Acquired Product but excluding any payments for
research and development related services or
capital expenditures. The fair market value of any
such non-monetary consideration shall be assessed
by a third-party expert mutually agreed to by
BioChem and CliniChem.
Technology Fee............. The payments to be made by CliniChem to BioChem in
consideration for BioChem granting CliniChem a
license to use existing BioChem Technology for the
CliniChem Programs.
Technology License
Agreement.................. The agreement between BioChem and CliniChem
pursuant to which BioChem has granted to CliniChem
a license to use BioChem Technology solely to
conduct research and development and related
activities with respect to the CliniChem Programs,
and a license to commercialize the CliniChem
Products, in consideration for the Technology Fee.
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<PAGE> 18
RISK FACTORS
The following factors, in addition to the other information set forth in
this Prospectus should be considered carefully in evaluating ownership of
CliniChem Common Shares:
No Prior Operating History; No Assurance of Profitability. CliniChem is a
newly formed company and is subject to the risks inherent in the establishment
of a new business enterprise in the biotechnology industry. CliniChem will incur
substantial losses for several years due to the long-term nature of the research
and development of the CliniChem Products, which losses may never be recovered.
Further, there can be no assurance that the CliniChem Products being developed
pursuant to the Research and Development Agreement can be licensed or marketed
profitably, if at all. Even if such CliniChem Products are commercialized
profitably, the initial losses may never be recovered. See "Business of
CliniChem."
Common Management. The BioChem/CliniChem Agreements, the By-laws and the
Articles were approved by BioChem, as the sole shareholder of CliniChem. The
members of the present Board of Directors of CliniChem are persons who are
directors, officers or employees of BioChem or its affiliates. See "Business of
CliniChem--Executive Officers and Directors."
Lack of Arm's-Length Negotiations. The BioChem/CliniChem Agreements were
not negotiated on an arm's-length basis and BioChem and CliniChem did not retain
separate counsel in connection therewith. BioChem is the contractor under the
Research and Development Agreement and will perform or participate in all
development activities thereunder. CliniChem will be responsible for and will
pay the Research and Development Costs that are incurred by BioChem under the
Research and Development Agreement. BioChem will unilaterally determine certain
activities to be undertaken under the Research and Development Agreement and in
all events BioChem will have substantial influence over all activities and
procedures (including the timing and priorities thereof) to be undertaken
pursuant to the Research and Development Agreement. BioChem has no obligation to
complete any development activity after all the Available Funds have been
expended under the Research and Development Agreement. BioChem's own projects
and other third-party projects may compete for time and resources with projects
undertaken pursuant to the Research and Development Agreement and the resources
BioChem expends under the Research and Development Agreement may therefore be
limited. See "The Agreements and the Purchase Option--Research and Development
Agreement."
The Product Option. If BioChem exercises the Product Option for one or
more CliniChem Products, it will have sole discretion to control the
commercialization of such CliniChem Product(s), including discretion to allocate
its marketing resources among those CliniChem Product(s) and other BioChem
products. See "The Agreements and the Purchase Option--Technology License
Agreement."
The Purchase Option Exercise Price; Transferability of Class B Shares. The
Purchase Option Exercise Price was not determined on an arm's-length basis.
There can be no assurance that the Purchase Option Exercise Price will
accurately reflect the fair market value of the CliniChem Common Shares at the
time of exercise, if any, and that the Purchase Option Exercise Price will not
be significantly higher or lower than such fair market value. The Purchase
Option Exercise Price was determined by BioChem, giving consideration to the
structure of the Distribution, CliniChem's planned business, the
BioChem/CliniChem Agreements, advice given by Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and such other factors as BioChem deemed
appropriate. Furthermore, BioChem may transfer ownership of all or part of the
Class B Shares at any time and there can be no assurance that the new holder
would have the same financial resources or development, manufacturing or
marketing capabilities as BioChem, which may have a material adverse effect on
the likelihood of the exercise of the Purchase Option. In the event that a
majority of the Class B Shares were to be transferred, the payment by the
subsequent holder of the majority of the Class B Shares could be made in cash
or, if such holder is a company whose common equity securities are listed on a
national securities exchange in the United States, admitted to unlisted trading
privileges or listed on the Nasdaq, or whose common equity securities are listed
on The Toronto Stock Exchange or the Montreal Exchange, in the sole discretion
of such holder, in shares of such listed common equity security. See "The
Agreements and the Purchase Option--Purchase Option."
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<PAGE> 19
No Assurance of Exercise of Options. BioChem is not obligated to exercise
the Purchase Option or the Product Option, and it will exercise either or both
of such options only if, in the opinion of BioChem, it is in BioChem's best
interest to do so. Even if the CliniChem Products are developed and approved, if
BioChem does not exercise the Product Option for a CliniChem Product and/or does
not exercise the Purchase Option, CliniChem will be required to find alternative
ways to commercially market or exploit such CliniChem Products and there can be
no assurance that CliniChem will be able to do so. In the event BioChem fails to
exercise the Purchase Option and CliniChem determines to market the CliniChem
Products itself (other than any CliniChem Product as to which BioChem has
exercised the Product Option), CliniChem will require substantial additional
funds. There can be no assurance that such funds will be available on attractive
terms, if at all. Similarly, if CliniChem determines to license the CliniChem
Products to third parties, such arrangements, if available, may be on terms less
favorable to CliniChem or its shareholders than would be the exercise of the
Purchase Option. See "The Agreements and the Purchase Option--Purchase Option."
No Assurance of Successful Development of the CliniChem
Products. CliniChem has agreed with BioChem that BioChem will use diligent
efforts to conduct the CliniChem Programs in accordance with the terms of the
Research and Development Agreement. BioChem's historical performance has no
relationship to CliniChem's potential product development and is not indicative
of the future performance of CliniChem. While certain research and development
of the CliniChem Products have been conducted, additional research, clinical
studies and product development are still to be undertaken. There can be no
assurance that CliniChem or BioChem will be able to complete research, clinical
development or product development, gain regulatory approval or successfully
commercialize any of the CliniChem Products or that the CliniChem Products can
be introduced within the anticipated cost estimates or time frames, if at all.
Based on CliniChem's current development schedule, CliniChem does not expect
that most of the CliniChem Products will reach commercial marketability prior to
expenditure of the Available Funds. The successful development of any of the
CliniChem Products will require, among other things, demonstration through human
clinical studies that such CliniChem Products are safe and effective. See "The
Agreements and the Purchase Option--Research and Development Agreement."
No Assurance of Sufficient Funds. There can be no assurance that CliniChem
will have sufficient funds to successfully develop any of the CliniChem
Products. Based on CliniChem's current development schedule, CliniChem does not
expect that most of the CliniChem Products will reach commercial marketability
prior to expenditure of all of the Available Funds. Currently, other than the
Available Funds, CliniChem has no other source for the funding that may be
needed to complete the development and commercialization of the CliniChem
Products. Therefore, if additional funding is necessary, such development and
commercialization of the CliniChem Products may not be possible. While BioChem
may provide additional funding, including through loans, at its absolute
discretion, upon terms to be negotiated at such time, BioChem is under no
obligation to provide such additional funds and there can be no assurance that
it will provide such additional funds. See "The Agreements and the Purchase
Option--Purchase Option."
No Assurance of Successful Manufacturing or Marketing. CliniChem has no
manufacturing or marketing capability. BioChem has vaccine manufacturing,
quality control and warehousing operations in two locations in Canada, including
its new facility in Ste-Foy in the Quebec City area. BioChem has marketing
operations for its vaccines in Canada, Argentina and Spain. BioChem has no
manufacturing facilities for commercial production of any of its therapeutic
drugs approved or under development. Even if the CliniChem Products are
developed and receive necessary regulatory clearances and approvals, there can
be no assurance that the CliniChem Products will be successfully manufactured
for clinical trials or successfully manufactured or marketed for commercial
sale. To be successfully marketed, any CliniChem Product must be manufactured in
commercial quantities in compliance with regulatory requirements and at a
commercially viable cost. There can be no assurance that any CliniChem Product
can be manufactured at a commercially viable cost. Any significant delays in the
completion of validation and licensing of expanded or new facilities could have
a material adverse effect on the ability to continue clinical trials of and
ultimately to market the CliniChem Products on a timely and profitable basis. If
BioChem does not exercise its Product Option for a CliniChem Product (and does
not exercise the Purchase Option), CliniChem will have to make alternative
arrangements for manufacturing and marketing that CliniChem Product, and there
can be no assurance that CliniChem will be able to do so.
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<PAGE> 20
If BioChem exercises its Product Option for any CliniChem Product, BioChem
may need to develop and/or expand its marketing capabilities to commercialize
such Acquired Product effectively. If BioChem exercises its Product Option for
any CliniChem Product, and does not, at the time the product is to be
commercialized, have a sales force in the relevant country or countries, BioChem
may need to arrange for marketing by third parties. If BioChem does not exercise
its Product Option for a CliniChem Product (and does not exercise the Purchase
Option), CliniChem may need to find other means to commercialize that CliniChem
Product not involving BioChem, and there can be no assurance that CliniChem will
be able to do so.
At the present time, CliniChem does not have, nor, through the development
stage of the CliniChem Products, does it expect to develop, any manufacturing or
marketing capability. If CliniChem decides to manufacture or market one or more
CliniChem Products itself, CliniChem will need substantial additional funds.
There is no assurance that additional funds will be available, or will be
available on attractive terms, and BioChem has no obligation to supply any
additional funds to CliniChem. In addition, prior to the exercise or expiration
of the Purchase Option, CliniChem may not use the Available Funds for this
purpose without BioChem's consent.
If either BioChem or CliniChem seeks a third party to manufacture or market
a CliniChem Product, there can be no assurance that satisfactory arrangements
can be successfully negotiated or that any such arrangements will be on
commercial terms acceptable to BioChem or CliniChem. In addition, even if
CliniChem decides to license any CliniChem Product to a third party, agreements
with that third party, if available, may be on terms less favorable to CliniChem
than the terms of the BioChem/CliniChem Agreements.
Even if acceptable manufacturing and marketing resources are available,
there can be no assurance that any CliniChem Products will be accepted in the
marketplace. There can be no assurance that there will be adequate reimbursement
by health insurance companies or other third-party payors for any CliniChem
Products that are marketed.
CliniChem's right to obtain manufacturing will be subject to a right of
first offer and a right of first refusal on the part of BioChem to manufacture
and, in the event BioChem does not exercise such right of first offer or right
of first refusal, then BioChem has the right to approve any proposed
manufacturer, which approval may be withheld only if any such manufacturer has
insufficient or inadequate manufacturing capability (including lack of
compliance with GMP regulations) or if any such manufacturer's activities are
likely to have a material adverse effect on BioChem's overall competitive
position in the pharmaceutical industry. There can be no assurance that BioChem
will not object to potential manufacturers on such grounds or that such
objection will not have an adverse effect on CliniChem's ability to secure
satisfactory manufacturing arrangements. See "The Agreements and the Purchase
Option--Technology License Agreement."
Third-Party Consents. Under certain pre-existing agreements, BioChem may
be required to obtain third-party consents in order to grant a sublicense to
CliniChem in accordance with the Technology License Agreement.
BioChem has licensed certain patents and technology related to adjuvants
and biovectors from Pharmadigm Biosciences Inc. ("Pharmadigm") and Biovector
Therapeutics, SA ("Biovector") (respectively the "Pharmadigm Agreement" and the
"Biovector Agreement"). BioChem is currently evaluating the potential of these
adjuvants and biovectors for incorporation into vaccines currently under
development in the CliniChem Programs. In the event that (i) any such developed
vaccine incorporates such adjuvants or biovectors, (ii) BioChem does not
exercise the worldwide Product Option with respect to such vaccine and (iii)
BioChem has not exercised the Purchase Option, it may be necessary for BioChem
to obtain the consent of Pharmadigm and/or Biovector to sublicense such
adjuvants or biovectors to CliniChem on commercial terms acceptable to BioChem
or for CliniChem to obtain a license to such patents and technology prior to
CliniChem's commercialization of such vaccines. There can be no assurance that
BioChem or CliniChem would be able to obtain such consent or license or, if
available, that it would be available on commercial terms acceptable to BioChem
or CliniChem.
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<PAGE> 21
BioChem has obtained a license from the University of Georgia Research
Foundation, Inc. ("UGARF") and Yale University (the "UGARF Agreement") to
certain patents and know-how related to the use of BCH-4556 for the treatment of
cancer. The UGARF Agreement is silent as to whether BioChem may grant
sublicenses to commercialize without the licensors' consent. In the event that
BioChem does not exercise the Product Option with respect to BCH-4556 and does
not exercise the Purchase Option, it may be necessary for BioChem to obtain the
consent of the licensors to sublicense such patents and know-how to CliniChem or
for CliniChem to obtain a license to such patents and know-how prior to
CliniChem's commercialization of BCH-4556. There can be no assurance that such
consent or license would be available, or if available, that it would be
available on commercial terms acceptable to BioChem or CliniChem. See "The
Agreements and the Purchase Option--Third-Party Consents and Rights."
Potential Competition from BioChem. BioChem is engaged in ongoing
licensing and development of new products. While BioChem has licensed the rights
to conduct the CliniChem Programs and manufacture and commercialize the
CliniChem Products to CliniChem, BioChem is not prohibited from developing other
products, including those that may compete with the CliniChem Products, or from
in-licensing or acquiring products that may compete with the CliniChem Products.
BioChem's activities may, in some circumstances, lead to the development,
in-licensing or acquisition of products that compete with the CliniChem Products
being developed by or on behalf of CliniChem. It is possible that BioChem's
rights with respect to such competitive products could reduce BioChem's
incentive to exercise the Product Option or the Purchase Option. See "The
Agreements and the Purchase Option--Research and Development Agreement."
Relationship Between CliniChem and BioChem May Limit CliniChem's Activities
and Market Value. The terms of the BioChem/CliniChem Agreements, the Articles
and the By-laws were not determined on an arm's-length basis and certain terms
may limit CliniChem's activities and its market value.
The Articles and the By-laws prohibit CliniChem from taking or permitting
any action that might impair BioChem's rights under the Purchase Option. Prior
to the exercise or the expiration of the Purchase Option, CliniChem may not,
without the consent of the holders of the majority of the outstanding Class B
Shares, amalgamate or liquidate, or amend its Articles to alter the Purchase
Option, CliniChem's authorized capitalization, or the provisions of the Articles
governing the right of the holders of the majority of the outstanding Class B
Shares to elect one director. Because BioChem will hold all of the outstanding
Class B Shares following the Distribution, BioChem will be able to influence
significantly or control the outcome of any of the foregoing actions requiring
approval by the majority holders of the Class B Shares. The ability of BioChem
to influence significantly or control such matters could affect the liquidity of
the CliniChem Common Shares and have an adverse effect on the price of the
CliniChem Common Shares, and may have the effect of delaying or preventing a
change in control of CliniChem, including transactions in which shareholders
might otherwise receive a premium for their shares over then current market
prices. Neither the terms of the BioChem/CliniChem Agreements nor the Articles
prohibit BioChem from transferring its Class B Shares. The special rights
accorded to the holders of the majority of the outstanding Class B Shares will
expire upon expiration of the Purchase Option. See "The Agreements and The
Purchase Option--Purchase Option" and "Description of CliniChem's Share
Capital."
So long as the Purchase Option is exercisable, the market value of the
CliniChem Common Shares will be limited by the Purchase Option Exercise Price.
The Purchase Option Exercise Price was determined by BioChem, giving
consideration to the structure of the Distribution, CliniChem's planned
business, the BioChem/CliniChem Agreements, advice given by Merrill Lynch, and
such other factors as BioChem deemed appropriate. The Purchase Option Exercise
Price was not determined on an arm's-length basis.
The existence of the Purchase Option and BioChem's rights as holder of the
majority of the outstanding Class B Shares may inhibit CliniChem's ability to
raise capital. Additional capital raised by CliniChem, if any, would most likely
reduce the per share proceeds available to holders of the CliniChem Common
Shares if the Purchase Option were exercised. The existence of the Purchase
Option and BioChem's rights as the holder of the majority of the outstanding
Class B Shares may inhibit a change of control and may make an investment in the
CliniChem Common Shares less attractive to certain potential shareholders, which
could adversely affect the liquidity and market value of the CliniChem Common
Shares.
20
<PAGE> 22
If BioChem exercises its Product Option for any CliniChem Products, BioChem
will have the right to commercialize the product with third parties on such
terms as BioChem deems appropriate. In such event, Product Payments from BioChem
to CliniChem with respect to the CliniChem Product commercialized by such third
parties will be based on Licensing Revenues received from such third parties.
Directors Not Initially Elected by Shareholders. Dr. Francesco Bellini
will remain a director of CliniChem following the Distribution in accordance
with the rights of BioChem under the Articles as the sole holder of the majority
of the outstanding Class B Shares. Subsequent to the Distribution, two of
CliniChem's current directors will resign as directors and will be replaced by
independent directors. The directors will not have been elected by the
shareholders, and the holders of the CliniChem Common Shares will not have the
opportunity to elect any members of the full Board of Directors until the first
annual meeting of shareholders following the Distribution. See "Business of
CliniChem--Executive Officers and Directors".
Limitation on CliniChem's Ability to License Products to Third
Parties. CliniChem has granted BioChem the Product Option, which is exercisable
on a product-by-product and country-by-country basis. During the term of the
Product Option for each CliniChem Product, CliniChem will not be able to
sublicense such CliniChem Product to any party other than BioChem. See "The
Agreements and the Purchaser Option--Product Option Agreement."
Uncertainty Regarding Sufficient Availability of BioChem Research and
Development Personnel and Facilities. Although BioChem believes that its
personnel, facilities and third-party arrangements currently are or, in the
future, will be adequate for the performance of its duties to CliniChem under
the Research and Development Agreement, its research personnel will perform
services in the same facilities for BioChem and client companies of BioChem. In
addition, conduct of the CliniChem Programs pursuant to the Research and
Development Agreement will require BioChem to attract and retain additional
personnel with particular scientific and management skills. The availability of
such personnel is limited and there can be no assurance that such personnel will
be available or that BioChem will be successful in attracting the necessary
personnel to successfully develop any of the CliniChem Products. BioChem is not
required to allocate any specified amount of time or resources to its duties
under the Research and Development Agreement. BioChem's obligations to other
present and future clients may restrict the amount of resources that otherwise
could be devoted to its duties under the Research and Development Agreement.
Subject to its obligation to use diligent efforts under the Research and
Development Agreement, BioChem may allocate both its research personnel and its
facilities as it deems appropriate under the circumstances. See "The Agreements
and the Purchase Option--Research and Development Agreement."
BioChem's success to date has resulted, in large part, from the particular
scientific and management skills of its personnel. There can be no assurance
that such personnel will continue to be available to BioChem or, were they to be
no longer available, that BioChem would be able to attract and retain employees
with similar skills. The continued availability of this group is important to
the business of CliniChem.
Limitation or Termination of Rights and Obligations in Bankruptcy. In the
event that BioChem voluntarily or involuntarily is party to a bankruptcy,
winding up, receivership, appointment of examiner or trustee, insolvency,
compromise with creditors or similar proceeding, the liquidator, receiver,
examiner, trustee or administrator of BioChem's business and properties may have
broad powers to deal with such business and properties, including the ability to
terminate certain contracts, in which case CliniChem's rights as they relate to
the license granted pursuant to the Technology License Agreement or its right to
receive Product Payments from BioChem pursuant to the terms of the Product
Option Agreement may be adversely affected and any claims of CliniChem in such
case will rank with other claims on an unsecured basis. See "The Agreements and
the Purchase Option--Technology License Agreement" and "--Research and
Development Agreement."
Dependence on BioChem. Substantially all of the management and operating
activities of CliniChem will be carried out by BioChem under the Research and
Development Agreement and the Services Agreement. CliniChem is not expected to
have its own research, development, clinical, licensing, administration,
manufacturing or marketing employees or facilities and thus will be entirely
dependent on BioChem in these areas. Subject to their respective obligations
under the Research and Development Agreement and the Services Agreement,
consistent with commercially reasonable practices, BioChem will have sole
discretion to determine the allocation of its research, development, clinical,
licensing, administration, manufacturing and
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<PAGE> 23
marketing employees and facilities. Although BioChem believes that its
personnel, facilities and third-party arrangements currently are or, in the
future, will be adequate for the performance of its duties under the Research
and Development Agreement, BioChem's proprietary and collaborative development,
licensing, manufacturing and marketing projects may compete for time and
resources with projects undertaken by CliniChem pursuant to the Research and
Development Agreement, thereby delaying development, manufacture and marketing
of the CliniChem Products. Any material adverse change in the business or
financial condition of BioChem would have a material adverse effect upon
CliniChem. See "The Agreements and the Purchase Option--Research and Development
Agreement."
