<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 1998
REGISTRATION NO. 333-47725
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ANTHRA PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5122 22-3007972
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
103 CARNEGIE CENTER, SUITE 102
PRINCETON, NEW JERSEY 08540
(609) 514-1060
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL C. WALKER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ANTHRA PHARMACEUTICALS, INC.
103 CARNEGIE CENTER, SUITE 102
PRINCETON, NEW JERSEY 08540
(609) 514-1060
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JOSEPH W. BARTLETT, ESQ. ROBERT H. WERBEL, ESQ.
MORRISON & FOERSTER LLP WERBEL & CARNELUTTI
1290 AVENUE OF THE AMERICAS A PROFESSIONAL CORPORATION
NEW YORK, NEW YORK 10104-0012 711 FIFTH AVENUE
(212) 468-8000 NEW YORK, NEW YORK 10022
(212) 832-8300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of the Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED MAY 15, 1998
PRELIMINARY PROSPECTUS
2,400,000 SHARES
[ANTHRA PHARMACEUTICALS, INC. LOGO]
COMMON STOCK
------------------------
All of the shares of Common Stock offered hereby are being sold by Anthra
Pharmaceuticals, Inc. (together with its wholly owned subsidiary, "Anthra" or
the "Company"). Prior to this offering (the "Offering"), there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $9.50 and $11.50 per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. Application has been made to have
the Common Stock approved for quotation on the Nasdaq National Market, which has
reserved the Nasdaq trading symbol "ANTH" to identify the Company.
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------
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.
<TABLE>
<CAPTION>
=======================================================================================================================
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................... $ $ $
- -----------------------------------------------------------------------------------------------------------------------
Total(3).................................... $ $ $
=======================================================================================================================
</TABLE>
(1) The Company has agreed to reimburse the Underwriters for certain expenses
incurred in connection with the Offering and to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of the Offering of $500,000 payable by
the Company, including the reimbursement of expenses of the Underwriters of
up to $150,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 360,000 additional shares of Common Stock on the same terms and
conditions as the securities offered hereby solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, and Proceeds to Company, will be
$ , $ , and $ , respectively. See "Underwriting."
------------------------
The shares are being offered by the Underwriters, subject to prior sale,
when, as and if accepted by them and subject to the right of the Underwriters to
reject any order in whole or in part and certain other conditions. It is
expected that delivery of the certificates for the Common Stock will be made on
or about , 1998, at the offices of Allen & Company
Incorporated, 711 Fifth Avenue, New York, New York 10022.
------------------------
ALLEN & COMPANY GRUNTAL & CO., L.L.C.
INCORPORATED
The date of this Prospectus is , 1998.
<PAGE> 3
[GRAPHIC DEPICTING DEVELOPMENT OF VALSTAR AND BONEFOS(R)]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT, THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING
THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON
STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK AND THE
IMPOSITION OF PENALTY BIDS.
MOST OF THE COMPANY'S DRUG PRODUCT CANDIDATES ARE CURRENTLY UNDERGOING
CLINICAL TRIALS. TO DATE, THE COMPANY HAS NOT COMPLETED THE DEVELOPMENT, OR
GENERATED REVENUES FROM SALES, OF ANY PRODUCTS, AND UNITED STATES FOOD AND DRUG
ADMINISTRATION AND OTHER REGULATORY APPROVALS WILL BE REQUIRED BEFORE SUCH
PRODUCTS CAN BECOME COMMERCIALLY AVAILABLE.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus, including "Risk Factors" and
the Consolidated Financial Statements and Notes thereto. Unless otherwise
indicated, all information in this Prospectus assumes (i) no exercise of the
Underwriters' over-allotment option or currently outstanding stock options
granted by the Company, and (ii) the conversion of an aggregate of 3,789,683
shares of the Company's Series A, B, C and D Convertible Preferred Stock (the
"Preferred Stock") into an aggregate of 3,789,683 shares of Common Stock
effective upon the closing of the Offering (the "Preferred Stock Conversion").
All references to the "Company" or "Anthra" herein include Anthra
Pharmaceuticals, Inc. and its wholly owned United Kingdom subsidiary, Anthra
Pharmaceuticals Ltd., unless the context otherwise requires. Unless otherwise
indicated, all references to years refer to the fiscal years of the Company
ending June 30.
THE COMPANY
Anthra Pharmaceuticals, Inc. is a specialized pharmaceutical company
engaged in clinical development and obtaining regulatory approval of New Drug
Applications ("NDAs") and supplemental NDAs ("sNDAs") for a portfolio of its
proprietary cancer drugs. The Company's current drug candidates are for the
treatment of patients with superficial cancer of the bladder, ovarian and
prostatic cancer, and complications from metastatic cancer (hypercalcemia and
lytic bone disease). The Company's strategy is to develop only late stage drug
candidates, thereby improving the likelihood of successfully obtaining NDA/sNDA
and equivalent foreign approvals. The Company directs its search for oncology
drug candidates toward selected large pharmaceutical companies, because of the
difficulty many of these companies have experienced in managing oncology
projects, and at biotechnology and early stage discovery companies that lack
clinical and regulatory proficiency. To maximize the return on its investment in
each drug, Anthra seeks approvals for multiple disease indications for each
product and directly manages both its United States and foreign clinical
programs and regulatory submissions.
In December 1997, Anthra filed an NDA for its first product, Valstar
(valrubicin, AD 32), for treatment of patients with superficial bladder cancer
whose principal current alternative is the surgical removal of their urinary
bladder. In January 1998, Anthra received priority designation from the United
States Food and Drug Administration (the "FDA") for the review of this NDA, and
the Oncology Drug Advisory Committee ("ODAC") is expected to provide its
recommendations to the FDA regarding this NDA at the ODAC meeting scheduled for
June 1, 1998. The Company anticipates that this NDA for Valstar will be
approvable by the FDA during 1998.
Valstar is an anthracycline with multiple cytotoxic mechanisms that was
discovered at the Dana-Farber Cancer Institute, Harvard University Medical
School ("Dana-Farber"). Valstar has been shown to have significant activity
against a variety of tumor cell lines and is not associated with significant
contact toxicity, thereby making it an ideal choice for regional chemotherapy.
The Company's pivotal clinical studies have demonstrated a complete response
rate of 22% in a group of 90 patients with bladder cancer who had not responded
satisfactorily to extensive pre-treatment with Bacillus Calmette Guerin ("BCG"),
the accepted first line treatment for superficial bladder cancer. There are
currently no drugs approved in the United States or Europe for second-line
treatment of bladder cancer following BCG therapy. For these patients, surgical
removal of the bladder is the only approved definitive form of therapy.
Importantly, 45% of the patients in the Company's pivotal clinical studies
retained their bladder 30 months following study entry. Anthra, consistent with
its multiple disease indication strategy, is developing Valstar for three
additional indications. One Phase III program is directed at patients with
papillary superficial bladder cancer, for whom approximately 180,000
transurethral resection procedures are being performed annually in the United
States. In another Phase III program involving patients with ovarian cancer,
Valstar is being administered directly into the peritoneal cavity, where the
cancer is confined. In addition, Anthra plans to commence a Phase I program to
obtain approval for use of Valstar in treating prostate cancer. The Company has
researched the historical incidence of each of these diseases based on publicly
available information and reports prepared for the Company by MedProbe, Inc.
("MedProbe"), including a report summarizing the results of a survey of 1.5%
3
<PAGE> 5
(124) of office and hospital based urologists reported to be members of the
American Medical Association ("AMA"). Based on the foregoing research and the
estimated cost of treating each with Valstar, the Company estimates that the
potential market for Valstar in the United States could approximate nearly $600
million per annum, see "Business -- Products and Markets -- Valstar: Market,"
and that foreign markets will provide a significant additional opportunity for
sales of Valstar.
A United States subsidiary of Medeva plc (collectively with Medeva plc,
"Medeva") has committed up to $26.2 million (of which $8 million has been paid
to date) and the payment of future royalties for the right to market and sell
Valstar in the United States. Anthra currently has similar arrangements for
Valstar with Nycomed Pharma AS ("Nycomed"), and Almirall Prodesfarma, S.A.
("Almirall"), with respect to marketing and sales rights in Europe. In total,
Anthra has entered into agreements for Valstar providing potential equity
investment, licensing and development fees and milestone payments of up to $42.9
million (of which $22.3 million has been paid to date), plus additional royalty
and supply payments.
In accord with the Company's corporate development strategy, Anthra
identified Bonefos(R), a product for the treatment of hypercalcemia and lytic
bone disease associated with breast and lung cancer and owned by Schering AG,
Germany, the Company's largest pharmaceutical shareholder. Anthra negotiated and
signed a term sheet (the "Bonefos Agreement in Principle") with Schering AG,
Germany's affiliates, Berlex Laboratories, Inc. ("Berlex") and Leiras Oy, to
acquire the exclusive United States development and marketing rights to
Bonefos(R) for the hypercalcemia and lytic bone disease indications, for
payments aggregating $3.75 million. Bonefos(R) has been on the market in Europe
and the rest of the world since 1985, with worldwide sales of approximately $150
million in 1997. The Company plans to conduct Phase III trials in the United
States for Bonefos(R) for the hypercalcemia and lytic bone disease indications
upon execution of definitive documentation memorializing the Bonefos Agreement
in Principle. The Bonefos Agreement in Principle contemplates that, upon FDA
approval of an NDA for Bonefos(R), Berlex will have the option to acquire from
the Company the exclusive right to market Bonefos(R) in the United States for
the hypercalcemia and lytic bone disease indications for payments of up to $21
million, plus future royalties. Based on the historical incidence of
hypercalcemia and the types of lytic bone disease that Bonefos(R) treats, and
the estimated costs of utilizing Bonefos(R) for the treatment of these maladies,
the Company estimates that the potential market for Bonefos(R) in the United
States could approximate nearly $900 million per annum. See
"Business -- Products and Markets -- Bonefos(R): Market."
Anthra believes that its strategy and accomplishments have positioned it to
become a recognized platform for the clinical substantiation and regulatory
approval of cancer drugs capable of treating multiple disease indications. The
Company is currently assessing and evaluating additional cancer-related late
stage candidates for acquisition, although no definitive agreements have been
executed. Management believes that focused, cost effective development increases
the likelihood of successful clinical development and regulatory approval.
Indicative of this strategy has been the Company's success in filing an NDA for
Valstar at a total cost of less than $20 million. According to Parexel's
Pharmaceutical Statistical Sourcebook (1997) ("PPSS"), in the United States, the
cost of developing an approved new drug has been estimated to be between $304
million and $608 million.
The Company currently manages its clinical development program for the
United States from Princeton, New Jersey, and its program for Europe from
Princes Risborough, England through Anthra Pharmaceuticals Ltd., its wholly
owned United Kingdom subsidiary ("Anthra UK"). The Company further anticipates
that it will manage the manufacturing, supply, development and distribution of
Valstar and Bonefos(R) from Switzerland through one or more wholly owned Swiss
subsidiaries, which will hold substantially all of the Company's rights to
Valstar and Bonefos(R).
The Company was incorporated in Delaware on June 25, 1985. The Company's
principal executive offices are located at 103 Carnegie Center, Suite 102,
Princeton, New Jersey 08540 and its telephone number is (609) 514-1060.
4
<PAGE> 6
THE OFFERING
Common Stock offered by the
Company......................... 2,400,000 shares
Common Stock to be outstanding
after the Offering.............. 7,255,183 shares(1)
Use of proceeds................. Progress payments for the acquisition of
Bonefos(R), for development of products, and
for general corporate purposes, including
potential additional product acquisitions and
purchases of product inventory. See "Use of
Proceeds."
Reserved Nasdaq National Market
symbol........................ ANTH
Risk Factors.................... This Offering involves a high degree of risk.
See "Risk Factors."
- ---------------
(1) Based on shares of Common Stock outstanding at March 31, 1998. Does not
include (a) 1,088,987 shares of Common Stock issuable upon exercise of stock
options outstanding at March 31, 1998, with a weighted average exercise
price of $0.96 per share, of which options to purchase 500,357 shares of
Common Stock were then exercisable (see "Capitalization" and "Management"),
(b) options to purchase 271,500 and 175,000 shares of Common Stock at
exercise prices of $8.00 per share and at a price per share equal to the
fair market value on the date of the occurrence of certain future events,
respectively, granted after March 31, 1998, and (c) certain stock options to
purchase Common Stock or Series D Convertible Preferred Stock which may be
granted to Nycomed pursuant to the Nycomed Agreement (see
"Business -- Products and Market -- Valstar: Licensing Agreements").
5
<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue................... $ -- $ -- $ -- $ 2,171 $ 1,688 $ 1,488 $ --
Total operating
expenses................ 1,370 2,489 2,712 4,172 7,292 4,635 7,422
Other income (expense).... 33 37 94 111 139 120 290
------- ------- ------- ------- ------- ------- -------
Net loss.................. $(1,337) $(2,452) $(2,618) $(1,890) $(5,465) $(3,027) $(7,132)
======= ======= ======= ======= ======= ======= =======
Net loss allocable to
common stockholders..... $(1,536) $(2,874) $(3,271) $(2,543) $(6,118) $(3,517) $(7,621)
======= ======= ======= ======= ======= ======= =======
Basic and diluted net loss
per share allocable to
common
stockholders(1)......... $ (2.15) $ (4.02) $ (4.24) $ (3.01) $ (5.79) $ (3.34) $ (7.15)
Shares used in computing
basic and diluted net
loss per share allocable
to common
stockholders(1)......... 716 716 771 844 1,057 1,055 1,066
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------------
(UNAUDITED)
PRO FORMA AS
ACTUAL PRO FORMA(2) ADJUSTED(2)(3)
CONSOLIDATED BALANCE SHEET DATA: -------- ------------ --------------
<S> <C> <C> <C>
Cash and cash equivalents............................ $ 5,681 $ 5,681 $ 28,814
Working capital...................................... 4,891 4,891 28,024
Total assets......................................... 6,203 6,203 28,989
Contingent stock obligation(4)....................... 8,000 8,000 8,000
Mandatorily redeemable convertible preferred stock... 11,460 -- --
Convertible preferred stock.......................... 6 -- --
Deficit accumulated during the development stage..... (22,001) (22,001) (22,001)
Total stockholders' equity (deficit)................. (14,132) (2,672) 20,264
</TABLE>
- ---------------
(1) See Note 2 of Notes to Consolidated Financial Statements.
(2) Gives effect to the conversion of all issued and outstanding shares of
Preferred Stock into 3,789,683 shares of Common Stock.
(3) As adjusted to give effect to the sale of the 2,400,000 shares of Common
Stock by the Company offered hereby at an assumed initial public offering
price of $10.50 per share, less underwriting discounts and commissions and
estimated offering expenses, and the anticipated application of the
estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
(4) See Note 5 of Notes to Consolidated Financial Statements.
6
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, investors should
carefully consider the following risk factors when evaluating an investment in
the Common Stock offered hereby. The Company cautions prospective investors that
the following list of risk factors may not be exhaustive.
Certain statements contained in "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," including statements regarding the anticipated
development and expansion of the Company's business, the products which the
Company expects to offer, anticipated research and development expenditures and
regulatory reform, the intent, belief or current expectations of the Company,
its Directors or its officers, primarily with respect to the future operating
performance of the Company, other statements contained herein regarding
performance of the Company, and other statements contained herein regarding
matters that are not historical facts, are forward-looking statements. Because
such statements include risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward-looking statements.
These statements appear in a number of places in this Prospectus and include
statements regarding the intent, belief or current expectations of the Company,
its Directors or its officers with respect to, among other things: (i) whether
the Company will receive, and the timing of, regulatory approvals or clearances
to market Valstar and Bonefos(R) and any other potential products; (ii) the
results of current and future clinical trials; and (iii) the time and expenses
associated with the regulatory approval process for products. The success of the
Company's business operations is in turn dependent on factors such as the
receipt and timing of regulatory approvals or clearances for potential products,
the effectiveness of the Company's marketing strategies to market its current
and any future products, the Company's ability to enter into agreements for the
manufacture of its products on a commercial scale, the appeal of the Company's
mix of products, the Company's success at entering into and collaborating with
others to conduct effective strategic alliances and joint ventures, general
competitive conditions within the biotechnology and pharmaceutical industry, and
general economic conditions. Factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include, but are not limited to, the factors set forth in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
History of Losses; Accumulated Deficit and Anticipated Future Losses. To
date, the Company has been engaged primarily in clinical research and
development activities and has generated revenues only recently. At March 31,
1998, the Company has an accumulated deficit of $22.0 million since inception
and losses are expected to continue through 1999. The Company will be required
to conduct substantial clinical research and development for all of its current
and proposed products, which activities are expected to result in operating
losses for the foreseeable future. In addition, to the extent the Company relies
upon others for commercialization activities, the Company's ability to achieve
profitability will be dependent upon the success of such third parties. The
extent and duration of future losses is highly uncertain, and there can be no
assurance that the Company will be able to achieve profitability on a sustained
basis, if at all.
Limited History of Product Development. The Company has no products
approved for sale. The Company has filed an NDA with the FDA for Valstar for
treatment of refractory carcinoma in-situ of the bladder, and has clinical
trials in progress or planned for three other disease indications for Valstar.
However, there can be no assurance that the FDA will grant the Company approval
with respect to such NDA, or that any of the clinical trials in progress will
either have successful results or lead to approved sNDAs. Failure to obtain such
approvals would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has entered into the Bonefos Agreement in Principle to obtain
development and marketing rights for the United States market for a second
product, Bonefos(R), for the hypercalcemia and lytic bone disease indications.
The Bonefos Agreement in Principle is subject to the execution of mutually
acceptable definitive documentation, and there can be no assurance that such
documentation will be agreed to or that the Company will acquire the rights to
Bonefos(R) described above. Bonefos(R) is the subject of an ongoing clinical
trial with respect to one indication. The Company plans to commence clinical
trials for a second indication for Bonefos(R) upon execution of definitive
documentation relating to the transactions contemplated by the Bonefos
7
<PAGE> 9
Agreement in Principle. However, there can be no assurance that either of the
clinical trials will be completed with successful results or that such results
will lead to the successful filing and approval of this product for any
indication.
Before obtaining regulatory approval for commercial sale, a product
candidate must be shown through preclinical and clinical trials that it is safe
and effective for use in each target indication. The results from preclinical
and early clinical trials may not be predictive of results that will be obtained
in large-scale clinical trials. There can be no assurance that clinical trials
of the Company's product candidates will demonstrate sufficient safety and
efficacy to obtain the requisite regulatory approvals or will result in
marketable products.
While the Company has submitted an NDA to the FDA with respect to Valstar
for the treatment of refractory carcinoma in-situ of the bladder, results
obtained with respect to the clinical trials for this indication for Valstar may
not be representative of results of clinical trials for other indications. The
pivotal Phase III studies of Valstar for other indications seek efficacy data,
as well as additional safety data, and will require substantial time and
significant funding. There can be no assurance that clinical studies for
additional indications for Valstar currently under development will be completed
successfully within any specified time period, if at all. Further, there can
also be no assurance that such testing will show Valstar to be safe or effective
for these indications. There can be no assurance that the Company will not
encounter problems in clinical trials that will cause the Company to delay or
suspend clinical trials. If the Company's product candidates are not shown to be
safe and effective in clinical trials, there would be a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Products and Markets."
Short-Term Dependence on Valstar. The Company filed an NDA for approval to
market Valstar for the treatment of patients with carcinoma in-situ of the
bladder, whose principal current alternative is surgical removal of their
urinary bladder. Two additional indications are being investigated in two Phase
III trials, and the Company anticipates that it will investigate a fourth
indication in a Phase I trial. Valstar has not been approved for marketing by
the FDA or any foreign regulatory agency for any indication, and trials to date
have involved a limited number of patients. There can be no assurance that
marketing approval for Valstar for any indication will be obtained. If Valstar
is approved for marketing, there can be no assurance that it will gain market
acceptance or that the marketing efforts necessary to gain any such acceptance
will prove effective or not cost more than the benefit gained thereby. In
addition, competition to Valstar may develop from other new and existing
products. The failure of Valstar to be approved for marketing or to gain market
acceptance would have a material adverse effect on the Company's business,
financial condition and results of operations. While the Company has executed
the Bonefos Agreement in Principle regarding the acquisition of development and
marketing rights for the United States market for Bonefos(R) for the
hypercalcemia and lytic bone disease indications, there can be no assurance that
this transaction will be consummated, that regulatory approval will be obtained
for Bonefos(R) for such indications in the United States, or that Bonefos(R) can
be successfully commercialized for such indications in the United States.
The number of patients in the United States with refractory carcinoma
in-situ of the bladder is limited and may be as few as 5,000 patients per annum.
In order to increase the number of indications for which Valstar may be used,
the Company must (i) successfully complete large clinical trials demonstrating
that drug activity is sufficient in each indication, (ii) file sNDAs for and
obtain marketing clearance from the FDA for each additional indication,
following approval of the NDA, (iii) make similar filings with and obtain
similar approvals from foreign regulatory agencies, and (iv) provide support for
the successful market launch and penetration of the product. There can be no
assurance that the Company will successfully complete the required clinical
trials and receive approvals for the additional indications on a timely basis,
if at all, or successfully market the product. Such an inability would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."
Uncertainties Related to Clinical Trials. The Company has limited
experience in conducting multiple clinical trials. Before obtaining regulatory
approval for the commercial sale of its products and their respective
indications, the Company is required to demonstrate through preclinical studies
and clinical trials that the products are safe and effective for use in each
target indication. The results from preclinical studies and early
8
<PAGE> 10
clinical trials may not predict the results that will be obtained in large-scale
testing, and there can be no assurance that the clinical trials conducted by the
Company or its partners will demonstrate sufficient safety and efficacy to
obtain required regulatory approvals or will result in marketable products. In
addition, clinical trials are often conducted with patients having the most
advanced stage of disease. During the course of treatment, these patients may
die or suffer other adverse medical effects for reasons that are not related to
the pharmaceutical agent being tested, but which can nevertheless affect
clinical trial results. A number of companies in the pharmaceutical and
biotechnology industries have suffered significant setbacks in advanced clinical
trials, even after achieving promising results in earlier trials.
The completion of clinical trials of the Company's product candidates could
be delayed or terminated by many factors and there can be no assurance that such
delays or terminations will not occur. One such factor is the rate of enrollment
of patients, which generally varies throughout the course of a clinical trial
and which depends upon the size of the patient population, the number of
clinical trial sites, the proximity of patients to clinical trial sites, the
eligibility criteria for the clinical trial, and the existence of competitive
clinical trials. The Company cannot control the rate at which patients present
themselves for enrollment, and there can be no assurance that the rate of
patient enrollment will be consistent with the Company's expectations or be
sufficient to enable clinical trials of the Company's product candidates to be
completed in a timely manner. Any delays in, or termination of, the clinical
trials of any of the Company's product candidates could have a material adverse
effect on the Company's business, financial condition and results of operations.
There is also the possibility that unacceptable side effects will be
discovered during preclinical or clinical testing of the Company's products.
Even after approval for marketing, a product may later be shown to be
ineffective or to have unacceptable side effects not discovered during testing,
requiring limitations on its use or withdrawal from the market.
Dependence on Licensees and Other Third Parties. The Company does not
intend to market any of its product candidates directly in the foreseeable
future. The Company has granted the right to commercialization and marketing
activities relating to Valstar to various licensees with respect to certain
territories. See "Business -- Products and Markets -- Valstar: Licensing
Agreements." Pursuant to the Company's agreement with Medeva covering the United
States, the Company received an initial non-refundable payment of $8 million,
but will not receive the additional payments aggregating up to $18.2 million
unless certain milestones are achieved. Under the Company's agreement with
Nycomed covering, among other territories, certain parts of Western and Eastern
Europe and Russia, Nycomed made a $4.5 million equity investment in the Company,
but is only obligated to make certain additional payments, aggregating up to $2
million, upon the attainment by Anthra of certain milestones. The Company will
also be obligated to issue certain options to purchase additional equity in the
Company upon the achievement of certain milestones. Pursuant to the Company's
agreement with Almirall covering Spain and Portugal, Anthra received an initial
licensing payment of $200,000 and an equity investment of approximately
$750,000, and may receive additional payments aggregating up to $400,000 if
certain milestones are achieved. The Company is also entitled to royalty and/or
supply payments under the Medeva, Nycomed and Almirall agreements and, although
each of such agreements has a minimum term of 10 years, the commencement date
for such payments under each agreement will remain undetermined until Valstar is
approved for sale in the relevant jurisdiction. Accordingly, the Company is
substantially dependent on these licensees for the funding necessary to support,
and the commercial success of, this product candidate. In the event that any of
the licensees subsequently terminates its agreement with the Company or
otherwise fails to conduct its collaborative activities successfully and in a
timely manner, the commercialization of the licensed Valstar product candidate
could be delayed. Any such delay could have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
if the transactions contemplated by the Bonefos Agreement in Principle with
respect to Bonefos(R) are consummated on substantially the terms set forth in
the Bonefos Agreement in Principle, and Berlex should exercise its option to
acquire the United States marketing rights for Bonefos(R) for the hypercalcemia
and lytic bone disease indications, the Company would be dependent upon the
marketing efforts of Berlex with respect thereto.
The Company has no experience in sales, marketing or distribution and is
relying on its licensing arrangements pursuant to which third parties will sell,
market and distribute its products. The Company is
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currently dependent to a significant extent on corporate partners, licensees and
other entities for manufacturing and marketing of its products. If the Company
engages directly in manufacturing or marketing, the Company will require
substantial additional funds and personnel and will be required to comply with
extensive regulations applicable to such activities. There can be no assurance
that the Company will be able to develop or contract for these capacities when
required in connection with the Company's business. Any revenues received by the
Company will depend upon the efforts of third parties, and there can be no
assurance that such efforts will be successful. See "Business -- Products and
Markets."
The Company intends to enter into additional corporate alliances to develop
and commercialize products. The Company may grant to its collaborative partners
rights to commercialize any products developed under or covered by these
collaborative agreements. The amount and timing of resources devoted to these
activities generally will be controlled by each such individual partner. There
can be no assurance that such corporate partners will successfully commercialize
any such products or will not pursue alternative technologies or develop
competitive products for the treatment of the diseases targeted by the Company's
programs.
There can be no assurance that the Company will be successful in
establishing any additional collaborative arrangements, that products will be
successfully commercialized under any collaborative arrangement or that the
Company will derive any revenues from such arrangements. In addition, the
Company's strategy involves entering into multiple, concurrent strategic
alliances to pursue commercialization of its products. There can be no assurance
that the Company will be able to manage simultaneous alliances successfully.
With respect to existing and potential future strategic alliances and
collaborative arrangements, the Company will be dependent upon the expertise and
dedication of sufficient resources by these outside parties to manufacture
and/or market products. Should a strategic alliance partner or collaborative
partner fail to commercialize a product to which it has rights, the Company's
business, financial condition and results of operations could be materially and
adversely affected.
Future Capital Needs and Commitments; Uncertainty of Additional
Funding. The Company anticipates that its existing resources, including the net
proceeds of the Offering and contingent funding from Medeva, Berlex (assuming
the consummation of certain transactions contemplated by the Bonefos Agreement
in Principle), Nycomed and Almirall (collectively, the "Collaborative
Partners"), will be sufficient to fund the Company's operating expenses and
capital requirements through the year 2000. There can be no assurance, however,
that the results of research and development activities, potential relationships
with strategic partners, changes in the focus and direction of the Company's
research and development programs, competitive and technological advances, the
regulatory approval process, and other factors, will not result in the
exhaustion of the Company's resources before such time. The Company will require
substantial funds in addition to the proceeds of the Offering to conduct
research and development activities, clinical trials, and apply for regulatory
approvals for any potential products in addition to Valstar and Bonefos(R). If
the Company engages directly in such activities or in the event scheduled
payments are not made by Collaborative Partners or any related agreements are
terminated, such events could materially and adversely affect the Company's
business, financial condition and results of operations.
The Company may seek additional funding through collaborative arrangements
and public or private financings, including equity financings. There can be no
assurance that such collaborative arrangements or additional financing will be
available on acceptable terms, if at all. If additional funds are raised by
issuing equity securities, further dilution to stockholders may result. If
adequate funds are not available, the Company may be required: (i) to delay,
reduce the scope of or eliminate one or more of its development programs or
forfeit its rights to licensed products or technologies; (ii) to obtain funds
through arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies, product candidates
or products that the Company would otherwise seek to develop or commercialize
itself; or (iii) to license the rights to such products on terms that are less
favorable to the Company than might otherwise be available. Any of the foregoing
developments could have a material adverse effect upon the Company's business,
financial condition and results of operations. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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Uncertainty of Government Regulatory Requirements; Lengthy Approval
Process. The research, development, preclinical and clinical trials,
manufacturing, labeling, and marketing related to the Company's products are
subject to an extensive regulatory approval process by the FDA and other
regulatory agencies in the United States and abroad. The process of obtaining
FDA and other required regulatory approvals for drug and biologic products,
including required preclinical and clinical testing, is lengthy, expensive and
uncertain. There can be no assurance that, even after such time and
expenditures, the Company will be able to obtain necessary regulatory approvals
for clinical testing or for the manufacturing or marketing of any products or
that the approved labeling will be sufficient for favorable marketing and
promotional activities. The Company may encounter significant delays or
excessive costs in its efforts to secure necessary approvals or licenses. Even
if regulatory clearance is obtained, a marketed product is subject to continual
review, and later discovery of previously unknown defects or failure to comply
with the applicable regulatory requirements may result in restrictions on a
product's marketing or withdrawal of the product from the market as well as
possible civil or criminal sanctions.
Satisfying regulatory requirements, which includes demonstrating to the
satisfaction of appropriate regulatory authorities, such as the FDA, that the
relevant product is both safe and effective, typically takes several years or
more depending upon the type, complexity and novelty of the product and requires
the expenditure of substantial resources. There can be no assurance that the
Company will not encounter problems in clinical trials which would cause the
Company or the FDA or other regulatory body to delay or suspend clinical trials.
Any such delay or suspension could have a material adverse effect on the
Company's business, financial condition and results of operations. Even after
approval, marketed products are subject to continuing FDA review, and they can
be withdrawn from the market, or new limitations placed on their labeling,
marketing, distribution, manufacture, or use, if new side effects are discovered
or if the products are shown to be less effective than previously believed. See
"Business -- Products and Markets" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
As with all specialized pharmaceutical companies, biotechnology companies,
large pharmaceutical companies and drug delivery companies, there can be no
assurance that FDA or other regulatory approvals for any of Anthra's
pharmaceutical products will be granted on a timely basis, if at all. The FDA
and comparable agencies in foreign countries impose substantial requirements on
the introduction of new pharmaceutical products through lengthy and detailed
preclinical and clinical testing procedures, sample testing and other costly and
time-consuming compliance procedures. For example, clinical trials subject to
FDA review are rigorously regulated and must meet requirements for FDA review
and oversight, and requirements under Good Clinical Practice guidelines. A new
drug may not be marketed in the United States until it has been approved by the
FDA, or marketed in foreign countries until it has been approved by the
appropriate regulatory authorities for such countries. There can be no assurance
that the Company will not encounter delays or rejections or that the FDA or
other applicable regulatory agency will not make policy changes during the
period of product development and regulatory review of each submitted NDA or
sNDA, or other appropriate documentation. A delay in obtaining or failure to
obtain such approvals would have a material adverse effect on the Company's
business, financial condition and results of operations. Even if regulatory
approval is obtained, the labeling would be limited as to the indicated uses for
which the product may be promoted or marketed. A marketed product, its
manufacturer and the facilities in which it is manufactured are subject to
continual review and periodic inspections. If marketing approval is granted, the
Company would be required to comply with FDA or other applicable regulatory
agency requirements for manufacturing (including compliance with current Good
Manufacturing Practice ("cGMP") requirements), labeling, advertising, record
keeping and reporting of adverse experiences, and other information. In
addition, the Company would be required to comply with Federal and state
anti-kickback and other health care fraud and abuse laws, and their foreign law
equivalents, that pertain to the marketing of pharmaceuticals. Failure to comply
with regulatory requirements and other factors could subject Anthra to
regulatory or judicial enforcement actions, including, but not limited to,
product recalls or seizures, injunctions, withdrawals of product from the
market, civil penalties, criminal prosecution, and withdrawals of existing
approvals, as well as enhanced product liability exposure, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Government Regulation."
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The Company has obtained from the FDA a designation for Valstar as an
"orphan drug" ("Orphan Drug"), under the provisions of the Orphan Drug Act of
1983, as amended (the "Orphan Drug Act"), for the treatment of carcinoma in-situ
of the bladder. Although Orphan Drug status may provide an applicant exclusive
marketing rights in the United States for a drug for a designated indication for
seven years following marketing approval, in order to obtain such benefits, the
applicant must be the sponsor of the first NDA approved for that drug and
indication. In addition, Orphan Drug exclusivity does not prohibit the FDA from
approving the same drug manufactured by another sponsor if it is labeled for a
different indication (even if it can be used for the same indication) or if it
is clinically superior to the Orphan Drug in any respect. Moreover, amendment of
the Orphan Drug Act by the United States Congress and reinterpretation by the
FDA are frequently discussed. Therefore, there can be no assurance as to the
precise scope of protection that may be afforded by Orphan Drug status in the
future, or that the current level of exclusivity will remain. See
"Business -- Government Regulation."
Competition. The pharmaceutical and biopharmaceutical industries are
intensely competitive and competition from other pharmaceutical companies,
biotechnology companies and other research and academic institutions is expected
to increase. Many of these companies have substantially greater financial and
other resources and research and development capabilities than the Company and
have substantially greater experience in undertaking preclinical and clinical
testing of products, obtaining regulatory approvals and manufacturing and
marketing pharmaceutical products. The Company is aware of other companies
engaged in the development of anthracycline drugs as chemotherapeutic agents for
various disease indications, including Pharmacia-Upjohn, Aronex, Sequus, Nexstar
and Liposome Company, and a number of other companies and academic institutions
are pursuing anthracycline drug research and are testing other anthracycline
drugs. Valstar may compete for certain uses with numerous other anthracycline
drug products in development by others. In addition to these companies and
institutions involved in the development of anthraycycline drugs, many other
companies have developed products which may compete with Valstar. These
companies include Zeneca, Bristol-Myers Squibb, American Home Products,
SmithKline Beecham, Eli Lilly, Roche, Schering Plough, Bioniche Inc., Mentor and
Takeida-Abbott, all of which develop or commercialize anti-cancer therapies.
With respect to the treatment of prostate cancer, Anthra also faces competition
from companies developing radioactive seed implantation therapies, including
Amersham/Mediphysics, North American Scientific, Theragenics, Imagyn Medical
Technologies and International Isotopes. Furthermore, companies also exist that
compete with Bonefos(R) by developing other bisphosphonates for the treatment of
hypercalcemia and lytic bone disease. These companies include Proctor & Gamble,
Sanofi, Novartis, Merck and MGI Pharmaceutical. There can be no assurance that
the Company will develop products that are as effective as or achieve greater
market acceptance than competitive products, or that the Company's competitors
will not succeed in developing products and technologies either that are as
effective as those being developed by the Company or that would render the
Company's products and technologies less competitive or obsolete.
Dependence on Patents and Other Proprietary Rights, Uncertainty of Patent
Position and Proprietary Rights. Valstar is no longer protected by the rights
afforded to the Company by patent protection as a new molecular entity ("NME").
The FDA has designated Valstar as an Orphan Drug for carcinoma in-situ, and the
Company expects to apply for Orphan Drug designation for Valstar in other
disease indications. Orphan Drug designation grants a company market exclusivity
in the indication for a period of seven years after FDA approval if it receives
the first approval of the Orphan Drug for that indication. If another sponsor
receives the first approval, this would prevent the Company from receiving
approval for seven years. There can be no assurance the Company will be granted
Orphan Drug status for any additional product or indication or that such status
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection to the Company or that another
sponsor will not receive Orphan Drug exclusivity first that would block the
Company's ability to obtain its own approval. See "Business -- Government
Regulation."
Bonefos(R) is the subject of several United States patents and patent
applications with expiration dates commencing in 2010 and ending in 2014. The
FDA has designated Bonefos(R) as an Orphan Drug for the treatment of osteolysis
(hypercalcemia). There can be no assurance that Bonefos(R) will be granted
Orphan
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<PAGE> 14
Drug status for the treatment of lytic bone disease or that such status will not
be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection to the Company.
Furthermore, the enactment of the legislation implementing the General
Agreement on Trade and Tariffs resulted in certain changes to United States
patent laws effective June 8, 1995. More notably, the term of patent protection
for patent applications filed on or after June 7, 1995 is no longer a period of
17 years from the date of grant, but will commence on the date of issuance and
terminate 20 years from the earlier effective filing date of the application.
Because the time from filing to issuance of an NME patent application is often
more than three years, a 20 year term from the effective date of filing may
result in a substantially shortened term of patent protection, which may
adversely impact the Company's patent position. If this change results in a
shorter period of patent coverage for future products, the Company's business,
financial condition and results of operations could be adversely affected to the
extent that the duration and level of the royalties it is entitled to receive
from a collaborative partner is based on the existence of a valid patent.
The Company's potential products may infringe on patents that have been or
may be granted to competitors, universities or others. The Company is aware of
third party United States patents that contain issued claims that may cover the
proposed formulation for Bonefos(R) and the sale of Bonefos(R) for the treatment
of osteolysis or the modulation of hypercalcemia due to malignancy. If any
technologies, applications, patents or proprietary rights of others conflict
with the Company's activities or patents, the Company may be required to curtail
certain of its operations or seek to license disputed rights from others,
including the right to manufacture and sell Bonefos(R). There can be no
assurance that any such license will be available to the Company on commercially
reasonable terms, if at all. Any such conflict involving the Company, Berlex,
Leiras Oy or their respective affiliates may involve proceedings with patent
regulators or litigation seeking monetary damages and seeking to enjoin the
Company's commercial activities. The Company could incur substantial costs and
diversion of management resources in defending patent infringement claims,
obtaining patent licenses, engaging in interference proceedings or other
challenges to the related patent rights or intellectual property rights made by
others, or in bringing such proceedings or enforcing any patent rights against
others. Some of the Company's competitors have, or are affiliated with companies
having, substantially greater resources than the Company, and such competitors
may be able to sustain the costs of complex patent litigation to a greater
degree and for longer periods of time than the Company. Uncertainties resulting
from the initiation and continuation of any patent or related litigation could
have a material adverse effect on the Company's ability to compete in the
marketplace pending resolution of the disputed matters. The Company's inability
to obtain necessary licenses or its involvement in disputes or proceedings
concerning patent rights could have a material adverse effect on the business,
financial condition and results of operations of the Company.
As the biotechnology industry expands and more patents are issued, the risk
increases that the Company's potential products may give rise to claims that
they infringe the patents of others. Such other persons or entities could bring
legal actions against the Company claiming damages and seeking to enjoin
clinical testing, manufacturing and marketing of the affected products. Any such
litigation could result in substantial cost to the Company and a diversion of
effort by the Company's management and technical personnel. If any such actions
are successful, in addition to any potential liability for damages, the Company
could be required to obtain a license in order to continue to manufacture or
market the affected products. There can be no assurance that the Company would
prevail in any such action or that any license required under any such patent
would be made available on acceptable terms, if at all. Failure to obtain needed
patents, licenses or proprietary information held by others may have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, if the Company becomes involved in litigation, it could
consume a substantial portion of the Company's time and resources.
The Company also relies on trade secret protection for its confidential and
proprietary information. However, trade secrets are difficult to protect and
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology or that
the Company can meaningfully protect its rights to unpatented trade secrets. The
Company requires its consultants and advisors to execute a confidentiality
agreement upon the commencement of a consulting relationship with the Company,
and requires each of its
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key employees to enter into a similar confidentiality agreement. Such agreements
generally provide that all trade secrets and inventions conceived by the
individual and all confidential information developed or made known to the
individual during the term of the relationship shall be the exclusive property
of the Company and shall be kept confidential and not disclosed to third parties
except in specified circumstances. There can be no assurance, however, that
these agreements will provide meaningful protection for the Company's
proprietary information in the event of unauthorized use or disclosure of such
information.
To the extent that consultants, key employees or other third parties apply
technological information independently developed by them or by others to the
Company's proposed projects, disputes may arise as to the proprietary rights to
such information which may not be resolved in favor of the Company. Certain of
the Company's consultants are employed by or have consulting agreements with
third parties and any inventions discovered by any such individual generally
will not become property of the Company. The occurrence of one or more of the
foregoing events may have a material adverse effect on the Company's business,
financial condition and results of operations.
Dependence on Key Personnel and Consultants. The Company is dependent on
certain of its executive officers. Mr. Michael C. Walker, the Company's
co-founder, President and Chief Executive Officer, and Dr. Joseph V. Gulfo, the
Company's Executive Vice President and Chief Operating Officer, share management
responsibility for corporate operations, business and market development,
direction of clinical programs and contract negotiation. In addition, the
Company is highly dependent on the principal members of its scientific and
management staff, and the loss of any of their services might significantly
delay or prevent the achievement of research, development, or business
objectives. The Company does not maintain key-man life insurance with respect to
any of its employees, although it intends to secure such insurance for Mr.
Walker and Dr. Gulfo, if such insurance can be obtained on reasonable terms. The
Company does not have an employment agreement with Dr. Joseph V. Gulfo, or any
other member of management other than Michael C. Walker. See
"Management -- Employment Agreements." The loss of the services of any of these
key personnel or other key employees of the Company could have a material
adverse effect on the Company. Competition for qualified employees among
pharmaceutical and biotechnology companies is intense, and the loss of certain
of such persons, or an inability to attract, retain and motivate additional
highly skilled employees, could materially and adversely affect the Company's
business, financial condition and results of operations. There can be no
assurance that the Company will be able to retain its existing personnel or
attract and retain additional qualified employees. In addition, the Company may
experience increased compensation costs in order to compete for skilled
employees. See "Management."
The Company is also dependent, in part, upon the continued contributions of
the lead investigators of the Company's sponsored research programs. The Company
also relies on consultants and advisors, including the members of its Scientific
Advisory Board, to assist the Company in formulating its research and
development strategy. Retaining and attracting qualified personnel, consultants
and advisors is critical to the Company's success. In addition, the Company's
scientific consultants and collaborators may have commitments to or consulting
or advisory agreements with other entities that may affect their ability to
contribute to the Company or may be competitive with the Company. See
"Management."
In order to pursue its product development and marketing and sales plans,
the Company will be required to hire additional qualified scientific personnel
to perform research and development, as well as personnel with expertise in
clinical testing, government regulation, manufacturing, and marketing and sales.
The Company faces competition for qualified individuals from numerous
pharmaceutical and biotechnology companies, universities and other research
institutions. There can be no assurance that the Company will be able to attract
and retain such individuals on acceptable terms, if at all, and the failure to
do so could have a material adverse effect on the Company's business, financial
condition and results of operations.
Risk of Product Liability; Availability of Insurance. The use of the
Company's potential products in clinical trials and the marketing of any
pharmaceutical products may expose the Company to product liability claims. The
Company has obtained a level of liability insurance coverage that it deems
appropriate for its current stage of development. However, there can be no
assurance that the Company's present insurance coverage is adequate. Such
existing coverage will not be adequate as the Company further develops products,
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<PAGE> 16
and no assurance can be given that in the future adequate insurance coverage
will be available in sufficient amounts or at a reasonable cost. A successful
product liability claim could have a material adverse effect on the business and
financial condition of the Company.
Uncertainty Related to Health Care Reimbursement and Reform Measures. In
both United States and foreign markets, sales of the Company's proposed products
and the Company's success will depend in part on the availability of
reimbursement from third-party payors such as government health administration
authorities, private health insurers and other organizations. The levels of
revenues and profitability of pharmaceutical companies may be affected by the
continuing efforts of governmental and third-party payors to contain or reduce
the costs of health care. Over the past decade, the cost of health care has
risen significantly, and there have been numerous proposals by legislators,
regulators and third-party health care payors to curb these costs. Some of these
proposals have involved limitations on the amount of reimbursement for certain
products. There can be no assurance that similar Federal or state, or foreign,
health care legislation will not be adopted in the future, that any products
sought to be commercialized by the Company or its collaborators will be
considered cost-effective, or that adequate third-party insurance coverage will
be available for the Company to establish and maintain price levels sufficient
for realization of an appropriate return on its investment in product
development. Moreover, the existence or threat of cost control measures could
have an adverse effect on the willingness or ability of licensees to pursue
research and development programs related to the Company's product candidates.
The Company cannot predict the effect that private sector or governmental health
care reforms may have on its business, and there can be no assurance that any
such reforms will not have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, in both the United
States and elsewhere, sales of prescription drugs 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 price and cost-effectiveness of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products. There can be no assurance that the Company's proposed
products will be considered cost-effective or that adequate third-party
reimbursement will be available to enable the Company to maintain price levels
sufficient to realize an appropriate return on its investment in product
development. Legislation and regulations affecting the pricing of
pharmaceuticals may change before any of the Company's proposed products are
approved for marketing. Adoption of such legislation could further limit
reimbursement for medical products and services. As a result, the Company may
elect not to market future products in certain markets.
Lack of Manufacturing Experience; Reliance on Contract Manufacturers and
Suppliers. The Company does not have facilities to manufacture and produce its
compounds for preclinical, clinical or commercial purposes. Valstar has never
been manufactured for commercial purposes, and there can be no assurance that
Valstar can be manufactured at a cost or in quantities necessary to make it
commercially viable. The Company has put in place arrangements with contract
manufacturers to produce Valstar. If the contract manufacturers are unable to
manufacture Valstar on acceptable terms, or encounter delays or difficulties,
the Company's preclinical and human clinical testing schedule would be delayed,
resulting in delay of the market introduction and subsequent sales of Valstar.
This would have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, Anthra's contract
manufacturers must supply all necessary documentation in support of the
Company's NDA, and any sNDAs, on a timely basis and must adhere to, among other
requirements, cGMP enforced by the FDA through its facilities inspection
program, and such other requirements imposed by other regulatory authorities. If
these facilities cannot pass a pre-approval plant inspection, the FDA approval
of Valstar will not be granted, and such failure to obtain approval would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Valstar is manufactured in bulk powder form ("Valstar Drug Substance") for
the Company by Sicor S.p.A., a subsidiary of Gensia Sicor Inc., in Rho (Milan),
Italy and by Omnichem S.A. ("Omnichem"), which is also owned by a larger parent
company, in Louvain-la-Neuve, Belgium. Both of these companies are independent
of one another. The Company has in place a long-term supply agreement with
Genchem Pharma Ltd., a subsidiary of Gensia Sicor Inc., which agreement is
guaranteed by Gensia Sicor Inc. (together with
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Sicor S.p.A. and Genchem Pharma Ltd., "Gensia Sicor"). Valstar is manufactured
in finished dosage form in vials ("Valstar Drug Product") by Ben Venue
Laboratories, Inc. ("Ben Venue"). Ben Venue is owned by Boeheringer Ingelheim of
Germany. The Company has no written supply agreement with Ben Venue, although
the terms and conditions of such an agreement are being negotiated. There can be
no assurance that any of these suppliers can be compelled to make Valstar as a
Valstar Drug Substance or a Valstar Drug Product available to the Company in the
required quantities. There can be no assurance that the Company will be able to
identify and contract with alternative contract manufacturers for its Valstar
Drug Substance or Valstar Drug Product requirements in the event that these
suppliers are unable or unwilling to manufacture sufficient quantities of
Valstar. The Company would incur significant costs and delays to qualify an
alternative manufacturer, which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company's failure to meet its supply requirements pursuant to certain of its
licensing agreements could result in significant monetary penalties being
imposed on the Company. The availability and price of Valstar may be subject to
curtailment or change due to limitations that may be imposed under governmental
regulations, suppliers' allocations to meet demand of other purchasers,
interruptions in production by suppliers and market and other events and
conditions, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Products and Markets."
Bonefos(R) is manufactured by Leiras Oy of Helsinki, Finland, an affiliate
of Schering AG, Germany, for distribution in 56 countries outside of the United
States. Bonefos(R) has never been manufactured for commercial purposes for the
United States market, and there can be no assurance that Bonefos(R) can be
manufactured for sale and use in the United States at a cost or in quantities
necessary to make it commercially viable. If its proposed arrangement with
Anthra for the development and marketing rights to Bonefos(R) in the United
States for the hypercalcemia and lytic bone disease indications pursuant to the
Bonefos Agreement in Principle is consummated, Leiras Oy will undertake to
supply the Company with Bonefos(R) for sale in the United States, subject to
certain conditions including the failure of Berlex to exercise its option to
acquire such rights. Although the Company has entered into the Bonefos Agreement
in principle with Leiras Oy, the Company and Leiras Oy have not yet entered into
a definitive agreement. If such arrangement is consummated and Leiras Oy is
unable to manufacture Bonefos(R) on acceptable terms or encounters delays or
difficulties, the Company's human clinical testing schedule would be delayed,
resulting in delay of the market introduction and subsequent loss of sales
revenue (or, in the event Berlex exercises its acquisition option, royalty
revenue) for Anthra. This could have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, if such
arrangement is consummated, Leiras Oy must supply all necessary documentation in
support of the Company's Bonefos(R) NDA and sNDAs on a timely basis and must
adhere to cGMP regulations enforced by the FDA through its facilities inspection
program. If these facilities cannot pass a pre-approval inspection, the FDA
approval of Bonefos(R) will not be granted. Such failure could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Hazardous Materials. The Company's research and development involves the
controlled use of hazardous, controlled and radioactive materials by certain of
its contractors. In addition, the Company's product Valstar in its final form is
a hazardous and a controlled substance with risks of contamination and injury
unless utilized in the prescribed method. The Company and its contractors are
subject to Federal, state, local and foreign laws and regulations governing the
use, manufacture, storage, handling and disposal of such materials and certain
waste products therefrom. Although the Company believes that the safety
procedures of the Company and its contractors for handling and disposing of such
materials comply with the standards prescribed by such laws and regulations, the
risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, the Company could be
held liable for any damages that result and any such liability could have a
material adverse effect on the Company.
Risks Associated with International Operations and Foreign Currency
Fluctuations. The Company's international operations are anticipated to
comprise a substantial percentage of the Company's net revenue in the future
and, accordingly, the Company is subject to risks associated with international
operations. Such risks include managing a multinational organization,
fluctuations in currency exchange rates, the burden of
16
<PAGE> 18
complying with international laws and other regulatory and product certification
requirements and changes in such laws and requirements, tariffs and other trade
barriers, import and export controls, restrictions on the repatriation of funds,
inflationary conditions, staffing, employment and severance issues, political
and economic instability and longer payment cycles in certain countries. The
inability to effectively manage these and other risks could adversely affect the
Company's business, financial condition and results of operations.
The Company has a clinical development facility in the United Kingdom
operated by Anthra UK, the operating expenses of which are also subject to the
effects of fluctuations in currency exchange rates. The Company generally does
not engage in hedging transactions which could partially offset the effects of
fluctuations in currency exchange rates. Additional financial exposure may
result due to the timing of transactions and movement of exchange rates. See
"Business -- Products and Markets."
Management of Growth. The Company has recently experienced, and expects to
continue to experience, significant growth in the number of its employees and
the scope of its operations. This growth has placed, and may continue to place,
a significant strain on the Company's management and operations. Should the
Company acquire one to two additional products by the end of 1998, as it
anticipates, the Company will experience a large and immediate growth in its
employees and operations. The Company's ability to manage effectively such
growth will depend upon its ability to broaden its management team and its
ability to attract, hire and retain skilled employees. The Company's success
will also depend on the ability of its officers and key employees to continue to
implement and improve its operational, management information and financial
control systems and to expand, train and manage its employee base. These demands
are expected to require the addition of new management personnel and development
of additional expertise to existing management personnel. In addition, if Anthra
reaches the point where its activities require additional expertise in clinical
testing, in obtaining regulatory approvals, and in production and marketing,
there will be increased demands on Anthra's resources and infrastructure. There
can be no assurance that the Company will be able to effectively manage the
expansion of its operations or that its systems, procedures or controls will be
adequate to support the Company's products or proprietary technology. There can
be no assurance that the Company will be successful in adding technical
personnel as needed to meet the staffing requirements of the Company's current
strategic collaborations or any additional collaborative relationships into
which the Company may enter. Any such inability to manage growth could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Risks Associated With Potential Acquisitions. The Company may acquire or
make substantial investments in complementary businesses, technologies or
products in the future. Any such acquisition or investment would entail various
risks, including the difficulty of assimilating the technologies, operations and
personnel of the acquired business, technology or product, the potential
disruption of the Company's ongoing business and, generally, the potential
inability of the Company to obtain the desired financial and strategic benefits
from the acquisition or investment. These factors could have a material adverse
effect on the Company's business, financial condition and results of operations.
Future acquisitions and investments by the Company could also result in
substantial cash expenditures, potentially dilutive issuances of equity
securities, the incurrence of additional debt and contingent liabilities, and
amortization expenses related to goodwill and other intangible assets, which
could adversely affect the Company's business, financial condition and results
of operations.
Potential Adverse Market Impact of Shares Eligible for Future Sale;
Registration Rights. Sales of a substantial number of shares of Common Stock in
the public market following the Offering could have an adverse effect on the
price of the Common Stock. Upon completion of the Offering, the Company will
have 7,255,183 shares of Common Stock outstanding (7,615,183 if the
Underwriters' over-allotment option is exercised in full). Of these shares, the
2,400,000 shares sold in the Offering will be freely tradable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"). The remaining 4,855,183 shares of Common Stock are
"restricted securities" as that term is defined under Rule 144 under the
Securities Act, and were issued and sold by the Company in reliance on
exemptions from registration under the Securities Act. These restricted shares
may not be sold in the public market unless they are registered under the
Securities Act or are sold pursuant to an exemption from registration, such as
Rule 144, 144(k) or 701. Beginning 90 days after the date of this Prospectus,
approximately 4,555,183
17
<PAGE> 19
restricted securities will become eligible for sale in the public market
pursuant to Rule 144 and Rule 701 under the Securities Act.
The Underwriters have requested that all officers, Directors, and
stockholders owning more than 1% of the Company's Common Stock agree, pursuant
to certain lock-up agreements, that they will not offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of their shares for a period
of 180 days from the date of this Prospectus without the prior written consent
of the Representatives.
Upon completion of the Offering, holders of 4,554,683 shares of the
Company's Common Stock will be entitled to certain rights with respect to
registration of such shares for offer or sale to the public. In addition, the
Company intends to register 1,700,000 shares of Common Stock reserved for
issuance under its 1990 Stock Plan as amended, following the date of this
Prospectus. See "Management -- Summary of Executive Compensation," "Principal
Stockholders" and "Shares Eligible for Future Sale."
Lack of Current Specific Plans for Unallocated Offering Proceeds. The
principal purposes of the Offering are to increase the Company's capitalization
and financial flexibility and to expand the Company's current corporate
facilities and infrastructure. The Company currently does not have specific
plans for all of the net proceeds from the Offering. The Company expects to use
such proceeds for general corporate purposes, including working capital, product
development, capital expenditures and possible acquisitions. The amounts
expended for each purpose and the timing of such expenditures may vary depending
upon numerous factors. Consequently, the Company will have broad discretion in
determining the amount and timing of expenditures and in using the unallocated
proceeds of the Offering, and there can be no assurance that the Company will
use such discretion effectively or in a manner that will not result in a
material adverse effect on the Company's business, financial condition and
results of operation. See "Use of Proceeds."
Absence of Prior Trading Market; Possible Volatility of Stock Price and
Substantial Dilution. Prior to the Offering, there has been no public market
for the Common Stock and there is no assurance that an active market will
develop or be sustained after the Offering. The initial public offering price
will be determined through negotiations among the Company and the Underwriters
and may bear no relationship to the price at which the Common Stock will trade
upon completion of the Offering. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. It is
likely that the market price of the Common Stock, like that of the capital stock
of many other pharmaceutical companies at a similar stage of development, will
be highly volatile. Factors such as the results of preclinical studies and
clinical trials by the Company or its competitors, announcements of
technological innovations or new commercial therapeutic products by the Company
or its competitors, governmental regulation, changes in reimbursement policies,
healthcare legislation, developments in patent or other proprietary rights,
developments in the Company's relationships with future collaborative partners,
if any, public concern as to the safety and efficacy of drugs developed by the
Company, fluctuations in the Company's operating results, and general market
conditions may have a significant impact on the market price of the Common
Stock.
All of the currently outstanding shares of Common Stock were issued at
prices substantially lower than the price of the shares of Common Stock offered
hereby. Purchasers of shares of Common Stock offered hereby will experience
immediate and substantial dilution in net tangible book value with respect to
their shares of Common Stock and may incur additional dilution upon the exercise
of outstanding stock options. See "Dilution."
Pursuant to the terms of the Company's Development Agreement with Medeva
(the "Medeva Agreement"), in the event that neither of two NDA approvals for
Valstar has been obtained by the Company by December 31, 2002, Medeva has the
right to require the Company to issue such number of shares of Common Stock
equal to 20% of the issued and outstanding voting equity securities of the
Company outstanding at the time of the exercise of such right. See
"Business -- Products and Markets."
Control by Existing Stockholders; Anti-Takeover Provisions. Upon the
closing of the Offering, the Company's Directors and executive officers will, in
the aggregate, beneficially own approximately 14.8% of Anthra's outstanding
shares of Common Stock (approximately 14.1% if the Underwriters' over-allotment
option is exercised in full). See "Principal Stockholders." Accordingly, these
stockholders, acting together,
18
<PAGE> 20
will be able to control many matters requiring approval by the stockholders of
the Company, including the election of Directors. Moreover, the Company
anticipates that its Amended and Restated Certificate of Incorporation, as
amended, and as in effect on the consummation of the Offering (the "Amended
Certificate of Incorporation"), will not provide for cumulative voting with
respect to the election of Directors. Consequently, the present Directors and
executive officers would be able to exercise substantial influence over the
election of the members of the Board of Directors. Such concentration of
ownership could have an adverse effect on the price of the Common Stock or have
the effect of delaying or preventing a change in control of the Company. In
addition, certain provisions of Delaware law and the Amended Certificate of
Incorporation could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire,
control of Anthra. Such provisions could limit the price that certain investors
might be willing to pay in the future for shares of the Company's Common Stock.
These provisions of Delaware law and the Amended Certificate of Incorporation
may also have the effect of discouraging or preventing certain types of
transactions involving an actual or threatened change of control of the Company
(including unsolicited takeover attempts), even though such transactions may
offer the Company's stockholders the opportunity to sell their stock at a price
above the prevailing market price. One of the provisions in the Amended
Certificate of Incorporation allows the Company to issue preferred stock without
any vote or further action by the stockholders. These provisions may make it
more difficult for stockholders to take certain corporate actions and could have
the effect of delaying or preventing a change in control of the Company. See
"Business," "Management," "Principal Stockholders," and "Description of Capital
Stock -- Preferred Stock" and "-- Anti-Takeover Law."
Year 2000 Issues. In the Year 2000, many existing computer programs that
use only two digits (rather than four) to identify a year in the date field
could fail or create erroneous results if not corrected. This computer program
flaw is expected to affect virtually all companies and organizations. The
Company does not anticipate that the effect of this computer program flaw on the
operations of the Company will be significant. However, the Company may be
required to spend time and monetary resources addressing any necessary computer
program changes, the costs of which are not expected to be material to the
Company's business, financial position or results of operations.
19
<PAGE> 21
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,400,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
commissions and estimated offering expenses, are estimated to be approximately
$22.9 million ($26.5 million if the Underwriters' over-allotment option is
exercised in full) based upon an assumed initial public offering price of $10.50
per share. The Company anticipates that such net proceeds, together with its
other available cash and cash equivalents, will be used as follows: (i)
approximately $3.5 million for payments for rights to Bonefos(R); and (ii) the
balance for development of its products (including obtaining regulatory
approvals for Valstar and Bonefos(R)), potential additional product acquisitions
and general corporate purposes. While the Company engages from time to time in
discussions with respect to potential acquisitions, the Company has no current
plans, commitments or agreements with respect to any such acquisitions as of the
date of this Prospectus. Pending such uses, the Company intends to invest the
net proceeds from the Offering in United States government securities and
investment-grade, interest-bearing instruments.
The foregoing represents the Company's present intentions with respect to
the allocation of proceeds of the Offering based upon its present plans and
business conditions. The occurrence of certain unforeseen events or changed
business conditions, however, could result in the application of the proceeds of
the Offering in a manner other than as described in this Prospectus. See "Risk
Factors -- Lack of Current Specific Plans for Unallocated Offering Proceeds."
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Company currently intends to retain all future earnings, if any, to finance the
operations and expansion of the Company's business and therefore does not
anticipate paying cash dividends in the foreseeable future.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998, (i) on an actual basis, (ii) on a pro forma basis to reflect the
Preferred Stock Conversion and (iii) on a pro forma as adjusted basis to give
effect to the Preferred Stock Conversion and the sale by the Company of the
2,400,000 shares of Common Stock offered hereby, at an assumed initial public
offering price of $10.50 per share, less underwriting discounts and commissions
and estimated offering expenses payable by the Company, and the application of
the estimated net proceeds therefrom as set forth under "Use of Proceeds." This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
------------------------------------
(UNAUDITED)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Contingent stock obligation(1)............................. $ 8,000 $ 8,000 $ 8,000
-------- -------- --------
Mandatorily redeemable convertible preferred stock (Series
A, B and C Convertible Preferred Stock) at redemption
value (which includes accreted dividends of $3,259,793);
$0.01 par value: 3,150,588 shares authorized, issued and
outstanding, actual (none issued and outstanding on a pro
forma and pro forma as adjusted basis)................... 11,460 -- --
-------- -------- --------
Stockholders' equity (deficit):
Convertible preferred stock (Series D Convertible
Preferred Stock); $0.01 par value: 639,095 shares
authorized, issued and outstanding, actual (none
issued and outstanding on a pro forma and pro forma as
adjusted basis)....................................... 6 -- --
Common stock, $0.01 par value: 6,700,000 shares
authorized (15,000,000 shares authorized(2) on a pro
forma as adjusted basis); 1,065,500, 4,855,183 and
7,255,183 shares issued and outstanding on an actual,
pro forma and pro forma as adjusted basis,
respectively)(3)...................................... 11 49 73
Additional paid-in capital................................. 8,838 20,266 43,178
Deferred compensation...................................... (986) (986) (986)
Deficit accumulated during the development stage........... (22,001) (22,001) (22,001)
-------- -------- --------
Total stockholders' equity (deficit)....................... (14,132) (2,672) 20,264
-------- -------- --------
Total capitalization....................................... $ 5,328 $ 5,328 $ 28,264
======== ======== ========
</TABLE>
- ---------------
(1) See Note 5 of Notes to Consolidated Financial Statements.
(2) Increase to 15,000,000 shares of Common Stock was authorized by the Company
in May 1998.
(3) Does not include (a) 1,088,987 shares of Common Stock issuable upon exercise
of stock options outstanding at March 31, 1998, with a weighted average
exercise price of $0.96 per share, of which options to purchase 500,357
shares of Common Stock were then exercisable (see "Management"), (b) options
to purchase 271,500 and 175,000 shares of Common Stock at exercise prices of
$8.00 per share and at a price per share equal to the fair market value on
the date of the occurrence of certain future events, respectively, granted
after March 31, 1998, and (c) certain stock options to purchase Common Stock
or Series D Convertible Preferred Stock which may be granted to Nycomed
pursuant to the Nycomed Agreement (see "Business -- Products and
Market -- Valstar: Licensing Agreements").