Highly Competitive Industry; Rapid and Significant Technological
Change. The pharmaceutical industry is highly competitive and subject to rapid
and significant technological change. CliniChem anticipates that it will face
increased competition in the future as new products enter the market and
advanced technologies become available. The CliniChem Programs currently face
intense competition from other pharmaceutical concerns. Competitors of BioChem
and CliniChem in North America and abroad are numerous and include, among
others, major pharmaceutical and chemical companies, including without
limitation some of the licensees (or potential licensees) of the CliniChem
Products, specialized contract research and research and development firms,
universities and other research institutions. Many of these competitors,
particularly large pharmaceutical, vaccine and diagnostic companies, have
substantially greater financial, technical and human resources than those of
BioChem and CliniChem. In addition, many of these competitors have significantly
greater experience than BioChem and CliniChem in undertaking research,
pre-clinical studies and human clinical trials of new pharmaceutical products,
obtaining FDA and other regulatory approvals, and manufacturing and marketing
such products. There can be no assurance that BioChem's and CliniChem's
competitors will not succeed in developing technologies and products that are
as, or more, clinically or cost-effective than the BioChem Technology or the
CliniChem Products or that would render the BioChem Technology and CliniChem
Products obsolete or uncompetitive prior to BioChem's and CliniChem's recovering
research, development or commercialization expenses incurred with respect to any
such BioChem Technology or CliniChem Products. Such success by BioChem's and
CliniChem's competitors in commercializing products more rapidly or effectively
than BioChem and CliniChem could have a material adverse effect on BioChem's and
CliniChem's business, financial condition or results of operations. See
"Business of CliniChem".
Government Regulation. Regulation by governmental authorities in Canada,
the United States and other countries is a significant factor in the production
and marketing of the CliniChem Products and in the conduct of the CliniChem
Programs.
Pharmaceutical and biological products intended for diagnostic, therapeutic
or prophylactic use for humans are governed by the FDA in the United States, by
the Health Protection Branch (the "HPB") in Canada and by comparable agencies in
other countries. For most of these products, the regulations require extensive
clinical trials and other testing and government review and final approval prior
to marketing the product. This procedure is likely to take a number of years and
involves the expenditure of substantial resources. For example, as a general
rule, before obtaining regulatory approval for the commercial sale of any
CliniChem Product under development, CliniChem must demonstrate through
pre-clinical studies and clinical trials that the CliniChem Product is safe and
efficacious. The results from pre-clinical studies and early clinical trials may
not be predictive of results obtained in large scale clinical trials, and there
can be no assurance that BioChem's and CliniChem's or their collaborators'
clinical trials will demonstrate safety and efficacy, achieve regulatory
approvals or result in marketable CliniChem Products. A number of companies in
the biotechnology industry have suffered significant setbacks in advanced
clinical trials, even after achieving promising results in earlier trials. In
addition, government regulations specify standards for manufacturing and
marketing pharmaceutical products.
The Center for Biologics Evaluation and Research (the "CBER") in the United
States, the Bureau of Biologics and Radiopharmaceuticals (the "BBR") in Canada,
and similar agencies in other countries, regulate the manufacturing, marketing
and use of vaccines. CliniChem Product License Applications and Establishment
License Applications or equivalent documentation are required to be submitted to
the governmental authorities for review prior to obtaining marketing approval.
Government regulations specify standards for manufacturing and marketing
vaccines and biological products. These regulations set standards for proof of
22
<PAGE> 24
safety and effectiveness, establish good manufacturing practices, require
inspection of vaccine manufacturing facilities and require reporting of adverse
events to regulatory authorities. These government authorities also conduct
pre-release testing of vaccines and authorize the sale of each lot of vaccines.
Sales of therapeutic and vaccine products outside Canada and the United
States are subject to regulatory requirements that vary from country to country.
Whether or not FDA, HPB, CBER or BBR approval has been obtained, final approval
of a product by comparable regulatory authorities of other countries must be
obtained prior to the commencement of marketing the product in those countries.
The time required to obtain any such approval may be longer or shorter than that
required for FDA, HPB, CBER or BBR approval.
Any failure by BioChem and CliniChem or their collaborators or licensees to
obtain, or any delay in obtaining, regulatory approvals could adversely affect
the marketing of any CliniChem Products and CliniChem's ability to receive
product or royalty revenue. There can be no assurance that any of CliniChem's
planned products will be approved by the FDA, HPB, CBER or BBR or any other
governmental agency on a timely basis, if at all. See "Business of
CliniChem--Government Regulation."
Uncertainty Regarding Patents and Proprietary Technology; Unpredictability
of Patent Protection. CliniChem's success will depend, in part, on BioChem's
ability to obtain and enforce patents, protect trade secrets and other
proprietary information and operate without infringing on the proprietary rights
of others. There can be no assurance that patent applications for a CliniChem
Product will be approved, that CliniChem will develop any CliniChem Product or
process to the point that it is patentable, that any issued patents for a
CliniChem Product will provide CliniChem with adequate protection or will not be
challenged by others, or that the patents of others will not impair the ability
of CliniChem to do business. Furthermore, there can be no assurance that others
have not or will not independently develop similar products, duplicate any
unpatented CliniChem Products or design around any patented CliniChem Products
in development or marketed by BioChem or CliniChem.
BioChem currently holds a United States patent claiming BCH-4556 and
related compounds, as well as issued patents and pending applications covering
BCH-4556 and methods of using the same in numerous countries. Emory University
of Atlanta, Georgia has filed an opposition to BioChem's granted European patent
application covering BCH-4556. BioChem is vigorously defending its application.
An examined patent application, claiming use of stress proteins for the
preparation of vaccines, filed by the Whitehead Institute for Biomedical
Research, has been published for opposition in Europe. Oppositions to this
application have been filed by BioChem as well as another party and BioChem is
vigorously opposing this application. There is no assurance, however, that
BioChem will be successful in defeating these claims. The Whitehead Institute
holds a corresponding patent in Canada and may have pending applications in
other countries. In the event that BioChem were to be unsuccessful in
challenging the broad claims in the Whitehead patents, there is no assurance
that BioChem would be able to obtain a license to these patents, which may be
required to commercialize a Streptococcus pneumoniae vaccine based on the HSP72
heat shock protein.
CliniChem is aware of certain issued patents and patent applications of
others, and there may be other patents and patent applications, containing
subject matter which BioChem or CliniChem or their licensees or collaborators
may require in order to research, develop or commercialize certain of the
CliniChem Products. There can be no assurance that BioChem or CliniChem or their
collaborators will be able to obtain a license to any third-party technology or
patents that they may require to conduct the CliniChem Programs or that such
technology or patents can be licensed at a reasonable cost. Failure by BioChem,
CliniChem or their collaborators to obtain a license to any technology or
patents that they may need to commercialize the BioChem Technology or the
CliniChem Products may result in delays in marketing the CliniChem Products or
the inability to proceed with the development, manufacture or sale of the
CliniChem Products requiring such licenses and may have a material adverse
effect on CliniChem.
Litigation, which could result in substantial cost to BioChem, may also be
necessary to enforce any patents issued to BioChem or to determine the scope and
validity of other parties' proprietary rights, which may affect the CliniChem
Products and the likelihood that BioChem would exercise the Product Option with
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<PAGE> 25
respect to such products. If the outcome of any such litigation is adverse to
BioChem, CliniChem's business could be materially adversely affected.
BioChem also relies upon trade secrets, know-how, and continuing
technological advancement to develop and maintain its competitive position.
Disclosure and use of BioChem's know-how is generally controlled in part under
confidentiality agreements with the parties involved. In addition, BioChem has
confidentiality agreements with its key employees, consultants, officers and
directors. There can be no assurance, however, that all confidentiality
agreements will be honored, that others will not independently develop
equivalent technology, that disputes will not arise as to the ownership of
intellectual property, or that disclosure of BioChem's trade secrets will not
occur. Furthermore, there can be no assurance that others have not obtained or
will not obtain patent protection that will exclude BioChem from using its trade
secrets and confidential information. BioChem supports and collaborates in
research conducted in universities and in government research organizations.
There can be no assurance that BioChem will have or be able to acquire exclusive
rights to inventions or technical information derived from such collaboration or
that disputes would not arise as to rights in derivative or related research
programs conducted by BioChem. In addition, in the event of BioChem's
contractual breach or bankruptcy, certain of BioChem's collaborative research
contracts provide for transfer of technology (including any patents or patent
applications) to the collaborators. To the extent that consultants or research
collaborators use intellectual property owned by others in their work with
BioChem, disputes may also arise as to the rights to related or resulting
know-how or inventions. See "Business of CliniChem--Patents."
Uncertainty of Pharmaceutical Pricing and Third-Party Reimbursement. The
business and financial condition of diagnostic, pharmaceutical, vaccine and
biotechnology companies will continue to be affected by the efforts of
governments and third-party payors to contain or reduce the costs of healthcare
through various means. For example, in certain foreign markets pricing or
profitability of prescription pharmaceuticals is subject to government control.
In the United States there have been, and CliniChem expects that there will
continue to be, a number of federal and state proposals to implement similar
government control. In addition, an increasing emphasis on managed care in the
United States has and will continue to increase the pressure on pharmaceutical
pricing. While CliniChem cannot predict whether such legislative or regulatory
proposals will be adopted or the effects such proposals or managed care efforts
may have on its business, the announcement of such proposals and the adoption of
such proposals or efforts could have a material adverse effect on CliniChem's
business and financial condition. Further, to the extent such proposals or
efforts have a material adverse effect on other pharmaceutical companies that
are prospective corporate partners for CliniChem, CliniChem's ability to
establish a strategic alliance may be adversely affected. In addition, in
Canada, the United States and elsewhere, sales of prescription pharmaceuticals,
vaccines and diagnostic products are dependent, in part, on the availability of
reimbursement to the consumer from third-party payors, such as government and
private insurance plans. Third-party payors are increasingly challenging the
prices charged for medical products and services. To the extent CliniChem
succeeds in bringing products to market, there can be no assurance that these
products will be considered cost-effective and that reimbursement to consumers
will be available or will be sufficient to allow CliniChem to sell its products
on a competitive basis.
CliniChem Product Liability Exposure and Insurance. The use of any
CliniChem Products in clinical trials, and the sale of any CliniChem Products,
may expose CliniChem to liability claims resulting from the use of the CliniChem
Products. These claims might be made directly by consumers, healthcare providers
or by pharmaceutical companies or others selling such products. CliniChem
currently has no liability insurance with respect to sales of CliniChem
Products. There can also be no assurance that CliniChem will be able to obtain
or maintain commercially reasonable product liability insurance for any
CliniChem Products approved for marketing. A successful product liability claim
or a series of claims brought against CliniChem could have a material adverse
effect on its business, financial condition or results of operations.
Possible Dilution; Reduction of Per Share Purchase Option Exercise
Price. All CliniChem Common Shares issued by CliniChem after the Distribution
will be subject to the Purchase Option, and the Purchase Option Exercise Price
will not increase as a result of any such issuance. Accordingly, if additional
CliniChem Common Shares were to be issued, the percentage of the Purchase Option
Exercise Price payable with respect to each CliniChem Common Share in the event
BioChem exercises the Purchase Option would be reduced.
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<PAGE> 26
Liabilities, including any debt issued by CliniChem, but excluding any debt owed
to BioChem, will reduce the Purchase Option Exercise Price to the extent that
such liabilities exceed CliniChem's cash, cash equivalents, and short-term and
long-term investments (excluding the Available Funds), unless repaid or
discharged by CliniChem prior to exercise of the Purchase Option.
No Assurance of Trading Value or Markets for CliniChem Common Shares; Sale
of Withheld Shares. Although it is expected that the CliniChem Common Shares
will be traded on the Nasdaq, there can be no assurance that there will be an
active trading market for the CliniChem Common Shares. See "Description of
CliniChem's Share Capital." The sale of a portion of the CliniChem Common Shares
distributed to non-Canadian resident Holders on such Holders' behalf in order to
pay any Canadian withholding tax for which these Holders are liable, could
negatively affect the market price of the CliniChem Common Shares. See "The
Distribution."
THE DISTRIBUTION
The Board of Directors of BioChem has declared a distribution, payable to
Holders, of one CliniChem Common Share for every 40 BioChem Common Shares owned
by such Holder on the Record Date. As a result of the Distribution, all of the
then outstanding CliniChem Common Shares will be distributed to the Holders.
Neither BioChem nor CliniChem will receive any proceeds in connection with the
Distribution. After the Distribution, BioChem will hold all of the authorized
and issued Class B Shares. See "Description of CliniChem's Share Capital."
Subject to certain conditions set forth in the Distribution Agreement,
BioChem will effect the Distribution (expected to be on or about ,
1998) by delivering all of the CliniChem Common Shares to the Distribution
Agent. Commencing on or about the Distribution Date, the Distribution Agent will
begin distributing share certificates reflecting ownership of CliniChem Common
Shares to Holders.
No fractional shares will be issued as part of the Distribution. Fractional
CliniChem Common Shares will be rounded up to a whole share by the Distribution
Agent.
A total of approximately 2,706,475 CliniChem Common Shares are expected to
be distributed, assuming 108,258,990 BioChem Common Shares (the number of
BioChem Common Shares outstanding on January 31, 1998) are outstanding on the
Record Date. No Holder will be required to pay any cash or other consideration
for the CliniChem Common Shares received in the Distribution (exclusive of
applicable Canadian withholding taxes), nor will any action be required to be
taken by any Holder in order to receive CliniChem Common Shares.
However, Canadian withholding taxes will be payable. A portion of the
CliniChem Common Shares otherwise deliverable to certain Holders who are not
residents of Canada will be withheld and sold on such Holders' behalf in order
to pay any Canadian withholding tax for which such Holder is liable. The
distribution of the CliniChem Common Shares withheld may be effected from time
to time in one or more transactions on behalf of the Holder (which may include
block transactions) in the over-the-counter market, on the Nasdaq, or on any
exchange on which they may then be listed, in negotiated transactions, through
the writing of options on shares (whether such options are listed on an options
exchange or otherwise), or a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. Such
transactions may be effected by selling CliniChem Common Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Distribution Agent, and/or the
purchasers of CliniChem Common Shares for whom such broker-dealers may act as
agent or from both (which compensation as to a particular broker-dealer might be
in excess of customary commissions). Participating brokers and dealers may be
deemed to be "underwriters" as defined in the Securities Act. See "Income Tax
Considerations."
The general terms and conditions of the Distribution and the arrangements
between BioChem and CliniChem are set forth in the BioChem/CliniChem Agreements.
See "The Agreements and the Purchase Option."
Shareholders of BioChem with inquiries regarding the Distribution should
contact BioChem's principal executive office: BioChem Pharma Inc., 275
Armand-Frappier Blvd., Laval, Quebec, Canada H7V 4A7, Attn: Investor Relations;
Telephone: (514) 978-7771.
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CLINICHEM PRO FORMA CAPITALIZATION
The following table sets forth the pro forma capitalization and certain
other balance sheet data of CliniChem as of February 6, 1998, as adjusted to
give effect to the contribution to capital by BioChem of $150 million by BioChem
to the capital of CliniChem, the filing of an amendment to the Articles and the
issuance to BioChem of CliniChem Common Shares and Class B Shares prior to the
Distribution. The data set forth below should be read in conjunction with the
Financial Statements and related Notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS ADJUSTED AS OF
FEBRUARY 6, 1998(1)
-------------------
<S> <C>
Cash........................................................................ $150,001,000
Shareholders' equity:
Class A Common Shares; unlimited number of shares authorized; 2,706,475
shares issued and outstanding as adjusted............................ $ 167
Class B Common Shares; 1,000 shares authorized; 1,000 shares issued and
outstanding as adjusted(2)............................................ 833
Contributed surplus.................................................... 150,000,000
------------
Total shareholders' equity............................................. $150,001,000
============
</TABLE>
- ---------------
(1) See footnotes (a) and (b) to the Pro Forma Balance Sheet on page F-7 for a
description of the pro forma adjustments reflected in the adjusted
balances.
(2) All Class B Shares issued and outstanding, as adjusted, are held by
BioChem.
REASONS FOR THE DISTRIBUTION AND EFFECTS ON BIOCHEM
BioChem is a leading biopharmaceutical company engaged in the research,
development and marketing of therapeutic products and the research, development,
manufacturing and marketing of vaccine and diagnostic products for a wide range
of infectious and other diseases. For the fiscal year ended December 31, 1997,
BioChem had operating revenue of $280.8 million and net income of $79.8 million.
At December 31, 1997, BioChem shareholders' equity was $498.1 million.
BioChem conducts its business through BioChem Therapeutic Inc., BioChem
Vaccines Inc., BioChem ImmunoSystems Inc. and BioChem's foreign subsidiaries.
BioChem's most significant therapeutic product is a novel nucleoside analog,
marketed under the brand name of 3TC, developed with Glaxo Wellcome for the
treatment of patients with HIV infection, including AIDS. The nucleoside analog
is marketed under the brand names 3TC or Epivir. Lamivudine, a different dosage
regimen of 3TC, is also being developed with Glaxo Wellcome as a treatment for
chronic hepatitis B infection, including in the pre- and post-liver transplant
setting to prevent graft re-infection by human hepatitis B virus. BioChem has
also developed, and is manufacturing and marketing, a line of vaccines including
whole virus and split virus influenza vaccines, a combined diphtheria tetanus
vaccine and a vaccine to prevent tuberculosis. BioChem has also developed and is
manufacturing an immunotherapeutic product used in the treatment of certain
superficial bladder cancers. BioChem's diagnostics operations are engaged in the
research, development, manufacturing and marketing of a wide range of diagnostic
products and automated laboratory analyzers for the detection of a variety of
infectious diseases, and for use in immunology, endocrinology and hematology.
At the time of the capital contribution, BioChem will record an investment
in CliniChem of $150 million. On the date of the declaration of the
Distribution, BioChem will charge the fair market value of the dividend to
retained earnings and will expense the excess of the book value of CliniChem
over the fair market value of the CliniChem Common Shares distributed. The fair
market value of the CliniChem Common Shares will be determined by BioChem based
on their closing price on the Nasdaq on the Distribution Date. BioChem will
recognize as revenue the payments from CliniChem under the Research and
Development Agreement. Research and Development Costs incurred by BioChem to
perform its obligations under the Research and Development Agreement will be
expensed as research and development expenses.
If BioChem exercises the Purchase Option, the Purchase Option Exercise
Price will be allocated between capitalized intangibles (for the value of
completed CliniChem Products) and in-process research and
26
<PAGE> 28
development (for the value of research and development on-going under the
CliniChem Programs). Under generally accepted accounting principles in the
United States, the value attributed to in-process research and development will
be immediately written off as an expense, while under generally accepted
accounting principles in Canada it will be capitalized and recognized as expense
over future periods.
BioChem believes that the research and development work it has undertaken,
directly and through collaborators, in the therapeutic and vaccine areas has
yielded results which justify further research and development. However, a
substantial amount of additional research and development effort is required to
further develop the CliniChem Products to their potential commercialization.
Such opportunities involve significantly different risk/reward profiles as
compared to BioChem's established therapeutic, vaccine and diagnostic
businesses.
To continue the advancement of, and in certain cases accelerate, these
projects and programs, BioChem seeks strategic collaborations and ventures, such
as the Glaxo Wellcome collaboration, to provide complementary financing.
BioChem's strategy also involves actively seeking outside product opportunities
through joint ventures, licensing, acquisitions and strategic alliances with
both technology, marketing and geographic partners.