21
<PAGE> 23
DILUTION
The pro forma net deficit in tangible book value of the Company as of March
31, 1998, was $(3,019,000), or $(0.62) per share of Common Stock. Pro forma net
deficit in tangible book value per share represents the Company's total tangible
assets less total liabilities, divided by 4,855,183 shares of Common Stock
outstanding (after reflecting the Preferred Stock Conversion). After reflecting
the Preferred Stock Conversion and the sale by the Company of 2,400,000 shares
of Common Stock in this Offering (at the initial offering price and after
deducting the underwriting discounts and commissions and estimated offering
expenses) and the application of the estimated proceeds thereof, the pro forma
net tangible book value of the Company as of March 31, 1998 would have been
$20,264,000, or $2.79 per share. This amount represents an immediate increase in
pro forma net deficit in tangible book value of $3.41 per share to existing
stockholders and the immediate dilution in net tangible book value of $7.71 per
share to new investors purchasing Common Stock in the Offering. Dilution per
share to new investors represents the difference between the pro forma net
tangible book value per share of Common Stock immediately after completion of
the Offering and the amount per share paid by purchasers of Common Stock of the
Company in the Offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $10.50
Pro forma net deficit in tangible book value per share at
March 31, 1998......................................... $(0.62)
Increase per share attributable to new investors.......... 3.41
------
Pro forma net tangible book value per share after the
Offering.................................................. 2.79
------
Dilution per share to new investors......................... $ 7.71
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the differences between the existing stockholders (after reflecting the
Preferred Stock Conversion) and new investors with respect to the number of
shares of Common Stock purchased from the Company, the total consideration paid
to the Company and the average price per share paid, at the assumed initial
public offering price of $10.50 per share, before deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION PAID
-------------------- ---------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
--------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 4,855,183 67% $18,852,750 43% $ 3.88
New investors............. 2,400,000 33% $25,200,000 57% $10.50
--------- --- ----------- ---
Total..................... 7,255,183 100% $44,052,750 100%
========= === =========== ===
</TABLE>
The foregoing computations do not include (a) 1,088,987 shares of Common
Stock issuable upon exercise of stock options outstanding at March 31, 1998,
with a weighted average exercise price of $0.96 per share, of which options to
purchase 500,357 shares of Common Stock were then exercisable (see
"Capitalization" and "Management"), (b) options to purchase 271,500 and 175,000
shares of Common Stock at exercise prices of $8.00 per share and at a price per
share equal to the fair market value on the date of the occurrence of certain
future events, respectively, granted after March 31, 1998, (c) certain stock
options to purchase Common Stock or Series D Convertible Preferred Stock which
may be granted to Nycomed pursuant to the Nycomed Agreement (see
"Business -- Products and Market -- Valstar: Licensing Agreements"), and (d)
Common Stock which may be issuable to Medeva for 20% of the then issued and
outstanding voting equity securities if neither of two certain regulatory
approvals is received by December 31, 2002, pursuant to the Medeva Agreement
(see "Business Products and Market -- Valstar: Licensing Agreements").
22
<PAGE> 24
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data for each of the years in the three year period
ended June 30, 1997 and as of June 30, 1996 and 1997 have been derived from
financial statements of the Company which have been audited by KPMG Peat Marwick
LLP, independent certified public accountants. The selected financial data for
the years ended June 30, 1993 and 1994, and as of June 30, 1993, 1994 and 1995
have been derived from unaudited (except as of June 30, 1995, which has been
audited) financial statements of the Company which are not included in this
Prospectus. The selected financial data for the nine months ended March 31, 1997
and 1998 and as of March 31, 1998, are derived from the unaudited financial
statements of the Company included elsewhere in this Prospectus. Such unaudited
financial statements include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the information set forth
herein. Operating results for the nine months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the year ending June
30, 1998. The selected consolidated financial data set forth below are qualified
in their entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Consolidated Financial Statements and Notes thereto and the other financial
information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
--------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ------- ------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue................... $ -- $ -- $ -- $ 2,171 $ 1,688 $ 1,488 $ --
Operating Expenses:
Research and
development........... 1,294 2,418 2,591 3,649 6,610 4,206 5,930
General and
administrative........ 76 71 121 523 682 429 1,492
------- ------- ------- ------- --------- --------- ---------
Total operating
expenses................ 1,370 2,489 2,712 4,172 7,292 4,635 7,422
Other income (expense).... 33 37 94 111 139 120 290
------- ------- ------- ------- --------- --------- ---------
Net loss.................. $(1,337) $(2,452) $(2,618) $(1,890) $ (5,465) $ (3,027) $ (7,132)
======= ======= ======= ======= ========= ========= =========
Net loss allocable to
common stockholders..... $(1,536) $(2,874) $(3,271) $(2,543) $ (6,118) $ (3,517) $ (7,621)
======= ======= ======= ======= ========= ========= =========
Basic and diluted net loss
per share allocable to
common
stockholders(1)......... $ (2.15) $ (4.02) $ (4.24) $ (3.01) $ (5.79) $ (3.34) $ (7.15)
Shares used in computing
basic and diluted net
loss per share allocable
to common
stockholders(1)......... 716 716 771 844 1,057 1,055 1,066
<CAPTION>
FOR THE PERIOD FROM
JUNE 25, 1985
(INCEPTION) TO
MARCH 31, 1998
-------------------
(UNAUDITED)
<S> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue................... $ 3,858
Operating Expenses:
Research and
development........... 23,541
General and
administrative........ 3,103
--------
Total operating
expenses................ 26,644
Other income (expense).... 785
--------
Net loss.................. $(22,001)
========
Net loss allocable to
common stockholders..... $(25,260)
========
Basic and diluted net loss
per share allocable to
common
stockholders(1).........
Shares used in computing
basic and diluted net
loss per share allocable
to common
stockholders(1).........
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30, MARCH 31,
------------------------------------------------------------ -----------
1993 1994 1995 1996 1997 1998
----------- ----------- ------- ------- -------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents ..................... $ 936 $ 3,391 $ 1,273 $ 1,713 $ 795 $ 5,681
Working capital (deficit)...................... 871 3,420 827 1,908 (598) 4,891
Total assets................................... 1,060 3,580 1,322 2,732 915 6,203
Contingent stock obligation.................... -- -- -- -- -- 8,000
Mandatorily redeemable convertible preferred
stock........................................ 3,589 9,011 9,664 10,317 10,970 11,460
Convertible preferred stock.................... -- -- -- 3 3 6
Deficit accumulated during the developmental
stage........................................ (2,445) (4,897) (7,515) (9,404) (14,869) (22,001)
Total stockholders' deficit.................... (2,684) (5,558) (8,795) (8,330) (11,486) (14,132)
</TABLE>
- ---------------
(1) See Note 2 of Notes to Consolidated Financial Statements.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus. This Prospectus, including the following discussion, contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk Factors,"
immediately below and elsewhere in this Prospectus.
OVERVIEW
Anthra is a specialized pharmaceutical company engaged in clinical
development and obtaining approval of NDAs and sNDAs for a portfolio of its
proprietary cancer drugs. The Company's current drug candidates are for the
treatment of patients with superficial cancer of the bladder, ovarian and
prostatic cancer, and complications from metastatic cancer (hypercalcemia and
lytic bone disease). The Company's strategy is to develop only late stage drug
candidates, thereby improving the likelihood of successfully obtaining NDA/sNDA
and equivalent foreign approvals. The Company directs its search for oncology
drug candidates toward selected large pharmaceutical companies, because of the
difficulty many of these companies have experienced in managing oncology
projects, and at biotechnology and early stage discovery companies that lack
clinical and regulatory proficiency. To maximize the return on its investment in
each drug, Anthra seeks approvals for multiple disease indications for each
product and directly manages both its United States and foreign clinical
programs and regulatory submissions.
To date, the Company has not received any revenue from the sale of
products, and no product candidate of the Company has been approved, although
the Company has received a non-refundable $8 million payment pursuant to the
Medeva Agreement, which has been recorded as a contingent stock obligation, and
a $200,000 license fee from Almirall pursuant to the Exclusive License
Agreement, dated as of April 17, 1997, between Anthra and Almirall (f/k/a
Prodesfarma, S.A.) (the "Almirall Agreement"). While the Company believes that
Valstar will be approved for marketing for the refractory carcinoma in-situ
indication by the end of calendar 1998, to date the Company's primary source of
capital has been the sale of Preferred Stock, the payment from Medeva, license
fees, and research and development funding from its Collaborative Partners in
connection with joint development and licensing agreements with the Company,
including the aforementioned payments. As of March 31, 1998, the Company's
accumulated deficit was $22.0 million and its cash and cash equivalents on hand
was $5.7 million. There can be no assurance that the Company's products will be
approved for marketing, that the Company will attain profitability or, if
profitability is achieved, that the Company will remain profitable on a
quarterly or annual basis in the future.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
The Company recognized revenue of $1.5 million for the nine months ended
March 31, 1997, $1.3 million of which was in connection with the conversion of
the Development and License Agreement with Schering AG, Germany (f/k/a Schering
AG) (the "Development Agreement") into the Termination, Settlement and
Investment Agreement with Schering AG, Germany in July 1996 (the "Support
Agreement"). No such revenue was recognized in the nine months ended March 31,
1998. The Development Agreement was converted into the Support Agreement based
on the mutual agreement between the companies as to how best to proceed with the
development of Valstar. The impact of this conversion was that Schering AG,
Germany was no longer obligated to (i) reimburse the Company for future research
and development, (ii) make potential license payments of up to $3 million and
(iii) pay potential future royalties. The Company is also obligated to make
potential royalty payments to Schering AG, Germany on Valstar sales.
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Research and development expenses increased 41% from $4.2 million for the
nine months ended March 31, 1997, to $5.9 million for the nine months ended
March 31, 1998. This was largely due to increased levels of activity with
respect to the continued development of Valstar and the filing of the NDA.
General and administrative expenses increased from $429,000 for the nine
months ended March 31, 1997, to $1,492,000 for the nine months ended March 31,
1998. This was primarily due to increased business development expenses related
to worldwide licensing agreements and new product negotiations.
Other income (expense) increased from $120,000 for the nine months ended
March 31, 1997, to $290,000 for the nine months ended March 31, 1998. This
reflects a significantly higher cash and cash equivalents balance resulting from
three transactions: the purchase by Nycomed, in October 1997, of 300,000 shares
of Series D Convertible Preferred Stock for $4.5 million; the purchase by
Almirall, in April 1997, of 67,819 shares of Series D Convertible Preferred
Stock for $750,000 and the $8.0 million payment from Medeva in July 1997.
Net loss increased from $3.0 million for the nine months ended March 31,
1997 to $7.1 million for the nine months ended March 31, 1998 due to the
increase in research and development spending and due to the discontinuation of
development revenue following the conversion of the Development Agreement to the
Support Agreement.
TWELVE MONTHS ENDED JUNE 30, 1997 AND 1996
The Company recognized $2.2 million and $1.7 million in revenue for the
years ended June 30, 1996 and 1997, respectively, of which $2.2 million and
$200,000 related to research and development performed under the Development
Agreement, which was converted to the Support Agreement in July 1996.
Additionally, the Company recognized $1.3 million in connection with the Support
Agreement and a $200,000 fee in connection with the Almirall Agreement in 1997.
Research and development expenses increased 83% from $3.6 million in 1996
to $6.6 million in 1997. This increase was due primarily to increased activity
and costs associated with the pharmaceutical and clinical development of
Valstar, including manufacturing, validation and preparation for filing the NDA
in the United States and a similar application in Europe.
General and administrative expenses increased from $523,000 in 1996 to
$682,000 in 1997, primarily due to increased business development activities.
Other income (expense) increased from $111,000 in 1996 to $139,000 in 1997
due to higher cash and cash equivalent balances resulting from the conversion of
the Development Agreement to the Support Agreement.
Net loss increased from $1.9 million in 1996 to $5.5 million in 1997 due to
the increase in research and development spending and due to the discontinuation
of development revenue following the conversion of the Development Agreement to
the Support Agreement in July 1996.
TWELVE MONTHS ENDED JUNE 30, 1996 AND 1995
The Company recognized $0 and $2.2 million in research revenue for the
years ended June 30, 1995 and 1996, respectively, under the Development
Agreement which was signed in September 1995.
Research and development expenses increased 38% from $2.6 million in 1995
to $3.6 million in 1996 due primarily to increased activity and costs associated
with the pharmaceutical and clinical development of Valstar.
General and administrative expenses increased from $121,000 in 1995 to
$523,000 in 1996, primarily due to increased business development activities
related to the Development Agreement.
Other income (expense) increased from $94,000 in 1995 to $111,000 in 1996
due to higher cash and cash equivalent balances resulting from an equity
investment in Anthra by Schering Berlin Venture Corporation, an affiliate of
Schering AG, Germany.
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<PAGE> 27
Net loss decreased from $2.6 million in 1995 to $1.9 million in 1996.
Though operating expenses of $4.2 million in 1996 were higher than the $2.7
million in 1995, net loss was lower in 1996 as a result of research revenue of
$2.2 million received from Schering AG, Germany in the twelve months ended June
30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
From inception through March 31, 1998, the Company has not generated
positive cash from operations and, accordingly, has financed its operations
primarily with the net proceeds received from private placements of Preferred
Stock, and research, development and licensing agreements. Such proceeds have
totaled approximately $30.6 million, and are comprised of the following: equity
investments of approximately $18.7 million; revenue from research arrangements
with Schering AG, Germany of approximately $3.7 million; and payments received
under licensing and development agreements of approximately $8.2 million
(approximately $8.0 million pursuant to the Medeva Agreement and $200,000 from
Almirall).
Net cash used in operating activities was $2.1 million, $2.5 million and
$3.9 million in 1995, 1996 and 1997, respectively. In the nine month period
ended March 31, 1998, net cash used in operating activities was $7.2 million,
compared to net cash used in the same period for 1997 of $2.4 million, primarily
due to the continued development of Valstar as well as the filing of the NDA.
Cash and cash equivalents on hand on March 31, 1998, totaled $5.7 million,
compared with $795,000 as of June 30, 1997, primarily as the result of funds
received pursuant to the Medeva Agreement, and from an equity investment by
Nycomed in Anthra.
The Company anticipates that annual expenditures for clinical trials,
product development, preclinical studies, and general and administrative expense
will increase significantly in future years. In anticipation of the possible FDA
approval for marketing of Valstar, the Company expects to begin preparing for
the commercialization of the Company's first product during 1998 and to
accelerate such preparation in 1999, adding substantial additional expense.
However, there can be no assurance that the Company will be able to successfully
complete the clinical development of Valstar for bladder cancer or any other
indication, that the FDA will grant approval within the time frame expected, if
at all, that the other developments or expansions in the Company's programs of
research, development and commercialization will not require additional funding
or encounter delays, or that, in light of these or other circumstances, the
Company will be able to achieve its planned levels of revenue, expense and cash
flow.
In July 1997, the Company executed a sublease for approximately 5,560
square feet located in the Carnegie Center in Princeton, New Jersey. The monthly
rent is $9,359, and the lease expires on November 30, 1999. The Company also
leases approximately 1,635 square feet of office space at The Malt House,
Princes Risborough, England for its Anthra UK offices. The quarterly rent is
L5,535 ($9,188 using a conversion factor of 1.66 dollars for 1 British pound),
and the lease expires in 2001.
The Company expects to finance its continued growth and development
principally through this equity financing and arrangements with strategic
partners. The Company believes the net proceeds from this Offering, together
with current cash and cash equivalent balances, the interest on combined cash
balances, and contingent funding (including royalties) from its Collaborative
Partners, will provide the Company with sufficient working capital to sustain
operations through approximately 2000, although there can be no assurance that
the Company will not require additional funding prior to that time. The Company
anticipates that if there are delays in its current programs, if its current
programs of research and development yield expansion opportunities, or if there
are changes in competitive and technological advances, the regulatory approval
process or other factors, the Company would seek additional financing, whether
through public or private equity or debt financings, corporate alliances, or
combinations thereof. In addition, the Company may require additional financing
in connection with its potential future product acquisition activities.
There can be no assurance that additional equity or debt capital will, if
needed, be available on terms acceptable to the Company, if at all. Any
additional equity financing could be dilutive to stockholders. Debt financing,
if available, may include restrictive covenants. If additional funds should be
needed but are not
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available, the Company may be required to curtail its operations significantly
or to obtain funds by entering into collaborative arrangements or other
arrangements on unfavorable terms. The failure by the Company to raise capital
on acceptable terms if and when needed would have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company anticipates that the annual expenditures for research support
for Bonefos(R) to increase significantly during 1998 and 1999, and to continue
until at least 2002. In addition, the Bonefos Agreement in Principle
contemplates future payments from the Company of $1 million upon the execution
of definitive documentation, and $2.5 million upon the completion of a
satisfactory pre-NDA meeting with the FDA with respect to Bonefos(R). There can
be no assurance that the Company will be able to successfully complete the
clinical development of Bonefos(R) for the treatment of hypercalcemia and lytic
bone disease, or that the FDA will grant the required approvals within the time
frame anticipated by the Company, if at all.
INFLATION
The Company does not believe that inflation has had any significant impact
on the Company's business to date.
INCOME TAXES
As of June 30, 1997, the Company had approximately $13.5 million and $13.4
million of net operating loss carryforwards ("NOLs") for income tax purposes
available to offset future Federal and state income tax, respectively. The NOLs
are subject to examination by the Federal and state tax authorities and expire
in 2012 and 2004, respectively. The Tax Reform Act of 1986, as amended, contains
provisions that may limit the NOLs available to be used in any given year upon
the occurrence of certain events, including significant changes in ownership
interest. A change in greater than 50% of the ownership of a company within a
three year period results in an annual limitation on the Company's ability to
utilize its NOLs from tax periods prior to the ownership change. The Company
expects that upon closing of the Offering, such limitation will be triggered.
However, the Company does not expect such limitation to have a significant
impact on its results of operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 130, "Comprehensive Income"
(SFAS 130), was issued in June 1997. SFAS 130 becomes effective for the
Company's fiscal year 1999 and requires reclassification of earlier financial
statements for comparative purposes. SFAS 130 requires that all items defined as
comprehensive income, including changes in the amounts of certain items, foreign
currency translation adjustments and gains and losses on certain securities, be
shown in a financial statement. SFAS 130 does not require a specific format for
the financial statement in which comprehensive income is reported, but does
require that an amount representing total comprehensive income be reported in
that statement. The Company believes that the adoption of SFAS 130 will not have
a material effect on the consolidated financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), was issued in
June 1997. SFAS 131 becomes effective for the Company's fiscal year 1999 and
requires restatement of disclosures for earlier periods presented for
comparative purposes. This new standard requires companies to disclose segment
data based on how management makes decisions about allocating resources to
segments and how it measures segment performance. SFAS 131 requires companies to
disclose a measure of segment profit or loss, segment assets, and
reconciliations to consolidated totals. It also requires entity-wide disclosures
about a company's products and services, its major customers and the material
countries in which it holds assets and reports revenues. The Company believes
that the adoption of SFAS 131 will not have a material effect on the
consolidated financial statements.
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"), was
issued in February 1998. SFAS 132 becomes effective for
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<PAGE> 29
the Company's fiscal year 1999 and requires restatement of disclosures for
earlier periods presented for comparative purposes. SFAS 132 revises employers'
disclosure about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans but rather standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate analysis, and
eliminates certain disclosures that are no longer useful. The Company believes
that the adoption of SFAS 132 will not have a material effect on the
consolidated financial statements.
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BUSINESS
GENERAL
Anthra is a specialized pharmaceutical company engaged in clinical
development and obtaining regulatory approval of NDAs and sNDAs for a portfolio
of its proprietary cancer drugs. The Company's current drug candidates are for
the treatment of patients with superficial cancer of the bladder, ovarian and
prostatic cancer, and complications from metastatic cancer (hypercalcemia and
lytic bone disease). The Company's strategy is to develop only late stage drug
candidates, thereby improving the likelihood of successfully obtaining NDA/sNDA
and equivalent foreign approvals. The Company directs its search for oncology
drug candidates toward selected large pharmaceutical companies, because of the
difficulty many of these companies have experienced in managing oncology
projects, and at biotechnology and early stage discovery companies that lack
clinical and regulatory proficiency. To maximize the return on its investment in
each drug, Anthra seeks approvals for multiple disease indications for each
product and directly manages both its United States and foreign clinical
programs and regulatory submissions.
In December 1997, Anthra filed an NDA for its first product, Valstar, for
treatment of patients with superficial bladder cancer whose principal current
alternative is the surgical removal of their urinary bladder. In January 1998,
Anthra received priority designation from the FDA for the review of this NDA,
and ODAC is expected to provide its recommendations to the FDA regarding this
NDA at the ODAC meeting scheduled for June 1, 1998. The Company anticipates that
this NDA for Valstar will be approvable by the FDA during 1998. See
"-- Government Regulation."
Valstar is an anthracycline with multiple cytotoxic mechanisms that was
discovered at Dana-Farber. Valstar has been shown to have significant activity
against a variety of tumor cell lines and is not associated with significant
contact toxicity, thereby making it an ideal choice for regional chemotherapy.
The Company's pivotal clinical studies have demonstrated a complete response
rate of 22% in a group of 90 patients with bladder cancer who had not responded
satisfactorily to extensive pre-treatment with BCG, the accepted first line
treatment for superficial bladder cancer. There are currently no drugs approved
in the United States or Europe for second-line treatment of bladder cancer
following BCG therapy. For these patients, surgical removal of the bladder is
the only approved definitive form of therapy. Importantly, 45% of the patients
in the Company's pivotal clinical studies retained their bladder 30 months
following study entry. Anthra, consistent with its multiple disease indication
strategy, is developing Valstar for three additional indications. One Phase III
program is directed at patients with papillary superficial bladder cancer, for
whom approximately 180,000 transurethral resection procedures are being
performed annually in the United States. In another Phase III program involving
patients with ovarian cancer, Valstar is being administered directly into the
peritoneal cavity, where the cancer is confined. In addition, Anthra plans to
commence a Phase I program to obtain approval for use of Valstar in treating
prostate cancer. The Company has researched the historical incidence of each of
these diseases based on publicly available information and reports prepared for
the Company by MedProbe, including a report summarizing the results of a survey
of 1.5% (124) of office and hospital based urologists reported to be members of
the AMA. Based on the foregoing research and the estimated cost of treating each
with Valstar, the Company estimates that the potential market for Valstar in the
United States could approximate nearly $600 million per annum, and that foreign
markets will provide a significant additional opportunity for sales of Valstar.
See "-- Products and Markets."
Medeva has committed up to $26.2 million (of which $8 million has been paid
to date) and the payment of future royalties for the right to market and sell
Valstar in the United States. Anthra currently has similar arrangements for
Valstar with Nycomed, and Almirall, with respect to marketing and sales rights
in Europe. In total, Anthra has entered into agreements for Valstar providing
potential equity investment, licensing and development fees and milestone
payments of up to $42.9 million (of which $22.3 million has been paid to date),
plus additional royalty and supply payments. See "-- Products and Markets."
In accord with the Company's corporate development strategy, Anthra
identified Bonefos(R), a product for the treatment of hypercalcemia and lytic
bone disease associated with breast and lung cancer and owned by Schering AG,
Germany, the Company's largest pharmaceutical shareholder. Anthra negotiated and
signed the
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<PAGE> 31
Bonefos Agreement in Principle to acquire the exclusive United States
development and marketing rights to Bonefos(R) for the hypercalcemia and lytic
bone disease indications, for payments aggregating $3.75 million. See
"-- Products and Markets -- Bonefos(R): Bonefos Agreement in Principle."
Bonefos(R) has been on the market in Europe and the rest of the world since
1985, with worldwide sales of approximately $150 million in 1997. The Company
plans to conduct Phase III trials in the United States for Bonefos(R) for the
hypercalcemia and lytic bone disease indications upon execution of definitive
documentation memorializing the Bonefos Agreement in Principle. The Bonefos
Agreement in Principle contemplates that, upon FDA approval of an NDA for
Bonefos(R), Berlex will have the option to acquire from the Company the
exclusive right to market Bonefos(R) in the United States for the hypercalcemia
and lytic bone disease indications for payments of up to $21 million, plus
future royalties. Based on the historical incidence of hypercalcemia and the
types of lytic bone disease that Bonefos(R) treats, and the estimated costs of
utilizing Bonefos(R) for the treatment of these maladies, the Company estimates
that the potential market for Bonefos(R) in the United States could approximate
nearly $900 million per annum. See "-- Products and Markets."
Anthra believes that its strategy and accomplishments have positioned it to
become a recognized platform for the clinical substantiation and regulatory
approval of cancer drugs capable of treating multiple disease indications. The
Company is currently assessing and evaluating additional cancer-related late
stage candidates for acquisition, although no definitive agreements have been
executed. Management believes that focused, cost effective development increases
the likelihood of successful clinical development and regulatory approval.
Indicative of this strategy has been the Company's success in filing an NDA for
Valstar at a total research and development cost of less than $20 million.
According to PPSS, in the United States, the cost of developing an approved new
drug has been estimated to be between $304 million and $608 million.
The Company currently has one wholly-owned subsidiary, Anthra UK, through
which it manages its program for Europe. In addition, in order to centralize the
testing, manufacturing and storage of Valstar and Bonefos(R) in close proximity
to the intended suppliers of starting materials, manufacturers and warehousers
of Valstar and Bonefos(R), which are located either in Switzerland or elsewhere
in Europe, the Company currently anticipates forming one or more wholly owned
Swiss subsidiaries, which will hold substantially all the Company's rights to
Valstar and Bonefos(R). In this manner, the Company believes it will be better
able to control and oversee the manufacturing supply, development and
distribution of Valstar and Bonefos(R) in the amounts required.
INDUSTRY OVERVIEW
As pharmaceutical product development has become progressively more costly
and complex, maintaining the pace of innovation in the pharmaceutical industry
has been difficult. According to PPSS, in the United States, the cost of
developing a new drug has been estimated to be between $304 million and $608
million. According to the Tufts Center for the Study of Drug Development, it
takes 15 years, on average, for an experimental drug to travel from the clinical
laboratory to use in treatment of United States patients. The average clinical
development time for drugs approved in 1994 and 1995 by the FDA was seven years,
compared to six years for drugs approved from 1990 to 1993. Only five in 5,000
compounds that enter pre-clinical testing make it to human trials; and only one
of those five is approved by the FDA. According to the Pharmaceutical Research
and Manufacturers Association, investment in research and development by
research-based pharmaceutical companies has increased dramatically since 1980.
In fact, over the past ten years, research and development investment has more
than tripled from $6.5 billion in 1988 to a projected $20.6 billion in 1998.
Over the next decade, most large and medium-sized pharmaceutical companies will
grapple with the fact that many of their most profitable products are nearing
the end of patent protection and their research and development efforts are not
producing replacements to continue to justify the significant investments which
such companies have made in their sales and marketing infrastructure. Thus,
there is significant and growing demand for drugs that have a high probability
of reaching the market in the near term.
The shortage of effective drugs is particularly acute in the oncology
market. Cancer already is responsible for nearly 25% of the deaths in the United
States and, if mortality rates for other leading causes of death, such as heart
disease and stroke, continue their declining trends, cancer will become the
leading cause of death among Americans in the early 21()st century. According to
Healthcare Forecasting Incorporated Reports, the
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oncology drug market in 1996 was estimated to be $3.1 billion. Oncology is
currently one of the five largest therapeutic markets in the United States and
Europe, but few major pharmaceutical companies participate in this market on a
worldwide level. Moreover, most of the most active and widely used
chemotherapeutic drugs have been on the market for a decade or more, and are
thus at or nearing the end of their patent protection period.
Despite this shortage of new drugs entering the market, as a direct result
of the Prescription Drug User Fee Act of 1992, as amended, the FDA has devoted
more resources to the review of NDAs, including NDAs for new molecular entities
("NMEs"), and to the review of supplemental applications for expanded claims.
The process has taken less time than it did previously, and an increased number
of products are receiving approval. In 1996, 53 NME's (up from 26 in 1995) and
nine biological products (up from two in 1995) were approved. Of those approved
in 1996, five were oncology drugs: docetaxol, gemcitabine, irinotecan,
nilutamide, and topotecan. The 17 drugs designated for "priority review" in 1996
were approved in an average time of 13.7 months. In 1997, 39 NMEs and 10
biological products were approved. A significant trend towards shorter approval
times has been observed for NMEs (9% decrease to 16.2 months from the previous
year). In 1997, nine NMEs and three biological products received priority
review -- four of the nine priority NMEs and all of the priority biological
products were approved within six months of filing acceptance. Of the 1997
approvals, six were oncology products: intrapleural talc, samarium sm 153 EDTMP,
letrozole, toremifene, oprelvekin and rituximab. Interferon alfa-2b, previously
approved for use in hairy cell leukemia and hepatitis, received approval of a
supplemental application for an additional oncology claim. The mean approval
time of the last six priority oncology drug products (NMEs) granted priority
review was 12 months. With the Food and Drug Administration Modernization Act of
1997, as amended (the "FDAMA"), user fees have been extended for five years and
a variety of measures designed to expedite review of drugs and biological
products have been enacted. Whether they will have any effect in general or with
respect to any drugs that the Company is or will be developing, and the
magnitude of any such effect, cannot be known.
The foregoing trends have created an opportunity that is being exploited by
the numerous smaller specialized pharmaceutical companies that have emerged over
the past decade. For example, hundreds of drug discovery and research based
companies have been formed around scientific advances in the understanding of
cancer. Despite the promise of these advances, however, few products have
emerged, in part because these companies lack the expertise in clinical
development needed to ensure the development and commercialization process is
completed in a timely and cost effective manner. Many larger companies also lack
experience in clinical development of oncology products because they focus on
large single disease markets, whereas cancer is a heterogeneous set of diseases.
Anthra had positioned itself as a specialized pharmaceutical company, dedicated
to the clinical and commercial development of cancer drugs. Anthra's record of
performance with the development of and filing of an NDA for Valstar supports
this positioning in that the clinical development time for such NDA was 5.5
years and the total cost to file the NDA was under $20 million.
BUSINESS STRATEGY
The availability of a large number of novel compounds with therapeutic
potential, combined with the pressing demand by major pharmaceutical companies
for approved products, has created a significant opportunity for organizations
with expertise in the transformation of promising lead compounds into safe and
effective drugs. Furthermore, Anthra believes that the clinical development of
cancer drugs can be less costly and presents a lower risk than drug development
for other major diseases because of the FDA's policy with respect to drugs for
life-threatening diseases, such as cancer. Anthra intends to exploit these
opportunities by implementing a strategy based on the following key elements:
- CONCENTRATE ON THE CLINICAL AND COMMERCIAL DEVELOPMENT OF DRUGS WITH
DEMONSTRATED ACTIVITY IN THE TREATMENT OF SPECIFIC TYPES OF CANCER. The
Company draws upon the expertise of its management team and its Scientific
Advisory Board, as well as established relationships with pharmaceutical
companies and research organizations, to identify and procure rights to
oncology compounds which have exhibited a potential for late-stage
development. The Company believes that this focus will enable it to build
a strong product portfolio without extensive investment in the
infrastructure required to support drug discovery efforts and pre-clinical
research.
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- MINIMIZE THE TIME AND COST OF DRUG DEVELOPMENT BY THE PRUDENT SELECTION
OF PRODUCT CANDIDATES AND DISEASE INDICATIONS AND THROUGH THE RIGOROUS
DESIGN AND IMPLEMENTATION OF CLINICAL TESTING PROGRAMS. The Company has a
detailed checklist of requirements that any potential drug candidate must
satisfy. The drug candidate must be a novel, proprietary compound for use
in treatment and/or management of cancer or complications from cancer. The
drug candidate must have a pre-clinical and manufacturing dossier that
will support an investigational new drug application (an "IND") with the
FDA. Except in exceptional circumstances, the drug candidate should have
undergone early clinical testing that demonstrated safety and activity in
humans. The drug candidate should have broad enough activity to support
claims for multiple disease indications. Recognizing that the scrupulous
direction and management of the clinical trials process is absolutely
crucial to rapid and cost effective drug development, Anthra fully
supports the studies it sponsors, maintaining direct contact with all
participating clinical investigators and sites. For its Valstar program,
for example, clinical studies were conducted at more than 100 sites in the
United States and Europe.
- STAGE DEVELOPMENT OF DRUG CANDIDATES TO REDUCE RISKS INHERENT IN CLINICAL
STUDIES. Anthra's initial stage of clinical development focuses on a
specific disease indication where safety and efficacy can be easily and
reliably demonstrated to support filing for regulatory approval and rapid
market penetration. Because regulatory authorities recognize the need for
new drugs to treat the many cancer indications for which there are neither
definitive treatments nor approved products, the clinical trials and
regulatory approvals process is more expeditious than for other disease
states. The later phases of clinical development target broader
indications and support supplemental regulatory filings that lead to
expanded markets for the product.
- ADDRESS THE SIGNIFICANT AND GROWING DEMAND OF LARGE AND MEDIUM-SIZED
PHARMACEUTICAL COMPANIES FOR NEW ONCOLOGIC PRODUCTS. A recent Arthur
Andersen survey reported that the development pipelines of large drug
companies are producing only 10% of the new products needed to sustain
their current economic returns. With many of their profitable drugs slated
to lose patent protection over the next five to seven years, these
companies are actively seeking marketing and development rights for new
products at or near the stage of filing for regulatory approvals.
- FORM STRATEGIC COLLABORATIONS WITH SELECTED CORPORATE PARTNERS. Anthra
has established and will continue to pursue arrangements with
pharmaceutical companies to provide the Company with access to promising
compounds, and marketing and distribution capability for approved
products. These arrangements should allow Anthra to concentrate on its
strength in clinical development, while providing Anthra with financing
for growth and the acquisition of additional compounds.
- CAPITALIZE ON THE SIGNIFICANT INVESTMENT IN CANCER DRUG DISCOVERY AT
ACADEMIC INSTITUTIONS AND SPECIALIST R&D COMPANIES. Because many of these
institutions and companies lack the experience and resources to transform
promising new compounds into marketable products, Anthra is advantageously
positioned to negotiate licensing agreements for clinical and commercial
development of these drugs.
Anthra has demonstrated with Valstar that it can implement the foregoing
strategy successfully. Anthra has completed the initial phase of its Valstar
program and filed an NDA in December 1997 based on clinical trials of Valstar
for treatment of refractory bladder cancer, less than five years after the
Company established the drug's activity and launched pivotal clinical studies
for this indication. With the arrangements it has established, including those
with Medeva, Nycomed and Almirall, the Company may receive up to a total of
$42.9 million (of which $22.3 million has been paid to date) in licensing and
development fees, milestone payments and equity investments, plus additional
royalty and supply payments.
PRODUCTS AND MARKETS
Many specialized pharmaceutical companies are built on a technology
platform that generates many lead compounds, only a small fraction of which can
be developed into products. In contrast, Anthra specializes in developing late
stage drug candidates into marketable products. Anthra has invested and intends
to continue to
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invest its resources only in drug candidates that have both evidence of safety
and activity in humans, and the potential to treat both narrow and broad disease
indications.
VALSTAR: A NOVEL ANTHRACYCLINE FOR REGIONAL CHEMOTHERAPY
Valstar is an anthracycline with multiple cytotoxic mechanisms that was
discovered at Dana-Farber. Anthracyclines such as doxorubicin and daunorubicin
are among the most active and widely used anti-tumor agents in the current
pharmacopoeia. Pre-clinical studies and early institutional clinical trials at
Dana-Farber indicated that the pharmacologic profile of Valstar makes it
particularly attractive as an agent for regional chemotherapy, i.e., the direct
administration of a concentrated drug solution to a body cavity or organ.
Regional chemotherapy is designed to maximize treatment of locally confined
tumors by delivering very high doses of the therapeutic agent to the afflicted
organ or region while reducing systemic exposure to such agent and the
consequent side effects. As a lipophilic molecule, Valstar penetrates cell
membranes rapidly. Valstar has been shown to have significant activity against a
variety of tumor cell lines and is not associated with significant contact
toxicity, thereby making it an ideal choice for regional chemotherapy. Finally,
no cumulative cardiotoxicity has been observed with Valstar as opposed to other
anthracyclines.
Anthra's clinical development program for Valstar has focused on two
primary routes of administration: intravesical ("IVe") (instillation of the drug
solution in the bladder) and intraperitoneal ("IP") (introduction of the drug
solution into the peritoneal cavity). The Company is sponsoring clinical studies
of Valstar to support applications to market the drug in these and other
regions. In addition, Anthra has sponsored pre-clinical studies to test the
feasibility of administering Valstar directly into the prostate gland via direct
injection. Table I is an overview of Anthra's Valstar clinical development
program. There can be no assurance, however, that Anthra will receive approval
to market Valstar for the claims listed in Table I. See "Risk
Factors -- Uncertainties Related to Clinical Trials; Uncertainty of Government
Regulatory Requirements; Lengthy Approval Process."
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TABLE I. SUMMARY OF VALSTAR CLINICAL DEVELOPMENT PROGRAM
<TABLE>
<CAPTION>
INDICATION/
TREATMENT TYPE RATIONALE STATUS OF DEVELOPMENT
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C>
Refractory Superficial Bladder - No agents approved for - United States NDA filed;
Cancer/Intravesical (IVe) refractory indication Orphan Drug designation
- High dose intensity; - European EMEA application
prevent/delay cystectomy filed
- ----------------------------------------------------------------------------------------------
Papillary Bladder Cancer/ - No agents approved for claim - United States Phase III
IVe Immediately Following in United States study ongoing
TURB - High dose intensity; - European Phase III study to
prevent/delay disease be launched in 1998
recurrence and/or
progression
- Low incremental cost to
healthcare system
- ----------------------------------------------------------------------------------------------
Advanced Refractory Ovarian - IP administration of - United States and Canada
Cancer/Intraperitoneal (IP) cytotoxic agents has been Phase III study ongoing
shown to be of clinical - European Phase III protocol
value compared to proposed
intravenous administration
- No agents approved for IP
administration
- High dose intensity;
maximize pharmacologic
advantage of IP therapy
- ----------------------------------------------------------------------------------------------
Locally Confined Prostate - No effective chemotherapy - United States Phase I
Cancer/Intraprostatic (local or systemic) protocol accepted by FDA;
Injection - Excellent pre-clinical activation planned for 1998
safety profile
- Regional treatment to
prevent/delay prostatectomy
- ----------------------------------------------------------------------------------------------
</TABLE>
BLADDER CANCER -- OVERVIEW AND MANAGEMENT
In the United States, bladder cancer affects 54,000 new patients annually
and there are over 500,000 patients living in the United States who have been
diagnosed with the disease. It is approximately three to four times more common
in men than women and the disease most frequently occurs in the sixth and
seventh decades of life. Figure 1 depicts the management of patients with
bladder cancer. The two principal forms of the disease are invasive (occurring
in approximately 10% to 15% of patients) and superficial (occurring in the
remainder). The majority of patients diagnosed with bladder cancer have
superficial transitional cell carcinoma. Patients diagnosed with invasive
disease typically undergo surgical removal of the bladder (cystectomy) and often
require systemic chemotherapy, while patients with superficial disease are
managed much more conservatively.
There are two principal types of superficial bladder cancer: carcinoma
in-situ and papillary tumors. Most commonly, papillary tumors are characterized
as having a low to intermediate potential for invasion and are managed by
transurethral resection of the bladder ("TURB") and surveillance cystoscopy with
repeat TURB upon documented recurrence. However, some patients are considered to
have aggressive disease with a high risk of developing invasion, thereby
requiring IVe (in the bladder) administration of BCG therapy. Patients with
carcinoma in-situ are considered to be at high risk of developing invasive
disease and require IVe administration of BCG therapy.
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FIGURE 1. BLADDER CANCER MANAGEMENT
[BLADDER CANCER MANAGEMENT CHART]
35
<PAGE> 37
VALSTAR IN PATIENTS WITH BCG-REFRACTORY SUPERFICIAL BLADDER CANCER
Prior to the introduction of BCG, patients with carcinoma in-situ and high
risk papillary tumors underwent cystectomy due to the aggressive nature of the
disease. With BCG, the need to use cystectomy in patients with superficial
bladder cancer has been markedly reduced. Complete response rates with BCG
treatment are in the 70% range. When patients are shown to have had an
inadequate response to BCG, that is, are not rendered disease-free or recur
following recommended BCG treatment regimens, they are considered refractory,
and surgical removal of the bladder is the principal treatment. Due to the
significant alteration in life style, near term and long-term complications, and
compromise of quality of life, patients and physicians desire greatly to salvage
bladders. However, there are currently no drugs approved in the United States or
Europe for second-line treatment of bladder cancer following BCG therapy.
Anthra has targeted the first use of Valstar for patients with refractory
superficial bladder cancer. In 1993, the Company began pivotal clinical studies
after discussing the requirements for approval of Valstar for this claim with
the FDA. Anthra applied for and received Orphan Drug designation for Valstar,
which would confer seven years of market exclusivity upon NDA approval, for the
treatment of patients with this condition. Accrual and follow-up in the pivotal
studies for the NDA for this claim concluded in April 1997 and such NDA was
submitted to the FDA in December 1997. The studies included 90 patients with
BCG-refractory disease; 58% of whom received at least three prior courses of IVe
therapy. Life table analyses revealed that the probability of obtaining a
complete response (no evidence of disease documented by cystoscopic inspection
with biopsy and cytology) to Valstar treatment was 22%. Importantly, 45% of the
patients (based on Kaplan Meier life-table estimates with 30 month follow up)
enrolled in the studies did not undergo cystectomy. Thus, Valstar provided many
patients with the opportunity for meaningful bladder salvage.
The FDA has begun its evaluation of the aforementioned NDA and has given
the application "priority review" status. Such status is no assurance that the
NDA will be approved or that, if approved, the approval will be granted within
any particular period of time. In the course of reviewing NDAs, the FDA often
finds it necessary to call upon the knowledge of experts in clinical research
and the treatment of patients. The FDA has instituted an advisory committee
system to assist in the establishment of guidelines with respect to the clinical
development of new drugs for a variety of diseases and to help the FDA in the
evaluation of specific NDAs. If the FDA's review of Valstar proceeds as the
Company anticipates, Valstar should be the subject of an ODAC meeting scheduled
for June 1, 1998. Assuming a positive review by and favorable recommendation
from the ODAC panel, the Company anticipates that the NDA for Valstar will be
approvable by the FDA during 1998. There can be no assurance, however, of a
favorable ODAC recommendation or of approval by the FDA in 1998 or thereafter.
If this NDA is approved, Valstar will be marketed for IVe administration to the
approximately 6,000 urologists in the United States by Medeva. See
"-- Valstar -- Licensing Agreements." The Company has also agreed to provide
Valstar to the Eastern Cooperative Oncology Group ("ECOG") for a study that the
Company expects to commence in June of 1998 involving patients with all forms of
superficial bladder cancer who have proven refractory to BCG treatment.
In May 1998 the Company filed with the European Agency for the Evaluation
of Medicinal Products ("EMEA") an application for approval of a similar claim in
Europe based upon the results of a pivotal study that it performed at five study
centers in three European countries and the results of the pivotal studies
conducted in the United States. The European study evaluated Valstar in the
treatment of 45 patients with high risk superficial bladder cancer who were
refractory to multiple TURB procedures and IVe courses of treatment with BCG and
mitomycin. Complete responses confirmed by cystoscopic evaluation with biopsy
and cytology were documented in approximately 50% of patients with residual
papillary tumors at the time of treatment with Valstar. No drugs are approved in
Europe for the treatment of patients with refractory high-risk superficial
bladder cancer. The EMEA has accepted Valstar for the centralized review
procedure. Drugs accepted for review under the centralized procedure are given
ten year marketing exclusivity from the date of approval in all European Union
("EU") countries. The Company plans to seek approval for Valstar in other
European countries, as well. If approved, Nycomed and Almirall will market
Valstar to urologists throughout Europe.
36
<PAGE> 38
VALSTAR IN PATIENTS WITH LOW TO INTERMEDIATE RISK PAPILLARY SUPERFICIAL
BLADDER CANCER
Papillary tumors are the most common form of superficial bladder cancer and
patients with a low to intermediate risk of developing invasive disease far out
number those with aggressive forms of the disease. The principal form of
treatment of patients with papillary tumors is TURB. Patients with papillary
tumors typically have recurrence necessitating repeat TURB procedures.
Recurrence rates depend upon the number, stage and grade of the tumors. Most of
the 180,000 TURBs performed annually in the United States are undertaken
involving patients with recurrent superficial bladder cancer. As illustrated in
Figure 2, during the TURB procedure, a rigid cystoscope is inserted into the
bladder via the urethra and overt tumors are resected and biopsies are taken
from areas suspicious for tumor involvement. Normal appearing areas of the
bladder mucosa are frequently sampled in an effort to diagnose carcinoma
in-situ, which is not often visible. There are several theories regarding the
biology of recurrence, including regrowth of excised tumors, development of new
tumors due to genetic and environmental factors, and implantation of tumor cells
at the time of TURBs in areas denuded during the procedures. Implantation of
stray "floating" tumor cells in areas in which the urothelium has been disrupted
may be followed by the growth of the implanted cells to form a new tumor. This
is especially so after the affected area has healed (re-epithelialization). The
best opportunity to interfere with the pathophysiology of implantation-mediated
recurrence is prior to the re-epithelialization of the sites denuded during the
TURB, that is, as soon as possible following the procedure. The administration
of an IVe agent shortly after the TURB has been shown to reduce recurrence
rates, presumably by destroying residual floating tumor cells before they can
implant or prior to re-epithelialization of areas in which tumor cells have
landed.
FIGURE 2. ADJUNCTIVE TREATMENT WITH VALSTAR
[TURB PROCEDURES GRAPHIC]
There are no drugs in the United States approved for IVe administration
shortly after TURB. In fact, BCG, the most widely used IVe agent, is
contraindicated for patients with any signs of compromised bladder integrity
because sytemetization of the tubercle bacillus has led to severe adverse
reactions. Anthra has conducted a Phase I/II study of Valstar administered
immediately following TURB in 22 patients. This study documented the safety of
adjunctive administration of Valstar and served as the basis for discussions
with the FDA regarding the development of Valstar for approval in this setting.
Anthra has commenced a Phase III randomized pivotal study of adjunctive Valstar.
The results of this study, if positive, will serve as the basis for FDA approval
of Valstar for single-dose adjunctive therapy in conjunction with TURB
procedures. If approved, Valstar will be marketed for IVe administration to the
6,000 urologists in the United States by Medeva. See "-- Valstar -- Licensing
Agreements." The Company will also seek European approval of adjunctive therapy
for low to intermediate risk papillary tumors. If approved, Nycomed and Almirall
will market Valstar to urologists throughout Europe.
37
<PAGE> 39
VALSTAR IN PATIENTS WITH OVARIAN CANCER
Ovarian cancer affects 25,400 new patients annually in the United States,
and there are approximately 60,000 patients in the United States that have been
diagnosed with the disease. With an estimated 14,500 deaths in 1996, ovarian
cancer caused more deaths in the United States than any other cancer of the
female reproductive system. Ovarian cancer is often "silent", showing no signs
or symptoms until late in its development, and only 23% of all cases are
detected at a localized stage. Figure 3 illustrates the management of ovarian
cancer. Aggressive surgery, that is, removal of all sites of tumor involvement
as well as the ovaries, fallopian tubes, and uterus, is typically performed.
Front-line systemic chemotherapy is then typically administered. Although the
regimens employed in up-front treatment continue to be optimized, in the United
States the use of intravenously administered platinum and paclitaxel is the
standard. In a large study performed by the Southwest Oncology Group ("SWOG"),
the Gynecologic Oncology Group ("GOG"), and ECOG (each of which is a government
sponsored cancer research network associated with the National Cancer Institute
of the National Institute of Health), involving patients with small volume
disease following surgery, IP administration of cisplatin has been shown to be
superior to intravenously administered cisplatin. However, cisplatin is not
approved for IP use. The high dose intensity achieved via IP administration and
the direct contact of drug with tumor cells and small volume tumor nodules is
believed to account for the effectiveness of this route. Following front-line
therapy, patients are monitored closely using physical examination, examination
of serum levels of CA-125, CT scans of the abdomen and pelvis, and often with
repeat surgical or laparoscopic exploration. Unfortunately, most patients with
advanced ovarian cancer are not cured with front-line treatment and the
development of platinum resistant recurrent disease within the peritoneal cavity
is common.
FIGURE 3. OVARIAN CANCER MANAGEMENT
[OVARIAN CANCER MANAGEMENT CHART]
When patients are shown to have recurrent disease, second-line therapies
are typically administered. Although IP administration of several agents has
been evaluated, there are no drugs approved in the United States for use in this
manner. As mentioned above, IP cisplatin has been shown to be quite effective as
front-line therapy involving patients with small volume disease. Doxorubicin, an
anthracycline known to be effective in the treatment of patients with ovarian
cancer when administered intravenously, was evaluated for IP administration;
however, due to this contact toxicity of this compound and the complications
that were observed, the drug is considered to be inappropriate for IP use.
Valstar is also an anthracycline which, in comparison to doxorubicin, is
associated with considerably less contact toxicity. Anthra's Phase I/II study of
IP Valstar use demonstrated that the drug is safe and well tolerated at high
dose levels, and produced preliminary evidence of drug activity in a heavily
pre-treated group
38
<PAGE> 40
of patients. Anthra is sponsoring a Phase III clinical trial in the United
States and Canada involving patients with small volume disease following
treatment with platinum and paclitaxel. The Company plans to launch a European
Phase III study of IP Valstar in 1998. Data from these studies is expected to
support supplementary regulatory filings for this claim by 2000. If IP Valstar
is approved by the FDA, Valstar can then be marketed to the approximately 300
gynecological oncologists in the United States and to a similar target audience
in Europe. See "-- Valstar: Licensing Agreements."
VALSTAR IN PATIENTS WITH PROSTATE CANCER
In the United States, over 184,500 new cases of prostate cancer are
diagnosed each year and an estimated 39,200 deaths occurred from the disease in
1996. The risk of being diagnosed with prostate cancer increases with age and
the disease accounts for over 80% of the cancers diagnosed in men over the age
of 65. As a result of early detection screening procedures, including the use of
serum PSA (Prostate Specific Antigen) levels, approximately 60% of patients are
diagnosed when the disease is localized, that is, confined within the prostate
gland. Surgical prostatectomy (complete surgical removal of the prostate) was
traditionally considered by many experts to be the definitive treatment for
localized disease. However, due to the variable natural history of localized
prostate cancer and questions regarding the long-term efficacy of surgical
therapy, over the past five years, a strategy of "watchful waiting" has been
advocated by some experts. This approach entails careful observation of patients
with pathologically proven prostate cancer followed by definitive therapy when
the patient is considered to be at high risk of having progressive disease. As
depicted in Figure 4, a significant controversy regarding the optimal therapy
for localized prostate cancer has emerged, and the contrast of the foregoing
approaches has led a number of physicians and patients to seek alternative
therapies including external beam radiation therapy, brachytherapy (implantation
of radioactive seeds within the prostate gland), and cryotherapy (freezing of
the gland). Patients and physicians have found themselves at a crossroads having
to choose between either no treatment or a variety of forms of therapy
associated with significant side effects and compromised quality of life.
FIGURE 4. PROSTATE CANCER TREATMENT DILEMMA
[PROSTATE CANCER TREATMENT CHART]
Anthra and others have viewed this treatment dilemma as a possible
opportunity for treatment by way of a direct injection of therapeutic agents
within the prostate gland. In-vitro sensitivity studies have demonstrated the
activity of Valstar against prostate cancer and studies of direct intraprostatic
injection of Valstar in dogs
39
<PAGE> 41
has established the feasibility of this approach. Anthra is working with its
investigators to finalize the protocol and begin patient enrollment in a Phase I
study of intraprostatic Valstar in 1998. Subsequent studies may be initiated
pending the results of this Phase I study.
VALSTAR: MARKET
The Company has researched the historical incidence of the diseases for
which the Company is currently conducting trials for Valstar based on publicly
available information and reports prepared for the Company by MedProbe,
including a report summarizing the results of a survey of 1.5% (124) of office
and hospital based urologists reported to be members of the AMA. Based on the
foregoing research, and the estimated cost of treating each with Valstar, the
Company estimates that the potential market for Valstar in the United States
could approximate nearly $600 million per annum. This estimate is based on the
following historical data and estimates: an average of approximately 5,000 to
9,000 patients per year historically have been diagnosed with carcinoma in-situ
that is refractory to BCG therapy, and the Company's estimate of the cost of
treatment of this type of cancer utilizing Valstar is $7,200 per patient; an
average of approximately 180,000 patients per year historically have had a TURB
procedure performed, and the Company estimates that an adjunctive treatment
utilizing Valstar would cost $1,200 per patient; an average of approximately
10,000 patients per year historically have been diagnosed with small volume
ovarian carcinoma refractory to front-line treatment, and the Company's estimate
of the cost of treatment of this type of cancer utilizing Valstar is $9,000 per
patient; and an average of approximately 184,500 patients per year historically
have been diagnosed with organ-confined prostatic carcinoma, and the Company's
estimate of the cost of treatment of this type of cancer utilizing Valstar is
$1,200 per patient.
VALSTAR: DRUG MANUFACTURING AND FINISHING
Valstar is manufactured in bulk powder form for the Company by Gensia Sicor
in Rho (Milan), Italy, and by Omnichem in Louvain-la-Neuve, Belgium. Anthra has
contract manufacturing agreements for conversion of starting material to Valstar
Drug Substance with Omnichem and Gensia Sicor. Gensia Sicor has submitted to the
FDA, and will submit to the appropriate regulatory authorities in Europe, its
Drug Master File with respect to Valstar, which includes, among other
information, the Drug Establishment Registration Number, address of
manufacturer, information regarding the characterization of the drug substance,
analytical specifications, manufacturing flow sheet, production and process
controls, evidence of chemical structure, and characterization of reference
standards and stability data. Omnichem has submitted to the Company, which has
in turn submitted to the FDA, information similar to that which Gensia Sicor
submitted to the FDA. Release testing and stability testing of Valstar Drug
Substance produced by Omnichem is performed under contract to Anthra by Ben
Venue, while release testing and stability testing of Valstar Drug Substance
produced by Gensia Sicor is performed by the manufacturer. Valstar Drug Product
is purchased from Ben Venue, and the Company is currently negotiating the terms
and conditions of a written supply agreement with Ben Venue. Under the terms of
its agreements with Medeva, Nycomed, and Almirall, Anthra will be the exclusive
provider of Valstar Drug Product for post-approval marketing. See "-- Valstar:
Licensing Agreements."
VALSTAR: COMPETITION
Anthra has designed its clinical and commercial development programs to
maximize the market competitiveness of Valstar. At present, two therapeutic
agents are registered for IVe administration in the United States: the
chemotherapeutic drug thiotepa and the immunotherapeutic biological BCG.
Thiotepa is an older drug that is considered to have limited efficacy in
treatment of refractory bladder cancer. BCG is the definitive agent for
treatment of carcinoma in-situ, and is used for prophylactic IVe therapy to
supplement surgical resection of papillary tumors involving patients with
aggressive forms of the disease. Two other chemotherapeutic drugs marketed in
the United States, doxorubicin and mitomycin, are considered to be active when
administered by the IVe route, but neither is approved for IVe use by the FDA.
Clinical studies of immunotherapy with interferon administered intravesically,
Photofrin for use with photodynamic therapy, and the experimental oral agent
bropirimine, have demonstrated only limited utility for these agents in the
40
<PAGE> 42
treatment of bladder cancer. Keyhole limpet hemocyanin is a developmental agent
that is being tested for activity against superficial bladder cancer as a
replacement for BCG.
Anthra's pivotal clinical studies in the United States were conducted using
patients who had failed to respond to or recurred following treatment with BCG.
At present, the majority of refractory patients are treated with surgical
cystectomy, although many patients refuse to undergo the procedure. For lack of
an appropriate alternate therapy, some urologists recommend bladder salvage IVe
therapy with non-approved agents. The FDA has designated Valstar an Orphan Drug
for treatment of refractory carcinoma in-situ. Thus, if approved, Valstar will
have protection from competition in this market for seven years from the date of
approval.
If the results of Anthra's ongoing Phase III study of IVe Valstar
administered immediately following transurethral resection of the bladder are
positive, the data could provide the basis for a supplemental claim covering a
novel therapeutic approach. Although European studies have shown that mitomycin
is active in this clinical setting, this drug is not approved for IVe
administration in the United States. BCG is not a potential competitor for
peri-surgical therapy because administration of a live bacterial culture
immediately following surgery poses unacceptable risks.
The competitive environment for IVe Valstar in Europe is more complicated
because, in addition to BCG and thiotepa, mitomycin, epirubicin, and doxorubicin
are approved for IVe administration. None of these drugs, however, has been
rigorously evaluated in clinical studies for treatment of refractory superficial
bladder cancer and no agent has been registered based on a claim of activity in
a refractory patient population. Because the data from Anthra's pivotal clinical
trials involving patients with refractory disease in the United States and
Europe (which formed the basis for the Company's filing with the EMEA for
approval to market Valstar in Europe), comprise one of the largest studies of a
well-characterized refractory population, Anthra believes Valstar will be
competitive in the European market if approved.
Although several studies have shown that chemotherapeutic agents such as
cisplatin are active when administered intraperitoneally, no agent is approved
in either Europe or the United States for IP administration. Anthra views this
as an opportunity for Valstar. Several agents have been approved for treatment
of refractory ovarian cancer via systemic administration, including paclitaxel
(Taxol(R)), which was originally registered for second line therapy but is used
increasingly in first line combination therapy with platinum agents, topotecan
and tamoxifen. Taxol(R) is being evaluated in GOG trials for IP administration.
Altretamine, which is taken orally, is marketed in the United States for
treatment involving patients with refractory ovarian carcinoma. Anthra's Phase
III study is comparing the activity of IP Valstar and oral altretamine involving
patients who have failed to respond following therapy with platinum compounds
and paclitaxel.
VALSTAR: PROPRIETARY POSITION
Patent protection for Valstar as a NME expired in 1994. Anthra's management
believes it can maintain a strong proprietary position for the drug based on
three platforms. First, it will seek Orphan Drug status for Valstar in specific
disease indications; FDA designated Valstar an Orphan Drug for treatment of
refractory carcinoma in-situ in 1994 and Anthra will apply for designation in
other appropriate indications. Second, Anthra has proprietary know-how in the
manufacture and formulation of the drug. Finally, Valstar will receive
protection from generic competition for five years following approval under
provisions of The Drug Price Competition and Patent Term Restoration Act of 1984
as amended (the "Waxman-Hatch Act"). This protection does not, however, apply to
full NDAs. Moreover, Congress may consider amendments to the Waxman-Hatch Act
that could affect the requirements for and timing of generic drug approvals. In
Europe, drugs approved via the centralized procedure, that is, through the EMEA,
are granted protection from generic competition for a ten year period from the
date of approval.
Pursuant to an agreement with Dana-Farber, Anthra acquired exclusive
licensing rights to Valstar in November 1990. Under such agreement, Anthra is
required to make certain royalty payments to Dana-Farber on United States sales
of Valstar through July 1999. Upon the termination of such exclusive licensing
rights in the United States under the agreement, Dana-Farber would grant the
Company non-exclusive licensing rights for the remaining term of the agreement.
41
<PAGE> 43
VALSTAR: LICENSING AGREEMENTS
Nycomed
In October 1997, the Company entered into an Exclusive License, Sale and
Distribution Agreement with Nycomed for the sale and distribution of Valstar for
three indications in Europe generally, excluding Spain and Portugal, but
including the Commonwealth of Independent States, Russia, parts of Eastern
Europe and, subject to certain conditions, an option with respect to China (the
"Nycomed Agreement"). At that time, Nycomed also purchased 300,000 shares of the
Company's Series D Convertible Preferred Stock for $4.5 million. The Nycomed
Agreement provides, subject to certain restrictions and limitations, for future
payments by Nycomed to Anthra aggregating up to $2 million based on the
achievement of certain milestones. In connection with these payments, Nycomed
will receive an option to purchase up to an aggregate of 66,666 shares, subject
to certain conditions, of either the Company's Series D Convertible Preferred
Stock or Common Stock at a price of $15 per share, which options will expire in
accordance with the Nycomed Agreement. Upon making a certain payment under the
Nycomed Agreement, subject to certain conditions, Nycomed will receive an
additional option to purchase that number of shares of either Anthra's Common
Stock or Series D Convertible Preferred Stock that can be purchased for $1
million at the price per share as determined by a formula based on the market
price of the shares at the time of exercise, which options will expire in
accordance with the Nycomed Agreement. Subject to certain conditions, the
Nycomed Agreement requires that Anthra prepare and file applications for
regulatory approval for Valstar for the three indications in the countries
within the Nycomed territory. Subject to certain conditions, the Nycomed
Agreement also provides for Anthra to supply Valstar Drug Product to Nycomed at
a price specified in the Nycomed Agreement.
Medeva
In July 1997, the Company entered into the Medeva Agreement for the sale
and distribution of Valstar in the United States for two indications. The Medeva
Agreement provides for an initial non-refundable payment of $8 million to Anthra
which was paid on signing, and, subject to certain restrictions and limitations,
future payments aggregating up to $18.2 million upon the achievement of certain
milestones. In consideration of, among other things, the aforementioned
payments, Anthra has granted to Medeva a nominal ownership interest in the
proprietary rights to Valstar as exploited in the United States and certain of
the proceeds to the Company resulting therefrom.
The Medeva Agreement also provides for the payment of royalties to the
Company based on the net sales of Valstar sold by Medeva. In the event Anthra is
unable to supply Valstar as provided in the Medeva Agreement, certain monetary
penalties will be payable by Anthra. In addition, the Company will supply
Valstar Drug Product to Medeva at a price specified in the Medeva Agreement.
The Company may be entitled to receive additional payments for the ovarian
cancer indication, dependent upon the outcome of negotiations, which are
scheduled to be undertaken in 1998.
In the event that the Company has not obtained approval to market Valstar
in the United States for either the refractory carcinoma in-situ indication or
the papillary tumor indication by December 31, 2002, Medeva has the right to
require the Company to issue to it such number of shares of Common Stock equal
to 20% of the outstanding voting equity securities of the Company at the time of
its exercise of such right.
Subject to certain conditions, the Medeva Agreement requires Anthra to
prepare and file an NDA and sNDA for Valstar for two indications, and subject to
agreement with Medeva, a third indication.
Almirall
In April 1997, the Company entered into the Almirall Agreement for the sale
and distribution of Valstar for all indications in Spain and Portugal. At that
time, Almirall also purchased 67,819 shares of Anthra's Series D Convertible
Preferred Stock for $750,000. The Almirall Agreement provides for an initial
licensing payment by Almirall of $200,000 which was paid on signing, and future
payments aggregating up to $400,000 upon the achievement of certain milestones.
The Almirall Agreement also provides for Anthra to supply
42
<PAGE> 44
Valstar Drug Product to Almirall at a price specified in the Almirall Agreement.
The Almirall Agreement requires Anthra to conduct all clinical trials required
for the submission of applications for regulatory approval for Valstar for at
least two indications, and to file the registrations in Spain and Portugal.
Schering AG, Germany
In July 1996, the Company converted the Development Agreement into the
Support Agreement. The Support Agreement provides for a payment by Schering AG,
Germany to Anthra of $3.5 million in consideration of such conversion of the
Development Agreement and the issuance by Anthra to Schering AG, Germany of
200,000 shares of Anthra's Series D Convertible Preferred Stock, which was
subsequently converted by Schering AG, Germany into Common Stock. Such payment
was received by the Company and recorded as $2.2 million toward the purchase of
the 200,000 shares of Series D Convertible Preferred Stock and the remaining
$1.3 million of the payment as other revenue upon conversion to the Support
Agreement. The Support Agreement provides for royalties to be paid by Anthra to
Schering AG, Germany based on the net sales of Valstar.