BioChem believes that the formation of CliniChem to conduct the CliniChem
Programs by BioChem, and the arrangements between BioChem and CliniChem, will
provide BioChem with the opportunity to continue to pursue and expand, more
quickly than would otherwise be possible, its product commercialization
business. BioChem believes that the arrangements with CliniChem will
significantly benefit BioChem shareholders by:
- separating the risks associated with conducting the CliniChem Programs
from those associated with BioChem's established therapeutic, vaccine and
diagnostic businesses;
- allowing individual shareholders of BioChem to increase or decrease
their level of participation in the business of conducting the CliniChem
Programs by varying their level of investment in CliniChem;
- obtaining for BioChem the exclusive right to commercialize worldwide
(subject to pre-existing third-party rights) any developed CliniChem
Product, assuming BioChem's exercise of the Product Option with respect
to such product or exercise of the Purchase Option, thereby making it
possible for BioChem to capture a potentially greater return on the
products researched and developed with CliniChem than may otherwise be
possible from products researched and developed for commercialization in
conjunction with other third parties; and
- allowing BioChem's near-term financial results to continue to reflect
principally its established therapeutic, vaccine and diagnostic
businesses, through CliniChem's payment to BioChem for the Research and
Development Costs.
The foregoing potential benefits to BioChem shareholders of the
arrangements with CliniChem may, however, be offset by certain costs and
detriments, including but not limited to the following: BioChem's loss of
control over research and development activities to be conducted by or on behalf
of CliniChem, which instead will be overseen by CliniChem's Board of Directors;
the administrative costs to BioChem relating to the establishment of CliniChem,
including accounting and legal fees and costs; the potential cost of the
exercise of any of BioChem's options and potential royalties to CliniChem; and
the potential loss of income tax benefits to BioChem which may have been derived
from deduction by BioChem rather than CliniChem of research and development
expenses attributable to the CliniChem Programs.
After reviewing BioChem's goals and objectives and considering other
possible methods of expanding its product line with proprietary therapeutic and
vaccine products that provide distinctive pharmaceutical and economic benefit,
BioChem's management and Board of Directors believe that continuing to pursue
the research and development of such products through the formation of CliniChem
and the Distribution will significantly benefit the BioChem shareholders. The
Board of Directors' final approval of this transaction was conditioned upon the
advice and the delivery of a written opinion of Merrill Lynch. Merrill Lynch has
delivered an opinion dated , 1998, substantially to the effect that,
based upon the factors recited in such opinion and the actions described below,
(i) from a financial point of view, the Distribution provides
27
<PAGE> 29
a reasonable structure to pursue the financial objectives of BioChem set forth
above and (ii) from a financial point of view, the Distribution is fair to
Holders.
In delivering its opinion, Merrill Lynch has undertaken, among other
things, the following actions: (a) a review of this Prospectus and certain other
material documents; (b) discussions with members of senior management of BioChem
with respect to the businesses and prospects of BioChem and CliniChem and the
strategic objectives of each; (c) discussions concerning the Distribution with
other representatives and advisors of BioChem; (d) a review of financial and
other information concerning BioChem (with and without CliniChem) that was
either publicly available or was furnished to it by BioChem; (e) a review of
historical prices and trading volumes of the BioChem Common Shares; (f) a review
of the terms and conditions of transactions that are similar to the transactions
contemplated in connection with the Distribution; and (g) a review of such other
financial studies and analyses as it deemed to be appropriate.
The opinion states that Merrill Lynch has relied on the accuracy and
completeness of all information supplied or otherwise made available to it,
discussed with or reviewed by or for it, or publicly available (including the
information contained in this Prospectus), and Merrill Lynch has not assumed any
responsibility for independently verifying such information or undertaken an
independent evaluation or appraisal of any of the assets or liabilities of
BioChem (with or without CliniChem) or been furnished with any such evaluation
or appraisal. In connection with this opinion, Merrill Lynch has not been asked
to, nor has it provided any opinion as to, the valuation or future performance
of CliniChem as an independent public company following the Distribution.
In its opinion, Merrill Lynch does not opine on or give assurances of the
price at which the BioChem Common Shares will actually trade after announcement
of the Distribution or the price at which the CliniChem Common Shares will
actually trade after the Distribution. The opinion notes that such trading
following the Distribution may be characterized by a redistribution among
existing shareholders and other investors and that, accordingly, the BioChem
Common Shares and the CliniChem Common Shares may trade during such period at
prices below those at which they would trade on a fully distributed basis. In
addition, the opinion does not address whether the funds invested by BioChem or
CliniChem will be adequate to accomplish the objective of successfully
conducting the CliniChem Programs.
BioChem will pay Merrill Lynch a customary fee for its services in
connection with the Distribution. The receipt of this fee is contingent upon the
consummation of the Distribution. Merrill Lynch will also be reimbursed for
certain expenses that it has incurred or will incur in rendering its services.
BioChem has agreed to indemnify Merrill Lynch against certain liabilities and
expenses in connection with its services as financial advisor. Merrill Lynch may
actively trade BioChem Common Shares and may, in the future, trade CliniChem
Common Shares for its own account and for accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
BioChem selected Merrill Lynch as its financial advisor because it is a
nationally recognized investment banking firm that has substantial experience in
transactions similar to the Distribution.
Although Merrill Lynch participated in certain of the discussions regarding
the Distribution, the terms of the Distribution were determined by BioChem's
Board of Directors.
Hembrecht & Quist LLC was also retained by BioChem in connection with this
transaction.
BUSINESS OF CLINICHEM
GENERAL
CliniChem was incorporated by articles of incorporation under the Canada
Business Corporations Act (the "CBCA") by BioChem in January 1998 to conduct
research and development of potential human therapeutic and vaccine products
primarily for the treatment of cancer and HIV infection, including AIDS, and the
prevention of certain infectious diseases. CliniChem has not conducted any
business to date and has no employees. Its three officers are full-time
employees of BioChem. CliniChem does not intend to perform any research,
development or other activities itself, but rather will contract with BioChem to
perform all such activities pursuant to the terms of the Research and
Development Agreement. The CliniChem Programs initially to be conducted under
the Research and Development Agreement are the development of (i) BCH-4556, a
novel nucleoside analog to treat various forms of cancer, (ii) BCH-10652, a
novel nucleoside analog to
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<PAGE> 30
treat HIV infection, including AIDS (iii) small molecules to treat solid cancer
tumors by inhibiting angiogenesis through the antagonism of the a(n)b(3)
receptor, (iv) recombinant protein vaccines to prevent infection by: (a)
Neisseria meningitidis, (b) Streptococcus pneumoniae, (c) Neisseria gonorrhoeae,
(d) Haemophilus influenzae non typeable, (e) Streptococcus Group B and (f)
Chlamydia pneumoniae. BioChem has the right, with the consent of the Board of
Directors of CliniChem, to expand the scope of the CliniChem Programs and to
select additional development programs to be conducted as substitutes for, or in
addition to, the Therapeutic Program and the Vaccine Program.
CliniChem's belief in the potential efficacy of some of the CliniChem
Products is based upon pre-clinical studies performed by BioChem or other third
parties. Neither BioChem nor CliniChem has received FDA approval to begin
clinical trials on any CliniChem Product other than BCH-4556, and neither
CliniChem nor BioChem has received FDA approval for the manufacturing and/or
marketing of any of the CliniChem Products. Consequently, there can be no
assurance that the CliniChem Products or any other products selected for
research and development will receive the necessary FDA approvals, that either
CliniChem or BioChem will commence manufacturing or marketing of any of the
CliniChem Products or as to when manufacturing and marketing of the CliniChem
Products will commence.
In order to conduct its business, CliniChem will depend substantially on
BioChem and BioChem's licensors for rights to use BioChem Technology, for
research and development activities, for administrative services and, if BioChem
exercises the Product Option, for the commercialization of CliniChem Products.
After the expiration of the Product Option for a CliniChem Product, CliniChem
may also perform directly, or engage other third parties to perform on its
behalf, the commercialization of such CliniChem Product. However, it is likely
that BioChem will be responsible for executing substantially all of the
operational activities necessary for CliniChem's business following the
Distribution and continuing through completion of the development stage of the
CliniChem Products, and that the Available Funds will be used primarily to fund
these activities under the Research and Development Agreement and the Services
Agreement and to pay the Technology Fee. CliniChem's Board of Directors will be
responsible for determining which products will be pursued, and for approving
the work plans and other cost estimates therefor. CliniChem's Board of Directors
will supervise and review BioChem's ongoing activities on behalf of CliniChem.
See "Risk Factors--Dependence on BioChem"; "--Uncertainty Regarding Sufficient
Availability of BioChem Research and Development Personnel and Facilities."
Prior to the Distribution, BioChem will contribute $150 million in cash to
CliniChem as a capital contribution. As the holder of the majority of the
outstanding Class B Shares following the Distribution, BioChem will have the
option to acquire all (but not less than all) of the outstanding CliniChem
Common Shares under specified conditions. BioChem has also granted certain
technology licenses and agreed to make specified payments on sales of certain
products in consideration, inter alia, for the payment by CliniChem of the
Technology Fee. In the early years, CliniChem's revenues are expected to be
primarily derived from investment income. In later years, if BioChem were to
exercise its Product Option for any CliniChem Product, or if a CliniChem Product
were commercialized by CliniChem itself or by a third party on behalf of
CliniChem, CliniChem would derive revenues and/or royalties from sales of the
CliniChem Products or from amounts paid to CliniChem by BioChem or third parties
for the rights to commercialize such CliniChem Products. Until the exercise or
the expiration of the Purchase Option, all such amounts paid to CliniChem by
BioChem will constitute Available Funds.
THE CLINICHEM PROGRAMS
BCH-4556
BCH-4556 is a nucleoside analog being developed to treat various forms of
cancer. Nucleoside analogs, such as gemcitabine and Ara-C, are used in the
treatment of cancer. Nucleoside analogs inhibit tumor growth by preventing cell
replication. Currently marketed nucleoside analogs have two major disadvantages
that impair their anti-cancer activity and have limited their use to date.
First, they are rapidly deaminated, which leads to a loss of efficacy and to the
resistance of the cancer to treatment. Second, existing nucleoside analogs are
typically unable to completely stop cell division and therefore do not optimally
treat cancer. BCH-4556 is a nucleoside analog which CliniChem believes will
provide significant benefits in treating various forms of
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cancer due to its novel structure. Discovered and synthesized by BioChem
scientists, BCH-4556 is structurally different from currently marketed
nucleoside analogs. BCH-4556 is not vulnerable to deamination and may be able to
completely stop cell division. CliniChem believes that both of these
characteristics could lead to improved efficacy compared to other currently
marketed nucleoside analogs. CliniChem plans to administer BCH-4556 initially by
intravenous injection, but is also examining an oral formulation.
BCH-4556 was selected for clinical development based on the activity it
demonstrated against a variety of human tumors grown in immunocompromised mice
and against human tumor cells taken directly from patients. Phase I safety and
pharmacokinetic studies are currently in progress in advanced stage cancer
patients with solid cancer tumors. A single dose regimen is being evaluated in
collaboration with the National Cancer Institute of Canada. Two additional
multiple dose regimens are being conducted in the United States. CliniChem plans
to conduct Phase II clinical trials with BCH-4556 in 1998 targeting various
types of cancer (e.g. renal, prostate, breast, ovarian, colorectal, non-small
cell lung, pancreatic, head and neck, leukemia and melanoma). CliniChem expects
the initial pilot Phase II studies to demonstrate the types of cancer in which
BCH-4556 shows activity. If it obtains positive results, CliniChem will then
focus on certain types of cancer in the Phase II/III trials.
Approximately 8 million people worldwide are diagnosed each year with
cancer. The worldwide market for anti-cancer treatments in 1996 was
approximately US$10.2 billion, or 4.3% of the global pharmaceutical market. In
1996, the anti-cancer market grew by approximately 12% over the previous year.
Factors influencing the strong growth in the cancer market include: (a)
increased incidence of cancer; (b) improved diagnosis; and (c) development of
effective adjunct therapies which enable more intense, more effective and more
widespread use of chemotherapy. The increased incidence of cancer is due to many
factors, including: (a) worldwide population growth; (b) longer life
expectancies; and (c) increased exposure to carcinogenic environmental or
dietary factors.
BCH-10652
BCH-10652 is a compound being developed for the treatment of HIV infection
and AIDS which has been shown to stop the replication of the HIV virus in vitro.
BCH-10652 is a nucleoside analog with a novel structure which targets the HIV
reverse transcriptase enzyme. By targeting the reverse transcriptase enzyme,
BCH-10652 appears to interfere with the transcription of viral RNA to viral DNA,
a process necessary for HIV replication. Other nucleoside analogs, such as AZT
and 3TC, also inhibit the reverse transcriptase enzyme. However, BCH-10652
appears to be capable of inhibiting the replication of HIV viruses that have
become resistant to other nucleoside analogs and protease inhibitors. CliniChem
believes this property may give BCH-10652 a role in the treatment of both
HIV-infected patients in whom standard triple combination regimens are no longer
effective and patients who have never received anti-HIV therapy (first-line
therapy). The current approach to HIV treatment usually relies on triple
combination therapy, typically two nucleoside analogs and a protease inhibitor.
Various pre-clinical tests performed to assess the safety of BCH-10652 have
indicated a good safety profile for this compound. Because of the long-term use
of HIV infection treatments, a safe compound has a significant competitive
advantage. CliniChem expects to begin Phase I human trials in mid-1998. The
studies will assess the safety profile and pharmacokinetics of BCH-10652. The
results of the trials should enable CliniChem to select two or three doses for
the subsequent Phase I/II trials, which will be designed to assess the safety
and efficacy of BCH-10652 in HIV-infected individuals.
In 1997, the antiretroviral (anti-HIV) market was approximately US$2
billion in sales, divided between reverse transcriptase inhibitors (US$1.2
billion) and protease inhibitors (US$800 million). The vast majority of the
sales were generated in North America, Western Europe and Japan. The World
Health Organization (the "WHO") estimates that, as of the end of 1997, over 30
million people worldwide had been infected with HIV, the virus that causes AIDS.
It is generally believed that the vast majority of individuals infected with HIV
will ultimately develop AIDS, which currently has a very high fatality rate.
Assuming that trends in many parts of the world will continue, the WHO estimates
that, by the year 2000, more than 40 million people worldwide will have been
infected with HIV.
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ANGIOGENESIS INHIBITORS
Angiogenesis is the process whereby new blood vessels are formed. Over the
last few years, it has been recognized that tumor growth is dependent upon the
formation of new blood vessels to supply the cancer mass with oxygen and
nutrients and to remove carbon dioxide and other metabolic products.
Consequently, angiogenesis is required for the growth and proliferation of
cancer tumors. The inhibition of angiogenesis, therefore, may prevent tumor
growth.
One of the required elements of the angiogenic process is the activation of
the a(v)b3 receptor. BioChem is pursuing the discovery and development of small
molecules that block the receptor and thus should inhibit solid cancer tumor
growth and progression. Such molecules are expected to be utilized in
combination with standard chemotherapeutic agents to treat a wide variety of
solid cancer tumors. BioChem scientists are currently collaborating with Beth
Israel Deaconess Hospital in Boston, Massachusetts to develop assays and with
Amrad Natural Products Pty Ltd ("ANP") in Melbourne, Australia to identify and
characterize novel, small molecules that inhibit tumor-associated angiogenesis.
To date, BioChem has identified two classes of small molecules that have
demonstrated activity in in vitro angiogenesis models through a(v)b3 antagonism.
CliniChem will continue to pursue the angiogenesis inhibitor program with the
objective of identifying drug candidates suitable for clinical development.
There is no product currently marketed which has been approved for the
treatment of cancer by inhibiting angiogenesis. However, there are a number of
agents in pre-clinical and clinical development which are being studied alone or
in conjunction with chemotherapeutic agents. Due to the nature of the angiogenic
process, these agents are likely to be administered over a long period of time
to prevent angiogenesis. If effective in preventing the recurrence of cancer
tumors, CliniChem believes that the market for these angiogenesis inhibitors may
be substantial. CliniChem also believes that such products, if successfully
developed, could be used as: (a) an adjunct to chemotherapy or radiotherapy; (b)
a follow-up to chemotherapy to prevent recurrence of the tumors and metastases;
(c) therapy for large, slow-growing tumors that are less responsive to cytotoxic
chemotherapy; and (d) first-line therapy to bypass drug resistance.
VACCINES
Vaccines are antigens, frequently formulated with an adjuvant (an agent
added to antigens to enhance their immunogenicity), that stimulate the immune
system to induce protective immunity. CliniChem intends to develop recombinant
protein vaccines against numerous bacterial infections for which there are no
vaccines currently available or for which existing vaccines have low efficacy.
CliniChem will initially focus its efforts on the development of candidate
vaccines against bacterial diseases related to infections of Neisseria
meningitidis (bacterial meningitis) and Streptococcus pneumoniae (pneumonia,
meningitis, otitis media (acute middle ear infections)) and is also developing
vaccines against infections of Neisseria gonorrhoeae (gonorrhea), Haemophilus
influenzae non typeable (otitis media), Streptococcus Group B and Chlamydia
pneumoniae.
Most vaccines available today are polysaccharide vaccines or conjugate
polysaccharide vaccines. Polysaccharide vaccines suffer from a number of
disadvantages. First, polysaccharide vaccines are T-cell independent antigens,
which give rise to no immune memory effect. They therefore only produce
short-term immunity. Second, the existing polysaccharide vaccines generally are
poorly immunogenic in children. Therefore, they do not produce strong or long
lasting immunity in young children, and are non-immunogenic in children under
two years of age. Third, they do not elicit good secondary responses and,
therefore, they cannot be used to produce a booster effect. Furthermore, there
is a strong antigenic variation between the polysaccharides of different
bacterial strains of the same bacteria which necessitates the combination of
multiple antigens to ensure a broader immunity. In other words, different
bacterial strains have unique polysaccharides, making it difficult for a single
polysaccharide vaccine to provide global protection against a broad range of
strains of bacterium. Consequently, numerous polysaccharide antigens must be
administered to protect against multiple strains of a bacterium. The production
of such multi-valent vaccines is time consuming and expensive. Finally, there
are certain infections for which no polysaccharide vaccines currently exist.
In part to overcome certain limitations of polysaccharide-based vaccines,
conjugate polysaccharide vaccines have been and are currently being developed.
One such vaccine to protect against Haemophilus
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influenzae type B is currently marketed. These conjugate polysaccharide vaccines
couple a polysaccharide-based vaccine with a protein carrier. Because of the
protein carrier, conjugate polysaccharide vaccines induce a T-cell dependent
response, which induces a memory effect and can be used to produce a booster
effect. These conjugate polysaccharide vaccines, however, have their own
limitations. Because of the limited number of conjugate polysaccharide vaccines
that can be combined in a single dose, current conjugate polysaccharide vaccines
provide protection against only a limited number of strains of a bacterium. In
addition, because of the conjugation process, conjugate polysaccharide vaccines
are expensive, time consuming and difficult to manufacture.
BioChem is currently developing recombinant protein vaccines that attempt
to overcome the problems and limitations of both polysaccharide vaccines and
conjugate polysaccharide vaccines. BioChem's recombinant protein vaccines are
T-cell dependent. CliniChem believes these vaccines will produce (a)
immunogenicity in children under the age of two and (b) a better and
long-lasting immunity in people of all ages. In addition, CliniChem believes
that the development of a vaccine based on a common and conserved antigen in all
the strains of a given bacteria should allow the design of a single protein
vaccine that could provide global protection against multiple strains of a
bacterium. Furthermore, such vaccines should be easier to manufacture and could
be more easily combined with other existing or developed vaccines for other
diseases.
Although CliniChem's recombinant protein vaccines are currently being
developed to be administered by injection, BioChem is working on a new
formulation of its vaccines to be administered nasally. CliniChem believes nasal
administration will have distinct advantages over delivery by injection used for
most vaccines. Nasal delivery is more convenient, as it does not require
injections and may not require the intervention of medical personnel. It can
therefore be easily administered. Second, it is believed that the nasal mode of
vaccine administration would induce a mucosal immune response in all the mucosal
membranes of the body. This should give better protection for diseases
propagated through the respiratory tract or transmitted sexually because nasal
delivery should induce a local mucosal immune response in addition to the more
conventional systemic immunity. It is expected that the nasal administration of
antigens would induce the production of local IgA in the respiratory tract,
thereby producing a local antibody barrier to infection. There is also evidence
that it could induce a mucosal immune response at the surface of all the mucosal
membranes, including the vagina, thereby protecting against sexually transmitted
diseases.