BONEFOS(R): AN ORAL AGENT FOR OSTEOLYTIC COMPLICATIONS OF METASTATIC CANCER
Lytic bone disease is a medical condition that results from the
establishment and growth of metastases emanating from a variety of cancers,
including breast, lung, and multiple myeloma. The pathophysiologic basis of the
condition is the stimulation of a population of normal bone cells (osteoclasts)
relative to another population of bone cells (osteoblasts). Normal functioning
of bone depends on osteoclasts and osteoblasts acting in concert. Osteoclasts
mediate destruction of bone and osteoblasts are responsible for bone growth and
mineral production. The interplay between destruction and formation is integral
to bone re-modeling and various metabolic functions including calcium
regulation. When cancer metastasizes to bone, preferential stimulation of
osteoclasts leads to bone resorption and breakdown. As depicted in Figure 5,
lytic bone metastases are responsible for a clinical spectrum of diseases,
including establishment and progression of metastases leading to complications
including pain, pathological fracture and, in the terminal stages, hypercalcemia
(elevated blood calcium levels).
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FIGURE 5. BONEFOS(R) IN THE MANAGEMENT OF LYTIC BONE DISEASE
[OSTEOLYTIC BONE METASTASES GRAPH]
Bonefos(R) (clodronate) is an orally active bisphosphonate compound that
blocks bone resorption through osteoclast inhibition. High doses of
bisphosphonates are required to control lytic bone metastases resulting from
cancer. Due to significant gastrointestinal toxicity, most bisphosphonates
cannot be administered orally at high doses, so the products currently marketed
in the United States for the management of lytic bone metastases must be
administered intravenously. In contrast, clinical studies and more than 12 years
of marketed use in Europe have shown that Bonefos(R) is effective and well
tolerated when administered orally. Bonefos(R) is currently approved in 56
countries for the treatment of hypercalcemia and complications from lytic bone
disease.
Anthra has entered into the Bonefos Agreement in Principle for acquisition
of development and marketing rights for Bonefos(R) for the hypercalcemia and
lytic bone disease indications in the United States. See "-- Bonefos(R):
Proprietary Position; -- Bonefos Agreement in Principle." Bonefos(R) has been on
the market in Europe and the rest of the world since 1985, with worldwide sales
of approximately $150 million in 1997. Assuming the transaction contemplated by
the Bonefos Agreement in Principle is consummated, Anthra's development program
for Bonefos(R) will target two potential claims for the drug: maintenance of
normal blood calcium in hypercalcemic patients; and treatment of lytic bone
disease. Table II summarizes this proposed program.
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TABLE II. SUMMARY OF PROPOSED BONEFOS(R) CLINICAL DEVELOPMENT PROGRAM
<TABLE>
<CAPTION>
INDICATION/TREATMENT TYPE RATIONALE STATUS
------------------------- ----------------------------------- -----------------------
<S> <C> <C>
Hypercalcemia/Oral - Approved in 56 countries for - United States Phase
treatment of hypercalcemia III study ongoing;
- Large safety and efficacy dossier Orphan Drug
designation
---------------------------------------------------------------------------------------
Lytic bone disease/Oral - Approved in 56 countries for - United States Phase
treatment of lytic bone disease III study proposed
- Large safety and efficacy dossier
---------------------------------------------------------------------------------------
</TABLE>
Assuming the transaction contemplated by the Bonefos Agreement in Principle
is consummated, Anthra will implement a Phase III randomized clinical trial to
evaluate the efficacy of Bonefos(R) taken daily orally for maintenance of normal
blood calcium levels in patients who have received acute treatment with
intravenous drugs for hypercalcemic complications of metastatic disease. The
Company believes that about 50% of patients who respond to acute treatment
relapse with hypercalcemia and require acute treatment again. A subsequent Phase
III randomized study will compare the activity of monthly treatment with
pamidronate (Aredia(R)) administered as an intravenous infusion and daily
treatment with Bonefos(R) taken orally for controlling lytic bone disease in
patients with metastatic lung or breast cancer. Intravenous treatment with
Aredia(R) has been shown to reduce the incidence of skeletal complications
(fractures, surgery, radiotherapy and pain), and the Company's management views
the availability of an effective oral agent as a significant opportunity.
Assuming the transaction contemplated by the Bonefos Agreement in Principle is
consummated, Anthra expects to launch these studies in 1998.
BONEFOS(R): MARKET
The oncology market for bone resorption inhibitors is young and growing
rapidly. For example, United States sales of Aredia(R) nearly doubled to $200
million in 1997 following its approval for the wider claim of management of
lytic bone disease. Bonefos(R) is both less costly and more convenient to
administer than Aredia(R), which must be given as a three-hour or 24-hour
infusion in a supervised setting and costs, according to Company estimates,
approximately $1,500 per monthly treatment. In comparison, Bonefos(R), an orally
administered drug, is currently priced at $300 per month in Europe. If
Bonefos(R) is approved, it will be marketed to the 9,000 clinical oncologists in
the United States.
Based on the historical incidence of hypercalcemia and the types of lytic
bone disease in which Bonefos(R) is active, and the estimated costs of utilizing
Bonefos(R) for the treatment of these maladies, the Company estimates that the
potential market for Bonefos(R) in the United States could approximate nearly
$900 million per annum. This estimate is based on the following historical data
and estimates: approximately 450,000 patients per year historically have
developed bone metastases, and the Company's estimate of the cost of treatment
of this malady utilizing Bonefos(R) is $1,825 per patient; and an average of
approximately 50,000 patients with bone metastases per year historically have
developed hypercalcemia, and the Company's estimate of the cost of treatment of
this malady utilizing Bonefos(R) is $900 per patient.
BONEFOS(R): COMPETITION
Two bisphosphonate compounds are marketed in the United States for
treatment of osteolytic complications due to malignancies: Aredia(R) is
considered the most active and has captured a significant and increasing share
of this market; and Didronel(R) (etridronate) is used less because it has been
shown to inhibit bone regrowth as well as resorption. Both drugs require
intravenous administration for treatment of conditions associated with
malignancies. Two other bisphosphonates, tiludronate (Skelid(R)) and alendronate
(Fosamax(R)), are marketed in oral formulations for treatment of osteoporosis
and/or Paget's Disease, and several other compounds are in clinical development
for these non-malignant disease indications. If the
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<PAGE> 47
companies developing and marketing these drugs pursue additional claims for the
hypercalcemia and/or lytic bone disease indications, these products could be
potential competitors to Bonefos(R).
BONEFOS(R): PROPRIETARY POSITION
Several patents for use and formulation of Bonefos(R) have been granted,
and are due to expire commencing in 2010 and ending in 2014. Bonefos(R) has
received Orphan Drug designation for the treatment of osteolysis (hypercalcemia)
and, therefore, may have market exclusivity for seven years from the date of
approval of the NDA for this indication.
BONEFOS(R): BONEFOS AGREEMENT IN PRINCIPLE
In December 1997, the Company entered into the Bonefos Agreement in
Principle with Berlex and Leiras Oy, affiliates of Schering AG, Germany to
acquire the rights to develop and exclusively market Bonefos(R), on a
royalty-free basis, for the hypercalcemia and lytic bone disease indications in
the United States, and for the related rights to purchase its requirements of
Bonefos(R). Upon execution of the Bonefos Agreement in Principle, the Company
made a payment to Berlex of $250,000 which was recorded as a research and
development expense. The Bonefos Agreement in Principle contemplates future
payments from the Company to Berlex, in consideration of the aforementioned
rights, aggregating $3.5 million.
The Bonefos Agreement in Principle further contemplates that, for a period
after the acceptance for filing of the NDA for the first indication for
Bonefos(R), Berlex will have the option to acquire from the Company the
exclusive right to market Bonefos(R) in the United States for the hypercalcemia
and lytic bone disease indications for (i) a $6 million payment to the Company
upon FDA approval of the NDA for the hypercalcemia indication, (ii) an
obligation to make a $15 million payment to the Company upon FDA approval of the
NDA (or sNDA) for the lytic bone disease indication, and (iii) an obligation to
make royalty payments to the Company. In addition, if Berlex exercises the
option, it may elect to develop Bonefos(R) in the United States for prevention
of lytic bone disease. Upon the approval of an sNDA for such indication, Berlex
will make certain royalty payments to the Company.
In the event Berlex does not exercise the aforementioned option, the
Bonefos Agreement in Principle provides that the Company would maintain the
aforementioned exclusive right to market Bonefos(R) in the United States. In
such event, the Bonefos Agreement in Principle contemplates a supply agreement
for a minimum of fifteen years from the date of definitive documentation with
Leiras Oy, the Schering AG, Germany affiliate that developed Bonefos(R) and
currently manufactures Bonefos(R) for sale in Europe, pursuant to which Leiras
Oy would have the exclusive right and obligation to supply the Company with
Bonefos(R) for sale in the United States at a price specified in the Bonefos
Agreement in Principle.
Under the Bonefos Agreement in Principle, Anthra is required to seek FDA
approval of Bonefos(R) for the hypercalcemia and lytic bone disease indications,
and will lose its license rights if it fails to file an NDA for Bonefos(R) for
at least one indication by February 15, 2002, subject to certain conditions.
The definitive documentation relating to the Bonefos Agreement in Principle
is currently being negotiated, and no assurances can be given that the final
form of such documentation will be similar to that contemplated by the Bonefos
Agreement in Principle.
GOVERNMENT REGULATION
The research, testing, manufacturing, labeling, marketing, distribution and
advertising of pharmaceutical products, such as the Company's proposed products
are subject to extensive regulation by governmental regulatory authorities in
the United States and other countries. The drug development and approval process
is generally lengthy, expensive and subject to unanticipated delays. The FDA and
comparable agencies in foreign countries impose substantial requirements on the
introduction of new pharmaceutical products through lengthy and detailed
preclinical and clinical testing requirements, sampling activities and other
costly and time-consuming compliance procedures. A new drug may not be marketed
in the United States until it has undergone rigorous testing and has been
approved by the FDA. The drug may then be marketed only for the specific
indications, uses, formulations, dosage forms and strengths approved by the FDA.
Similar requirements are imposed by foreign regulators upon the marketing of a
new drug in their respective countries.
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<PAGE> 48
Satisfaction of such regulatory requirements, which includes demonstrating to
the satisfaction of the FDA that the relevant product is both safe and
effective, typically takes several years or more depending upon the type,
complexity and novelty of the product, and requires the expenditure of
substantial resources. Preclinical studies must be conducted in conformance with
the FDA's current Good Laboratory Practice ("cGLP") regulations. The Company's
compounds require extensive clinical trials and FDA review as new drugs.
Clinical trials are rigorously regulated and must meet requirements for FDA
review and oversight, and requirements under current Good Clinical Practice
("cGCP") guidelines. There can be no assurance that the Company will not
encounter problems in clinical trials which would cause the Company, the FDA or
another relevant regulatory body to delay or suspend clinical trials. Any such
delay or suspension could have a material adverse effect on the Company's
business, financial condition and results of operations.
The steps required before a drug may be marketed in the United States
include: (i) preclinical laboratory and animal tests; (ii) submission to the FDA
of an application for an IND exemption, which must become effective before human
clinical trials may commence; (iii) human clinical trials to establish the
safety and efficacy of the drug; (iv) submission of a detailed NDA to the FDA;
and (v) FDA approval of the NDA. In addition to obtaining FDA approval for each
product, each establishment where the drug is to be manufactured must be
registered with the FDA. Manufacturing establishments must comply with current
Good Manufacturing Practice ("cGMP") regulations and are subject to periodic
inspections by the FDA. Foreign manufacturing establishments manufacturing drugs
intended for sale in the United States must comply with the same cGMP
regulations and registration requirements as domestic establishments and are
subject to periodic inspection by the FDA or by local authorities under
agreement with the FDA.
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to assess the metabolic and pharmacologic activity and potential
safety and efficacy of the product, including acute and chronic toxicity studies
and others. Preclinical tests must be conducted by laboratories that comply with
FDA regulations regarding cGLP. The results of preclinical tests are submitted
to the FDA as part of an IND, which must become effective before the sponsor may
conduct clinical trials in human subjects. Unless the FDA objects to an IND, the
IND becomes effective 30 days following its receipt by the FDA. There is no
certainty that submission of an IND will result in FDA authorization of the
commencement of clinical trials. In addition, either before or after approval of
an IND, the FDA can issue a clinical hold requiring that clinical trials be
stopped, either temporarily or permanently.
Clinical trials involve the administration of the investigational drug to
patients. Every clinical trial must be conducted under the review and oversight
of an institutional review board ("IRB") at each institution participating in
the trial. The IRB evaluates, among other things, ethical factors, the safety of
human subjects and the possible liability of the institution. The IRB has
continuing oversight of the protocols. There is no assurance that the IRB will
approve a study or not require protocol changes. Clinical trials are conducted
by qualified investigators (usually physicians within medical institutions)
selected by the sponsor of the trial to supervise the administration of the drug
and ensure that the investigations are conducted in accordance with FDA
regulations, including the general investigational plan and protocols contained
in the IND. The sponsor also has an independent obligation to monitor the trials
and ensure that all applicable legal requirements are satisfied, including
requirements to comply with FDA recordkeeping and safety reporting regulations.
Each protocol must be submitted to the FDA as part of the IND. The FDA's review
of a protocol, however, does not mean that the study will be regarded as showing
safety or effectiveness. Clinical trials typically are conducted in three
phases, which generally are conducted sequentially, but which may overlap.
Clinical trials test for efficacy and safety, side effects, dosage, tolerance,
metabolism and clinical pharmacology. Phase I tests involve the initial
introduction of the drug to a small group of subjects, often healthy volunteers,
to test for safety, dosage tolerance, pharmacology and metabolism. Phase I/II
studies are early studies designed to evaluate safety and preliminary activity
of drugs in patients. Phase II trials involve a larger but still limited patient
population to determine the efficacy of the drug for specific indications, to
determine optimal dosage and to identify possible side effects and safety risks.
If a drug appears to be safe and efficacious in Phase II evaluations,
larger-scale Phase III trials are undertaken to evaluate the safety and
effectiveness of the drug, usually, though not necessarily, in comparison with a
placebo or an existing treatment. Certain provisions of the FDAMA have clarified
provisions of prior law governing clinical testing. For example, data from one
well-
47
<PAGE> 49
controlled Phase III clinical trial, together with confirmatory evidence, may,
at the discretion of the FDA, be deemed to establish effectiveness, but the FDA
is not required to depart from its usual requirement of two Phase III trials in
any particular case. Another provision of the FDAMA establishes requirements
regarding when the FDA must begin action in clinical trial applications. There
can be no assurance, however, that Phase I, Phase II or Phase III testing will
be completed successfully within any specified time period, if at all.
Furthermore, the FDA may suspend clinical trials at any time if it decides that
patients are being exposed to a significant health risk.
The results of the preclinical studies and clinical trials are submitted to
the FDA as part of an NDA for approval of the marketing of a drug for a specific
indication. The NDA also includes information pertaining to the chemistry,
formulation and manufacture of the drug and each component of the final product.
The NDA review process takes from one to two years on average to complete,
although reviews of treatments for cancer and other life-threatening diseases
may be accelerated. However, the process may take substantially longer if the
FDA has questions or concerns about a product. In general, the FDA requires at
least two adequate and well-controlled clinical studies demonstrating efficacy
in order to approve an NDA. The FDA may, however, request additional
information, such as long-term toxicity studies or other studies relating to
product safety or effectiveness. Notwithstanding the submission of such data,
the FDA ultimately may decide that the NDA does not satisfy its regulatory
criteria for approval. Finally, the FDA may require additional clinical tests
following NDA approval. There can be no assurance that the drugs the Company is
seeking to develop will prove to be safe and effective in treating or preventing
cancer. The development of such drugs will require the commitment of substantial
resources to conduct the preclinical studies and clinical trials necessary to
bring such compounds to market. Drug research and development by its nature is
uncertain. There is a risk of delay or failure at any stage, and the time
required and cost involved in successfully accomplishing the Company's
objectives cannot be predicted. Actual drug research and development costs could
exceed budgeted amounts, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
The FDA has issued regulations intended to expedite the development,
evaluation, approval and marketing of new therapeutic products to treat
life-threatening and severely debilitating illnesses for which no satisfactory
alternative therapies exist. These regulations provide for early consultation
between the sponsor and the FDA in the design of both preclinical studies and
clinical trials. There can be no assurance that any products the Company may
develop will be eligible for evaluation by the FDA under these regulations. In
addition, there can be no assurance that any products, if eligible, will be
approved for marketing at all or, if approved for marketing, will be approved
for marketing sooner than would be traditionally expected. Regulatory approval
granted under these regulations may be restricted by the FDA as necessary to
ensure the safe use of the drug. In addition, post-marketing clinical studies
are required, and, if such drugs do not perform satisfactorily in such
post-marketing clinical studies, such drugs would likely be required to be
withdrawn from the market. The FDA also requires prior review of promotional
materials for drugs approved under these provisions. The FDAMA has also provided
a mechanism for identifying breakthrough drugs and for streamlining the
regulatory process. No assurance can be given that any of the Company's products
will qualify for the relevant provisions under the FDAMA with respect to such
mechanism.
The Prescription Drug User Fee Act of 1992, as amended, was enacted to
expedite FDA review and approval of new drugs by providing the FDA additional
funds through the imposition of user fees on sponsor companies of prescription
drugs. Such Act imposes three kinds of user fees: (i) a one-time fee for each
single-source prescription drug application submitted on or after September 1,
1992; (ii) an annual fee for each establishment that produces single-source
prescription drugs; and (iii) an annual fee for each single-source prescription
drug product marketed. This program was renewed by the FDAMA.
Anthra cannot predict when, if ever, it might submit for regulatory review
additional compounds currently under development or additional claims for
existing compounds. Once the Company submits its potential products for review,
there can be no assurance that FDA or other regulatory approvals for any
pharmaceutical products developed by Anthra will be granted on a timely basis,
if at all. The FDA and comparable agencies in foreign countries impose
substantial requirements on the introduction of new pharmaceutical products
through lengthy and detailed preclinical and clinical testing procedures, sample
48
<PAGE> 50
testing and other costly and time-consuming compliance procedures. Clinical
trials are rigorously regulated. A new drug may not be marketed in the United
States until it has been approved by the FDA or marketed in foreign countries
until it has been approved by the appropriate regulatory agencies for such
countries. There can be no assurance that the Company will not encounter delays
or rejections during any approval process, or that the FDA or any other
applicable regulatory agency will not make policy changes during the period of
product development and FDA or other applicable regulatory agency regulatory
review of any submitted NDA or other appropriate documentation. A delay in
obtaining or failure to obtain such approvals would have a material adverse
effect on the Company's business, financial condition and results of operations.
Even if regulatory approval is obtained, the labeling would be limited as to the
indicated uses for which the product may be promoted or marketed. A marketed
product, its manufacturer and the facilities in which it is manufactured are
subject to continual review and periodic inspections. If marketing approval is
granted, the Company would be required to comply with FDA or other applicable
regulatory agency requirements for manufacturing, labeling, advertising, record
keeping and reporting of adverse experiences and other information. Even after
approval, marketed products are subject to continuing FDA review, and they can
be withdrawn from the market, or new limitations placed on their labeling,
marketing, distribution, manufacture, or use, if new side effects are discovered
or if the products are shown to be less effective than previously believed. In
addition, the Company would be required to comply with Federal and state
anti-kickback and other health care fraud and abuse laws, and similar foreign
laws, that pertain to the marketing of pharmaceuticals. Failure to comply with
regulatory requirements and other factors could subject Anthra to regulatory or
judicial enforcement actions, including, but not limited to, product recalls or
seizures, injunctions, withdrawals of product from the market, civil penalties,
criminal prosecution, refusals to approve new products and withdrawals of
existing approvals, as well as enhanced product liability exposure, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Among the requirements for FDA product approval is that manufacturers
conform to the FDA's cGMP standards, which also must be observed at all times
following approval. An NDA will not be approved until the manufacturing
facilities have been inspected and found to be in compliance with cGMP
standards, and approvals can be withdrawn and other actions taken to prevent
continued manufacturing and distribution if a facility is found to be out of
compliance with cGMP standards or with the manufacturing provisions of the NDA
after approval. Accordingly, manufacturers must continue to expend time, money
and effort in production, record keeping and quality control to ensure
compliance with cGMP standards. Failure to so comply subjects the manufacturer
to possible FDA action, such as the suspension of manufacturing or seizure of
the product. The FDA may also request a voluntary recall of a product. Foreign
regulators also impose restrictions on drug manufacturers.
Pursuant to the Orphan Drug Act, the FDA may designate a drug intended to
treat a "rare disease or condition" as an Orphan Drug. A "rare disease or
condition" is one which affects less than 200,000 people in the United States,
or which affects more than 200,000 people but for which the cost of development
and distribution of a drug for treatment of such disease or condition will not
be recovered from sales of the drug in the United States. Upon approval of an
NDA for an Orphan Drug, such drug may be eligible for exclusive marketing rights
in the United States for designated and approved indications for seven years
from the date of approval by the FDA for such indication. Orphan Drugs may also
be eligible for Federal income tax credits for certain clinical trial expenses.
Orphan Drug status for Valstar for the treatment of carcinoma in-situ of
the bladder and for Bonefos(R) for the treatment of osteolytic bone metastases
has been granted. The Company may receive marketing exclusivity for an Orphan
Drug only if it is the sponsor of the first NDA approved for the drug for an
indication for which the drug was designated as an Orphan Drug prior to the
approval of such NDA. Therefore, unlike patent protection, Orphan Drug status
does not prevent other manufacturers from attempting to develop the drug for the
designated indication or from obtaining NDA approval prior to approval of the
Company's NDA. If another sponsor's NDA for the same drug and the same
indication is approved first, that sponsor is entitled to exclusive marketing
rights if that sponsor has received Orphan Drug designation for the drug. In
that case, the FDA would be prohibited from approving the Company's application
to market the product for the
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<PAGE> 51
relevant indication for a period of seven years. If another sponsor's NDA for
the same drug and the same indication is approved first, but that drug has not
been designated as an Orphan Drug, the FDA would still be permitted to approve
the Company's NDA without the exclusivity provided by Orphan Drug status. Even
if the Company did receive Orphan Drug exclusivity, that does not prohibit the
FDA from approving the same drug manufactured by another sponsor if it is
labeled for a different indication (even if it can be used for the same
indication) or if it is clinically superior to the Orphan Drug in any respect.
Moreover, amendment of the Orphan Drug Act by the United States Congress and
reinterpretation by the FDA are frequently discussed. Therefore, there can be no
assurance as to the precise scope of protection that may be afforded by Orphan
Drug status in the future, or that the current level of exclusivity will remain
in effect. Failure to receive such exclusivity could have an adverse effect on
the Company's business, financial condition and results of operations.
In most cases, pharmaceutical companies rely on patents to provide market
exclusivity for the periods covered by the patents. See "Business-Products and
Markets." In the United States, the Waxman-Hatch Act permits an extension of
patents in certain cases to compensate for patent time expended during clinical
development and FDA review of a drug. In addition, the Waxman-Hatch Act
establishes a period of market exclusivity, independent of any patents, during
which the FDA may not accept or approve abbreviated applications for generic
versions of the drug from other sponsors, although the FDA may accept and
approve subsequent full NDAs for the drug. This applicable period of market
exclusivity for a drug containing an active ingredient not previously approved
is five years. There is no assurance that all or any of the Company's products,
if approved, will receive market exclusivity under the Waxman-Hatch Act. Failure
to receive such exclusivity could have an adverse effect on the Company's
business, financial condition and results of operations.
Health care reform legislation, if enacted, could result in significant
changes in the financing and regulation of the health care business. In
addition, legislation affecting coverage and reimbursement under Medicare,
Medicaid and other government medical assistance programs has been enacted from
time to time. The Company is unable to predict whether such legislation will be
enacted in the future or, if enacted, the effect of such legislation on the
future operation of the Company's business. Changes adversely affecting drug
pricing, drug costs reimbursement, and prescription benefits, among other
changes, could have a materially adverse effect on the Company's business,
financial condition and results of operations.
In 1993, legislation was adopted which established a very new and amended
system for the registration of medicinal products in the EU. One purpose of this
system is to provide an alternative to the essentially separate national
approval systems among EU members, a major obstacle to harmonization. One of the
most significant features of this new system is the establishment of EMEA. Under
this new system, an application for marketing authorization, broadly speaking,
may be submitted at either a centralized, a decentralized or a national level.
The centralized procedure is administered by the EMEA; this procedure is
mandatory for the approval of biotechnology products and available at the
applicant's option for other products. The centralized procedure provides for
the first time in the EU the ability to obtain marketing authorization that is
valid in all EU member states ("Member States"). The Company has chosen and has
been accepted for the centralized review procedure for its European regulatory
filings. However, there can be no assurance that this strategy will secure
regulatory approvals or the applications submitted by the Company. As of January
1995, a mutual recognition procedure is available at the request of the
applicant for all medicinal products that are not subject to the centralized
procedure, under the so-called "decentralized procedure." The decentralized
procedure became mandatory on January 1, 1998. The decentralized procedure
creates a new system for mutual recognition of national approvals and
establishes procedures for coordinated EU action on product suspensions and
withdrawals. Under this procedure, the holder of a national marketing
authorization for which mutual recognition is sought may submit an application
to one or more Member States, certifying that identical dossiers are being
submitted to all Member States for which recognition is sought. Within 90 days
of receiving the application, each Member State must decide whether to recognize
the approval. The procedure encourages Member States to work with applicants and
other regulatory authorities to resolve disputes concerning mutual recognition.
If such disputes cannot be resolved within the 90-day period, the application
will be subject to a binding arbitration procedure.
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PRODUCT LIABILITY AND INSURANCE
The Company's business involves the risk of product liability claims. The
Company has not experienced any product liability claims to date. Although the
Company maintains general liability insurance, including clinical trials
coverage with coverage limits of $1 million per occurrence, an annual general
aggregate maximum of $1 million, and an annual products aggregate maximum of $3
million, with advertising and personal injury coverage of $1 million, there can
be no assurance that liability claims will not exceed such insurance coverage
limits, which could have a material adverse effect on the Company's business,
financial condition and results of operations, or that such insurance will
continue to be available to the Company on commercially reasonable terms, if at
all.
EMPLOYEES
At May 1, 1998, the Company employed 33 persons, with the majority involved
in clinical research activities. There are 27 employees located at the Company's
Princeton, New Jersey offices, and six in the United Kingdom office.
None of the Company's employees is represented by a labor union, and the
Company considers its relations with its employees to be positive. The Company
has experienced no work stoppages.
Many consultants are used in support of the Company's research and
development efforts.
Competition for technical personnel in the Company's industry is intense.
To date, the Company has been successful in recruiting and retaining qualified
personnel, but there is no assurance that it will continue to be as successful
in the future. The Company's future success depends in part on its continued
ability to hire, assimilate and retain qualified personnel, including through
the issuance of its equity which would be dilutive to the Company's
shareholders.
PROPERTIES
In July 1997, the Company executed a sublease for the Company's principal
administrative and clinical offices of approximately 5,560 square feet located
in the Carnegie Center in Princeton, New Jersey. The monthly rent at the
Carnegie Center is $9,359, and the sublease expires on November 30, 1999. The
Company is currently preparing to relocate its clinical offices in Princeton,
New Jersey, and in the interim may lease some space in addition to its Carnegie
Center location on a temporary basis.
The Company also leases approximately 1,635 square feet of office space for
its Anthra UK clinical offices at The Malt House in Princes Risborough, England.
The quarterly rent at The Malt House is L5,535 ($9,188 using a conversion factor
of 1.66 dollars for 1 British pound), and the lease expires in 2001.
The Company believes that its facilities are adequate for its operations as
currently conducted and should be sufficient for the foreseeable future.
LEGAL PROCEEDINGS
As of the date of this Prospectus, there are no material legal proceedings
to which the Company is a party.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
current Directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Mervyn Israel 64 Chairman of the Board and Secretary
Michael C. Walker 49 President, Chief Executive Officer and Director
Chief Operating Officer, Executive Vice President and
Joseph V. Gulfo 34 Director
Pieter J. Schiller(1) 60 Director
Stephen M. Dow(2) 42 Director
Paul G. Gooding(1) 63 Director
William Engbers(2) 55 Director
Karen Krumeich 44 Chief Financial Officer, Vice President - Finance
Robert Lippert 41 Senior Vice President - Marketing
Richard Onyett 50 Senior Vice President - Corporate Development
Allen L. Thunberg 51 Vice President - Pre-Clinical Development
Denise Webber 38 Vice President - Medical Affairs
</TABLE>
- ---------------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
The business experience of each of the Directors and executive officers of
the Company is set forth below.
Mervyn Israel, Ph.D., Chairman of the Board and Secretary of Anthra since
1985, co-founded Anthra with Mr. Walker and is the inventor of Valstar and
numerous other anticancer drugs. Dr. Israel has spent over 40 years in the area
of cancer pharmacology, experimental therapeutics, and drug development.
Following the award of a Ph.D. degree in 1959 from the University of
Pennsylvania and postdoctoral appointments at the University of Michigan and
Harvard University, he was affiliated for many years with Dana-Farber, rising to
become Associate Chief for Drug Development in the Division of Pharmacology.
Since 1983, Dr. Israel has been associated with the University of Tennessee,
Memphis Health Science Center, where he holds joint appointments as Professor of
Pharmacology in the College of Medicine and Professor of Pharmaceutical Sciences
in the College of Pharmacy. Among other areas, Dr. Israel is an internationally
recognized expert on the chemistry and pharmacology of anthracycline anticancer
drugs.
Michael C. Walker has worked in the pharmaceutical industry for more than
20 years, starting in sales with Eli Lilly & Co. In the mid-1970's, Mr. Walker
joined Merck & Co., first managing two of Merck's primary products, then moving
into Corporate Development and Licensing. In the latter capacity, Mr. Walker was
instrumental in creating Merck's joint venture with Astra Pharmaceuticals. Mr.
Walker left Merck in 1983 to become Chief Executive Officer of Polydex
Pharmaceuticals in Toronto, Ontario, where he had the opportunity to apply his
own market expansion strategies to an existing small business. He also has
worked as a consultant to young pharmaceutical companies, specializing in
developing strategic solutions for the commercialization of both traditional and
biopharmaceutical products. Mr. Walker co-founded Anthra in 1985 and has been
President, Chief Executive Officer and a Director of Anthra since 1985. Mr.
Walker received a M.B.A. from Harvard University in 1973.
Joseph V. Gulfo, M.D. has spent the past nine years in clinical drug
development. As Assistant Medical Director at Oxford Research International from
January 1989 to November 1990, he had responsibility for clinical development
programs for both prescription and over-the-counter drugs. He directed the
successful NDA filing for Actinex (a topical antineoplastic), a successful
Orphan Drug filing, and two prescription to over-the-counter switches. He joined
Cytogen Corp. in 1990 as Director of Clinical Investigations, where his primary
responsibility was management and coordination of all phases of clinical
development of novel in vivo
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<PAGE> 54
diagnostic and immunotherapeutic products for cancer detection and treatment.
Dr. Gulfo was responsible for the development of ProstaScint(R), an approved in
vivo immunodiagnostic agent for patients with prostate cancer. In mid-1994, Dr.
Gulfo was appointed Vice President -- Clinical Trials at Anthra. In April 1997,
he was appointed Executive Vice President and Chief Operating Officer of Anthra
and in December 1997, he became a Director. Dr. Gulfo shares management
responsibility for corporate operations, business and market development,
direction of clinical programs and contract negotiation with Mr. Walker. Dr.
Gulfo's responsibility for clinical programs includes devising clinical and
regulatory strategies and study design, preparation of regulatory reports and
public presentations of data. Dr. Gulfo received his B.S. and M.B.A. from Seton
Hall University and M.D. from the University of Medicine & Dentistry -- New
Jersey.
Pieter J. Schiller has served as a Director of the Company since 1989. Mr.