BioChem is working on the development of recombinant protein vaccines
against the following bacterial infections:
Neisseria meningitidis
Neisseria meningitidis ("N. meningitidis") causes both endemic and epidemic
disease, principally meningitis and meningococcal septicemia. The current
polysaccharide vaccine has antigens associated with only four (A, C, W135 and Y)
of the twelve serogroups (groups of bacterial strains that share a common
capsular polysaccharide antigen) of N. meningitidis. BioChem has discovered a
protein that appears to hold potential for the development of a new human
vaccine against all strains of N. meningitidis, including serogroup B strains,
which are prevalent and for which no vaccine currently exists. CliniChem
believes that this protein is present in all meningococcal isolates and that it
is exposed at the surface of intact meningococcal cells, where it is accessible
to antibodies. CliniChem believes that this vaccine will have all the benefits
of recombinant protein vaccines described above.
In pre-clinical work, BioChem used its candidate vaccine to immunize mice
in order to evaluate the vaccine's ability to confer protection against an
infection by injection of a lethal dose of N. meningitidis strain of serogroup
B. This pre-clinical work showed that the purified protein was immunogenic and
protective when administered with an adjuvant. The antibodies present in the
serum fraction of the blood obtained from the immunized mice recognized
BioChem's recombinant protein as well as the native N. meningitidis protein. The
antibodies killed N. meningitidis bacteria. This type of bactericidal activity
is commonly recognized as being indicative of protection. The recombinant
vaccine was also injected into monkeys. The monkeys, like the mice, developed
antibodies that were shown to kill N. meningitidis bacteria. BioChem has
developed a manufacturing process in anticipation of clinical trials which
CliniChem expects to begin in 1998.
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Acute meningitis and meningococcal septicemia have a high rate of
mortality. The latest outbreak in Sub-Saharan Africa, in 1996, affected over
100,000 people and claimed at least 10,000 lives. The WHO estimates that
approximately 35,000 of the 310,000 cases reported worldwide each year are
fatal. The development of a highly effective vaccine against meningococcal
infection is a research priority identified by the WHO and by the Committee of
the Children's Vaccine Initiative of the United States.
In the United States, infection by N. meningitidis is the second most
common cause of bacterial meningitis (approximately 20% of all cases), affecting
approximately 4,000 people each year. The fatality rate is approximately 10% for
meningococcal meningitis and 20% for meningococcal septicemia, despite therapy
with antimicrobial agents such as penicillin. The incidence of endemic
meningococcal meningitis is highest among children aged 6-12 months and then
steadily declines with age. By 5 years of age, the incidence approximates that
for adults. Serogroup B, for which no vaccine exists, accounts for about 50%-55%
of all cases of infection by N. meningitidis. While serogroup A causes only a
small portion of endemic disease in the United States, it is the most common
cause of epidemics in developing countries.
Streptococcus pneumoniae
Streptococcus pneumoniae ("S. pneumoniae") infections are among the leading
causes worldwide of illness and death in young children, persons with underlying
debilitating medical conditions, and the elderly. S. pneumoniae infection is a
cause of meningitis, pneumonia and otitis media. S. pneumoniae has 90 different
serotypes. A polysaccharide vaccine against the 23 most common serotypes has
been available since the early 1980s. It is only 60% effective in preventing S.
pneumoniae-caused meningitis and pneumonia and is not currently used to prevent
otitis media. BioChem has discovered a conserved protein (HSP72) located at the
surface of all 90 serotypes of S. pneumoniae. The HSP72 protein is highly
conserved among streptococcal isolates and is exposed at the surface of intact
S. pneumoniae cells, where it is accessible to the antibodies. CliniChem
believes that this protein will allow it to develop a new human vaccine against
all serotypes of S. pneumoniae-caused diseases.
In pre-clinical work, BioChem used its candidate vaccine to immunize mice
in order to evaluate the vaccine's ability to confer protection against an
infection by injection of a lethal dose of S. pneumoniae. This pre-clinical work
showed that the HSP72 protein can induce an immune response in mice which is
protective against such a lethal challenge. The antibodies isolated from mice
vaccinated with the recombinant vaccine effectively recognized and adhered to
the native pneumococcal HSP72 protein. In separate experiments, the recombinant
HSP72 protein was also injected into monkeys. The immunization of monkeys, like
the immunization of mice, showed that a strong specific antibody response was
induced.
Each year, S. pneumoniae accounts for three to six thousand cases of
meningitis, 500,000 cases of pneumonia and seven to ten million cases of otitis
media in the United States alone. Case fatality rates vary by age and the
underlying illness of the patient. According to the Centers for Disease Control
("CDC"), the case fatality rates for some immunocompromised and other high-risk
patients have been reported to be higher than 55% for meningitis and 40% for
pneumonia, despite appropriate antibiotic therapy. In children, S. pneumoniae
causes approximately 30% of otitis media.
CliniChem believes that S. pneumoniae-caused diseases will become more
difficult to effectively manage as strains resistant to antibiotic therapies
become more prevalent. In the past, S. pneumoniae was almost uniformly
susceptible to penicillin, allowing most physicians to treat persons with severe
infections with penicillin alone without testing for antibiotic resistance.
However, since the late 1980s, resistance to penicillin and other antibiotic
agents has spread rapidly. Investigations by CDC of S. pneumoniae-caused
diseases have revealed that, in some areas of the United States, as many as 30%
of disease causing S. pneumoniae strains are not susceptible to penicillin. A
smaller percentage of disease causing S. pneumoniae strains are also resistant
to multiple antibiotic therapies.
Neisseria gonorrhoeae
Infections due to Neisseria gonorrhoeae ("N. gonorrhoeae") are a major
cause of pelvic inflammatory disease, tubal infertility, ectopic pregnancy and
chronic pelvic pain in the United States. Based upon evaluations made by the
CDC, approximately 326,000 cases of gonorrhea were reported in the United States
33
<PAGE> 35
in 1996, a rate of 124 cases per 100,000 persons. Because 29% of the N.
gonorrhoeae isolates collected in 1996 were resistant to penicillin,
tetracycline or both, antimicrobial resistance remains an important
consideration in the treatment of gonorrhea.
BioChem believes it has discovered a conserved surface protein that is a
candidate for a recombinant vaccine against infection by N. gonorrhoeae. This
protein is present at the surface of all gonococcal strains evaluated by BioChem
to date. BioChem scientists have sequenced the gene coding for this conserved
protein and have injected animals with the recombinant protein.
In pre-clinical work, BioChem used its candidate recombinant vaccine to
immunize mice in order to evaluate the protein's ability to confer protection
against bacterial infection of N. gonorrhoeae in an animal model. This
pre-clinical work showed that the recombinant gonococcal protein was immunogenic
in mice. BioChem is evaluating this recombinant gonococcal protein in further
experimental animal models of injection.
Haemophilus influenzae
Haemophilus influenzae ("H. influenzae") is a bacterium that is considered
a major human pathogen. There are two types of H. influenzae: the encapsulated
form that has six antigenetically distinct capsular types (types a to f) and the
unencapsulated form (non typeable) that may cause diseases of less virulence
than the encapsulated form. The unencapsulated form is recognized as responsible
for acute respiratory infections, chronic bronchitis, otitis media (40% of all
cases), bacteremia and meningitis (5% of all cases). H. influenzae non typeable
is among the five most common causes of community-acquired pneumonia (between 5%
to 15% of the 500,000 hospital admissions annually in the United States).
Annually, there are typically approximately 4,000 cases of invasive disease in
adults including bacteremic pneumonia (70%), obstetric infections, epiglottis,
meningitis and tracheobronchitis listed to H. influenzae non-typeable. A
conjugate polysaccharide vaccine effective against H. influenzae type B exists
but there is no vaccine currently available against H. influenzae non typeable.
BioChem has identified a membrane surface exposed protein of H. influenzae
that is highly conserved at the surface of various H. influenzae strains.
CliniChem believes that this protein is common and conserved in all the strains
of H. influenzae.
In pre-clinical work, BioChem used its candidate recombinant vaccine to
immunize mice in order to evaluate the protein's ability to confer protection
against H. influenzae bacteria. This pre-clinical work showed that the HI-15
protein used with QuilA as an adjuvant is immunogenic in mice. Vaccination of
mice with the HI-15 recombinant protein enhanced respiratory clearance in an
experimental animal model of pulmonary infection. In a similar experimental
model, intravenous administration of specific antibodies to the HI-15 protein
was also shown to increase respiratory clearance. In a systemic model of
infection, vaccination with the recombinant HI-15 protein conferred protection
against injection of a lethal dose of H. influenzae.
Streptococcus Group B
Streptococcus Group B ("Strep B") is classified under seven serotypes based
on their capsular polysaccharide antigenicity and two subtypes based on the
antigenic characteristics of their surface proteins. Strep B causes invasive
disease and is the most common cause of sepsis and meningitis in newborns in the
United States. Two of every 1,000 infants in the United States develop Strep B
infection within the first three months of life. Case fatality rates are
estimated to be between 5% and 20% for newborns and between 15% and 32% for
adults.
In pre-clinical work, BioChem used its candidate recombinant vaccine to
immunize mice in order to evaluate the protein's ability to confer protection
against Strep B bacteria. This pre-clinical work showed that the recombinant
GBS-1 protein is immunogenic and protective in mice. The protein has been
sequenced by BioChem scientists. The presence of the protein has been observed
so far in all serotypes evaluated.
Chlamydia pneumoniae
According to 1994 estimates of the American Heart Association,
approximately 57.5 million Americans have one or more forms of cardiovascular
disease, among whom approximately 13.7 million have coronary
34
<PAGE> 36
heart disease and approximately 3.9 million have strokes. Cardiovascular
diseases claimed approximately 955,000 lives in 1994. Coronary heart disease is
most commonly caused by atherosclerotic narrowing of the coronary arteries. It
is likely to produce angina pectoris, heart attack or both.
Chlamydia pneumoniae ("C. pneumoniae") infections may play a role in
atherosclerosis in heart diseases. The organism is often presented in upper and
lower respiratory tract infections and has been thought recently to contribute
to the process of atherosclerosis. However, substantially more research will be
needed in order to confirm this hypothesis. A vaccine against C. pneumoniae
would offer a viable alternative or supplement to current management of heart
diseases.
BioChem's research program on Chlamydia pneumoniaeis at an early stage.
POTENTIAL RESEARCH AND DEVELOPMENT EXPENDITURES
The following is a preliminary budget of anticipated expenditures by
CliniChem with respect to the conduct of the initial CliniChem Programs.
CliniChem expects that substantial additional funding will still be required to
commercialize all of the CliniChem Products. Based on CliniChem's current
development schedule, CliniChem does not expect that most of the CliniChem
Products will reach commercial marketability prior to expenditure of all of the
Available Funds. See "Risk Factors--No Assurance of Sufficient Funds." Due to
the long-range nature of the development plans, CliniChem, in consultation with
BioChem, reserves the right to reallocate funds as it deems appropriate,
including investments in additional products.
<TABLE>
<CAPTION>
CALENDAR YEAR
--------------------------------------------------------
1998 1999 2000 2001 2002 TOTAL
----- ----- ----- ----- ----- ------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
CliniChem Programs:
Therapeutic Program..................... $17.9 $19.6 $18.7 $20.7 $15.9 $ 92.8
Vaccine Program......................... 11.2 14.3 15.0 14.3 14.4 69.2
----- ----- ----- ----- ----- ------
Total Research and Development Costs.... $29.1 $33.9 $33.7 $35.0 $30.3 $162.0
===== ===== ===== ===== ===== ======
</TABLE>
The estimated Research and Development Costs set forth above are based upon
projected development of the CliniChem Products in accordance with the Research
and Development Agreement and pursuant to the CliniChem Programs. Research and
Development Costs include costs of pre-clinical studies; costs of Phase I, Phase
II and Phase III human clinical trials; and costs of filing with the FDA and/or
the HPB (or similar governmental bodies in other countries). The above estimates
will change as CliniChem Products are researched and developed. Because of the
long-range nature of any pharmaceutical product research and development plan,
research and development of a particular product or products could accelerate,
slow down or be discontinued; research and development with respect to
additional CliniChem Products could be commenced; technology or products could
be purchased or licensed; and other unforeseen events could occur, all of which
would significantly affect the timing and amount of expenditures. See "Risk
Factors--No Assurance of Successful Final Development of the CliniChem
Products."
PATENTS
BioChem has been granted certain patents worldwide and has pending patent
applications worldwide relating to the CliniChem Programs. It is expected that
BioChem will attempt to secure patent coverage to protect each of the CliniChem
Products. BioChem believes that these current patents, and patents relating to
the CliniChem Programs that may be obtained in the future, are important to its
future operations and to CliniChem.
BioChem currently holds a United States patent claiming BCH-4556 and
related compounds, as well as issued patents and pending applications in
numerous countries covering BCH-4556 and methods of using the same. BioChem also
holds a United States patent claiming processes for preparing BCH-4556 and
related compounds, and numerous issued patents and pending applications
worldwide claiming processes of preparing BCH-4556 and related compounds.
35
<PAGE> 37
BioChem holds an issued patent in the United States claiming BCH-10652 and
related compounds, as well as issued patents and pending applications in
numerous countries claiming BCH-10652, processes of preparation and methods of
using the same to treat viral infections, including HIV.
BioChem has numerous patent applications pending worldwide claiming
proteins of N. meningitidis and N. gonorrhoeae and vaccines containing such
proteins. BioChem also has numerous patent applications pending worldwide
claiming the HSP72 heat shock protein of S. pneumoniae and its use in vaccines.
Patent protection generally has been important in the pharmaceutical
industry, and the commercial success of the CliniChem Products may depend, in
part, upon BioChem's ability to obtain and enforce patent protection. Although
BioChem's existing patents, pending patents, and any patents obtained in the
future may be of importance to CliniChem, there can be no assurance that any
additional patents will be issued or that any patents now or hereafter issued
will be of commercial benefit.
The grant of a patent is not conclusive as to such validity or
enforceability of the claims therein. The validity and enforceability of a
patent after its issuance by the United States Patent Office can be challenged
in litigation and reexamination proceedings, and the validity of a patent
granted by the European Patent Office can be challenged through opposition
proceedings. If the outcome of such litigation or proceeding is adverse to the
owner of the patent, third parties may then be able to use the invention
pertaining to the patent, in some cases without payment. There can be no
assurance that patents covering the CliniChem Products, if and when issued, will
not be infringed or successfully avoided through design innovation.
As of the date of this Prospectus, to the knowledge of CliniChem, the only
significant proceeding against BioChem in relation to the CliniChem Programs is
that Emory University of Atlanta, Georgia has filed an opposition to BioChem's
granted European patent application covering BCH-4556. BioChem is vigorously
defending its application.
It is also possible that third parties will obtain patents or other
proprietary rights that might be necessary or useful to BioChem or CliniChem in
connection with the CliniChem Programs. An examined patent application, claiming
use of stress proteins for the preparation of vaccines, filed by the Whitehead
Institute for Biomedical Research, has been published for opposition in Europe.
Oppositions to this application have been filed by BioChem as well as another
party and BioChem is vigorously opposing this application. There is no
assurance, however, that BioChem will be successful in defeating these claims.
The Whitehead Institute holds a corresponding patent in Canada and may have
pending applications in other countries. In the event that BioChem were to be
unsuccessful in challenging the claims in the Whitehead patents, there is no
assurance that BioChem would be able to obtain a license to these patents, which
may be required to commercialize the S. pneumoniae vaccine based on the HSP72
heat shock protein. In cases where third parties are the first to invent a
particular product or technology, it is possible that those parties will obtain
patents that will be sufficiently broad so as to prevent BioChem or CliniChem
from using certain BioChem Technology or from marketing certain CliniChem
Products. If licenses from third parties are necessary and cannot be obtained,
commercialization of such CliniChem Products could be delayed or prevented.
Third parties may claim that the CliniChem Products infringe their patents; in
such event BioChem or CliniChem would need to defend against such claims.
Defense of such claims could be costly and time consuming. If licenses to the
third party's patents are available, the payments required by the third parties
could be significant.
In addition, CliniChem may use unpatented technology. There can be no
assurance that others will not develop similar technology. Under the terms of
certain of the license and collaboration agreements to which BioChem is a party
and which relate to the CliniChem Programs, BioChem is obligated to exercise
diligence and make certain royalty and milestone payments as well as incur costs
related to filing and prosecuting the underlying patents. Certain agreements are
terminable by either party upon notice if the other party defaults in its
obligations. Should BioChem default under any of its agreements, BioChem and
therefore CliniChem may lose its right to market and sell CliniChem Products
based upon such licensed technology. In addition, there can be no assurance that
BioChem's licensors will meet their obligations to BioChem pursuant to such
licenses. In such event, CliniChem's results of operations and business
prospects would be materially and adversely affected. See "The Business of
CliniChem--The CliniChem Programs." See "Risk Factors--Uncertainty Regarding
Patents and Proprietary Technology; Unpredictability of Patent Protection."
36
<PAGE> 38
FACILITIES AND PERSONNEL
CliniChem is not expected to hire any employees or to acquire any real
property or tangible assets prior to completion of the development stage of the
CliniChem Products. However, pursuant to the Research and Development Agreement,
BioChem has been engaged by CliniChem to conduct the CliniChem Programs under
work plans and cost estimates recommended by BioChem and accepted by CliniChem.
Decisions as to whether and/or when to hire employees, purchase property or
assets, perform administrative functions, engage BioChem to perform
administrative services under the Services Agreement, engage others to do so or
engage third parties other than or in addition to CliniChem to perform research
and development activities will be made by CliniChem.
GOVERNMENT REGULATION
Regulation by governmental authorities in Canada, the United States and
other countries will be a significant factor in the production and marketing of
the CliniChem Products and in the conduct of the CliniChem Programs.
Pharmaceutical and biological products intended for diagnostic, therapeutic
or prophylactic use for humans are governed by the FDA in the United States, by
the HPB in Canada and by comparable agencies in other countries. For most of
these products, the regulations require extensive clinical trials and other
testing and government review and final approval prior to marketing the product.
This procedure is likely to take a number of years and involves the expenditure
of substantial resources. For example, as a general rule, before obtaining
regulatory approval for the commercial sale of any CliniChem Products under
development, CliniChem must demonstrate through pre-clinical studies and
clinical trials that the CliniChem Product is safe and effective. The results
from pre-clinical studies and early clinical trials may not be predictive of
results obtained in large scale clinical trials, and there can be no assurance
that CliniChem's or its collaborators' clinical trials will demonstrate safety
and efficacy, achieve regulatory approvals or result in marketable products. A
number of companies in the biotechnology industry have suffered significant
setbacks in advanced clinical trials, even after achieving promising results in
earlier trials. In addition, government regulations specify standards for
manufacturing and marketing pharmaceutical products.
The CBER, the BBR and similar agencies in other countries regulate the
manufacturing, marketing and use of vaccines. CliniChem Product License
Applications and Establishment License Applications or equivalent documentation
are required to be submitted to the governmental authorities for review prior to
obtaining marketing approval. Government regulations specify standards for
manufacturing and marketing vaccines and biological products. These regulations
set standards for proof of safety and effectiveness, establish good
manufacturing practices, require inspection of vaccine manufacturing facilities
and require reporting of adverse events to regulatory authorities. These
government authorities also conduct pre-release testing of vaccines and
authorize the sale of each lot of vaccines.
Sales of therapeutic and vaccine products outside Canada and the United
States are subject to regulatory requirements that vary from country to country.
Whether or not FDA, HPB, CBER or BBR approval has been obtained, final approval
of a product by comparable regulatory authorities of other countries must be
obtained prior to the commencement of marketing the product in those countries.
The time required to obtain any such approval may be longer or shorter than that
required for FDA, HPB, CBER or BBR approval.
CliniChem will also be subject to various Canadian federal, provincial, and
local laws, regulations, and recommendations relative to safe working
conditions, laboratory and manufacturing practices, and the use and disposal of
hazardous or potentially hazardous substances, including radioactive compounds
and infectious disease agents, used in connection with BioChem's and CliniChem's
research. CliniChem may be subject to additional government regulations
resulting from future legislation or administrative action.