Schiller has been a General Partner of Advanced Technology Ventures, a venture
capital firm located in Waltham, Massachusetts, since September 1986, where he
specializes in healthcare investing. Mr. Schiller served Allied Signal and its
predecessor companies from 1961 through 1986 in various capacities, including
Treasurer and Vice President, Planning and Development. From 1983 to 1986, he
served as Executive Vice President of Allied Health and Scientific Products
Company, a multinational manufacturer of biomedical and analytical instruments
and supplies. Mr. Schiller is also a Director of two public companies,
Collagenex Pharmaceuticals, Inc. and Novoste Corporation, and of several private
companies.
Stephen M. Dow has served as a Director of the Company since 1990. Mr. Dow
is a General Partner of Sevin Rosen Funds, a venture capital investment firm,
which he joined in 1983. Mr. Dow is also a Director of ArQule, Inc., Citrix
Systems, Inc., Corsair Communications, Inc., ViroPharma Incorporated, and
several privately-held companies.
Paul G. Gooding, M.B., B.S., a Director of the Company since 1993, works
closely with Anthra's Clinical Development and Regulatory Affairs group, as well
as with the Company's Commercial Development team. Dr. Gooding has more than 30
years experience working in four multinational pharmaceutical companies,
primarily as Director of Clinical Research. From 1988 to 1993, Dr. Gooding was
employed by Sankyo U.S.A. Corporation, a subsidiary of Sankyo Company, Ltd.
(Japan), where he was responsible for the establishment and staffing of the
Medical Department and the supervision of the Medical Affairs, Clinical Research
and Regulatory Affairs Departments. At Sankyo U.S.A. Corporation, Dr. Gooding
held the position of Vice President and Medical Director. Dr. Gooding retired
from Sankyo U.S.A. Corporation in 1993, and since then has served as a
consultant to various companies in the pharmaceutical and scientific arena. In
addition to his considerable experience in developing clinical leads into
approved drugs, he has directed product acquisitions programs and managed in-
and out-licensing arrangements.
William Engbers was elected a Director of Anthra in December 1997. Mr.
Engbers joined Allstate Insurance Company in 1989, where he is currently
Director of Venture Capital in Allstate's private equity group. Before that, he
was Chairman of the Board of Plant Genetics Inc. Mr. Engbers has been a venture
capitalist since 1981 and has served as a Director or Chairman of over two dozen
venture capital sponsored companies. He is currently a Director of LaJolla
Pharmaceuticals Company and DM Management, Inc. (both public companies), and
seven privately-held corporations.
Karen Krumeich, Chief Financial Officer and Vice President -- Finance,
joined Anthra in 1998, and is responsible for all accounting, finance and
treasury functions. Ms. Krumeich has worked in the healthcare industry for over
20 years specializing in finance and administration. Prior to joining Anthra,
she worked for Bristol-Myers Squibb from 1995 to 1998 as Director of Health
Systems Management in the Worldwide Franchise Management division, responsible
for international strategic business planning and managed care marketing. Ms.
Krumeich has an extensive background in the start-up and the development of
financial and cost control systems from her experience as Chief Financial
Officer of a pharmacy benefits management company, Pharmacy Direct Network, from
1994 to 1995, and as Vice President of Finance for the pharmacy division of
GranCare, a national long-term care and home healthcare company, from 1991 to
1994. Ms. Krumeich has a B.S. in Pharmacy from the University of Toledo, with
post graduate studies in accounting and finance.
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<PAGE> 55
Robert Lippert joined Anthra as Senior Vice President -- Marketing in 1998,
after 23 years of diversified pharmaceutical/healthcare experience. Mr. Lippert
will be responsible for all commercial operations at Anthra including the launch
of Valstar. He was previously employed by Medeva Pharmaceuticals from 1997 to
1998 as Vice President Institutional Business, and from 1993 to 1997 as Senior
Vice President Marketing and Business Development at International Medication
Systems, Limited, a division of Medeva PLC. Prior to Medeva, Mr. Lippert was
employed by Ethex/KV Pharmaceuticals from 1991 to 1993, and by Ohmeda
Pharmaceuticals (Baxter) from 1984 to 1991, where he held numerous senior
positions in Business Development, Marketing, and Finance. Mr. Lippert received
his B.A. in Animal Biology and History from the University of Wisconsin. He also
holds a B.B.A. in Business Administration/Finance from the University of
Wisconsin, Milwaukee, and an M.B.A. in Marketing from Marquette University.
Richard Onyett has worked in the pharmaceutical industry for over 25 years
as a marketing and business development specialist. From 1970 to 1981, he worked
in overseas country management and strategic marketing at ICI Pharmaceuticals,
where he managed several major product ranges. He then worked for SmithKline and
French Laboratories from 1981 to 1990, initially as head of new products and
subsequently in charge of business development. In 1990, he was a founder of The
Kite Organization, a healthcare consultancy. Since 1992, his consultancy firm,
Camas Partners, has provided commercial development services to a number of
medical research institutions and biopharmaceutical companies in the United
States and Europe. All existing contractual obligations of Camas Partners have
now been completed. In 1995, Mr. Onyett founded and became a director of Cambrio
Group plc, and he is a director of Rio Pharmaceuticals Limited. In September
1997, Mr. Onyett joined Anthra as Senior Vice President -- Corporate
Development. Mr. Onyett has a B.Sc. from the University of Nottingham and an
M.Sc. in Virology from the University of Birmingham.
Allen L. Thunberg, Ph.D., Vice President -- Pre-Clinical Development, is
responsible for all aspects of pre-clinical research and development and
manufacturing at Anthra. He joined the Life Sciences Group at Eastman Kodak in
1977, where he worked initially in clinical diagnostics and later in
pharmaceuticals. In 1987 he transferred to Eastman Pharmaceuticals, a newly
formed Division of Eastman Kodak, where he established discovery programs in
immunology and targeted therapy, and negotiated and managed collaborative
research and development programs with several biotechnology companies. In 1988,
following Kodak's acquisition of Sterling Drug, he established and managed a
research and development department with broad-based discovery and development
responsibilities, and continued to serve as technical/business liaison for six
collaborative biotechnology programs. Following the sale of Sterling Drug to
Sanofi in 1994, Dr. Thunberg worked as biopharmaceutical consultant, then joined
Anthra in 1996. Dr. Thunberg received his B.S. from North Dakota State
University and his Ph.D. from The Rockefeller University, and completed
post-doctoral studies at The Johns Hopkins University.
Denise Webber, Vice President -- Medical Affairs, is responsible for the
clinical and technical support of Marketing and Sales for the commercialization
of Anthra's therapeutic products. Ms. Webber was appointed to her current
position in 1998. She was previously the Director of Clinical and Data
Operations of Anthra, responsible for Anthra's clinical studies, from 1994 to
1998. Ms. Webber has seven years experience in the design and management of
clinical trials of oncology products. Prior to joining Anthra in 1994, she was
Manager for Medical Affairs at Cytogen Corp. from 1992 to 1994. Ms. Webber, a
Certified Nuclear Medicine Technologist, has a B.S. from Loras College.
KEY EMPLOYEES
The Company has identified the following additional individuals as key
employees.
Philip Wood, FFPM, Medical Director -- Europe, is responsible for the drug
development program of the Company in Europe. Dr. Wood obtained his medical
degree in Britain and worked in several British hospitals, gaining broad
experience in general medicine and developing his interests in pediatrics and
obstetrics, before entering general medical practice in the south of England. In
1975, he entered the pharmaceutical industry and since then has undertaken posts
of increasing responsibility, including Medical Director for Bristol-Myers
Squibb UK and Medical Director for Wellcome UK. Dr. Wood is a Member of the
Royal College of General
54
<PAGE> 56
Practitioners and a Fellow of the Faculty of Pharmaceutical Medicine. He has
experience in all phases of drug development in many different therapeutic
fields. He joined Anthra in 1996. Dr. Wood has an M.B., B. Ch. from the
University of Wales, and has received several medical and pharmaceutical
graduate degrees.
David L. Hauser, Ph.D., Director -- Clinical and Data Operations, oversees
the day-to-day operations of Anthra's Clinical and Data Management groups for
the Valstar program. He is responsible for the design and analysis of clinical
studies, preparation of necessary FDA documentation, overall coordination of all
Valstar studies in the United States, and the supervision of the Company's data
management and database audit systems (including the DataFax system). Dr. Hauser
has six years of experience in the pharmaceutical industry. He has held Manager
or Director level positions at Ohmeda Pharmaceuticals (1994 to 1996), Takeda
(1996 to 1997), and Regions Limited (a Contract Research Organization) (1997 to
1998). His therapeutic experience includes oncology, critical care, pulmonology,
cardiovascular disease, and metabolic disorders (including diabetes). He joined
Anthra in 1998. Dr. Hauser received his M.A. from the University of Pennsylvania
and his Ph.D. from the University of Wales (Cardiff).
RESEARCH SUPPORT
Because Anthra focuses on clinical and commercial development of drug
candidates discovered and tested by third parties, the Company does not have to
invest heavily in the infrastructure required to support pre-clinical research
and development and manufacturing. Thus, the Company's non-clinical research and
development activities concentrate on supporting regulatory submissions with
data on toxicology, manufacturing, formulation, and stability testing. These
studies are contracted to well established specialist research organizations and
managed by Dr. Thunberg.
Anthra has a long-term relationship with the University of Tennessee
whereby Anthra provides a monthly contribution of $10,100 to support research in
the laboratory of Dr. Mervyn Israel. This support is in the form of an
unrestricted gift from the Company. See "Certain Relationships and Related
Transactions."
SCIENTIFIC ADVISORY BOARD
Anthra's Scientific Advisory Board is comprised of internationally
recognized clinical researchers in urology and oncology. This Board advises
Anthra's management on strategic issues related to the Company's clinical
development programs.
Robert R. Bahnson, M.D. is Louis Levy Professor of Cancer and Director,
Division of Urology at Ohio State University. Prior to moving to Ohio State in
1996, he spent more than 15 years in clinical research in urology and urologic
oncology at the University of Pittsburgh, Washington University (St. Louis,
Missouri) and Northwestern University. He is a member of the Urologic Advisory
Council of the American College of Surgeons and has previously served as a
member of the Genitourinary Steering Committee of ECOG, the Editorial Committee
of the Journal of Urology, and the Research Committee of the American Urological
Association. He was honored with a listing in the 1996-1997 edition of Best
Doctors in America: Northeast Region. Dr. Bahnson has a B.A. from Carleton
College, a B.S. from the University of South Dakota, and an M.D. from Tufts
University.
H. Barton Grossman, M.D. holds the W.A. "Tex" and Deborah Moncrief Chair of
Urology at the University of Texas M.D. Anderson Cancer Center. He previously
had academic and clinical appointments at the University of Michigan Medical
Center, Ann Arbor, and affiliated institutions. He is Chairman of the NIH
Bladder Center Marker Network, the Organ Site Chairman for Local Bladder Cancer
of SWOG, and a member of the American Joint Committee on Cancer's Task Force on
Genitourinary Cancers, and has devoted more than 20 years to research and
treatment of genitourinary cancers. Dr. Grossman has a B.A. from LaSalle College
and an M.D. from Temple University.
Brian Leyland-Jones, M.D. is Professor of Oncology & Medicine and occupies
the Minda de Gunzburg Chair of Oncology at McGill University. Prior to moving to
McGill University in 1990, he was, among other things, Chief of the
Developmental Chemotherapy Section in the Investigational Drug Branch at the
National Cancer Institute and held staff appointments at Cornell University
Medical College, Memorial Sloan-
55
<PAGE> 57
Kettering Cancer Center and the New York Hospital in Pharmacology, Clinical
Pharmacology, Internal Medicine and Oncology. Dr. Leyland-Jones holds degrees
from the University of London and St. Mary's Hospital Medical School of the
University of London.
Peter O'Dwyer, M.D. is Professor of Medicine and Pharmacology at Thomas
Jefferson University. Prior to moving to Thomas Jefferson University in 1996, he
was Director, Developmental Chemotherapy at Fox Chase Cancer Center and
Professor of Medicine, Temple University, and a Senior Investigator in the
Investigational Drug Branch of the Cancer Therapy Evaluation Program at the
National Cancer Institute. He is a member of the ECOG and has more than 17 years
experience in basic and clinical research on drugs for the treatment and
prevention of cancer. Dr. O'Dwyer holds degrees from Trinity College, University
of Dublin, Ireland.
SUMMARY OF EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and long-term
compensation for services rendered in all capacities to the Company during the
year ended June 30, 1997 for: (i) the Chief Executive Officer of the Company and
(ii) two other executive officers of the Company (collectively, the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
NAME AND -------------------- UNDERLYING
PRINCIPAL POSITION SALARY(1) BONUSES OPTIONS
------------------ --------- ------- ------------
<S> <C> <C> <C>
Michael C. Walker $192,995 $0 0
Chief Executive Officer and President
Joseph V. Gulfo $184,497 $0 25,000
Executive Vice President and Chief Operating Officer
Allen L. Thunberg $137,161 $0 5,000
Vice President -- Pre-Clinical Development
</TABLE>
- ---------------
(1) The cost of certain perquisites and other personal benefits are not included
because they did not exceed the lesser of either $50,000 or 10% of the total
of the annual salary and bonus reported for the Named Executive Officer.
OPTION GRANTS IN FISCAL YEAR ENDED JUNE 30, 1997
The following table sets forth information regarding stock options granted
pursuant to Anthra's 1990 Stock Plan, as amended (the "1990 Plan"), during the
fiscal year ended June 30, 1997 to each of the Named Executive Officers. The
Company has never granted any stock appreciation rights.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL OPTIONS ANNUAL RATES OF
NUMBER OF GRANTED TO STOCK PRICE
SECURITIES EMPLOYEES IN EXERCISE OR MARKET PRICE APPRECIATION FOR
UNDERLYING FISCAL YEAR BASE PER SHARE ON OPTION TERM(3)
OPTIONS ENDED JUNE 30, PRICE PER THE DATE OF EXPIRATION ---------------------
NAME GRANTED(1) 1997(%)(2) SHARE GRANT DATE 5% 10%
---- ---------- -------------- ----------- ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael C. Walker.... -- -- $ -- $ -- -- $ -- $ --
Joseph V. Gulfo...... 25,000 35.46% .70 .70 2/12/07 11,006 27,890
Allen L. Thunberg.... 5,000 7.09% .70 .70 2/12/07 2,201 5,578
</TABLE>
- ---------------
(1) Such options were granted pursuant to and in accordance with the 1990 Plan.
See "1990 Stock Plan."
(2) Based on an aggregate of 70,500 options granted to employees in the year
ended June 30, 1997, including options granted to Named Executive Officers.
(3) Based on a grant date fair market value of $0.70 per share, gains are
reported net of the option exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation.
Actual gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock and overall stock market conditions, as well
as the option holder's continued employment with the Company throughout the
vesting period. The amounts reflected in this table will not necessarily be
achieved.
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<PAGE> 58
JUNE 30, 1997 -- FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning the value of
unexercised in-the-money options held by the Named Executive Officers as of June
30, 1997. No Named Executive Officer exercised any options in the fiscal year
ended June 30, 1997.
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
-----------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael C. Walker............................ 163,000 50,000 $89,650 $ --
Joseph V. Gulfo.............................. 12,000 113,000 4,320 11,880
Allen L. Thunberg............................ 4,000 31,000 -- --
</TABLE>
- ---------------
(1) Assumes a market price for the Common Stock at June 30, 1997, of $.70 per
share.
EMPLOYMENT AGREEMENTS
In December 1990, the Company entered into an employment agreement with
Michael C. Walker pursuant to which Mr. Walker serves as the Company's President
and Chief Executive Officer. Such employment agreement, as currently amended,
provides Mr. Walker with a base salary of $20,833 per month, provided for
certain grants of options to purchase shares of the Company's Common Stock to
Mr. Walker in 1990, and required that Mr. Walker execute and deliver a separate
confidentiality and noncompetition agreement. Mr. Walker's employment agreement
may be terminated by either party with 60 days prior written notice. The Company
does not have written employment agreements with any of its employees other than
Mr. Walker.
The Company has an agreement with each of Mr. Walker, Dr. Joseph V. Gulfo,
its Chief Operating Officer and Executive Vice President, and Allen L. Thunberg,
its Vice President -- Pre-Clinical Development, pursuant to which, in the event
of a sale of 80% or more of the outstanding capital stock of the Company in a
single or integrated transaction or the sale of the Company through a merger or
consolidation where the Company is not the surviving corporation, in each case
where the Company's stockholders prior to the transaction own less than 50% of
the outstanding capital stock of the Company after the transaction, Messrs.
Walker, Gulfo and Thunberg will each receive a payment equal to 12 months of his
base salary as of the date of the transaction so long as such individual agrees
to continue working for the new successor entity in a specified capacity for
three months following the consummation of the transaction, provided, however,
that such transaction must occur within two years of the date of such agreement
and such individual must be employed by the Company.
The Company has a consulting agreement with Dr. Mervyn Israel, the
Company's Chairman of the Board and Secretary, dated as of December 5, 1990,
pursuant to which Dr. Israel provides scientific consulting services to the
Company in consideration of $3,750 per month. Dr. Israel's consulting agreement
does not contain a specified term and may be terminated by either party with 60
days prior written notice.
Anthra does routinely enter into written agreements with consultants
providing clinical, medical writing, regulatory consulting or business
development services, none of which is material to the Company's business. The
Company has executed non-disclosure agreements with each of its current
employees.
1990 STOCK PLAN
By action of the Board of Directors of the Company on December 3, 1990, the
Company adopted the 1990 Plan, which was approved by vote of the stockholders at
the annual meeting of stockholders held on December 3, 1990. The 1990 Plan
authorizes the Company to grant to eligible employees, Directors and consultants
of the Company, as determined by the Board of Directors, options to purchase
shares of the
57
<PAGE> 59
Company's Common Stock. The 1990 Plan also permits the Company to grant to such
individuals certain awards of Common Stock, and certain rights to make direct
purchases of Common Stock.
As of March 31, 1998, the 1990 Plan authorized the Company to issue options
to purchase up to 1,700,000 shares of the Company's Common Stock, and the
Company had outstanding options for a total of 1,088,987 shares of Common Stock,
of which none have been exercised. The 1990 Plan provides for options that
qualify as incentive stock options ("ISOs") under Section 422 of the Internal
Revenue Code of 1986, as amended, as well as non-statutory (or non-qualified)
stock options. The exercise price for any non-qualified options granted pursuant
to the 1990 Plan may not be less than the lesser of the book value per share of
the Common Stock as of the end of the fiscal year immediately preceding the date
of the grant, or 50% of the fair market value of the Common Stock on the date of
the grant. The exercise price for any ISOs granted pursuant to the 1990 Plan may
not be less than 100% of the fair market value of the Common Stock on the date
of grant, and, in the case of an ISO stock option to be granted to an employee
owning more than 10% of all voting power of the Company or any affiliated
company, the exercise price may not be less than 110% of the fair market value
on the date of grant. The 1990 Plan provides that, in the event of a change in
control of the Company pursuant to which either all or substantially all of the
Company's assets are sold, 80% or more of the Company's outstanding capital
stock is sold by tender offer, exchange offer or otherwise, the Company is sold
through a consolidation or merger where the Company is not the surviving
corporation, or the acquisition is a result of a reverse triangular merger and
the previous stockholders own an aggregate of less than 50% of the surviving
corporation after such transaction, then optionees are entitled after any such
event to exercise all outstanding but unvested options, as well as all
outstanding vested options issued to them. In the event of a recapitalization or
reorganization of the Company (other than as described above), pursuant to which
securities of the Company or of another corporation are issued with respect to
the Company's outstanding Common Stock, an optionee, upon exercising an option,
shall be entitled to receive for the purchase price paid, upon such exercise,
the securities he would have received if he had exercised his option prior to
such recapitalization or reorganization.
Subject to certain restrictions and limitations, options granted under the
1990 Plan typically have a term of ten years from the date of grant. ISOs
exercisable upon the date of death or disability of any ISO optionee remain
exercisable until the earlier of the specified expiration date or the date one
year from the date of the optionee's death or disability. If an ISO optionee
ceases to be employed by the Company for any reason other than for death or
disability, no further installments of ISOs shall vest, and ISOs which are
exercisable shall terminate, subject to certain restrictions and limitations,
one year from the date of termination, but in no event later than on their
specified expiration dates. Options granted under the 1990 Plan may not be
transferred or assigned, other than by will or by the laws of descent and
distribution.
The 1990 Plan shall expire on December 2, 2000, except as to options
outstanding as of such date. The Board of Directors of the Company may terminate
or amend the 1990 Plan at any time; provided, however, that certain amendments
shall require stockholder approval, and in no event may the Board of Directors
impair the rights of a grantee under the 1990 Plan with respect to any of rights
previously granted under the 1990 Plan.
401(k) RETIREMENT SAVINGS PLAN
The Company anticipates that by June 1, 1998, it will have put in place a
duly adopted 401(k) retirement savings plan, pursuant to which eligible
employees may direct a percentage of their compensation, as restricted by
statutory limitations, to be withheld by the Company and contributed to their
account. It is anticipated that all 401(k) plan contributions will be placed in
a trust fund to be invested by the 401(k) plan's trustee, except that the 401(k)
plan may permit participants to direct the investment of their account balances
among mutual or investment funds which may be available under the plan. It is
anticipated that the Company may, at management's discretion, make matching
contributions under the 401(k) plan. Amounts contributed to participant accounts
under the 401(k) plan and any earnings or interest accrued on the participant
accounts are generally not subject to Federal income tax until distributed to
the participant and may not be withdrawn until death, retirement, or termination
of employment.
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<PAGE> 60
COMMITTEES OF THE BOARD OF DIRECTORS
In 1996, the Board of Directors designated a Compensation Committee, which
consists of two of the nonemployee Directors, Paul G. Gooding and Pieter J.
Schiller. The Compensation Committee reviews executive salaries, administers any
bonuses and incentive compensation, and makes recommendations to the Board of
Directors with respect to stock options of the Company issuable to management
employees and Directors of the Company. In addition, the Compensation Committee
consults with management of the Company regarding compensation policies and
practices of the Company. In April 1998, the Board of Directors designated an
Audit Committee, which consists of two of the nonemployee Directors, Stephen M.
Dow and William Engbers. The Audit Committee reviews the professional services
provided by the Company's independent auditors, the annual financial statements
of the Company and the Company's internal financial controls. There have been no
meetings of the Audit Committee.
DIRECTOR COMPENSATION
Fees. None of the Company's Directors receive cash compensation for
attendance at meetings of the Board of Directors or at meetings of committees of
the Board of Directors of which they are members. All Directors receive
reimbursement for reasonable travel expenses incurred in connection with
attendance at each Board of Directors and committee meeting.
Stock Options. To attract and retain independent Directors for the Company
and to compensate Directors who are included as management of the Company, the
Company has issued, and intends to continue to issue, to its Directors, options
to purchase the Company's Common Stock pursuant to the 1990 Plan, in amounts
determined at the discretion of the Board of Directors and exercisable at a
price equal to the fair market value of the Common Stock on the date of grant.
These options typically vest over a three year period. Independent Directors are
typically granted stock options upon their initial appointment, and independent
Directors and stockholder representative Directors may be granted stock options
during their term of service as an incentive for continued service. Employee
Directors are not granted stock options for their services as Directors.
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<PAGE> 61
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 15, 1998, and as adjusted to
reflect the sale by the Company of the shares of Common Stock offered hereby
(assuming no exercise of the Underwriters' over-allotment option), by: (i) each
Director of the Company; (ii) each Named Executive Officer of the Company; (iii)
all Directors and executive officers of the Company as a group; and (iv) each
beneficial owner of more than 5% of the outstanding Common Stock. To the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common Stock, except to the
extent set forth in the footnotes to the table below or that authority is shared
by their respective spouses under applicable law.
<TABLE>
<CAPTION>
PERCENTAGE OWNED(2)
-------------------
SHARES OF COMMON STOCK AS OF
NAME, TITLE AND ADDRESS OF BENEFICIALLY OWNED AS OF MAY 15, AFTER
BENEFICIAL OWNER(1) MAY 15, 1998(2) 1998 OFFERING
-------------------------- ------------------------ ------- --------
<S> <C> <C> <C>
Mervyn Israel(3)................................... 493,834 9.83% 6.65%
Chairman of the Board and Secretary
c/o University of Tennessee
Department of Pharmacology
College of Medicine
874 Union Avenue,
Memphis, TN 38163
Michael C. Walker(4)............................... 550,500 10.97% 7.42%
President, Chief Executive Officer and Director
Joseph V. Gulfo(5)................................. 38,000 0.78% 0.52%
Chief Operating Officer, Executive Vice President
and Director
Pieter J. Schiller(6).............................. 3,334 0.07% 0.05%
Director
c/o Advanced Technology Ventures
281 Winter Street, Suite 350
Waltham, MA 02154
Stephen M. Dow(7).................................. 3,334 0.07% 0.05%
Director
c/o Sevin Rosen Fund III, L.P.
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, TX 75240
Paul G. Gooding(8)................................. 19,334 0.40% 0.27%
Director
c/o Habitat
Hope Town, Abaco, Bahamas
William Engbers(9)................................. 3,334 0.07% 0.05%
Director
c/o Allstate Insurance Company
3075 Sanders Road, Suite G5D
Northbrook, IL 60062-7127
Allen L. Thunberg(10).............................. 14,000 0.29% 0.19%
Vice President -- Pre-Clinical Development
Allstate Insurance Company(11)..................... 1,140,392 23.49% 15.72%
3075 Sanders Road
Suite G5D
Northbrook, IL 60062-7127
Aperture Associates, L.P........................... 420,588 8.66% 5.80%
c/o Horsley Bridge Partners, Inc.
505 Montgomery Street, 21st Floor
San Francisco, CA 94111
Sevin Rosen Fund III, L.P.......................... 919,803 18.94% 12.68%
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, TX 75240
</TABLE>
60
<PAGE> 62
<TABLE>
<CAPTION>
PERCENTAGE OWNED(2)
-------------------
SHARES OF COMMON STOCK AS OF
NAME, TITLE AND ADDRESS OF BENEFICIALLY OWNED AS OF MAY 15, AFTER
BENEFICIAL OWNER(1) MAY 15, 1998(2) 1998 OFFERING
-------------------------- ------------------------ ------- --------
<S> <C> <C> <C>
Advanced Technology Ventures III, L.P.............. 744,805 15.34% 10.27%
281 Winter Street, Suite 350
Waltham, MA 02154
Schering AG, Germany(12)........................... 471,276 9.71% 6.50%
13342 Berlin
Germany
Nycomed............................................ 300,000 6.18% 4.13%
Nycomed Pharma AS
P.O. Box 4220
Torshov, 0401 Oslo
Norway
All Directors and executive officers............... 1,125,670 21.38% 14.68%
as a group (8 persons)(13)
</TABLE>
- ---------------
(1) Unless otherwise noted, the address of each of the persons listed is 103
Carnegie Center, Suite 102, Princeton, New Jersey 08540.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date of this Prospectus through the
exercise of any option, warrant or right. Shares of Common Stock subject to
options, warrants or rights which are currently exercisable or exercisable
within 60 days are deemed outstanding for computing the ownership
percentage of the person holding such options, warrants or rights, but are
not deemed outstanding for computing the ownership percentage of any other
person. The amounts and percentages are based upon 4,855,183 shares of
Common Stock outstanding as of May 15, 1998, and 7,255,183 shares of Common
Stock outstanding as of the close of the Offering, respectively. The
calculation of the number of shares of Common Stock assumes the conversion
of the outstanding Preferred Stock upon consummation of the Offering and
the shares of Common Stock receivable upon such conversion are included in
such number.
(3) Includes 166,334 shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering.
(4) Includes 163,000 shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering, and excludes (i) 50,000 shares
of Common Stock subject to options, which vest on the achievement of a
certain milestone, issued on June 11, 1996, and (ii) 50,000 shares of
Common Stock subject to options, which vest over a five year period, issued
on October 16, 1997.
(5) Includes 38,000 shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering, and excludes (i) 12,000 shares
of Common Stock subject to options, which vest over the next two years,
issued on February 10, 1995, (ii) 55,000 shares of Common Stock subject to
options, which vest in part on the achievement of a certain milestone and
in part, thereafter, over a two year period, issued on June 2, 1996, (iii)
20,000 shares of Common Stock subject to options, which vest over the next
four years, issued on February 21, 1997, (iv) 75,000 shares of Common Stock
subject to options, which vest over a five year period, issued on October
16, 1997, and (v) 75,000 shares of Common Stock subject to options, which
vest on the achievement of certain milestones or, in part, if such
milestones are not achieved, over a five year period commencing on the 49th
month anniversary of July 1, 1998 issued on May 15, 1998. With respect to
the foregoing clauses (i) and (iii), a total of 30,000 were issued on
February 10, 1995, 18,000 of which have vested over the past three years,
and a total of 25,000 were issued on February 21, 1997, 5,000 of which have
vested over the past year.
(6) Includes 3,334 shares of Common Stock subject to options exercisable within
60 days of the date of the Offering. Excludes 744,805 shares of Common
Stock owned by Advanced Technology Ventures III, L.P., a company for which
Mr. Schiller serves as a general partner. Mr. Schiller disclaims beneficial
ownership of any shares of Common Stock owned by Advanced Technology
Ventures III, L.P.
(7) Includes 3,334 shares of Common Stock subject to options exercisable within
60 days of the date of the Offering. Excludes 919,803 shares of Common
Stock owned by Sevin Rosen Fund III, L.P., a company for which Mr. Dow
serves as a general partner. Mr. Dow disclaims beneficial ownership of any
shares of Common Stock owned by Sevin Rosen Fund III, L.P.
(8) Includes 19,334 shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering.
(9) Includes 3,334 shares of Common Stock subject to options exercisable within
60 days of the date of the Offering. Excludes 1,140,392 shares of Common
Stock owned by Allstate Insurance Company and Allstate Life Insurance
Company, companies for which Mr. Engbers serves as a venture capital
manager. Mr. Engbers disclaims beneficial ownership of any shares owned by
Allstate Insurance Company and Allstate Life Insurance Company.
(10) Includes 14,000 shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering.
(11) Includes 456,157 shares of Common Stock owned by Allstate Life Insurance
Company, a wholly-owned subsidiary of Allstate Insurance Company.
(12) Includes 271,276 shares of Common Stock owned by Schering Berlin Venture
Corporation, an affiliate of Schering AG, Germany.
(13) Includes 420,670 shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering.
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<PAGE> 63
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company had an agreement with M.C. Walker & Associates, Inc., a New
Jersey corporation ("MCW") that is owned by Michael C. Walker, the Company's
President, Chief Executive Officer and Director, to provide certain
administrative services and maintain an office for the benefit of the Company
for a monthly fee of $4,166. The Company paid to MCW pursuant to this
arrangement a total of $81,667 (including amounts related to prior years) during
the 12 months ended June 30, 1997, and a total of $65,062 for the nine months
ended March 31, 1998, in each case in consideration for amounts owed for such
services prior to December 31, 1996. At March 31, 1998, no amounts remained
payable by the Company to MCW. There was no written agreement between MCW and
the Company in effect during 1997 and the arrangement between MCW and the
Company no longer exists. It is anticipated that there will be no such future
arrangement between the Company and MCW.
The Company has a consulting agreement with Dr. Mervyn Israel, the
Company's Chairman of the Board and Secretary, pursuant to which the Company
pays Dr. Israel $3,750 per month for scientific consulting services. See
"Management -- Employment Agreements." During the 12 months ended June 30, 1997,
the Company paid a total of $45,000 to Dr. Israel pursuant to this agreement,
which is expected to continue to be effective in the immediate future.
The Company provides an unrestricted gift of $10,100 for research support
on a monthly basis to the University of Tennessee, the entity at which Dr.
Israel, the Company's Chairman of the Board, Secretary and Director, is
employed. During the 12 months ended June 30, 1997, the Company paid a total of
$121,200 to the University of Tennessee, and thereafter has continued, and
anticipates continuing in the future, making such unrestricted monthly gifts for
research support.
The Company paid in its year ended June 30, 1997, the sum of $25,000 to
Starlight, a consulting firm, in respect of organizational and administrative
services regarding exhibits of the Company's products. Starlight is owned by Ms.
Canice Lindsay, the wife of Michael C. Walker, the President, Chief Executive
Officer and Director of the Company.
Any transactions between the Company and its affiliated entities, executive
officers, Directors, or significant stockholders require the approval of a
majority of the independent Directors of the Company and must be on terms that
must be no less favorable to the Company than the Company could obtain from non-
affiliated parties.
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<PAGE> 64
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not purport
to be complete and is subject in all respects to applicable Delaware law and to
the provisions of the Company's Amended Certificate of Incorporation, and
Bylaws, copies of which have been filed as exhibits to the Registration
Statement, as amended, of which this Prospectus is a part.
The authorized capital stock of the Company consists of (i) 15,000,000
shares of Common Stock; (ii) 3,789,683 shares of Preferred Stock; and (iii)
1,000,000 shares of preferred stock, $.01 par value, all of which are without
designation. Immediately prior to the completion of the Offering, 4,855,183
shares of Common Stock will be issued and outstanding (assuming no exercise of
outstanding options and including 3,789,683 shares issuable upon the conversion
of 3,789,683 outstanding shares of Preferred Stock), and no shares of Preferred
Stock will be issued and outstanding. Immediately following the completion of
the Offering, the Company plans to amend and restate the Amended Certificate of
Incorporation to (i) cancel and retire all currently authorized shares of
Preferred Stock, and (ii) integrate the Company's Certificate of Incorporation
and the amendments thereto into one document. The Company plans to solicit
shareholder approval for such action prior to the completion of the Offering.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters on which stockholders are entitled to vote. Holders of
Common Stock do not have cumulative voting rights and, therefore, holders of a
majority of the shares of Common Stock voting for the election of Directors can
elect all of the Directors. In such event, the holders of the remaining shares
of Common Stock will not be able to elect any Directors.
Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. The Company has not paid any cash dividends since inception
and does not anticipate paying cash dividends in the foreseeable future. In the
event of liquidation, dissolution, or winding up of the Company, the holders of
Common Stock are entitled to share ratably in any corporate assets remaining
after payment of all debts, subject to any preferential rights of any
outstanding preferred stock. See "Dividend Policy."
Holders of Common Stock have no preemptive, conversion, or redemption
rights and are not subject to further calls or assessments by the Company. All
of the outstanding shares of Common Stock are, and the shares offered by the
Company hereby will be, if issued, validly issued, fully paid, and
nonassessable.
PREFERRED STOCK
The Amended Certificate of Incorporation authorizes 1,000,000 shares of an
undesignated preferred stock which the Board of Directors of the Company has the
authority, without further action by the Company's stockholders, to issue from
time to time in one or more series and to fix the number of shares,
designations, voting powers, preferences, optional and other special rights, and
the restrictions or qualifications thereof. The rights, preferences, privileges,
and restrictions or qualifications, of different series of preferred stock may
differ with respect to dividend rates, amounts payable on liquidation, voting
rights, conversion rights, redemption provisions, sinking fund provisions, and
other matters. The issuance of preferred stock could: (i) decrease the amount of
earnings and assets available for distribution to holders of Common Stock; (ii)
adversely affect the rights and powers, including voting rights, of holders of
Common Stock and (iii) have the effect of delaying, deferring, or preventing a
change in control of the Company. The Company has no present plans to issue any
additional shares of preferred stock. The information set forth in this
Prospectus assumes that upon the completion of the Offering, 1,000,000 shares of
the Company's Series A Convertible Preferred Stock, 680,000 shares of Series B
Convertible Preferred Stock, 1,470,588 shares of Series C Convertible Preferred
Stock and 639,095 shares of Series D Convertible Preferred Stock will be
converted into 3,789,683 shares of Common Stock, and all such outstanding shares
of Preferred Stock will be cancelled and retired. The Series A, B and C
Convertible Preferred Stock automatically convert to Common Stock upon the
consummation of a firm commitment underwritten offering of Common Stock in which
the aggregate price paid for such shares by the public is at least $10,000,000
and the price per share is at least $7.50; for the Series D Convertible
Preferred
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<PAGE> 65
Stock, a per share price of at least $11.06 in a public offering of at least
$10,000,000 is required for automatic conversion to Common Stock. All holders of
Series D Convertible Preferred Stock have agreed to convert their shares of
Series D Convertible Preferred Stock to Common Stock upon the consummation of
the Offering.
REGISTRATION RIGHTS
Beginning six months from the date of this Prospectus, certain stockholders
are entitled to demand registration rights with respect to 3,839,683 shares of
Common Stock (the "Registrable Securities"). Pursuant to these rights such
stockholders may require that the Company file (i) up to two registration
statements under the Securities Act upon request of holders of at least 40% of
the Registrable Securities, subject to certain minimum size conditions and (ii)
an unlimited number of registration statements on Form S-3 at such time as the
Company is eligible to use Form S-3. In addition, if the Company proposes to
register any of its securities under the Securities Act, holders of the
Registrable Securities plus holders of an additional 715,000 shares of the
Company's Common Stock are entitled, subject to certain restrictions and
limitations, to include such securities in such registration. The Company is
required to bear substantially all registration and selling expenses (except for
underwriting discounts and selling commissions) in connection with the above
described registrations. The foregoing registration rights are transferable in
certain circumstances and may be amended or waived only with the written consent
of the Company and holders of at least two-thirds of the Registrable Securities
then outstanding. The holders of the foregoing registration rights have waived
their rights to include such securities in the Offering because the Underwriters
have determined that including such securities in the Offering would adversely
affect the marketability of the Offering.
ANTI-TAKEOVER LAW
The Company is subject to Section 203 ("Section 203") of the Delaware
General Corporation Law ("DGCL"), which restricts certain transactions and
business combinations between a corporation and an "Interested Stockholder" (as
defined in Section 203) owning 15% or more of the corporation's outstanding
voting stock, for a period of three years from the date the stockholder becomes
an Interested Stockholder. Subject to certain exceptions, unless the transaction
is approved by the board of directors and the holders of at least two-thirds of
the outstanding voting stock of the corporation (excluding shares held by the
Interested Stockholder), Section 203 prohibits significant business transactions
such as a merger with, disposition of assets to, or receipt of disproportionate
financial benefits by the Interested Stockholder, or any other transaction that
would increase the Interested Stockholder's proportionate ownership of any class
or series of the corporation's stock. The statutory ban does not apply if, upon
consummation of the transaction in which any person becomes an Interested
Stockholder, the Interested Stockholder owns at least 85% of the outstanding
voting stock of the corporation (excluding shares held by persons who are both
directors and officers or by certain employee stock plans).
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Amended Certificate of Incorporation provides that to the fullest
extent permitted by Delaware law, a Director of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of such Director's fiduciary duty, except for liability: (i) for any
breach of the Director's duty of loyalty to the Company or its stockholders;
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases; and (iv) for any
transaction from which the Director derives an improper benefit. The effect of
the provisions of the Amended Certificate of Incorporation is to eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a Director
for breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior), except in the
situations described in clauses (i) through (iv) above. These provisions do not
limit or eliminate the rights of the Company or any stockholder to seek
nonmonetary relief such as an injunction or recession in the event of a breach
of a Director's duty of care. The Amended Certificate of Incorporation further
provides that the Company shall indemnify any person who is or was a Director,
officer, employee, or agent of the Company, or who is or was serving at the
request of the Company as a Director, officer, employee, or agent of another
corporation or
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<PAGE> 66
entity, against expenses, liabilities, and losses incurred by any such person by
reason of the fact that such person is or was acting in such capacity. The
Company also plans to secure insurance prior to the consummation of the Offering
on behalf of the Company's officers and Directors for certain liabilities
arising out of such person's actions in such capacity.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock of the Company is
American Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common
Stock. Sales of substantial amounts of shares of the Common Stock in the public
market following the Offering could adversely affect the market price of the
Common Stock, making it more difficult for the Company to sell equity securities
in the future at a time and price which it deems appropriate.
Upon the completion of the Offering, the Company will have 7,255,183 shares
of Common Stock outstanding (7,615,183 if the Underwriters' over-allotment
option is exercised in full). Of these shares, the 2,400,000 shares sold in the
Offering will be freely tradable without restriction or further registration
under the Securities Act. The remaining 4,855,183 shares of Common Stock
outstanding as of the date of this Prospectus are "restricted securities" as
that term is defined by Rule 144 of the Securities Act, and were issued and sold
by the Company in reliance on exemptions from registration under the Securities
Act. These restricted shares may not be sold in the public market unless they
are registered under the Securities Act or are sold pursuant to an exemption
from registration, such as Rule 144, 144(k) or 701. Beginning 90 days after the
date of this Prospectus, approximately 4,555,183 restricted securities will
become eligible for sale in the public market pursuant to Rule 144 and Rule 701
under the Securities Act.
In general, under Rule 144, a person who has beneficially owned shares for
at least one year, including an "affiliate," as that term is defined in the
Securities Act, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock (approximately 72,552 shares after the completion of the Offering)
or the average weekly trading volume during the four calendar weeks preceding
filing of notice of such sale, subject to certain requirements concerning
availability of public information, and the manner and notice of sale.
In addition, affiliates must comply with the restrictions and requirements
of Rule 144, other than the one year holding period requirements, in order to
sell shares of Common Stock which are not restricted securities. Under Rule
144(k), a person who is not an affiliate and has not been an affiliate for at
least three months prior to the sale and who has beneficially owned restricted
shares for at least a two year holding period may resell such shares without
compliance with the foregoing requirements.
The Company has agreed, and the Underwriters have requested that the
Company's Directors, executive officers and stockholders holding 1% or more of
the Company's capital stock prior to the Offering agree, pursuant to certain
lock-up agreements, that for a period of 180 days after the date of this
Prospectus they will not directly or indirectly, without the prior written
consent of the Representatives, sell, offer for sale, contract to sell or
otherwise dispose of any shares of Common Stock or any securities exercisable
for or convertible into Common Stock or any rights to acquire Common Stock.
Certain holders of Common Stock have certain demand and piggyback
registration rights. See "Description of Capital Stock -- Registration Rights."
As of March 31, 1998, there were 1,088,987 shares of Common Stock issuable
upon exercise of options granted under the 1990 Plan. Under the 1990 Plan,
options may be granted with respect to up to 1,700,000 shares of Common Stock.
The Company intends to file Form S-8 registration statements covering these
shares within 90 days from the date of this Prospectus. The shares registered
under such registration statements will be available for resale in the open
market upon the exercise of vested options, subject to Rule 144 volume
limitations applicable to affiliates.
65
<PAGE> 67
UNDERWRITING
The Underwriters named below, for whom Allen & Company Incorporated and
Gruntal & Co., L.L.C. are acting as representatives (the "Representatives"),
have severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement, in the form attached to the Registration Statement as an
exhibit (the "Underwriting Agreement"), to purchase from the Company the
aggregate number of shares of Common Stock set forth below opposite their
respective names.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Allen & Company Incorporated................................
Gruntal & Co., L.L.C. ......................................
---------
Total............................................. 2,400,000
=========
</TABLE>
Pursuant to the Underwriting Agreement, the several Underwriters have
agreed, subject to the terms and conditions therein, to purchase all of the
shares of Common Stock offered hereby (other than shares that may be purchased
under the over-allotment option, if any are purchased). The Underwriters propose
initially to offer the shares to the public at the public offering price set
forth on the cover page of this Prospectus. The Underwriters may allow a selling
concession not exceeding $ per share of Common Stock to certain
dealers. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to other dealers. The public offering
price and concessions may be changed by the Representatives after the Offering.
The Company has agreed to reimburse the Underwriters for up to $150,000 of
their out-of-pocket expenses in connection with the Offering.
The Company has granted to the Underwriters an option, expiring 30 days
after the date of the Underwriting Agreement, to purchase up to an additional
360,000 shares of Common Stock at the public offering price, less underwriting
discounts and commissions, all as set forth on the cover page of this
Prospectus. The Underwriters may exercise the option only to cover
over-allotments, if any, in the sale of shares of Common Stock in the Offering.
To the extent that the Underwriters exercise their option, each Underwriter will
be committed, subject to certain conditions, to purchase a number of such
additional shares proportionate to such Underwriter's initial commitment.
The Company has agreed, and the Underwriters have requested that the
Company's Directors, executive officers and stockholders holding 1% or more of
the Company's capital stock prior to the Offering agree, to deliver to the
Representatives prior to the date of this Prospectus lock-up agreements under
which they agree not to directly or indirectly sell, offer for sale, contract to
sell or otherwise dispose of any shares of Common Stock or any securities
exercisable for or convertible into Common Stock or any rights to acquire Common
Stock for a period of 180 days after the date of this Prospectus, without the
prior written consent of the Representatives.
The Company and the Underwriters have each agreed to indemnify one another
against certain liabilities, including liabilities under the Securities Act.
Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price was negotiated between the
Company and the Representatives. Among the factors considered in
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<PAGE> 68
determining the initial public offering price of the shares of Common Stock, in
addition to prevailing market conditions, were the Company's historical
performance and capital structure, estimates of business potential and earnings
prospects of the Company, an overall assessment of the Company, an assessment of
the Company's management and the consideration of the above factors in relation
to the market valuation of companies in related businesses.
Certain of the shares of Common Stock offered hereby may be initially
offered outside of the United States by the Underwriters. No action has been or
will be taken in any jurisdiction (except in the United States) that would
permit a public offering of the shares of Common Stock or the possession,
circulation or distribution of this Prospectus or any amendment or supplement
hereto or any other material relating to the Company or shares of Common Stock
in any jurisdiction where action for that purpose is required. Accordingly, the
shares of Common Stock may not be offered or sold, directly or indirectly, and
neither this Prospectus or any amendment or supplement hereto nor any other
offering material or advertisements in connection with the shares of Common
Stock may be distributed or published, in or from any country or jurisdiction
except in compliance with any applicable rules and regulations of any such
country or jurisdiction.
Each Underwriter has agreed that (i) it has not offered or sold and, for a
period of six months following consummation of the Offering, will not offer or
sell any shares of Common Stock to persons in the United Kingdom, except to a
person whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Common Stock in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on and will only issue or pass on to any person in the United Kingdom any
document received by it in connection with the issuance of Common Stock if that
person is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements)(Exemptions) Order 1996, as amended, or is a
person to whom such document may otherwise lawfully be issued or passed on.
Application has been made to have the Common Stock approved for quotation
on the Nasdaq National Market, which has reserved the Nasdaq trading symbol
"ANTH" to identify the Company.
LEGAL MATTERS
The validity of the shares offered hereby is being passed upon for the
Company by Morrison & Foerster LLP, New York, New York. Certain legal matters
will be passed upon for the Underwriters by Werbel & Carnelutti, A Professional
Corporation, New York, New York.
EXPERTS
The financial statements of the Company as of June 30, 1996 and 1997, and
for each of the years in the three-year period ended June 30, 1997 have been
included herein and in the Registration Statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus constitutes a part of the Registration Statement and does not
contain all of the information set forth therein and in the exhibits thereto,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and exhibits. Statements contained in this Prospectus as
to the contents of any document are not necessarily complete and in each
instance are qualified in their entirety by reference to the
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<PAGE> 69
copy of the appropriate document filed with the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to such exhibits and schedules thereto, which may be inspected and
copied at the principal office of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies
of all or any part thereof may be obtained at prescribed rates from the
Commission's Public Reference Section at such addresses. Also, the Commission
maintains a World Wide site on the Internet at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. Upon approval of the
Common Stock for quotation on the Nasdaq National Market, such reports, proxy
and information statements and other information also can be inspected at the
office of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
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<PAGE> 70
ANTHRA PHARMACEUTICALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997 and
March 31, 1998 (unaudited)................................ F-3
Consolidated Statements of Operations for the years ended
June 30, 1995, 1996 and 1997, the nine months ended March
31, 1997 and 1998 (unaudited) and for the period from June
25, 1985 (inception) to March 31, 1998 (unaudited)........ F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the period from June 25, 1985 (inception) to March 31,
1998 (unaudited for the periods from June 25, 1985
(inception) to June 30, 1994 and July 1, 1997 to March 31,
1998)..................................................... F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1995, 1996 and 1997, the nine months ended March
31, 1997 and 1998 (unaudited) and for the period from June
25, 1985 (inception) to March 31, 1998 (unaudited)........ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 71
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Anthra Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of Anthra Pharmaceuticals,
Inc. (A Development Stage Enterprise) as of June 30, 1996 and 1997, and the
related statements of operations, stockholders' deficit and cash flows for each
of the years in the three-year period ended June 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Anthra Pharmaceuticals, Inc.
(A Development Stage Enterprise) as of June 30, 1996 and 1997, and the results
of its operations and its cash flows for each of the years in the three-year
period ended June 30, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Princeton, New Jersey
September 9, 1997, except as to
the seventh paragraph of note 5
which is as of October 14, 1997
F-2
<PAGE> 72
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Balance Sheets
June 30, 1996 and 1997 and
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
JUNE 30, PRO FORMA
------------------------ MARCH 31, MARCH 31,
1996 1997 1998 1998
---------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $1,712,572 795,428 5,680,680 5,680,680
Other receivable (note 5)........................... 916,119 -- -- --
Prepaid expenses.................................... 24,975 38,105 85,617 85,617
---------- ----------- ----------- -----------
Total current assets......................... 2,653,666 833,533 5,766,297 5,766,297
Equipment, net (note 3)............................... 72,933 75,957 79,700 79,700
Deferred offering costs............................... -- -- 347,000 347,000
Other assets.......................................... 5,548 5,548 9,730 9,730
---------- ----------- ----------- -----------
Total assets................................. $2,732,147 915,038 6,202,727 6,202,727
========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................... $ 215,402 995,773 209,543 209,543
Accrued expenses (note 4)........................... 383,393 370,534 665,476 665,476
Due to related parties, net (note 6)................ 146,729 65,062 -- --
---------- ----------- ----------- -----------
Total current liabilities and total
liabilities................................ 745,524 1,431,369 875,019 875,019
Contingent stock obligation (note 5).................. -- -- 8,000,000 8,000,000
---------- ----------- ----------- -----------
Mandatorily redeemable convertible preferred stock (at
redemption value which includes accreted dividends
of $2,116,939, $2,769,998 and $3,259,793 at June 30,
1996 and 1997 and March 31, 1998, respectively)
(note 9); (converts into 3,150,588 pro forma common
shares at March 31, 1998 upon consummation of the
offering contemplated herein):
Series A, $0.01 par value; 1,000,000 shares
authorized, issued and outstanding.............. 2,169,960 2,289,960 2,379,002 --
Series B, $0.01 par value; 680,000 shares
authorized, issued and outstanding.............. 2,187,288 2,323,288 2,423,069 --
Series C, $0.01 par value; 1,470,588 shares
authorized, issued and outstanding.............. 5,959,690 6,356,749 6,657,721 --
---------- ----------- ----------- -----------
10,316,938 10,969,997 11,459,792 --
---------- ----------- ----------- -----------
Stockholders' deficit (notes 10 and 11):
Series D convertible preferred stock, $0.01 par
value; 271,276 shares authorized, issued and
outstanding at June 30, 1996; 471,276 shares
authorized, 339,095 shares issued and outstanding
at June 30, 1997; and 639,095 shares authorized,
issued and outstanding at March 31, 1998 (converts
into 639,095 pro forma common shares at March 31,
1998 upon consummation of the offering
contemplated herein).............................. 2,713 3,391 6,391 --
Common stock, $0.01 par value; 6,000,000 shares
authorized at June 30, 1996 and 1997 and 6,700,000
at March 31, 1998; 865,500, 1,065,500 and
1,065,500 shares issued and outstanding at June
30, 1996 and 1997 and March 31, 1998,
respectively; (4,855,183 pro forma shares at March
31, 1998 upon conversion)......................... 8,655 10,655 10,655 48,552
Additional paid-in capital.......................... 1,062,687 3,368,707 8,837,642 20,265,928
Deferred compensation............................... -- -- (986,080) (986,080)
Deficit accumulated during the development stage.... (9,404,370) (14,869,081) (22,000,692) (22,000,692)
---------- ----------- ----------- -----------
Total stockholders' deficit.................. (8,330,315) (11,486,328) (14,132,084) (2,672,292)
Commitments (notes 6, 8 and 11)
---------- ----------- ----------- -----------
Total liabilities and stockholders'
deficit.................................... $2,732,147 915,038 6,202,727 6,202,727
========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 73
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Statements of Operations
For the years ended June 30, 1995, 1996 and 1997, the nine
months ended March 31, 1997 and 1998 (unaudited) and for
the period from June 25, 1985 (inception) to March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
NINE MONTHS ENDED JUNE 25, 1985
YEARS ENDED JUNE 30, MARCH 31, (INCEPTION) TO
------------------------------------- ------------------------- MARCH 31,
1995 1996 1997 1997 1998 1998
----------- ---------- ---------- ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Research and license revenues (note
5)................................... $ -- 2,170,518 399,875 199,875 -- 2,570,393
Other revenue (note 5)................. -- -- 1,288,240 1,288,240 -- 1,288,240
----------- ---------- ---------- ---------- ---------- -----------
-- 2,170,518 1,688,115 1,488,115 -- 3,858,633
----------- ---------- ---------- ---------- ---------- -----------
Operating expenses:
Research and development (note 5)...... 2,591,029 3,648,529 6,610,188 4,206,105 5,929,683 23,540,709
General and administrative (note 6).... 121,368 523,209 681,543 428,689 1,492,259 3,103,620
----------- ---------- ---------- ---------- ---------- -----------
Total operating expenses......... 2,712,397 4,171,738 7,291,731 4,634,794 7,421,942 26,644,329
Other income (expense):
Interest income........................ 94,895 111,519 138,905 119,264 290,331 820,012
Interest expense....................... -- -- -- -- -- (35,008)
----------- ---------- ---------- ---------- ---------- -----------
94,895 111,519 138,905 119,264 290,331 785,004
----------- ---------- ---------- ---------- ---------- -----------
Net loss......................... (2,617,502) (1,889,701) (5,464,711) (3,027,415) (7,131,611) (22,000,692)
Accretion of undeclared dividends
attributable to mandatorily redeemable
convertible preferred stock............ 653,059 653,059 653,059 489,795 489,795 3,259,793
----------- ---------- ---------- ---------- ---------- -----------
Net loss allocable to common
stockholders................... $(3,270,561) (2,542,760) (6,117,770) (3,517,210) (7,621,406) (25,260,485)
=========== ========== ========== ========== ========== ===========
Basic and diluted net loss per share
allocable to common stockholders (note
2)..................................... $ (4.24) (3.01) (5.79) (3.34) (7.15)
=========== ========== ========== ========== ==========
Shares used in computing basic and
diluted net loss per share allocable to
common stockholders (note 2)........... 771,062 843,993 1,056,733 1,054,511 1,065,500
=========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 74
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity (Deficit)
For the period from June 25, 1985 (inception) to March 31, 1998
(unaudited for the periods from June 25, 1985 (inception) to
June 30, 1994 and July 1, 1997 to March 31, 1998)
<TABLE>
<CAPTION>
SERIES D CONVERTIBLE DEFICIT
PREFERRED STOCK COMMON STOCK ACCUMULATED TOTAL
--------------------- ------------------- ADDITIONAL DURING THE STOCKHOLDERS'
NUMBER OF NUMBER OF PAID-IN DEFERRED DEVELOPMENT EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION STAGE (DEFICIT)
---------- -------- --------- ------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 25, 1985
(inception).............. -- $ -- -- $ -- -- -- -- --
Issuance of common stock
(note 9)............... -- -- 153,000 1,530 3,060 -- -- 4,590
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1985.... -- -- 153,000 1,530 3,060 -- -- 4,590
Net loss................. -- -- -- -- -- -- (30) (30)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1986.... -- -- 153,000 1,530 3,060 -- (30) 4,560
Net loss................. -- -- -- -- -- -- (4,629) (4,629)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1987.... -- -- 153,000 1,530 3,060 -- (4,659) (69)
Net loss................. -- -- -- -- -- -- (98) (98)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1988.... -- -- 153,000 1,530 3,060 -- (4,757) (167)
Net loss................. -- -- -- -- -- -- (352) (352)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1989.... -- -- 153,000 1,530 3,060 -- (5,109) (519)
Net loss................. -- -- -- -- -- -- (57,428) (57,428)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1990.... -- -- 153,000 1,530 3,060 -- (62,537) (57,947)
Issuance of common stock
(note 10).............. -- -- 562,500 5,625 139,625 -- -- 145,250
Accretion of undeclared
dividends on
mandatorily redeemable
convertible preferred
stock (note 9)......... -- -- -- -- (69,960) -- -- (69,960)
Net loss................. -- -- -- -- -- -- (490,526) (490,526)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1991.... -- -- 715,500 7,155 72,725 -- (553,063) (473,183)
Accretion of undeclared
dividends on
mandatorily redeemable
convertible preferred
stock (note 9)......... -- -- -- -- (120,000) -- -- (120,000)
Net loss................. -- -- -- -- -- -- (554,447) (554,447)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1992.... -- -- 715,500 7,155 (47,275) -- (1,107,510) (1,147,630)
Accretion of undeclared
dividends on
mandatorily redeemable
convertible preferred
stock (note 9)......... -- -- -- -- (199,288) -- -- (199,288)
Net loss................. -- -- -- -- -- -- (1,337,017) (1,337,017)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1993.... -- -- 715,500 7,155 (246,563) -- (2,444,527) (2,683,935)
Accretion of undeclared
dividends on
mandatorily redeemable
convertible preferred
stock (note 9)......... -- -- -- -- (421,573) -- -- (421,573)
Net loss................. -- -- -- -- -- -- (2,452,640) (2,452,640)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1994.... -- -- 715,500 7,155 (668,136) -- (4,897,167) (5,558,148)
Issuance of common stock
(notes 5 and 10)....... -- -- 100,000 1,000 33,000 -- -- 34,000
Accretion of undeclared
dividends on
mandatorily redeemable
convertible preferred
stock (note 9)......... -- -- -- -- (653,059) -- -- (653,059)
Net loss................. -- -- -- -- -- -- (2,617,502) (2,617,502)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1995.... -- -- 815,500 8,155 (1,288,195) -- (7,514,669) (8,794,709)
Exercise of warrants
(note 9)............... -- -- 50,000 500 7,000 -- -- 7,500
Issuance of Series D
convertible preferred
stock (notes 5 and
9)..................... 271,276 2,713 -- -- 2,996,941 -- -- 2,999,654
Accretion of undeclared
dividends on
mandatorily redeemable
convertible preferred
stock (note 9)......... -- -- -- -- (653,059) -- -- (653,059)
Net loss................. -- -- -- -- -- -- (1,889,701) (1,889,701)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1996.... 271,276 2,713 865,500 8,655 1,062,687 -- (9,404,370) (8,330,315)
Issuance of Series D
convertible preferred
stock (note 5)......... 267,819 2,678 -- -- 2,959,079 -- -- 2,961,757
Conversion of Series D
preferred stock to
common stock........... (200,000) (2,000) 200,000 2,000 -- -- -- --
Accretion of undeclared
dividends on
mandatorily redeemable
convertible preferred
stock (note 9)......... -- -- -- -- (653,059) -- -- (653,059)
Net loss................. -- -- -- -- -- -- (5,464,711) (5,464,711)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, June 30, 1997.... 339,095 3,391 1,065,500 10,655 3,368,707 -- (14,869,081) (11,486,328)
Issuance of Series D
convertible preferred
stock (note 5)......... 300,000 3,000 -- -- 4,497,000 -- -- 4,500,000
Accretion of undeclared
dividends on
mandatorily redeemable
convertible preferred
stock (note 9)......... -- -- -- -- (489,795) -- -- (489,795)
Deferred compensation
resulting from grant of
options (note 10)...... -- -- -- -- 1,461,730 (1,461,730) -- --
Amortization of deferred
compensation (note
10).................... -- -- -- -- -- 475,650 -- 475,650
Net loss................. -- -- -- -- -- -- (7,131,611) (7,131,611)
-------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance, March 31, 1998... 639,095 $ 6,391 1,065,500 $10,655 8,837,642 (986,080) (22,000,692) (14,132,084)
======== ======= ========= ======= ========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 75
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
For the years ended June 30, 1995, 1996 and 1997, the nine months
ended March 31, 1997 and 1998 (unaudited) and the period
from June 25, 1985 (inception) to March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
NINE MONTHS ENDED JUNE 25, 1985
YEARS ENDED JUNE 30, MARCH 31, (INCEPTION) TO
------------------------------------- ------------------------- MARCH 31,
1995 1996 1997 1997 1998 1998
----------- ---------- ---------- ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $(2,617,502) (1,889,701) (5,464,711) (3,027,415) (7,131,611) (22,000,692)
Adjustments to reconcile net loss to net
cash used in operating activities:
Noncash compensation expense............ -- -- -- -- 475,650 475,650
Accrued interest converted to preferred
stock................................. -- -- -- -- -- 35,008
Depreciation expense.................... 18,160 16,514 24,317 18,113 20,271 79,262
Change in assets and liabilities:
(Increase) decrease in other
receivable........................... -- (916,119) 916,119 916,119 -- --
(Increase) decrease in prepaid
expenses............................. (6,194) (18,781) (13,130) 24,975 (47,512) (85,617)
(Increase) decrease in other assets... 195,141 (2,698) -- -- (4,182) (9,730)
Increase (decrease) in accounts
payable.............................. 72,767 142,635 780,371 (91,296) (786,230) 209,543
Increase (decrease) in accrued
expenses............................. 89,307 260,585 (12,859) (138,899) 294,942 665,476
Increase (decrease) in due to related
parties, net......................... 147,874 (110,088) (81,667) (51,667) (65,062) --
----------- ---------- ---------- ---------- ---------- -----------
Net cash used in operating
activities........................... (2,100,447) (2,517,653) (3,851,560) (2,350,070) (7,243,734) (20,631,100)
----------- ---------- ---------- ---------- ---------- -----------
Cash flows from investing
activities -- capital expenditures.......... (50,955) (50,072) (27,341) (27,341) (24,014) (158,962)
----------- ---------- ---------- ---------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of promissory
notes..................................... -- -- -- -- -- 1,000,000
Proceeds from issuance of common stock and
exercise of warrants...................... 34,000 7,500 -- -- -- 191,340
Proceeds from issuance of preferred stock... -- 2,999,654 2,961,757 2,211,760 4,500,000 17,626,402
Proceeds from short-term borrowings......... -- -- -- -- -- 321,280
Repayment of short-term debt................ -- -- -- -- -- (321,280)
Increase in contingent stock obligation..... -- -- -- -- 8,000,000 8,000,000
Deferred offering costs..................... -- -- -- -- (347,000) (347,000)
----------- ---------- ---------- ---------- ---------- -----------
Net cash provided by financing
activities........................... 34,000 3,007,154 2,961,757 2,211,760 12,153,000 26,470,742
----------- ---------- ---------- ---------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents................................. (2,117,402) 439,429 (917,144) (165,651) 4,885,252 5,680,680
Cash and cash equivalents at beginning of
period...................................... 3,390,545 1,273,143 1,712,572 1,712,572 795,428 --
----------- ---------- ---------- ---------- ---------- -----------
Cash and cash equivalents at end of period... $ 1,273,143 1,712,572 795,428 1,546,921 5,680,680 5,680,680
=========== ========== ========== ========== ========== ===========
Supplemental disclosure of noncash financing
activities:
Conversion of promissory notes to preferred
stock..................................... $ -- -- -- -- -- 1,000,000
=========== ========== ========== ========== ========== ===========
Deferred compensation....................... $ -- -- -- -- 1,461,730 1,461,730
=========== ========== ========== ========== ========== ===========
Accretion of undeclared dividends
attributable to mandatorily redeemable
convertible preferred stock............... $ 653,059 653,059 653,059 489,795 489,795 3,259,793
=========== ========== ========== ========== ========== ===========
Conversion of preferred stock to common
stock..................................... $ -- -- 2,000 2,000 -- 2,000
=========== ========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 76
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
June 30, 1996 and 1997
(Information as of December 31, 1997 and with respect to the
nine months ended March 31, 1997 and 1998 is unaudited)
(1) ORGANIZATION AND BUSINESS ACTIVITIES
Anthra Pharmaceuticals, Inc. (Anthra or the Company) was incorporated in
Delaware on June 25, 1985. The Company is a development stage pharmaceutical
company engaged in clinical development and obtaining regulatory approval for a
portfolio of proprietary cancer drugs. The Company is currently devoting
substantially all of its efforts towards conducting pharmaceutical development,
raising capital, obtaining regulatory approval for products under development
and recruiting personnel.