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information concerning the current officers
and directors of CliniChem. The current officers and the current directors of
CliniChem are also officers and employees of BioChem. As the holder of all the
issued and outstanding Class B Shares, BioChem has the right to elect one
director. CliniChem has no employees. Its three officers are full-time employees
of BioChem.
37
<PAGE> 39
<TABLE>
<CAPTION>
NAME AND MUNICIPALITY OF RESIDENCE POSITION WITH CLINICHEM
- --------------------------------------------- ---------------------------------------------
<S> <C>
Francesco Bellini, Ph.D...................... Chairman and President
Town of Mount Royal, Quebec
Frederick J. Andrew.......................... Chief Financial Officer and Director
Morin Heights, Quebec
Francois Legault............................. Director
Outremont, Quebec
Charles-A. Tessier........................... General Counsel and Secretary
Ile-Bizard, Quebec
</TABLE>
FRANCESCO BELLINI, PH.D., a co-founder of BioChem, joined BioChem as
President and Chief Executive Officer in 1986. From 1984 to 1986, Dr. Bellini
was the Director of the Biochemicals Division at the Institut Armand-Frappier,
and from 1968 to 1984, he was a research scientist with Ayerst Laboratories. Dr.
Bellini is a director of North American Vaccines, Inc. Dr. Bellini received a
B.Sc. in chemistry from Loyola College in Montreal in 1972 and a Ph.D. in
chemistry from the University of New Brunswick in 1977.
FREDERICK J. ANDREW, joined BioChem in 1997 as Chief Financial Officer.
Prior to joining BioChem, he was Vice-President and Treasurer of BCE Inc. from
1991 to 1997, Corporate Treasurer of Bell Canada from 1984 to 1991 and occupied
various positions within the BCE Inc. group of companies from 1964 to 1984. Mr.
Andrew received a B.A. in economics from York University in 1964.
FRANCOIS LEGAULT joined BioChem in 1987 and is currently Executive
Vice-President, Investments and Subsidiaries. Prior to joining BioChem, he was
Finance Director of Societe Quebecoise des Transports from 1984 to 1987, and was
a chartered accountant with Coopers & Lybrand from 1978 to 1984. Mr. Legault
received a BAA in business and accounting from Ecole des Hautes Etudes
Commerciales in Montreal in 1978 and was admitted as a Chartered Accountant to
the Ordre des Comptables Agrees du Quebec in 1980.
CHARLES-A. TESSIER joined BioChem as Vice-President, Legal Affairs and
Corporate Secretary in March 1996. From 1988 to 1996, prior to joining BioChem,
he was Vice-President, Secretary and General Counsel of DMR Group Inc., a
multinational company in information technology and, from 1979 to 1988, he
practiced commercial law. Mr. Tessier received a B.A. in Administration in 1976
and a law degree in 1979 from the University of Ottawa. He is a member of the
Barreau du Quebec and the Canadian Bar Association.
Following the completion of the Distribution, Messrs. Andrew and Legault
will resign as directors of CliniChem and will be replaced by independent
directors.
For as long as the Board of Directors of CliniChem is composed of three
directors, the Board of Directors shall assume and fulfill the duties of the
audit committee of CliniChem.
Currently, all the officers of CliniChem are also officers of BioChem and
do not receive any compensation from CliniChem for their services to CliniChem.
See "The Agreements and The Purchase Option--Services Agreement."
Each director of CliniChem who is not an officer or a salaried employee of
BioChem is expected to be paid customary directors' fees.
38
<PAGE> 40
PRINCIPAL SHAREHOLDERS OF CLINICHEM
Immediately prior to the Distribution, all of the outstanding CliniChem
Common Shares will be held by BioChem. The following table sets forth the
projected beneficial ownership of CliniChem Common Shares following the
Distribution by all the directors and the officers of CliniChem as a group, as
well as by any person who, on a pro forma basis, will beneficially own more than
10% of the outstanding CliniChem Common Shares.
<TABLE>
<CAPTION>
CLINICHEM COMMON SHARES
PROJECTED TO BE
BENEFICIALLY OWNED
---------------------------
NAME NUMBER(1) PERCENT OF CLASS
- --------------------------------------------------------------------- -------- ----------------
<S> <C> <C>
Glaxo Wellcome Inc. ................................................. 396,272 14.6%
7333 Mississauga Road North
Mississauga, Ontario
L5N 6L4
All directors and officers of CliniChem as a group................... 74,172 2.7
(4 persons)
------- ----
470,444 17.3%
======= ====
</TABLE>
- ---------------
(1) Reflects, in each case, the number of BioChem Common Shares beneficially
owned as of January 31, 1998, excluding shares issuable upon exercise of
options, divided by 40. In addition to shares held in the individual's sole
name, this column includes shares held by the spouse and other members of
the named persons' immediate household who share that household with the
named person, and shares held in family trusts.
SELECTED FINANCIAL DATA OF CLINICHEM
<TABLE>
<CAPTION>
FEBRUARY 6, 1998
----------------
<S> <C>
BALANCE SHEET DATA:
Cash........................................................................ $1,000
Shareholders' Equity........................................................ $1,000
</TABLE>
- ------------------
(1) CliniChem was incorporated in January 1998. BioChem contributed $1,000 in
February 1998 in exchange for 1,000 common shares. CliniChem will have no
operations through the Distribution Date.
39
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
CliniChem was incorporated in January 1998. Prior to the Distribution,
BioChem will contribute a total of $150 million in cash to CliniChem as a
capital contribution. CliniChem's funds are expected to be used primarily to
fund activities to be conducted under the Research and Development Agreement
with BioChem, including Research and Development Costs relating to the CliniChem
Programs from January 1, 1998 through the Distribution Date estimated to be
approximately $6 million. BioChem's capital contribution, together with any
investment interest earned thereon, is expected to fund such activities for
approximately four to five years. Based on CliniChem's current development
schedule, CliniChem does not expect that most of the CliniChem Products will
reach commercial marketability prior to expenditure of the Available Funds.
Currently, other than the Available Funds, CliniChem has no other source for the
funding that may be needed to complete the development and commercialization of
the CliniChem Products. CliniChem is not expected to require facilities or
capital equipment of its own during the term of the Research and Development
Agreement. Pending the use of CliniChem's cash resources for the research and
development activities described in this Prospectus, CliniChem will invest such
resources in interest-bearing, investment-grade securities.
There can be no assurance, particularly given the existence of the
BioChem/CliniChem Agreements, that CliniChem will be able to raise any
additional capital. Such additional capital, if raised, may reduce the per share
proceeds available to holders of CliniChem Common Shares if the Purchase Option
were to be exercised. See "The Agreements and the Purchase Option--Purchase
Option."
OPERATIONS
Prior to the Distribution, CliniChem will not have conducted any
operations. After the Distribution and continuing through completion of the
development stage of the CliniChem Products, CliniChem's operations will be
conducted largely pursuant to the BioChem/CliniChem Agreements. See "The
Agreements and the Purchase Option."
In its early years, CliniChem revenues are expected to be primarily derived
from investment income (which will become part of the Available Funds). In later
years, CliniChem could receive revenues through the commercialization of the
CliniChem Products either from BioChem in the form of Product Payments if
BioChem were to exercise its Product Option for any CliniChem Product, or
otherwise if BioChem's Product Option for any CliniChem Product were to expire
unexercised and CliniChem were to commercialize the Product alone or with a
third party. However, CliniChem is not expected to earn substantial revenues
unless or until the CliniChem Products are successfully commercialized, which is
not expected to occur prior to the expenditure of all the Available Funds. As a
result of the foregoing factors, it is anticipated that CliniChem will incur
substantial losses which will likely be recurring.
CliniChem's expenses largely will be incurred under the BioChem/CliniChem
Agreements. CliniChem will have research and development expenses as a result of
(i) the payment of Research and Development Costs under the Research and
Development Agreement and (ii) payment of the Technology Fee to BioChem under
the Technology License Agreement and the Services Agreement. The Technology
License Agreement provides that the Technology Fee will be payable monthly by
CliniChem over a period of four years and will be $500,000 for each of the 12
months following the Distribution, $408,333 per month for the following 12
months, $300,000 per month for the following 12 months and $200,000 per month
for the following 12 months; provided that the Technology Fee will no longer be
payable at such time as the number of CliniChem Products being researched or
developed by or on behalf of CliniChem plus the number of CliniChem Products
having been acquired by BioChem pursuant to the exercise of the Product Option
is less than two.
Pursuant to the Services Agreement, CliniChem will pay $400,000 annually to
BioChem for administrative services provided by BioChem.
40
<PAGE> 42
Pursuant to the Research and Development Agreement, BioChem will charge
CliniChem for both "direct" and "indirect" Research and Development Costs on a
fully-burdened basis. Direct costs will include fully absorbed cost of labor,
third-party contract costs, such as those expenses paid to outside vendors and
licensors, raw materials, drug substances, drug products, clinical supplies,
compound library, assay acquisition and all other costs which can be directly
identified to a CliniChem Program. Of the approximately $29.1 million fiscal
1998 budget, approximately $20 million is expected to be paid pursuant to
third-party agreements. Indirect costs will include lease payments, building
allocations, equipment allocations, administration services and all other
indirect costs.
The indirect costs are estimated to be approximately 20% to 35% of direct
costs. The indirect cost allocations are based upon BioChem's historical
overhead experience arising from its research and development activities.
CliniChem's future cash flow obligations will derive largely from the
BioChem/CliniChem Agreements. CliniChem is required to expend the Available
Funds only in accordance with the Research and Development Agreement and to pay
the Technology Fee and to pay for services provided under the Services
Agreement. However, the rate at which Available Funds are expended will derive
from work plans and cost estimates approved by CliniChem.
THE AGREEMENTS AND THE PURCHASE OPTION
TECHNOLOGY LICENSE AGREEMENT
CliniChem and BioChem have entered into a Technology License Agreement
pursuant to which BioChem has granted to CliniChem an exclusive perpetual
license, to use BioChem Technology solely to conduct the CliniChem Programs and
related activities, and to manufacture and to commercialize the CliniChem
Products worldwide. The Technology License Agreement is subject to pre- existing
third-party rights and the receipt of certain third-party consents; it is
further subject to the Research and Development Agreement and the Product Option
Agreements and limited for each CliniChem Product, to a particular Field of Use.
See "--Third-Party Rights and Consents."
Pursuant to the Technology License Agreement, BioChem is obligated to use
commercially reasonable efforts to obtain the consent of:
- Pharmadigm, to grant a sublicense to CliniChem (on commercial terms
reasonably acceptable to BioChem) to any adjuvant licensed by BioChem
from Pharmadigm and incorporated in a CliniChem Product;
- Biovector, to grant a sublicense to CliniChem (on commercial terms
reasonably acceptable to BioChem) to any biovector licensed by BioChem
from Biovector and incorporated in a CliniChem Product; and
- UGARF and Yale University, to grant a sublicense to CliniChem (on
commercial terms reasonably acceptable to BioChem) in connection with the
BCH-4556 CliniChem Product;
provided that, in each case, the relevant CliniChem Product incorporating such
licensed technology has received regulatory approval for commercial marketing in
at least one country, BioChem has not exercised the worldwide Product Option
with respect to such CliniChem Product and BioChem has not exercised the
Purchase Option. Any costs associated with a consent obtained or sublicense
granted pursuant to this provision shall be paid by CliniChem and any such
sublicense shall terminate on the exercise by BioChem of the worldwide Product
Option for such product or the Purchase Option.
41
<PAGE> 43
The following table sets out the Field of Use for the CliniChem Programs.
<TABLE>
<CAPTION>
PROGRAM FIELD OF USE
- --------------------------------------------- ---------------------------------------------
<S> <C>
Development of BCH-4556...................... Treatment of cancer
Development of BCH-10652..................... Treatment of HIV infection
Development of a(n)b(3) antagonists to
prevent angiogenesis....................... Treatment of cancer
Development of recombinant protein To protect against infections by N.
vaccines................................... meningitidis, S. pneumoniae, N. gonorrhoeae,
H. influenzae, Strep B and C. pneumoniae
</TABLE>
Pursuant to the terms of the Technology License Agreement, CliniChem's
right to obtain manufacturing will be subject to a right of first offer and a
right of first refusal on the part of BioChem to manufacture and, in the event
BioChem does not exercise such right of first offer and right of first refusal,
then BioChem will have the right to approve any proposed manufacturer, which
approval may be withheld only if any such manufacturer has insufficient or
inadequate manufacturing capability (including lack of compliance with GMP
regulations) or if any such manufacturer's activities are likely to have a
material adverse effect on BioChem's overall competitive position in the
pharmaceutical industry. In the event that BioChem exercises its right to reject
a manufacturer, BioChem will be obligated to manufacture or obtain manufacturing
for any such CliniChem Product for CliniChem at prevailing market rates, but not
less than BioChem's cost of manufacture plus 15% of such cost.
Pursuant to the Technology License Agreement, CliniChem shall not have the
right to grant a sublicense under the BioChem Technology to anyone other than
BioChem until such time as the Product Option with respect to any CliniChem
Product in one or more countries expires unexercised. From and after the
expiration of such Product Option in any such country, CliniChem may sublicense
BioChem Technology to one or more third parties solely to the extent necessary
to complete the development of, or to make or have made and use such CliniChem
Product, or to sell or have sold such CliniChem Product in such country. BioChem
shall have the right to approve any proposed sublicensee or any manufacturer on
behalf of a sublicensee but such approval may only be withheld if any such
sublicensee or manufacturer has insufficient manufacturing capability (including
lack of compliance with GMP regulations) or if any such sublicensee's or
manufacturer's activities are likely to have a material adverse effect on
BioChem's overall competitive position in the pharmaceutical industry.
In consideration for the license to use the existing BioChem Technology
relating to the CliniChem Programs, CliniChem will pay the Technology Fee to
BioChem. The Technology Fee will be payable monthly over a period of four years
and will be $500,000 per month for the first 12 months following the
Distribution, $408,333 per month for the following 12 months, $300,000 per month
for the following 12 months and $200,000 per month for the following 12 months;
provided that the Technology Fee will no longer be payable at such time as the
number of CliniChem Products being developed by CliniChem plus the number of
CliniChem Products having been acquired by BioChem pursuant to the exercise of
the Product Option is less than two.
Either BioChem or CliniChem may terminate the Technology License Agreement
upon the occurrence of a material breach of the Technology License Agreement or
the Product Option Agreement by the other party which continues for 60 days
after written notice. The Technology License Agreement will automatically
terminate (a) upon termination of the Research and Development Agreement other
than due to a breach thereof by BioChem or (b) upon termination by BioChem of
the Research and Development Agreement due to a breach thereof by CliniChem. The
Technology License Agreement shall terminate on a product-by-product and
country-by-country basis in connection with BioChem's corresponding exercise of
the Product Option.
RESEARCH AND DEVELOPMENT AGREEMENT
Under the Research and Development Agreement, BioChem has agreed to perform
diligently all work necessary to conduct the activities agreed upon by BioChem
and CliniChem pursuant to the CliniChem Programs. BioChem is not required to
devote any specific amount of time or resources to conduct the
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CliniChem Programs under the Research and Development Agreement, and BioChem
expects to devote a substantial amount of its time and resources to activities
for its own account. Activities under the Research and Development Agreement
will be undertaken pursuant to work plans and cost estimates proposed by BioChem
and accepted by CliniChem. CliniChem may approve all or any portion of a
proposed work plan and cost estimate or may determine not to approve any
proposed work plan and cost estimate. CliniChem is not obligated to fund
development of the CliniChem Programs in excess of amounts reflected in approved
work plans and cost estimates. BioChem is not required to undertake activities
that would result in Research and Development Costs exceeding those in approved
work plans and cost estimates.
Under the Research and Development Agreement, CliniChem is expected to
utilize substantially all of the Available Funds to make payments to BioChem for
its Research and Development Costs.
Payments to BioChem under the Research and Development Agreement will be
the full amount of all Research and Development Costs incurred by BioChem in
performing these activities, and BioChem will recognize the payment of such
amounts as research and development revenue. The corresponding research and
development expenses of BioChem will offset this revenue. Under the Research and
Development Agreement, BioChem also may license technology or products used to
conduct the CliniChem Programs from third parties and may conduct the CliniChem
Programs in combination with third parties and the costs of such licensing or
conduct will be paid by CliniChem.
The Research and Development Agreement provides that CliniChem will fund
Research and Development Costs from January 1, 1998, including an estimated $6
million incurred from January 1, 1998 through the Distribution Date.
CliniChem has agreed to use diligent efforts to conduct the CliniChem
Programs in accordance with approved work plans and cost estimates under the
Research and Development Agreement by contracting with BioChem to perform
research and development services. CliniChem is required to utilize the
Available Funds only in accordance with the Research and Development Agreement,
the Technology License Agreement and the Services Agreement. It is anticipated
that CliniChem will utilize the Available Funds over a period of approximately
four to five years. Prior to expenditure, CliniChem will invest Available Funds
in interest-bearing, investment-grade securities. CliniChem may not encumber,
pledge or otherwise take any action with respect to Available Funds that could
prevent the full expenditure of such funds under the Research and Development
Agreement. Subject to the terms of the BioChem/CliniChem Agreements, there are
no restrictions on CliniChem's use of its funds other than the Available Funds
to conduct its business as it determines. Based on CliniChem's current
development schedule, CliniChem does not expect that most of the CliniChem
Products will reach commercial marketability prior to expenditure of the
Available Funds.
As between BioChem and CliniChem, BioChem will own all Developed
Technology, including patents, and such Developed Technology, as is required for
the Field of Use of the CliniChem Products, shall be licensed to CliniChem
pursuant to the Technology License Agreement. BioChem will determine whether and
to what extent to seek patent protection for Developed Technology. If BioChem
declines to seek patent protection for any technology, CliniChem will not have
the right to do so.
No more than once in each calendar year upon reasonable notice and during
regular business hours, (i) at CliniChem's expense, BioChem is required to make
available for inspection by the auditors of CliniChem such records of BioChem as
may be necessary to verify the accuracy of reports and payments made under the
Research and Development Agreement, and (ii) at BioChem's expense, CliniChem is
required to make available for inspection by the auditors of BioChem such
records of CliniChem as may be necessary to verify the accuracy of the
application of the Available Funds.
The Research and Development Agreement will terminate upon the exercise or
expiration of the Purchase Option. Either party may terminate the Research and
Development Agreement if the other party (i) breaches the Research and
Development Agreement, Product Option Agreement or any obligations thereunder
(if such breach continues for 60 days after written notice by the terminating
party), or (ii) enters into any proceeding, whether voluntary or involuntary, in
bankruptcy, reorganization of creditors' rights or similar arrangement for the
benefit of creditors. In addition, CliniChem's product license in any country
with
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respect to a particular CliniChem Product will terminate after BioChem's
exercise of the Product Option for such product in such country.
PRODUCT OPTION AGREEMENT
Pursuant to the Product Option Agreement, CliniChem has granted the Product
Option to BioChem pursuant to which BioChem may, on a product-by-product and
country-by-country basis, terminate CliniChem's license to the Acquired Product,
and sell and have sold the Acquired Product in the country or countries as to
which the Product Option is exercised (the "Territory"). BioChem may exercise
the Product Option with respect to any CliniChem Product on a country-by-country
basis at any time until (i) with respect to the United States, 30 days after FDA
clearance to market such CliniChem Product in the United States and (ii) with
respect to any other countries, 30 days after the clearance by the appropriate
regulatory agency to commercially market such CliniChem Product in such country.
The Product Option will expire, to the extent not previously exercised, 30 days
after the expiration of the Purchase Option. BioChem must exercise the Product
Option for any country prior to the date of the first commercial sale of the
CliniChem Product in such country.
If BioChem exercises the Product Option for a CliniChem Product, BioChem
will be required to use diligent efforts to complete the research and
development of and to commercialize such Acquired Product in each Major Market
Country in which the Product Option has been exercised. BioChem will devote to
its commercialization efforts the same resources as other biopharmaceutical
companies of similar size devote to products with similar market potential and
similar relative importance in their product portfolios and may use reasonable
discretion in allocation of its resources in performing such obligations.
BioChem will make Product Payments to CliniChem with respect to each
Acquired Product as follows: (a) royalties of up to a maximum of 6% of Net Sales
of the Acquired Product determined as follows: (i) 1% of such Net Sales, plus
(ii) an additional 0.1% of such Net Sales for each full $1 million of Research
and Development Costs of the Acquired Product paid by CliniChem at the time
BioChem exercised the Product Option with respect to such Acquired Products;
plus (b) licensing fees of up to a maximum of 25% of Licensing Revenues with
respect to such Acquired Product determined as follows: (i) 10% of such
Licensing Revenues, plus (ii) and additional 1% of Licensing Revenues for each
full $1 million of Research and Development Cost of the Acquired Product paid by
CliniChem at the time BioChem exercised the Product Option with respect to such
Acquired Products. Because the marketing expenses associated with a newly
introduced product during the first few years after launch are generally
significantly higher than those for an established product, the Product Payments
will not exceed 3% of Net Sales plus 12.5% of Licensing Revenues, on a quarterly
basis, for the first twelve calendar quarters during which the Acquired Product
is commercially sold in the first Major Market Country. As a result of this
provision, if an Acquired Product were to be cleared for marketing in a country
or countries that are not Major Market Countries prior to marketing clearance in
the first Major Market Country and Product Payments in such countries would
exceed 3% of Net Sales plus 12.5% of Licensing Revenues (as applicable), the
Product Payment rates in such countries will be reduced to 3% of Net Sales plus
12.5% of Licensing Revenues for the first twelve calendar quarters during which
the Acquired Product is commercially sold in the first Major Market Country.
In determining the payments due to CliniChem with respect to any
AcquiredProduct, Net Sales by and Licensing Revenues of BioChem will be reduced
by the amount of any license or similar payments made by or due from BioChem to
third parties with respect to sales of such Acquired Product in the Territory.
It is possible that, to develop the CliniChem Products, additional licenses or
other arrangements with third parties may be necessary or appropriate. Such
arrangements could also require payments by BioChem that would reduce the
Product Payments owed to CliniChem.
Subject to BioChem's buy-out option described below, Product Payments will
commence on the date of the first commercial sale of such Acquired Product in
any country for which the Product Option has been exercised. BioChem will make
such Product Payments, with respect to all countries for which the Product
Option has been exercised, until 10 years after the first commercial sale of the
Acquired Product in the first Major Market Country in which such product is
commercially sold (the "Payment Period").
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BioChem has the option to buy out CliniChem's right to receive Product
Payments for any Acquired Product on either a country-by-country or global
basis. A country-specific buy-out option may be exercised for any Acquired
Product at any time after the end of the twelfth calendar quarter following the
date on which the Acquired Product was first commercially sold in such country.
The global buy-out option may be exercised for any Acquired Product, for all
countries for which BioChem has exercised the Product Option, at any time after
the end of the twelfth calendar quarter following the date on which the Acquired
Product was first commercially sold in either the United States or two other
Major Market Countries. The buy-out price in the case of a country-specific
buy-out will be 15 times the Product Payments made by or due from BioChem to
CliniChem with respect to such Acquired Product in such country for the four
calendar quarters immediately preceding the quarter in which the buy-out option
is exercised. The buy-out price in the case of a global buy-out will be (i) 20
times (a) the Product Payments made by or due from BioChem to CliniChem with
respect to the Acquired Product, plus (b) such Product Payments as would have
been made by or due from BioChem to CliniChem if BioChem had not exercised any
country-specific buy-out option with respect to such Acquired Product, in each
case for the four calendar quarters immediately preceding the quarter in which
the global buy-out option is exercised, less (ii) any amount previously paid to
exercise any country-specific buy-out option with respect to such Acquired
Product. In either case, the buy-out price will be computed as if Product
Payments were not limited to 3% of Net Sales, plus 12.5% of the Licensing
Revenues (as applicable) during early marketing as described above. At the time
BioChem exercises the global buy-out option for any Acquired Product, the
Product Option for such product will expire for all countries for which it had
not been previously exercised.
If BioChem exercises the Product Option for any CliniChem Product, BioChem
will continue to own and have the right to use any clinical supplies, materials
and other tangible assets purchased, manufactured or developed for use in the
development of such CliniChem Product under approved work plans and cost
estimates (the "Development Assets"), without any additional payment to or
reimbursement of CliniChem. To the extent BioChem does not exercise the Product
Option for any CliniChem Product prior to its expiration, or to the extent
BioChem notifies CliniChem that it will not exercise its Product Option for any
CliniChem Product, BioChem must make Development Assets exclusively relating to
such CliniChem Product available to CliniChem at no charge.
During the Payment Period for an Acquired Product, BioChem will provide
quarterly reports to CliniChem detailing payments due for such period with
respect to the Acquired Product. Such reports will be due 90 days after the end
of each calendar quarter and will indicate the quantity and dollar amount of Net
Sales of or Licensing Revenue relating to the Acquired Product, or other
consideration in respect of Net Sales, during the quarter covered by such
report. No more than once in each calendar year upon reasonable notice and
during regular business hours, at CliniChem's expense, BioChem is required to
make available for inspection by the auditors of CliniChem such records of
BioChem as may be necessary to verify the accuracy of reports and payments made
under the Product Option Agreement.
To the extent BioChem does not exercise the Product Option with respect to
any CliniChem Product, CliniChem will retain exclusive rights (subject to
pre-existing third-party rights and subject to receipt of certain third-party
consents) to develop and commercialize such CliniChem Product.
PURCHASE OPTION
The Purchase Option is set forth in CliniChem's Articles. Pursuant to the
Purchase Option, BioChem, as the holder of all the majority of the outstanding
Class B Shares, has the right to acquire all, but not less than all, of the
issued and outstanding CliniChem Common Shares. The Purchase Option will be
exercisable by written notice given at any time from and after the Distribution
Date and ending on the earlier of (i) March 31, 2003 or (ii) the 90(th) day
after the date CliniChem provides BioChem (as the holder of the majority of the
outstanding Class B Shares) with quarterly financial statements of CliniChem
showing cash or cash equivalents of less than $5.0 million, although BioChem
may, at its election, extend such period by providing additional funding,
including through loans, for the continued conduct of any or all of the
CliniChem Programs (but in no event beyond March 31, 2003). All certificates
evidencing CliniChem Common Shares will bear a legend indicating that such
CliniChem Common Shares are subject to the Purchase Option.
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If the Purchase Option is exercised, the Purchase Option Exercise Price
will be the greatest of:
(a) (i) 25 times the aggregate of (a) all worldwide payments made by and
all worldwide payments due to be made by BioChem to CliniChem with respect to
all Acquired Products for the four calendar quarters immediately preceding the
quarter in which the Purchase Option is exercised (the "Base Period") and (b)
all payments that would have been made and all payments due to be made by
BioChem to CliniChem during the Base Period if BioChem had not previously
exercised its Payment Buy-Out Option with respect to any product; less (ii) any
amounts previously paid to exercise any payment buy-out option for any CliniChem
Product;
(b) the fair market value of 420,000 BioChem Common Shares determined as
of the date BioChem provides notice of its intention to exercise its Purchase
Option;
(c) $150 million plus any additional funds contributed to CliniChem by
BioChem less the aggregate amount of all Technology Fee payments, Research and
Development Costs and Services Agreements payments paid or incurred by CliniChem
as of the date the Purchase Option is exercised; and
(d) $50 million.
In each case, the amount payable as the Purchase Option Exercise Price will
be reduced to the extent, if any, that CliniChem's liabilities at the time of
exercise (other than liabilities under the Research and Development Agreement,
the Services Agreement and the Technology License Agreement and any debt owed to
BioChem) exceed CliniChem's cash and cash equivalents and short-term and
long-term investments (excluding the amount of Available Funds remaining at such
time). For this purpose, liabilities will include, in addition to liabilities
required to be reflected on CliniChem's financial statements under generally
accepted accounting principles, certain contingent liabilities relating to
guarantees and similar arrangements.
BioChem may pay the Purchase Option Exercise Price in cash, in BioChem
Common Shares, or in any combination of cash and BioChem Common Shares. For the
purpose of determining either the Purchase Option Exercise Price or the fair
market value of the BioChem Common Shares to be issued in payment thereof, the
fair market value of BioChem Common Shares shall be deemed to be the average of
the closing sales price of BioChem Common Shares on the Nasdaq converted to
Canadian dollars using the noon buying rate in New York City for cable transfers
in foreign currencies as certified for customs purposes by the Federal Reserve
Board of New York for the day on which each such closing sales price occurred
for the 20 trading days ending with the trading day that is two trading days
prior to the date of exercise of the Purchase Option.
The closing of the acquisition of the CliniChem Common Shares pursuant to
exercise of the Purchase Option will take place on a date selected by BioChem,
but no later than 60 days after the exercise of the Purchase Option unless, in
the judgment of BioChem, a later date is required to satisfy any applicable
legal requirements or to obtain required consents. Between the time of exercise
of the Purchase Option and the time of closing of the acquisition of the
CliniChem Common Shares, CliniChem may not, without BioChem's consent as the
holder of the majority of the outstanding Class B Shares, incur additional debt,
dispose of assets, pay or declare any dividends or operate its business other
than in the ordinary course.
In the event that prior to BioChem's exercise of the Purchase Option, the
number of outstanding BioChem Common Shares is increased by virtue of a stock
split or a dividend payable in BioChem Common Shares or the number of such
shares is decreased by virtue of a combination or reclassification of such
shares, then the number of BioChem Common Shares used to compute the Purchase
Option Exercise Price (if the Purchase Option Exercise Price is the fair market
value of 420,000 shares of BioChem Common Shares) shall be increased or
decreased, as the case may be, in proportion to such increase or decrease in the
number of outstanding BioChem Common Shares.
DISTRIBUTION AGREEMENT
Under the Distribution Agreement, BioChem will contribute $150 million in
cash to CliniChem as a capital contribution and will subsequently distribute the
CliniChem Common Shares to the Holders. Under the Distribution Agreement,
BioChem has agreed to indemnify CliniChem's officers and directors to the same
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extent such persons are entitled to indemnification under CliniChem's By-laws if
BioChem exercises the Purchase Option.
SERVICES AGREEMENT
CliniChem and BioChem have entered into a Services Agreement pursuant to
which BioChem has agreed to provide CliniChem with administrative services,
including accounting and legal services, and other services for an annual fee of
$400,000.
The Services Agreement expires six months after the expiration of the
Purchase Option. CliniChem may terminate the Services Agreement at any time upon
60 days' written notice.
THIRD-PARTY CONSENTS AND RIGHTS
Certain of the CliniChem Products are subject to existing third-party
rights, or would require the consent of a third party in order for BioChem to
sublicense certain rights to CliniChem. Under the Technology License Agreement,
BioChem is obligated, in certain circumstances, to use commercially reasonable
efforts to obtain such consents. See "The Agreements and the Purchase
Option--Technology License Agreement."
Under the UGARF Agreement, BioChem has obtained a license to certain
patents and know-how related to the use of BCH-4556 for the treatment of cancer.
The UGARF Agreement is silent as to whether BioChem may grant sublicenses to
commercialize under these patents and know-how without the licensors' consent.
It may be necessary for CliniChem to obtain a license to such patents and
know-how to CliniChem, or for BioChem to obtain the consent of the licensors to
grant a sublicense to CliniChem, prior to commercializing BCH-4556 for the
treatment of cancer. See "Risk Factors."
Under a collaboration agreement between BioChem and ANP, ANP has agreed to
screen compounds in the a(n)b(3) assays for biological activity. Under this
agreement, ANP will be granted an exclusive license in Australia and New Zealand
to any product developed for human health care which results from such
screening. CliniChem will not possess any rights to any product developed for
human health care resulting from such screening in Australia and New Zealand.
BioChem has entered into certain research agreements and licensing
agreements which provide third parties non-exclusive rights to use certain
existing or future technology for research purposes. CliniChem's license is
subject to such rights.
Prior to CliniChem's commercialization of any vaccine incorporating the
adjuvants or biovectors licensed to BioChem pursuant to the Pharmadigm or
Biovector Agreements, it may be necessary for BioChem to obtain the consent of
Pharmadigm or Biovector to grant a sublicense to CliniChem or for CliniChem to
obtain an independent license from Pharmadigm or Biovector for such adjuvants or
biovectors. See "Risk Factors."
Patheon Inc. holds a conditional right of first refusal to bid on the
commercial manufacturing of BCH-10652 in dosage form under a pre-existing
agreement. CliniChem's license to manufacture BCH-10652 will be subject to
Patheon's right of first refusal.
INCOME TAX CONSIDERATIONS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Stikeman, Elliott, Canadian counsel to CliniChem, the
following is a summary of the principal Canadian federal income tax
considerations generally applicable to Holders who receive a dividend in the
form of the CliniChem Common Shares and who, at all relevant times, for purposes
of the Income Tax Act (Canada) the ("Tax Act"), hold the BioChem Common Shares,
and will hold the CliniChem Common Shares, as capital property and deal with
each of BioChem and CliniChem at arm's length. BioChem Common Shares and
CliniChem Common Shares will generally constitute capital property to a holder
unless the holder holds such shares in the course of carrying on a business or
the holder has acquired such shares in a transaction or transactions considered
to be an adventure in the nature of trade. This summary is based on the current
provisions of the Tax Act, the regulations thereunder, counsel's understanding
of current administrative and assessing policies of Revenue Canada and all
specific proposals to amend the Tax Act
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publicly announced or released by or on behalf of the Minister of Finance
(Canada) before the date of this prospectus ("Tax Proposals").
The Tax Act contains certain provisions relating to securities held by
certain financial institutions (the "Mark-to-Market Rules"). This summary does
not take into account these Mark-to-Market Rules or any amendments thereto
contained in the Tax Proposals and taxpayers that are "financial institutions"
for purposes of those rules should consult their own tax advisors.
This summary is not exhaustive of all possible Canadian federal income tax
considerations and, except for the Tax Proposals, does not take into account or
anticipate any changes in law, whether by legislative, governmental or judicial
action, nor does it take into account tax legislation of any province, territory
or foreign jurisdiction. This summary is of a general nature only and is not
intended to be, nor should it be construed as, legal or tax advice to any
particular holder of BioChem Common Shares and CliniChem Common Shares.
RESIDENTS
The following summary is relevant to a holder of BioChem Common Shares and
CliniChem Common Shares who, for purposes of the Tax Act and any applicable tax
treaty or convention, is resident in Canada at all relevant times.
CliniChem Common Shares
The distribution of the CliniChem Common Shares as a dividend-in-kind will
be a taxable dividend to Holders. The amount of that dividend will be equal to
the fair market value of the CliniChem Common Shares at the time of payment.
Where the Holder is an individual, the amount of the dividend will be subject to
the gross-up and dividend tax credit rules normally applicable to dividends
received from taxable Canadian corporations. Subject to the potential
application of subsection 55(2) discussed below, where the Holder is a
corporation, the dividend will be included in computing its income and generally
will be deductible in computing taxable income. Private corporations and certain
other corporations controlled by or for the benefit of an individual or a
related group of individuals generally will be liable for the refundable tax on
dividends under Part IV of the Tax Act levied at a rate of 33 1/3%. In certain
circumstances, subsection 55(2) treats a dividend (other than a dividend subject
to Part IV tax that is not refunded as part of the same series of transactions)
received by a corporation as proceeds of disposition or a capital gain. Although
counsel does not believe subsection 55(2) should apply to the dividend of the
CliniChem Common Shares, corporate shareholders should consult their own tax
advisers with respect to the potential application of subsection 55(2) to that
dividend. CliniChem Common Shares received by a Holder will have a cost to the
holder for tax purposes equal to their fair market value at the time of payment.
On a disposition or deemed disposition of a CliniChem Common Share, the
Holder will realize a capital gain (or capital loss) equal to the amount by
which the proceeds of disposition for the CliniChem Common Share exceed (or are
less than) the aggregate of any costs of disposition and the adjusted cost base
to the holder of the CliniChem Common Share immediately before the disposition.
Tax Treatment of Capital Gains and Capital Losses
A holder of CliniChem Common Shares will be required to include in income
three-quarters of the amount of any capital gain (a "Taxable capital gain") and
may deduct three-quarters of the amount of any capital loss (an "Allowable
capital loss") against Taxable capital gains realized by the holder in the year
of the disposition. Allowable capital losses in excess of Taxable capital gains
may be carried back and deducted in any of the three preceding years or carried
forward and deducted in any following year against taxable capital gains
realized in such years to the extent and under the circumstances described in
the Tax Act.
A Canadian-controlled private corporation will also be subject to a
refundable tax of 6 2/3% on taxable capital gains realized on the disposition of
CliniChem Common Shares that will be refunded when the corporation pays taxable
dividends (at a rate of $1.00 for every $3.00 of taxable dividend paid).
In the case of a holder of CliniChem Common Shares that is a corporation,
the amount of any capital loss otherwise determined resulting from the
disposition of a CliniChem Common Share may be reduced by the amount of
dividends previously received or deemed to have been received thereon. Any such
restriction will
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not occur where the corporate holder owned the CliniChem Common Share for 365
days or longer and such holder (together with any persons with whom it did not
deal at arm's length) did not own more than 5% of the shares of any class or
series of CliniChem at the time the relevant dividends were received or deemed
to have been received. Analogous rules apply where a corporation is a member of
a partnership or a beneficiary of a trust which owns CliniChem Common Shares.
NON-RESIDENTS
The following summary is relevant to a holder of BioChem Common Shares and
CliniChem Common Shares, who, at all relevant times, for purposes of the Tax Act
and any applicable tax treaty or convention, is a non-resident or is deemed to
be a non-resident of Canada and does not use and is not deemed to use or hold
BioChem Common Shares and CliniChem Common Shares in the course of carrying on a
business in Canada. Special rules, which are not discussed below, may apply to a
non-resident that is an insurer which carries on business in Canada and
elsewhere.
CliniChem Common Shares
A non-resident Holder who receives CliniChem Common Shares as a
dividend-in-kind will be considered as having received a dividend equal to the
fair market value of the CliniChem Common Shares on the date of payment. Under
the Tax Act, dividends paid or credited to a non-resident are subject to
withholding tax at the rate of 25% of the gross amount of the dividends. This
withholding tax may be reduced or eliminated pursuant to the terms of an
applicable tax treaty between Canada and the country of residence of the
non-resident. For example, for persons who are resident in the United States for
purposes of the Canada-United States Income Tax Convention, (the "Convention")
the rate of withholding tax on dividends is reduced to 15% generally and 5% when
the United States resident is a company that beneficially owns at least 10% of
the voting stock of the company paying the dividends. A portion of the CliniChem
Common Shares otherwise deliverable to a non-resident Holder will be sold on the
non-resident's behalf in order to pay any Canadian withholding tax for which the
holder is liable.
Under the Convention, dividends paid to certain religious, scientific,
charitable and other similar tax-exempt organisations and certain organisations
that are resident in, and exempt from tax in, the United States are exempt from
Canadian non-resident withholding tax. Provided that certain administrative
procedures designed to establish with the Canadian tax authorities the right of
such entities to benefit from this withholding tax exemption are complied with
by the tax-exempt entities prior to the Distribution, BioChem would not be
required to withhold such tax on such payment. Alternatively, the above
described tax-exempt entities may claim a refund of Canadian withholding tax
otherwise withheld by Biochem on the Distribution.
The CliniChem Common Shares received by a Holder including any CliniChem
Common Shares sold on behalf of the Holder to pay the Canadian withholding tax
for which the Holder is liable will have a cost to the Holder for Canadian tax
purposes equal to the fair market value of such CliniChem Common Shares on the
date of the dividend. A Holder will be treated as if it had acquired the
CliniChem Common Shares sold on its behalf and had disposed of such shares for
the amount received on their sale. Consequently, such a Holder may realize a
capital gain or capital loss, as discussed below.
On a disposition or deemed disposition of a CliniChem Common Share, a
non-resident holder will realize a capital gain (or capital loss) equal to the
amount by which the proceeds of disposition for the CliniChem Common Share
exceed (or are less than) the aggregate of any costs of disposition and the
adjusted cost base to the non-resident holder of the CliniChem Common Share
immediately before the disposition.
Tax Treatment of Capital Gains
A non-resident of Canada is liable for Canadian income tax on a capital
gain realized on the disposition of property only where that property
constitutes "taxable Canadian property". Three-quarters of any capital gain from
the disposition of taxable Canadian property is subject to Canadian tax.
Under the Tax Act, shares of CliniChem will not constitute taxable Canadian
property unless, at any time, in the five years immediately preceding the
disposition, the non-resident holder, either alone or together with persons with
whom the non-resident does not deal at arm's length, owned (or had a right to
acquire)
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more than 25% of the shares of any class (or series) of CliniChem. Even in
circumstances where shares of CliniChem are taxable Canadian property to a
non-resident holder, the non-resident holder may be entitled to relief from
Canadian tax on any capital gain realized on the disposition thereof pursuant to
the terms of an applicable tax treaty between Canada and the country of
residence of the non-resident. For example, the Convention provides that gains
realized by a resident of the United States on the disposition or deemed
disposition of shares of a company will generally not be subject to tax under
the Tax Act, provided that the value of the shares is not derived principally
from real property situated in Canada. CliniChem believes that the value of its
shares is not currently derived principally from real property situated in
Canada and it does not expect this to change in the foreseeable future.
Provided that the CliniChem Common Shares remain listed on a prescribed
stock exchange (including the Montreal Exchange, the Toronto Exchange and the
Nasdaq National Market System), a non-resident holder who disposes of CliniChem
Common Shares will not be required to comply with the Canadian notification
procedures generally applicable to dispositions of taxable Canadian property.
Taxation of Dividends
Dividends paid by CliniChem to a non-resident of Canada will be subject to
Canadian withholding tax at the rate described above under "CliniChem Common
Shares.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain material United States Federal
income tax consequences to a U.S. Holder of the receipt, ownership and
disposition of CliniChem Common Shares. The summary is limited to certain
material United States Federal income tax consequences to holders that are
individuals, corporations, estates or trusts, and that hold the CliniChem Common
Shares as capital assets. The discussion does not address the tax consequences
to special categories of investors such as dealers, traders, holders of
securities as part of a synthetic, integrated or derivative investment,
tax-exempt holders, other types of entity or holders which are subject to
special taxation regimes such as banks, real estate investment trusts, regulated
investment companies or insurance companies. The discussion also does not
address United States state and local taxes.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), judicial decisions, administrative pronouncements, and existing
and proposed regulations issued by the United States Department of the Treasury
(the "Treasury Department") now in effect, all of which are subject to change,
possibly with retroactive effect. There can be no assurance that the Internal
Revenue Service will take a similar view of the tax consequences of the receipt,
ownership and disposition of the CliniChem Common Shares. U.S. Holders are urged
to consult their own tax advisers concerning the United States Federal, state
and local consequences of the receipt, ownership and disposition of the
CliniChem Common Shares.
The term "U.S. Holder" means a holder of either BioChem Common Shares or
CliniChem Common Shares, as applicable, that is, for United States Federal
income tax purposes, (a) a citizen or resident of the United States, (b) a
corporation, limited liability company, partnership or other entity created or
organized under the laws of the United States or of any political subdivision
thereof, (c) an estate, the income of which is subject to United States Federal
income taxation regardless of source, or (d) a trust, if a court within the
United States is able to exercise primary jurisdiction over its administration
and one or more United States persons have the authority to control all of its
substantial decisions.
CONSEQUENCES OF DISTRIBUTION
The Distribution of CliniChem Common Shares will be taxable to a U.S.
Holder as a dividend to the extent of BioChem's current and accumulated earnings
and profits ("E&P"). A U.S. Holder will not be entitled to a dividends-received
deduction in relation to any part of the Distribution which must be included as
a dividend. Any excess of the value of the CliniChem Common Shares distributed
over BioChem's E&P will be treated as a return of basis in a U.S. Holder's
BioChem Common Shares, and the U.S. Holder's tax basis in the BioChem Common
Shares will be reduced by the amount of such excess. Once a U.S. Holder's tax
basis in the BioChem Common Shares has been reduced to zero, any additional
excess will be taxable to the U.S. Holder as a capital gain, long- or short-term
depending upon whether the U.S. Holder has held the
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<PAGE> 52
BioChem Common Shares for more than one year. A U.S. Holder who is an individual
will qualify for the lowest capital gain rate only if such U.S. Holder has held
the BioChem Common Shares for more than eighteen months on the date of the
Distribution. For purposes of the foregoing rules, a U.S. Holder will be
considered to have received a distribution equal to the aggregate fair market
value on the Distribution Date of the CliniChem Common Shares actually received
plus those withheld to satisfy such U.S. Holder's Canadian withholding tax
liability.
BioChem does not believe it has any accumulated E&P through December 31,
1997. BioChem will not be able to calculate its current E&P until the end of the
current tax year. BioChem will notify holders in early 1999 of the amount, if
any, of the Distribution which must be included as a dividend.
The Distribution will be treated as a dividend-in-kind under Canadian tax
law, and consequently will be subject to Canadian withholding tax. See "Income
Tax Considerations--Canadian Federal Tax Considerations." Although such
withholding tax will be creditable under United States Federal tax law, a U.S.
Holder's ability to claim a foreign tax credit against its United States taxes
is subject to several limitations. In particular, a U.S. Holder may only claim a
foreign tax credit against the portion of its United States Federal income tax
liability allocable to foreign source income. Consequently, if some or all of
the Distribution is not taxed as a dividend (because BioChem has insufficient
E&P), a U.S. Holder may not be able to credit the full withholding tax against
its United States tax liability unless it has other foreign source income to
which the foreign withholding tax can be applied.
In order to satisfy a U.S. Holder's liability for the Canadian withholding
tax, a portion of the CliniChem Common Shares otherwise deliverable to such U.S.
Holder will be withheld. Such shares so withheld will be sold on behalf of such
U.S. Holder as is necessary, given the price actually received and any expenses
of sale, to realize sufficient proceeds to satisfy the Canadian withholding tax
liability. A U.S. Holder will recognize a short-term capital gain or loss on the
sale of such withheld shares equal to the difference between the sale price
realized and the sum of the fair value of the shares on the date of the
distribution plus any expenses incurred in connection with such sale. Any
withheld shares remaining unsold after sufficient proceeds are realized will be
distributed to the U.S. Holder. A U.S. Holder will not recognize any gain or
loss upon receipt of such remaining unsold shares.
A U.S. Holder's tax basis in the CliniChem Common Shares (including the
shares withheld to satisfy such U.S. Holder's Canadian withholding tax
liability) will be equal to their value on the Distribution Date. The U.S.
Holder's holding period of the CliniChem Common Shares including such withheld
shares will begin on the Distribution Date.
TAXATION OF CLINICHEM COMMON SHARES
Sale, Exchange or Other Disposition.
Subject to the discussion under "Passive Foreign Investment Company
Considerations" below, a U.S. Holder will recognize capital gain or loss on the
sale or other disposition of a CliniChem Common Share equal to the difference
between the amount received and such U.S. Holder's tax basis in the CliniChem
Common Share. Such gain or loss will be long-term if the U.S. Holder has held
the CliniChem Common Share for more than one year. A U.S. Holder that is an
individual will qualify for the lowest capital gain rate only if such U.S.
Holder has held the CliniChem Common Share for more than 18 months.
Taxation of Dividends.
A U.S. Holder will not be entitled to claim a dividend received deduction
with respect to dividends paid by CliniChem on CliniChem Common Shares.
U.S. Gift and Estate Tax.
An individual U.S. Holder of CliniChem Common Shares will be subject to
U.S. gift and estate taxes with respect to the CliniChem Common Shares in the
same manner and to the same extent as with respect to other types of personal
property.
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<PAGE> 53
PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS.
A PFIC is any foreign corporation if, after the application of certain
"look-through" rules, (i) at least 75% of its gross income in any taxable year
is "passive income" or (ii) at least 50% of the average value of its assets is
attributable to assets that produce "passive income" or that are held for the
production of "passive income." Whether BioChem or CliniChem is a PFIC in any
year and the tax consequences relating to PFIC status will depend on the
composition of the income of BioChem or CliniChem, as the case may be. This
discussion assumes, and BioChem believes, that BioChem has not been a PFIC for
any prior year and will not be a PFIC during the current year. Because CliniChem
is expected initially to receive the majority of its income from passive
sources, it is expected that CliniChem will initially be a PFIC. If so, a U.S.
Holder receiving CliniChem Common Shares in the Distribution will be subject to
the PFIC taxation rules regardless of whether CliniChem continues to be a PFIC
in any subsequent year. Under the PFIC taxation rules, a U.S. Holder owning
shares of a PFIC is subject to a special United States federal income tax regime
with respect to certain distributions received from the PFIC and with respect to
gain from the sale or disposition of PFIC stock.
If CliniChem is a PFIC for any taxable year during which a U.S. Holder
holds CliniChem Common Shares, unless such U.S. Holder makes the qualified
election described below, such U.S. Holder will generally be subject to various
adverse United States tax consequences. Generally, a direct or indirect U.S.
holder of a PFIC must either (i) elect to have the PFIC treated, with respect to
the holder's shareholding, as a "Qualified Electing Fund" and to report
currently such holder's pro rata share of the PFIC's ordinary earnings and net
capital gain even if such holder does not receive distribution (the "qualified
election"), or (ii) upon disposition of the shares of the PFIC, including a
disposition pursuant to an otherwise tax-free reorganization, or receipt of an
"excess distribution" (generally the amount of each distribution received by the
holder in any year that is greater than its ratable share of 125% of the average
annual distributions received by such holder in the three preceding years or its
holding period, if shorter), be subject generally to tax at the highest
applicable rate or rates of tax imposed on ordinary income as if the gain or
distribution were earned ratably over the period in which the PFIC shares were
held (including payment of an interest charge at the rate equal to the charge
generally applicable to underpayment of tax, on the deferred tax). A shareholder
that makes a qualified election may recognize ordinary income or loss as a
result of currency fluctuations between the dates of deemed and actual
distributions from the PFIC.
The qualified election is made on a shareholder-by-shareholder basis and
can be revoked only with the consent of the Internal Revenue Service. Each
Holder of CliniChem Common Shares should consult with his own tax advisor to
decide whether to make the "qualified election." This election is made by
attaching the shareholder election statement, the PFIC annual information
statement and Form 8621 to such shareholder's timely filed income tax return
with a copy of the shareholder election statement and Form 8621 being sent to
the Internal Revenue Service Center, P.O. Box 21086, Philadelphia, Pennsylvania
19114. CliniChem will supply the PFIC annual information statement to all
shareholders of record for each year. Copies of the Form 8621 must also be filed
every year during which the "qualified election" is outstanding, both with such
shareholder's tax return and with the Internal Revenue Service Center in
Philadelphia.
THE FOREGOING SUMMARY OF CANADA AND UNITED STATES TAX CONSEQUENCES IS BASED
ON THE APPLICABLE INCOME TAX CONVENTION, ESTATE TAX CONVENTION, UNITED STATES
LAW, CANADIAN LAW, AND REGULATIONS, ADMINISTRATIVE RULINGS AND PRACTICES OF THE
UNITED STATES, AND CANADA, ALL AS THEY EXIST AS OF THE DATE OF THIS PROSPECTUS.
THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS THAT MAY BE RELEVANT TO PROSPECTIVE
INVESTORS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES. PROSPECTIVE INVESTORS ARE
URGED TO CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THEIR OWN PARTICULAR
CIRCUMSTANCES, INCLUDING THE APPLICABILITY AND EFFECT OF PROVINCIAL, STATE,
LOCAL AND FOREIGN TAX LAWS, ESTATE TAX LAWS AND PROPOSED CHANGES IN APPLICABLE
LAWS.
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<PAGE> 54
EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS
There are currently no limitations imposed by Canadian federal of
provincial laws on the rights of non-resident or foreign owners of Canadian
securities to hold or vote the securities held. There are also no such
limitations imposed by the Articles and the By-laws with respect to the
CliniChem Common Shares.
DESCRIPTION OF CLINICHEM'S SHARE CAPITAL
The authorized share capital of CliniChem consists of an unlimited number
of CliniChem Common Shares and 1,000 Class B Shares. As of the date of this
Prospectus, there were CliniChem Common Shares outstanding and 1,000
Class B Shares outstanding.
CLINICHEM COMMON SHARES
Holders of CliniChem Common Shares are entitled to one vote for each share
held on all matters submitted to a vote of shareholders, except matters
submitted to the consent or the vote of the holders of a majority of the
outstanding Class B Shares. Holders of CliniChem Common Shares do not have
cumulative voting rights. Holders of CliniChem Common Shares are entitled to
receive such dividends, if any, as may be declared by the Board of Directors of
CliniChem out of funds legally available therefor. It is expected that CliniChem
will not pay dividends on the CliniChem Common Shares. Upon the liquidation,
dissolution or winding up of CliniChem, the holders of CliniChem Common Shares
are entitled to receive the assets of CliniChem on a pro rata basis. Holders of
CliniChem Common Shares have no preemptive, subscription, redemption or
conversion rights.
The rights of the holders of CliniChem Common Shares are subject to the
rights of the holders of any Class B Shares which are currently, or may in the
future, be issued.
CLASS B SHARES
All the currently issued and outstanding Class B Shares are held by
BioChem. Holders of Class B Shares are entitled to one vote for each share held
on all matters submitted to a vote of shareholders. Holders of the majority of
the outstanding Class B Shares are entitled to elect one director. Holders of
Class B Shares do not have cumulative voting rights. Holders of Class B Shares
are entitled to receive such dividends, if any, as may be declared by the Board
of Directors of CliniChem out of funds legally available therefor. In the event
of the liquidation, dissolution or winding up of CliniChem, the CliniChem Common
Shares shall have priority over the Class B Shares with respect to return of
capital. CliniChem does not presently intend to issue additional Class B Shares.
The holders of a majority of the issued and outstanding Class B Shares have,
upon certain conditions, an option to purchase all, but not less than all, of
the CliniChem Common Shares issued and outstanding. See "The Agreements and the
Purchase Options--Purchase Option."
Until the exercise or the expiration of the Purchase Option, CliniChem may
not authorize or permit, without the prior written approval of the holders of a
majority of the outstanding Class B Shares, any amalgamation or liquidation of
CliniChem, and any amendments to the CliniChem Articles that would alter the
Purchase Option, CliniChem's authorized capitalization, or the provisions of the
CliniChem Articles governing the right of the holders of the majority of the
outstanding Class B Shares to elect one director. See "The Agreements and the
Purchase Options--Purchase Option", "Risk Factors--Relationship Between
CliniChem and BioChem May Limit CliniChem's Activities and Market Value."
Thus BioChem, as the holder of a majority of the outstanding Class B
Shares, could preclude the holders of a majority of the outstanding CliniChem
Common Shares and the Board of Directors of CliniChem from taking any of the
foregoing actions during such period. In addition, until the expiration of the
Purchase Option, any resolution to liquidate, dissolve or wind up CliniChem will
confer upon the holders of the Class B Shares a right to vote and such Class B
Shares will carry a number of votes equal to the total number of votes carried
by the CliniChem Common Shares at the time outstanding.
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<PAGE> 55
SHAREHOLDER MEETINGS
Under applicable Canadian securities legislation and the CBCA, a meeting of
the shareholders of a company must be convened at least once every calendar
year. Meetings of shareholders of CliniChem shall be held at the place within
Canada provided in the By-laws of CliniChem or, in the absence of such
provision, at the place within Canada that the directors determine. Notice of
all general and special meetings of the shareholders of CliniChem must be
furnished to shareholders entitled to vote thereat, specifying the place, the
day and the hour of the meeting and the general nature of the business to be
considered.
NUMBER OF DIRECTORS; RESIDENCY REQUIREMENTS; VACANCIES; REMOVAL
CliniChem's Articles provide that there shall be a minimum of three
directors and a maximum of 15 directors. See "Business of CliniChem--Executive
Officers and Directors." The exact number of directors is fixed by the Board of
Directors, subject to the requirement of the CBCA that CliniChem have a minimum
of three directors, at least two of whom are not officers or employees of
CliniChem or its affiliates. The CBCA provides that a majority of the directors
of a corporation must be Canadian residents, defined to include Canadian
citizens and permanent residents ordinarily resident in Canada.
The CBCA provides that a vacancy on the Board of Directors may be filled by
a quorum of directors, except for a vacancy resulting from an increase in the
number or minimum number of directors or from a failure to elect the number or
minimum number of directors required by the Articles. In the event of a vacancy
of the director to be elected by the holders of the majority of the outstanding
Class B Shares, the Articles provide that such a vacancy shall only be filled by
a vote of the majority of the holders of the outstanding Class B Shares.
The directors of a CBCA corporation may be removed from office by a
resolution passed by a majority of the votes cast at a special meeting of
shareholders, subject to applicable class voting rights.
LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS
The CBCA provides that a corporation may indemnify, and CliniChem's By-laws
provide that CliniChem shall indemnify, in each case except in respect of an
action by or on behalf of CliniChem or a body corporate of which CliniChem is or
was a shareholder or creditor to procure a judgment in its favor, an officer or
director of CliniChem, a former officer or director of CliniChem or a person who
acts or acted at CliniChem's request as a director or officer of a body
corporate of which CliniChem is or was a shareholder or creditor, and his heirs
and legal representatives, against all costs, charges and expenses, including an
amount paid to settle an action or satisfy a judgment, reasonably incurred by
him in respect of any civil, criminal or administrative action or proceeding to
which he is made a party by reason of his being or having been a director or
officer of CliniChem or such body corporate, if he acted honestly and in good
faith with a view to the best interests of CliniChem, and, in the case of a
criminal or administrative action or proceeding that is endorsed by a monetary
penalty, he had reasonable grounds for believing that his conduct was lawful.
AMENDMENT OF CERTAIN PROVISIONS OF THE ARTICLES; FUNDAMENTAL CHANGES
In accordance with the provisions of the CBCA, an amendment to the Articles
of CliniChem (except in limited circumstances) and the amalgamation or
dissolution of CliniChem will require the approval of the holders of the
majority of the outstanding Class B Shares and the approval of not less than
two-thirds of the votes cast by the shareholders voting in person or by proxy at
a special meeting of the shareholders of CliniChem. The By-laws of CliniChem
provide that one person present and holding or representing by proxy at least
one issued voting share of CliniChem shall be a quorum of any meeting of
shareholders for the choice of a chairman of the meeting and for the adjournment
of the meeting; for all other purposes a quorum for any meeting shall be persons
present being not less that two in number and holding or representing by proxy
at least 33- 1/3% of the shares entitled to vote at such meeting.
DIRECTORS' INTERESTS
Subject to the provisions of the CBCA, a director or officer of CliniChem
may, notwithstanding his office, be a party to or otherwise interested in any
transaction or arrangement with CliniChem or in which CliniChem is otherwise
interested; and be a director or officer of, or employed by, or a party to any
transaction or
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<PAGE> 56
arrangement with, or otherwise interested in, any body corporate promoted by
CliniChem or in which CliniChem is interested. So long as a director or officer
of CliniChem who is a party to a material contract or proposed material contract
with CliniChem, or is a director or an officer or has a material interest in any
person who is a party to a material contract or proposed material contract with
CliniChem, such director shall disclose in writing to CliniChem or request to
have entered in the minutes of meetings of directors the nature and extent of
his interest. A general notice to the directors of CliniChem by a director or
officer, declaring that he is a director or officer of or has a material
interest in a person and is to be regarded as interested in any contract made
with that person, is a sufficient declaration of interest in relation to any
contract so made. Except in certain cases, a director shall not vote on any
resolution to approve such contract.
A material contract between CliniChem and one of or more of its directors
and officers, or between CliniChem and another person of which a director or
officer of CliniChem is a director or officer or in which he has a material
interest, is neither void or voidable by reason only of that relationship or by
reason only that a director with an interest in the contract is present at or is
counted to determine the presence of a quorum at a meeting of directors or
committee of directors that authorized the contract, if the director or officer
disclosed his interest in accordance with the provisions of the CBCA and the
contract was approved by the directors or the shareholders and it was reasonable
and fair to CliniChem at the time it was approved. Where a director or officer
of CliniChem fails to disclose his interest in a material contract in accordance
with the CBCA, a court may, on the application of CliniChem or a shareholder of
CliniChem, set aside the contract on such terms as it thinks fit.
SHAREHOLDERS' ACTIONS
If on an application by a shareholder of CliniChem to a court, the court is
satisfied that in respect of CliniChem or any of its affiliates, any act or
omission of CliniChem or any of its affiliates effects a result, the business or
affairs of CliniChem or any of its affiliates are or have been carried on or
conducted in a manner, or the powers of the directors of CliniChem or any of its
affiliates are or have been exercised in a manner that is oppressive or unfairly
prejudicial to or that unfairly disregards the interests of any security holder,
creditor, director or officer, the court may make an order to rectify the
matters complained of.
LEGAL MATTERS
The statements included in this Prospectus under the caption "Income Tax
Considerations-United States Federal Income Tax Considerations" have been
reviewed by Kirkland & Ellis, New York, CliniChem's United States counsel. The
statements included in this Prospectus under the caption "Income Tax
Considerations--Canadian Federal Income Tax Considerations", and certain other
legal matters relating to the Distribution have been passed upon by Stikeman,
Elliott, Montreal, CliniChem's Canadian Counsel. The Honorable James A. Grant,
P.C., Q.C., a partner of Stikeman, Elliott, is a director of BioChem.
EXPERTS
The balance sheet of CliniChem Development Inc. as of February 6, 1998 has
been included herein and in the Registration Statement in reliance upon the
report of Ernst & Young, independent chartered accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
MATERIAL CONTRACTS
Other than the contracts described under "The Agreements and the Purchase
Option", there is no material contract entered into by CliniChem or any of its
subsidiaries prior to the date hereof, other than in the ordinary course of
business.
Copies of the foregoing agreements may be inspected at the registered
office of CliniChem at normal business hours during the period of distribution
of the CliniChem Common Shares offered by this Prospectus and for a period of 30
days thereafter.
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PROMOTER
BioChem has taken the initiative in organizing the business of CliniChem
and accordingly may be considered to be a promoter of CliniChem under applicable
Canadian securities legislation.
AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditors of CliniChem are Ernst & Young, Chartered Accountants,
Montreal.
The transfer agent and registrar for the CliniChem Common Shares is General
Trust of Canada at its principal offices in Montreal and Toronto.
PURCHASERS' STATUTORY RIGHTS
Securities legislation in several of the provinces of Canada provides
purchasers with the right to withdraw from an agreement to purchase securities
within two business days after receipt or deemed receipt of a prospectus and any
amendment. In several of the provinces and territories, securities legislation
further provide a purchaser with remedies for rescission or, in some
jurisdictions, damages where the prospectus and any amendment contains a
misrepresentation or is not delivered to the purchaser, provided that such
remedies for rescission or damages are exercised by the purchaser within the
time limit prescribed by the securities legislation of the purchaser's province
or territory. The purchaser should refer to any applicable provisions of the
securities legislation of his province or territory for the particulars of these
rights or consult with a legal adviser.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
Report of Ernst & Young, Independent Auditors....................................... F-2
CliniChem Development Inc. Balance Sheet............................................ F-3
Notes to CliniChem Development Inc. Balance Sheet................................... F-4
Compilation Report and Comments for United States Readers
on Canada and United States Reporting Difference.................................. F-5
CliniChem Development Inc. Pro Forma Balance Sheet.................................. F-6
</TABLE>
F-1
<PAGE> 59
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
To the Directors of CliniChem Development Inc.
We have audited the balance sheet of CliniChem Development Inc. as at
February 6, 1998. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance whether the balance sheet is free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation.
In our opinion, this balance sheet presents fairly, in all material
respects, the financial position of the Company as at February 6, 1998, in
accordance with accounting principles generally accepted in Canada.
Montreal, Canada (signed) Ernst & Young
February 6, 1998 Chartered Accountants
F-2
<PAGE> 60
CLINICHEM DEVELOPMENT INC.
BALANCE SHEET
AS AT FEBRUARY 6, 1998
(In Canadian dollars)
ASSETS
<TABLE>
<S> <C>
Cash........................................................... $1,000
------
Total assets................................................... $1,000
======
SHAREHOLDER'S EQUITY
Total shareholder's equity [note 2]............................ $1,000
======
</TABLE>
Approved on behalf of the board of directors:
(signed) Frederick J. Andrew
(signed) Francois Legault
See Accompanying Notes to the Balance Sheet.
F-3
<PAGE> 61
CLINICHEM DEVELOPMENT INC.
NOTES TO BALANCE SHEET
1. INCORPORATION
CliniChem Development Inc. ("CliniChem" or the "Company") was incorporated
by articles of incorporation under the Canada Business Corporations Act by
BioChem Pharma Inc. ("BioChem") on January 30, 1998, to conduct research and
development of potential human therapeutic and vaccine products primarily
for the treatment of cancer and HIV infection and the prevention of certain
infectious diseases. CliniChem has not conducted any business to date and
its only activity to date has been the initial funding provided by BioChem,
which owns all of the Company's outstanding Common Shares. Accordingly, no
statement of revenue and expenses or statement of changes in financial
position is presented.
CliniChem prepares its financial statements in accordance with accounting
principles generally accepted in Canada which conform in all material
respects with generally accepted accounting principles in the United States.
2. SHARE CAPITAL
<TABLE>
<CAPTION>
NUMBER $
------ -----
<S> <C> <C>
Unlimited number of shares authorized; issued and outstanding:
Common Shares................................................................................ 1,000 1,000
As of January 1998, CliniChem is a wholly-owned subsidiary of BioChem.
</TABLE>
Prior to the closing of the Distribution contemplated by the Prospectus, of
which this Balance Sheet is a part, the Company intends to file articles of
amendment to provide for Class A Common Shares and Class B Common Shares.
The common shareholders of BioChem will receive one CliniChem Class A Common
Share for each 40 BioChem Common Shares held on the Record Date. The
Company's Common Shares owned by BioChem on the date on which the articles
of amendment are filed will be converted into 2,706,475 Class A Common
Shares and into 1,000 Class B Common Shares. In addition, BioChem will
contribute $150 million in cash to CliniChem as a capital contribution. As
the holder of the majority of outstanding Class B Common Shares of CliniChem
following the Distribution, BioChem will have the option to acquire all (but
not less than all) of the outstanding Class A Common Shares of CliniChem
under specified conditions.
3. DESCRIPTION OF BUSINESS AND CERTAIN TRANSACTIONS WITH BIOCHEM
CliniChem does not intend to perform any research or other activities, but
rather will contract with BioChem to perform all such activities pursuant to
the terms of the Research and Development Agreement to be entered into by
and between CliniChem and BioChem.
CliniChem intends to enter into certain agreements with BioChem, including
the Research and Development Agreement, the Technology License Agreement and
the Services Agreement, relating to the proposed research, development and
licensing of the therapeutic and vaccine products developed pursuant to
CliniChem's therapeutic development program and its vaccine program. In
addition, CliniChem will grant to BioChem an option to acquire all rights to
each CliniChem Product.
Substantially all of the management and operating activities of CliniChem
will be carried out by BioChem under the Research and Development Agreement
and the Services Agreement.
4. ACCOUNTING FOR REVENUES AND EXPENSES
The Company's revenues in early years will consist primarily of investment
income. In later years, the Company could receive revenues as royalties from
the sale of its products, most likely through sale of the products by
BioChem. Royalty and other product revenue, if any, would be recorded as
earned.
The Company expects to incur most of its expenses under agreements with
BioChem. Development costs paid to BioChem under the Research and
Development Agreement, and the Technology Fee paid to BioChem under the
Technology License Agreement, will be recorded as research and development
expenses when incurred. Amounts paid to BioChem under the Services Agreement
will be recorded as administrative expenses when incurred.
F-4
<PAGE> 62
COMPILATION REPORT
To the Directors of
CLINICHEM DEVELOPMENT INC.
We have reviewed, as to compilation only, the accompanying pro forma
balance sheet of CliniChem Development Inc. ("CliniChem") as at February 6, 1998
prepared for inclusion in the Prospectus relating to the proposed distribution
of Class A Common Shares of CliniChem. In our opinion, the pro forma balance
sheet has been properly compiled to give effect to the transactions and
assumptions described in the footnotes thereto.
Montreal, Canada (signed) ERNST & YOUNG
February 6, 1998 Chartered Accountants
COMMENTS FOR UNITED STATES READERS ON CANADA
AND UNITED STATES REPORTING DIFFERENCE
The above report, provided solely pursuant to Canadian requirements, is
expressed in accordance with standards of reporting generally accepted in
Canada. Such standards contemplate the expression of an opinion with respect to
the compilation of pro forma financial statements. United States standards do
not provide for the expression of an opinion on the compilation of pro forma
financial statements. To report in conformity with United States standards on
the reasonableness of the pro forma adjustments and their application to the pro
forma financial statements requires an examination or review substantially
greater in scope than the review we have conducted. Consequently, we are unable
to express any opinion in accordance with standards of reporting generally
accepted in the United States with respect to the compilation of the
accompanying unaudited pro forma balance sheet.
Montreal, Canada (signed) ERNST & YOUNG
February 6, 1998 Chartered Accountants
F-5
<PAGE> 63
CLINICHEM DEVELOPMENT INC.
PRO FORMA BALANCE SHEET
As at February 6, 1998
The following pro forma balance sheet should be read in conjunction with
the audited balance sheet and notes to the balance sheet of CliniChem as at
February 6, 1998. The pro forma balance sheet is presented to show the financial
position of CliniChem following the receipt of a contribution of $150 million in
cash from BioChem, the conversion of 1,000 Common Shares owned by BioChem into
2,706,475 Class A Common Shares and into 1,000 Class B Common Shares prior to
the Distribution.
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED AS OF
UNADJUSTED ADJUSTMENTS FEBRUARY 6, 1998
---------- ------------ -----------------
(In Canadian dollars)
<S> <C> <C> <C>
ASSETS
Cash............................................. $1,000 $150,000,000(a) $150,001,000
====== ============ ============
SHAREHOLDERS' EQUITY
Common shares, unlimited number of shares
authorized, 1,000 shares issued and
outstanding.................................... 1,000 (1,000)(b) --
Class A Common Shares, unlimited number of shares
authorized, 2,706,475 shares issued and
outstanding as adjusted........................ -- 167(b) 167
Class B Common Shares, 1,000 shares authorized,
1,000 shares issued and outstanding as
adjusted....................................... -- 833(b) 833
Contributed surplus.............................. -- 150,000,000(a) 150,000,000
------ ------------ ------------
Total Shareholders' equity....................... $1,000 $150,000,000 $150,001,000
====== ============ ============
</TABLE>
- ---------------
(a) To reflect the receipt of the $150 million contribution from BioChem.
(b) To reflect the conversion of 1,000 Common Shares held by BioChem into
2,706,475 Class A Common Shares and into 1,000 Class B Common Shares.
F-6
<PAGE> 64
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
I,2 ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH
THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED
UPON AS
HAVING BEEN AUTHORIZED BY BIOCHEM OR
CLINICHEM. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE CLASS A
COMMON SHARES TO WHICH IT RELATES OR
AN OFFER TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS
CLINICHEM
PROSPECTUS NOR ANY SALE SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE
INFORMADEVELOPMENT INC.
TION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
CLASS A COMMON SHARES
- --------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Available Information.................. 2
Enforceability of Civil Liabilities
Under United States Federal
Securities Laws...................... 2
Trademarks............................. 3
Exchange Rate Data..................... 3
Prospectus Summary..................... 4
Glossary............................... 15
Risk Factors........................... 17
The Distribution....................... 25
</TABLE>
--------------------------------------------------------------------
<TABLE>
<S> <C>
CliniChem Pro forma
Capitalization>........................ 26
Reasons for the Distribution and
Effects
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
on BioChem........................... 26
Business of CliniChem.................. 28
</TABLE>
--------------------------------------------------------------------
<TABLE>
<S> <C>
Selected Financial Data of CliniChem... 39
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 40
The Agreements and the Purchase
Option............................... 41
Income Tax Considerations.............. 47
Exchange Controls and Other Limitations
Affecting Security Holders........... 53
Description of CliniChem's Share
Capital................................ 53
Legal Matters.......................... 55
Experts................................ 55
Material Contracts..................... 55
Promoter............................... 56
Auditors, Transfer Agent and
Register............................. 56
Purchasers' Statutory Rights........... 56
Index to Financial Statements.......... F-1
Opinion of Merrill Lynch, Pierce,
Fenner & Smith Incorporated.......... A-1
</TABLE>
UNTIL , 1998 (THE 25TH DAY
AFTER THE DATE
, 1998
OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS
A COMMON SHARES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS 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.
<PAGE> 65
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by CliniChem
in connection with the sale of the CliniChem Common Shares being registered (all
amounts are estimated except the SEC Registration Fee and the Nasdaq National
Market Listing Application Fee):
<TABLE>
<S> <C>
SEC Registration Fee................................... $30,975.00
Nasdaq National Market Listing Application Fee......... 19,000.00
Financial Advisory Fee................................. *
Blue Sky Qualification Fees and Expenses............... *
Accounting Fees........................................ *
Legal Fees and Expenses................................ *
Transfer Agent and Registrar Fees...................... *
Printing and Engraving................................. *
Miscellaneous.......................................... *
----------
Total.................................................. $ *
==========
</TABLE>
- ---------------
*To be filed by Amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Except as hereinafter set forth, there is no charter provision, by law,
contract, arrangement or statute under which any director or officer of
CliniChem is insured or indemnified in any manner against any liability which he
may incur in his capacity as such.
The Canada Business Corporations Act provides that a corporation may
indemnify, and CliniChem's By-laws provide that CliniChem shall indemnify, in
each case except in respect of an action by or on behalf of CliniChem or a body
corporate of which CliniChem is or was a shareholder or creditor to procure a
judgment in its favor, an officer or director of CliniChem, a former officer or
director of CliniChem or a person who acts or acted at CliniChem's request as a
director or officer of a body corporate of which CliniChem is or was a
shareholder or creditor, and his heirs and legal representatives, against all
costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgment, reasonably incurred by him in respect of any civil, criminal
or administrative action or proceeding to which he is made a party by reason of
his being or having been a director or officer of CliniChem or such body
corporate, if he acted honestly and in good faith with a view to the best
interests of CliniChem, and, in the case of a criminal or administrative action
or proceeding that is endorsed by a monetary penalty, he had reasonable grounds
for believing that his conduct was lawful.
II-1
<PAGE> 66
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In February, 1998, CliniChem sold 1,000 common shares to BioChem Pharma
Inc. for an aggregate cash purchase price of $1,000. The common shares were
issued in a transaction consummated solely in Canada and, as such, without
registration under the Securities Act of 1933, as amended. No underwriting
commissions were paid in connection with such issuance.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NUMBER DESCRIPTION
3.1 Articles of Incorporation of CliniChem*
3.2 By-Laws of CliniChem*
3.3 Form of Restated Articles of Incorporation of CliniChem (to be effective
prior to the Distribution)*
4.1 Specimen Certificate of Class A Common Shares of CliniChem*
5.1 Opinion of Stikeman, Elliott as to legality of underlying Class A Common
Shares, including consent*
8.1 Opinion of Stikeman, Elliott as to Canadian tax matters, including
consent*
8.2 Opinion of Kirkland & Ellis as to U.S. tax matters, including consent*
10.1 Form of Technology License Agreement between CliniChem and BioChem*
10.2 Form of Research and Development Agreement between CliniChem and
BioChem*
10.3 Form of Product Option Agreement between CliniChem and BioChem*
10.4 Form of Distribution Agreement between CliniChem and BioChem*
10.5 Form of Services Agreement between CliniChem and BioChem*
23.1 Consent of Ernst & Young, re CliniChem
23.2 Consent of Stikeman, Elliott (included in Exhibit 5.1 and Exhibit 8.1)*
23.3 Consent of Kirkland & Ellis (included in Exhibit 8.2)*
23.4 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated*
24.1 Powers of Attorney (included on signature pages)
27.1 Financial Data Schedule
- ------------------
*To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended ("Securities Act");
(ii) To reflect in the prospectus included in this registration
statement any facts or events arising after the effective date of
this registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission
("SEC") pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
and
II-2
<PAGE> 67
(iii) To include any material information with respect to the plan of
distribution nor previously disclosed in the registration statement
or any material change to such information in this registration
statement.
(2) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(3) To file a post-effective amendment to this registration statement to
include any financial statements required by Rule 3-19 of Regulation S-X
under the Securities Exchange Act of 1934 throughout the offering.
(4) 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 that time shall be deemed to be the initial bona fide offering
thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under
item 14 above, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act of 1933 and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and
will be governed by the final adjudication of such issue.
CliniChem hereby undertakes to provide to the General Trust of Canada, the
distribution agent, at the Distribution Date certificates in such denominations
and registered in such names as required by the Distribution Agent to permit
prompt delivery to each purchaser.
II-3
<PAGE> 68
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Laval, Quebec, on February 9, 1998.
CLINICHEM DEVELOPMENT INC.
By: /s/ FREDERICK J. ANDREW
Name: Frederick J. Andrew
Title: Chief Financial
Officer and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned officers
and directors of CliniChem Development Inc., a Canadian corporation, does hereby
constitute and appoint Charles-A Tessier and Frederick J. Andrew , and each of
them the lawful attorney and agent or attorney or agent, with power and
authority to do any and all acts and things and to execute any and all
instruments which said attorney and agent determines may be necessary or
advisable or required to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules or regulations or requirements of the
Securities and Exchange Commission in connection with this Registration
Statement. Without limiting the generality of the foregoing power and authority,
the powers granted include the power and authority to sign the names of the
undersigned officers and directors in the capacities indicated below to this
Registration Statement, to any and all amendments, all whether pre-effective or
post-effective, and all supplements to this Registration Statement and to any
and all instruments or documents filed as part of or in conjunction with this
Registration Statement or amendments, whether pre-effective or post-effective,
or supplements to this Registration Statement, and each of the undersigned
hereby ratifies and confirms all that said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on behalf of CliniChem Development Inc.
by the following persons in the capacities and on the dates indicated
<TABLE>
<CAPTION>
NAME CAPACITY DATE
- ------------------------------------- -------------------------------------- -----------------
<C> <S> <C>
/s/ FRANCESCO BELLINI, Ph.D. Chairman and President February 9, 1998
- -------------------------------------
Francesco Bellini, Ph.D.
/s/ FREDERICK J. ANDREW Chief Financial Officer and Director February 9, 1998
- -------------------------------------
Frederick J. Andrew
/s/ CHARLES-A. TESSIER General Counsel and Secretary February 9, 1998
- -------------------------------------
Charles-A Tessier
/s/ FRANCOIS LEGAULT Director February 9, 1998
- -------------------------------------
Francois Legault
</TABLE>
III-1
<PAGE> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
3.1 Articles of Incorporation of CliniChem*
3.2 By-Laws of CliniChem*
3.3 Form of Articles of Amendment of CliniChem (to be effective prior to the
Distribution)*
5.1 Opinion of Stikeman, Elliott as to legality of underlying Class A Common Shares,
including consent*
8.1 Opinion of Stikeman, Elliott as to tax matters, including consent*
8.2 Opinion of Kirkland & Ellis as to U.S. tax matters, including consent*
10.1 Form of Technology License Agreement between CliniChem and BioChem*
10.2 Form of Research and Development Agreement between CliniChem and BioChem*
10.3 Form of Product Option Agreement between CliniChem and BioChem*
10.4 Form of Distribution Agreement between CliniChem and BioChem*
10.5 Form of Services Agreement between CliniChem and BioChem*
23.1 Consent of Ernst & Young, re CliniChem
23.2 Consent of Stikeman, Elliott (included in Exhibit 5.1 and Exhibit 8.1)*
23.3 Consent of Kirkland & Ellis (included in Exhibit 8.2)*
23.4 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated*
24.1 Powers of Attorney (included on signature pages)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
III-2
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG
INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 6, 1998, in the Registration Statement
(Form F-1) and related Prospectus of CliniChem Development Inc. for the
registration of Class A Common Shares.
/s/ ERNST & YOUNG
Ernst & Young
Montreal, Canada
February 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements dated February 6, 1998 included in the Form F-1
Registration Statement and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> FEB-06-1998
<PERIOD-END> FEB-06-1998
<EXCHANGE-RATE> 0.70
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