The accompanying consolidated financial statements include the results of
operations of the Company and its wholly-owned subsidiary, Anthra
Pharmaceuticals Limited (since December 18, 1997), for the period from June 25,
1985 (inception) to March 31, 1998. All intercompany accounts and transactions
have been eliminated in consolidation.
The Company has not yet achieved profitable operations or positive cash
flow from operations. There is no assurance that profitable operations, if ever
achieved, could be sustained on a continuing basis. In addition, development
activities and the commercialization of proprietary medical therapies for the
treatment of cancer will require significant additional financing and regulatory
approval. The Company's deficit accumulated during the development stage
aggregated $22,000,692 through March 31, 1998 and it expects to incur
substantial losses in future periods. Further, the Company's future operations
are dependent on the success of the Company's research and commercialization
efforts and, ultimately, upon regulatory approval and market acceptance of the
Company's products.
The Company plans to continue to finance its operations with a combination
of stock issuances, such as the initial public offering contemplated herein
(Offering), private placements and follow-on public offerings, license payments,
payments from strategic research and development arrangements and, in the longer
term, revenues from potential product sales. There are no assurances, however,
that the Company will be successful in obtaining financing at the level needed
for the long-term development and commercialization of its planned products or
on terms acceptable to the Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. All cash
and cash equivalents are held in United States financial institutions and money
market funds. To date, the Company has not experienced any losses on its cash
and cash equivalents. The carrying amount of cash and cash equivalents
approximates its fair value due to its short-term and liquid nature.
Equipment
Equipment, consisting primarily of computer and office equipment, is
recorded at cost. Depreciation is provided using the straight-line method over
the estimated useful lives of the assets, generally three to five years.
Expenditures for repairs and maintenance are expensed as incurred.
Research and Development
Research and product development costs are expensed as incurred.
F-7
<PAGE> 77
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
Revenue Recognition -- Research and Development and Licensing Agreements
The Company has entered into various research and development and licensing
agreements (see note 5). Research and development revenue from
cost-reimbursement agreements is recorded as the related expenses are incurred,
up to contractual limits and when the Company meets its performance obligations
under the respective agreements. Contract revenue is recognized under the other
agreements when milestones are met and the Company's significant performance
obligations have been satisfied in accordance with the terms of the respective
agreements. Cash received that is related to future performance under such
contracts is deferred and recognized as revenue when earned. Revenue recognized
is not subject to repayment. Future losses, if any, on research and development
agreements are recognized in the period when identified by the Company.
Accounting for Income Taxes
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when such
differences are expected to reverse. The measurement of deferred tax assets is
reduced, if necessary, by a valuation allowance for any tax benefits which are
not expected to be realized. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the period that such tax rate changes
are enacted.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Stock-based Compensation
The Company accounts for its stock option issuances in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such, deferred
compensation is recorded to the extent that the current market value of the
underlying stock exceeds the exercise price on the date both the number of
shares and the price per share are known (measurement date). Such deferred
compensation is amortized over the respective vesting periods of such option
grants. On June 30, 1996, the Company adopted the disclosure requirements of
SFAS No. 123, "Accounting for Stock-Based Compensation", which permits entities
to continue to apply the provisions of APB Opinion No. 25 for financial
statement reporting purposes and provide pro forma net loss and pro forma net
loss per share disclosures for employee stock option grants made in fiscal year
1996 and future years as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 for financial statement reporting purposes and to provide the
pro forma disclosures required by SFAS No. 123. Transactions with non-employees,
in which goods or services are the consideration received for the issuance of
equity instruments, are accounted for under the fair-value based method defined
in SFAS No. 123.
Equity Security Transactions
Since inception, the Board of Directors has established the deemed fair
value of common stock, Series A, B and C mandatorily redeemable convertible
preferred stock (Series A, B and C), Series D convertible preferred stock
(Series D) (together, Convertible Preferred Stock), stock options and warrants
based upon facts and circumstances existing at the dates such equity
transactions occurred, including the price at which equity instruments were sold
to independent third parties.
F-8
<PAGE> 78
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
Net Loss per Share
Net loss per share is computed in accordance with SFAS No. 128, "Earnings
Per Share," by dividing the net loss allocable to common stockholders (including
accretion of undeclared dividends) by the weighted average number of shares of
common stock outstanding. As of March 31, 1998, the Company has certain options,
warrants and Convertible Preferred Stock (see notes 9 and 10), which have not
been used in the calculation of diluted net loss per share because to do so
would be anti-dilutive. As such, the numerator and the denominator used in
computing both basic and diluted net loss per share allocable to common
stockholders are equal.
Pursuant to Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 98 and SEC staff policy, all common stock issued for nominal
consideration during the periods presented herein and through the filing of the
registration statement for the Offering are to be reflected in a manner similar
to a stock split or stock dividend for which retroactive treatment is required
in the calculation of pro-forma basic net loss per share; the Company did not
have any such issuances. Similarly, common stock and potential common stock
issued for nominal consideration during the periods presented herein and through
the filing of the registration statement for the Offering are to be reflected in
a manner similar to a stock split or stock dividend for which retroactive
treatment is required in the calculation of pro forma diluted net loss per
share, even if anti-dilutive; the Company did not have any such issuances.
Pro Forma Net Loss per Share (Unaudited)
The following pro forma basic and diluted net loss per share allocable to
common stockholders (excluding accretion of undeclared dividends) and shares
used in computing pro forma basic and diluted net loss per share allocable to
common stockholders have been presented reflecting the automatic conversion into
shares of common stock of the Convertible Preferred Stock upon completion of the
Offering (see note 9) using the if converted method from their respective dates
of issuance:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JUNE 30, MARCH 31,
1997 1998
---------- -----------
<S> <C> <C>
Pro forma basic and diluted net loss per share allocable to
common stockholders....................................... $ (1.22) $ (1.50)
========== ==========
Shares used in computing pro forma basic and diluted net
loss per share allocable to common stockholders........... 4,492,346 4,739,798
========== ==========
</TABLE>
Pro Forma Balance Sheet (Unaudited)
Upon the closing of the Offering, all of the outstanding shares of
Convertible Preferred Stock automatically convert into 3,789,683 shares of
common stock (see note 9). The unaudited pro forma presentation of the March 31,
1998 consolidated balance sheet has been prepared assuming the conversion of the
Convertible Preferred Stock into common stock as of March 31, 1998, the most
recent consolidated balance sheet included in the accompanying consolidated
financial statements.
Unaudited Financial Statements
The consolidated balance sheet at March 31, 1998, the consolidated
statements of operations and statements of cash flows for the nine months ended
March 31, 1997 and 1998 and the period from June 25, 1985 (inception) to March
31, 1998 and the consolidated statement of stockholders' equity (deficit) for
the
F-9
<PAGE> 79
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
periods from June 25, 1985 (inception) to June 30, 1994 and July 1, 1997 to
March 31, 1998 are unaudited. In the opinion of management of the Company, such
unaudited consolidated financial statements include all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of financial
results for these periods. The results of operations for the nine months ended
March 31, 1998 are not necessarily indicative of results to be expected for the
entire fiscal year.
(3) EQUIPMENT
Equipment is comprised of the following at June 30, 1996 and 1997 and March
31, 1998:
<TABLE>
<CAPTION>
JUNE 30,
------------------ MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures...................... $17,266 19,163 22,167
Computer and equipment...................... 84,318 109,762 133,155
Laboratory equipment........................ 3,640 3,640 3,640
Leasehold improvements...................... 2,383 2,383 --
------- ------- -------
107,607 134,948 158,962
Less accumulated depreciation............... 34,674 58,991 79,262
------- ------- -------
$72,933 75,957 79,700
======= ======= =======
</TABLE>
(4) ACCRUED EXPENSES
Accrued expenses is comprised of the following at June 30, 1996 and 1997
and March 31, 1998:
<TABLE>
<CAPTION>
JUNE 30,
------------------- MARCH 31,
1996 1997 1998
-------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Contract research and development.......... $352,377 292,966 317,476
Professional and consulting fees........... 13,219 -- 183,000
Payroll and related costs.................. 2,797 62,568 --
Offering costs............................. -- -- 150,000
Other...................................... 15,000 15,000 15,000
-------- ------- --------
$383,393 370,534 665,476
======== ======= ========
</TABLE>
(5) RESEARCH AND DEVELOPMENT AND LICENSE AGREEMENTS
University of Tennessee Research Corporation
In 1990, the Company entered into a license agreement with the University
of Tennessee Research Corporation (UTRC) (which is not owned by the University
of Tennessee) covering the commercial development of its technology. The Company
is also liable to UTRC for annual royalty fees based on net sales, if any, as
defined in the agreement. Annual minimum royalties of $25,000 and $50,000 are
required for calendar years 1997 and for each year thereafter, respectively. The
Company's obligation to pay royalties expires upon the expiration of the related
patent. The license agreement is in effect until the later to occur of the
expiration of all patent rights or seventeen years from Anthra's last acceptance
of a license to an unpatented improvement to the technology (see note 6).
F-10
<PAGE> 80
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
Dana Farber Licensing Agreement
In 1990, the Company entered into a licensing agreement with the Dana
Farber Cancer Institute (Dana-Farber) to acquire the unrestricted exclusive
worldwide patent and know-how license on certain technology, subject to certain
restrictions and limitations in an agreement between Dana-Farber and the U.S.
Department of Health and Human Services dated April 22, 1985. As a condition of
the agreement, the Company will grant back to Dana-Farber the right to conduct
research on a royalty-free basis on the technology. The Company is liable to
Dana-Farber for annual royalty fees based on net sales, if any, as defined in
the agreement. The Company agreed to pay Dana-Farber a minimum royalty of
$15,000 for each twelve-month period commencing on the anniversary of a New Drug
Application (NDA) approval in the United States of the technology. The
obligation to pay minimum royalties shall cease upon the termination of this
agreement or at such times as minimum royalties have been paid for eight
successive twelve-month periods. The agreement terminates on the sooner of the
fifth anniversary of the expiration of the applicable patent or upon 90 days
notice by Anthra.
Schering Development and License Agreement
In September 1995, the Company and Schering AG (Schering) entered into a
development and license agreement. Under this agreement the Company agreed to
conduct the research and development activities to prepare a certain product for
commercialization. Schering agreed to reimburse the Company for certain research
and development cost associated with the commercial development of the products
in certain territories. Under the agreement the Company granted to Schering the
exclusive, royalty bearing license in the North America and European Territories
to market, sell, and distribute the product. The Company retained co-promotion
rights in each territory, subject to certain limitations. In return, Schering
agreed to make certain lump and royalty payments to the Company based on certain
occurrences. During 1996 and 1997, the Company was entitled to reimbursement of
$2,170,518 and $199,875, respectively, which is recorded as revenue in the
accompanying statements of operations. Of these amounts $916,119 and $0 were
unpaid at June 30, 1996 and 1997, respectively. In connection with this
agreement, Schering Berlin Venture Corporation, an affiliate of Schering,
purchased 271,276 shares of Series D for $2,999,654 (see note 9).
On July 16, 1996, the Company entered into a termination, settlement and
investment agreement under which Schering paid the Company a total of $3,500,000
for 200,000 shares of Series D and for Anthra's release of Schering from the
September 1995 agreement. The Company allocated $2,211,760 of this amount to the
sale of the Series D utilizing a value of approximately $11 per share (the per
share price being ascribed to other Series D financings). The remaining
$1,288,240 of the payment is recorded as other revenue in fiscal 1997 as a fee
for release from the 1995 agreement. The $3,500,000 was used in 1997 for
research relating to the originally licensed technology, as required by the
agreement. The Company owns all rights, title and interest in and to any such
research, data, know how, intellectual property or any other property resulting
from the research and is required to pay Schering royalties on future product
sales, if any. Schering subsequently converted the 200,000 shares of Series D
into 200,000 shares of common stock in accordance with the terms of the
preferred stock.
Prodesfarma Exclusive License Agreement
On April 17, 1997, the Company entered into an exclusive license agreement
with Prodesfarma, S.A. (Prodesfarma). Under the agreement, Prodesfarma obtained
the exclusive distribution rights to a certain product in Spain and Portugal for
an initial term of ten years from the first commercial sale. Prodesfarma made a
nonrefundable payment of $200,000 to the Company upon the signing of this
agreement and is required to make further payments aggregating up to $400,000
upon the achievement of certain milestones.
F-11
<PAGE> 81
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
The Company is responsible for the remaining development costs and to supply the
product to Prodesfarma at prices described in the agreement. The agreement may
be terminated by either party in certain circumstances. Concurrent with the
license agreement, Prodesfarma purchased 67,819 shares of Series D for $749,997.
Medeva Agreement
On July 15, 1997, the Company entered into a development agreement with
Medeva California Inc. (Medeva). Under this agreement, Medeva was granted an
exclusive royalty bearing license to sell, distribute and market a certain
product for certain indications, in the United States, upon regulatory approval.
In exchange, Medeva made a non-refundable payment of $8.0 million on signing the
agreement and subject to certain restrictions and limitations, is required to
make future payments aggregating up to $18.2 million upon the achievement of
certain milestones. The Company is responsible for most remaining development
costs, although Medeva will fund certain costs related to the specific
indications covered under this agreement. The Company will also supply the
product to Medeva at certain stated prices. If regulatory approval is not
received for any of the indications covered by this agreement by December 31,
2002, Medeva will have the right to acquire the number of common shares equal to
20% of the then issued and outstanding voting equity securities of the Company.
Accordingly, the $8.0 million payment has been recorded as a contingent stock
obligation in the consolidated balance sheet at March 31, 1998. Upon receipt of
regulatory approval for one of the indications covered by the agreement on or
before December 31, 2002, the Company would account for that portion of the $8
million incurred on development costs under the agreement since July 15, 1997 as
research and development revenue. Any portion of the $8 million not spent on
development expenditures by the time of the regulatory approval would be
accounted for as deferred revenue and recognized as revenue as development
expenditures are made. Should the necessary regulatory approval not be received
by December 31, 2002, the $8 million would be accounted for as a contribution to
capital for the shares issued to Medeva. Any excess of the fair value of the
common stock issued to Medeva over the $8 million would represent a benefit to
Medeva and any excess of the $8 million over the fair value of the common stock
would represent a benefit to the Company. This agreement expires on the later of
loss of any orphan drug exclusivity, expiration of related patents or twelve
years.
Nycomed Agreement
In October 1997, the Company entered into an exclusive license, sales and
distribution agreement with Nycomed Pharma AS (Nycomed). Under the agreement,
Nycomed obtained the exclusive distribution rights to a certain product in
certain countries for an initial term of ten years from the first European
regulatory approval, as defined. The agreement provides for future payments by
Nycomed, which are subject to certain restrictions and limitations, aggregating
up to $2 million upon achieving certain milestones. The Company will grant to
Nycomed upon receipt of certain of these milestone payments, options to purchase
up to an aggregate of 66,666 shares of either common or Series D, as determined
in accordance with the agreement, for $15 per share. The Company will also grant
to Nycomed upon the payment of a certain milestone payment, options to purchase
shares of common or Series D, as determined in accordance with the agreement,
with a fair market value, as defined, of $1 million. The Company is responsible
for the remaining development costs and to supply the product to Nycomed at
prices described in the agreement. The agreement may be terminated by either
party in certain circumstances. Concurrent with the license, sales and
distribution agreement, Nycomed purchased 300,000 shares of Series D for
$4,500,000. These shares have the same rights as the previously issued Series D.
F-12
<PAGE> 82
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
(6) RELATED PARTY TRANSACTIONS
The Company previously had an agreement with an executive officer of the
Company to provide certain administrative services and maintain an office for a
monthly fee of $4,166 per month. Expenses charged to the Company under this
agreement aggregated $25,000 in 1996, $0 in 1997 and $0 (unaudited) for the nine
month period ended March 31, 1998. This officer also has not received payment
for salary and various expenses on the Company's behalf in the early years of
the Company's existence. Payables to this executive, net of receivables from
this executive of $67,925 at June 30, 1996 and 1997, were $146,729 and $65,062
at June 30, 1996 and 1997, respectively, and $0 (unaudited) at March 31, 1998.
The Company, on a monthly basis, has provided an unrestricted gift for
research support to the University of Tennessee at which a founder and director
of the Company is employed. Expenses charged to the Company for such
unrestricted gift aggregated $121,200 in both fiscal 1996 and 1997 and $90,900
(unaudited) for the nine month period ended March 31, 1998.
The Company has employed a consulting firm, whose owner is a relative of an
executive officer of the Company. Fees to the firm totaled $64,000 (unaudited)
from inception through March 31, 1998.
The Company has agreements with three executive officers to provide for
certain payments to these executives upon a change in control of the Company, as
defined, provided they continue to provide certain services to the Company.
(7) INCOME TAXES
At June 30, 1997, the Company had available net operating loss
carryforwards ("NOL") of approximately $13,473,000 and $13,369,000 for Federal
and state income tax reporting purposes, respectively, which are available to
offset future Federal and state taxable income, if any, through 2012 and 2004,
respectively. The Company also has research and development tax credit
carryforwards of approximately $257,500 and $76,500 for Federal and state income
tax reporting purposes, respectively, which are available to reduce Federal and
state income taxes, if any, through 2012 and 2004, respectively.
The Tax Reform Act of 1986 (the Act) provides for a limitation on the
annual use of NOL and research and development tax credit carryforwards
(following certain ownership changes, as defined by the Act) which could
significantly limit the Company's ability to utilize these carryforwards. The
Company has experienced various ownership changes, as defined by the Act, as a
result of past financings. Accordingly, the Company's ability to utilize the
aforementioned carryforwards may be limited. Additionally, because U.S. tax laws
limit the time during which these carryforwards may be applied against future
taxes, the Company may not be able to take full advantage of these attributes
for Federal income tax purposes.
F-13
<PAGE> 83
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liability at June 30, 1996
and 1997 are presented below:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................. $3,792,690 5,382,992
Tax credit carryforward........................... 179,457 334,365
Accrual to cash adjustment........................ -- 572,548
---------- ----------
Total gross deferred tax assets........... 3,972,147 6,289,905
Less valuation allowance.......................... (3,862,973) (6,284,988)
---------- ----------
Total deferred tax assets................. 109,174 4,917
---------- ----------
Deferred tax liability:
Accrual to cash adjustment........................ 105,210 --
Equipment, due to differences in depreciation..... 3,964 4,917
---------- ----------
Total deferred tax liability.............. 109,174 4,917
---------- ----------
Net deferred taxes........................ $ -- --
========== ==========
</TABLE>
The net change in the valuation allowance for the years ended June 30, 1996
and 1997 were increases of $740,319 and $2,422,015, respectively, related
primarily to additional net operating losses incurred by the Company which are
not currently deductible.
(8) COMMITMENTS
The Company has leases for office space in New Jersey and the United
Kingdom, under which the Company incurred rental expense for fiscal 1996, 1997
and the nine month period ended March 31, 1998 of $92,874, $107,314 and $104,909
(unaudited), respectively.
Minimum lease payments under noncancellable leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
----------
<S> <C>
1998.................................................... $124,019
1999.................................................... 108,676
--------
$232,695
========
</TABLE>
(9) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND CONVERTIBLE PREFERRED
STOCK
The Company completed the sale of Series A, Series B, Series C and Series D
in fiscal 1991, 1993, 1994, 1996 and 1997 (see note 5). Aggregate net cash
proceeds from such equity transactions totaled $13,126,402 ($14,161,410
including cash received for promissory notes plus accrued interest converted to
preferred stock).
The holders of Series A, Series B, Series C and Series D vote together with
all other classes and series of stock of the Company as a single class on all
actions to be taken by the stockholders of the Company. Each share of preferred
stock entitles the holder to an equal number of votes as the number of common
shares into which each share of preferred stock is convertible.
F-14
<PAGE> 84
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
The holders of Series A, Series B and Series C shall be entitled to
receive, out of funds legally available, when and if declared by the Board of
Directors, quarterly dividends at the rate per annum of $0.12 per share of
Series A, $0.20 per share of Series B and $0.27 per share of Series C. The
dividends accrue daily, whether or not earned or declared, and are cumulative.
Cumulative dividends in arrears at March 31, 1998 were $3,259,793 (unaudited) in
the aggregate for Series A, B and C. Such amounts have been accreted in the
accompanying consolidated financial statements for the respective periods in
which they accumulated. As of March 31, 1998, no such dividends have been
declared (unaudited). Due to the mandatory redemption feature, these securities
are classified at their accreted value outside of stockholders' deficit in the
accompanying consolidated balance sheets.
The holders of Series A, Series B, Series C and Series D are entitled to
liquidation preferences over all other types of capital stock in accordance with
the following amounts (same per share amounts as paid by such preferred
stockholders): $1.50 per share for the Series A, $2.50 per share for the Series
B, $3.40 per share for the Series C and $11.06 per share of the Series D plus in
the case of each share of Series A, Series B and Series C, an amount equal to
all cumulative dividends unpaid (whether or not declared) and any other
dividends declared but not paid. The computation of the dividends will be
computed to the date payment is made available.
The holders of Series A, Series B, Series C and Series D have the right at
any time to convert any share of preferred stock into fully-paid nonassessable
shares of common stock at a redemption price of $1.50, $2.50, $3.40 and $11.06
per share, respectively. If at any time the Company effects a firm commitment
underwritten public offering of shares of common stock in which the aggregate
price paid for such shares by the public is at least $10,000,000 and the price
paid per share is at least $7.50 per share then effective on the closing of the
sale of such shares, all outstanding shares of Series A, Series B, and Series C
automatically convert to shares of common stock. In the case of Series D, if the
above mentioned public offering occurs with a price of at least $11.06 or the
Company's common stock is publicly traded on a national securities exchange and
the average of the closing sale prices for the common stock within any 10
consecutive trading day period is $11.06 or more, then all outstanding shares of
Series D automatically convert to shares of common stock (see note 11).
Commencing January 27, 2000, the Company is required to redeem the
outstanding shares of Series A, Series B and Series C at liquidation prices,
including cumulative dividends, in the percentages per year shown in the
following schedule:
<TABLE>
<S> <C>
2000........................................................ 10%
2001........................................................ 15%
2002........................................................ 25%
2003........................................................ 25%
2004........................................................ 25%
</TABLE>
These mandatory redemptions are subject to waiver by holders of 60% of the
shares of Series A, B and C.
(10) COMMON STOCK AND COMMON STOCK OPTIONS
The following transactions were consummated using prices determined by the
Board of Directors to be the deemed fair value at the date of the respective
transaction:
- In June 1985, the Company issued 153,000 shares of common stock to
executive officers for the price of $0.03 per share.
- In October 1990, the Company issued 562,500 shares of common stock to an
executive officer and consultant for the cash price of approximately $.26
per share.
F-15
<PAGE> 85
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
- In July 1994, the Company issued 20,000 shares of common stock to an
executive officer for the price of $.34 per share as part of a stock
subscription and shareholder agreement.
- In January 1995, the Company issued 80,000 shares of common stock to an
executive officer for the price of $.34 per share as part of the
aforementioned subscription and shareholder agreement.
- In December 1995, the Company issued 50,000 shares of common stock to
Advanced Technology Ventures III, LP for the price of $.15 per share upon
exercise of stock warrants granted in December 1990.
In 1990, the Company adopted the 1990 Stock Plan (the 1990 Plan) whereby
incentive and nonqualified stock options may be granted to directors, employees,
and consultants to purchase an aggregate of 374,187 (increased to 1,700,000 in
1997) shares of the Company's common stock (see note 11). The incentive stock
options are to be granted at no less than fair market value at the measurement
date (usually the grant date), as determined by the Board of Directors. The
nonqualified option prices are to be determined by the Board of Directors and
may be less than the fair market value. The options are exercisable generally
for a period of ten years after the date of grant and generally vest over a
five-year period.
The Company applies APB Opinion No. 25 in accounting for the 1990 Plan.
Certain employees of the Company were granted options to acquire 333,000 shares
of common stock at exercise prices ranging from $1.00 to $3.00 per share during
the nine month period ended March 31, 1998. Certain employees of the Company
were granted performance-based options to acquire 192,000 shares of common stock
at exercise prices ranging from $.34 to $1.00 per share during fiscal 1995, 1996
and 1997 and the nine month period ended March 31, 1998 for which the
measurement date occurred during the nine month period ended March 31, 1998 when
the Company amended these option terms to include a fixed vesting schedule (at
the end of five years from the original date of grant) without regard for the
performance criteria. The exercise price of all of these options was equal to
the deemed fair value of the common stock on the date of grant, as determined by
the Board of Directors. However, for financial statement purposes, the
difference between the deemed fair value and the respective exercise prices at
the measurement dates has been recorded as deferred compensation in the amount
of $1,461,730 (unaudited) and is being amortized over the five-year vesting
period. Compensation expense for the aforementioned options aggregated $475,650
(unaudited) for the nine month period ended March 31, 1998.
Had the Company determined compensation cost based on the fair value at the
measurement date for its stock options under SFAS 123, the Company's net loss
would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1996 1997
----------- ----------
<S> <C> <C>
Net loss:
As reported...................................... $(1,889,701) (5,464,711)
Pro forma........................................ (1,891,547) (5,480,739)
</TABLE>
Pro forma net loss reflects only options granted in fiscal 1996 and 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the options' vesting period
and compensation expense for options granted prior to June 30, 1995 is not
considered.
F-16
<PAGE> 86
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
A summary of activity under the 1990 Plan is as follows:
<TABLE>
<CAPTION>
PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Balance, June 30, 1994..................................... 465,687 $0.15 -- 0.25
Granted.................................................. 70,500 0.34
Cancelled................................................ (14,000) 0.34
---------
Balance, June 30, 1995..................................... 522,187 0.15 -- 0.34
Granted.................................................. 198,000 0.70
Cancelled................................................ (7,500) 0.25
---------
Balance, June 30, 1996..................................... 712,687 0.15 -- 0.70
Granted.................................................. 75,500 0.70
Cancelled................................................ (54,200) 0.15 -- 0.34
---------
Balance, June 30, 1997..................................... 733,987 0.15 -- 0.70
Granted (unaudited)...................................... 378,000 0.70 -- 8.00
Cancelled (unaudited).................................... (23,000) 0.70
---------
Balance, March 31, 1998 (unaudited)........................ 1,088,987 0.15 -- 8.00
=========
Shares exercisable at March 31, 1998 (unaudited)........... 500,357 $0.15 -- 0.70
=========
</TABLE>
At June 30, 1997, the range of exercise prices, weighted-average exercise
price per share and weighted-average remaining contractual life of outstanding
options were $0.15 -- $0.70, $0.38 and 6 years, respectively.
At June 30, 1997, the number of options exercisable were 454,187 and the
weighted-average exercise price of those options was $0.19.
The per share weighted-average fair value of stock options granted during
1996 and 1997 was $.28 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions: for both
1996 and 1997 -- expected dividend yield 0%, risk-free interest rate of 6.5%,
and expected life of 8 years.
(11) SUBSEQUENT EVENTS (UNAUDITED)
Initial Public Offering
On February 23, 1998, the Board of Directors authorized the filing of a
registration statement for the offering with the SEC for the sale of shares of
common stock. If the offering is consummated under terms presently anticipated,
all shares of Series A, B, C and D outstanding as of the closing date of the
offering will convert into shares of common stock on a one-for-one basis, and no
dividends will be payable on any of the preferred stock.
1990 Stock Plan Authorized Shares
In December 1997, the Board of Directors authorized an amendment to the
1990 Plan increasing the number of shares issuable under the 1990 Plan to
1,700,000 shares.
F-17
<PAGE> 87
ANTHRA PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements -- (Continued)
Authorized Shares
In May 1998, the Company filed a Certificate of Amendment to its Amended
and Restated Certificate of Incorporation which increased the number of
authorized shares of Common Stock to 15,000,000 and authorized 1,000,000 shares
of undesignated preferred stock.
Development Agreement
In December 1997, the Company signed a term sheet with affiliates of
Schering to acquire the exclusive United States development and marketing rights
to a certain product for certain indications. Upon signing of the letter of
intent, the Company paid a nonrefundable amount of $250,000 to Schering in
consideration for a period of exclusivity in which to negotiate a final
agreement. This amount was charged to operations in the nine month period ended
March 31, 1998. If a final agreement is consummated as contemplated in the term
sheet, the Company would make additional payments aggregating up to $3,500,000
upon the achievement of certain future milestones. Schering would have the
option to acquire from the Company the exclusive right to market the product in
the United States for certain indications for payments aggregating up to
$21,000,000, plus royalties.
Automatic Conversion
In February 1998, the Company received conversion notices from all of the
Series D stockholders directing the Company to convert their Series D shares
into common stock provided the Offering is consummated by August 31, 1998,
regardless of the Offering price or the proceeds raised.
F-18
<PAGE> 88
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Financial Data............... 23
Management's Discussion and
Analysis of Financial Condition and
Results of Operations............... 24
Business.............................. 29
Management............................ 52
Principal Stockholders................ 60
Certain Relationships and
Related Transactions................ 62
Description of Capital Stock.......... 63
Shares Eligible for Future Sale....... 65
Underwriting.......................... 66
Legal Matters......................... 67
Experts............................... 67
Additional Information................ 67
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1998 (25 CALENDAR DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF THE DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
2,400,000 SHARES
[ANTHRA PHARMACEUTICALS, INC. LOGO]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
ALLEN & COMPANY
INCORPORATED
GRUNTAL & CO., L.L.C.
, 1998
======================================================
<PAGE> 89
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Other expenses in connection with the issuance and distribution of the
securities to be registered hereunder, all of which will be paid by the
Registrant, will be substantially as follows:
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ----------
<S> <C>
Commission Registration Fee................................. $ 9,363.30
Nasdaq National Market Initial Listing Fee.................. $ 5,000.00
*Nasdaq National Market Entry Fee........................... $64,375.00
*Nasdaq National Market Pro-rated Annual Fee................ $ 7,268.33
NASD Filing Fee............................................. $ 3,674.00
*Blue Sky Fees and Expenses (including legal fees).......... $ +
*Accounting Fees and Expenses............................... $ +
*Legal Fees and Expenses.................................... $ +
*Consulting Fees............................................ $ +
*Printing and Engraving..................................... $ +
*Registrar and Transfer Agent's Fees........................ $ +
*Underwriters' Expenses..................................... $ +
*Miscellaneous Expenses..................................... $ +
----------
Total............................................. $ +
==========
</TABLE>
- ---------------
* Estimated
+ To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Amended Certificate of Incorporation provides that a Director of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of the fiduciary duty as a director, except for
liability, to the extent imposed by applicable law, for: (i) any breach of the
Director's duty of loyalty to the Company or its stockholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) liability for payments of dividends or stock purchases
or redemptions in violation of Section 174 of the DGCL; or (iv) any transaction
from which the Director derived an improper personal benefit. In addition, the
Amended Certificate of Incorporation provides that the Company shall, to the
fullest extent permitted by Section 145 of the DGCL, as the same exists or may
hereafter be amended and supplemented, indemnify any and all persons who it
shall have the power to indemnify under such law from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for therein is not exclusive of any
other rights to which those indemnified may be entitled under any Bylaw,
agreement, vote of stockholders or disinterested Directors, or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, and continues as to a person who has ceased to be a
Director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The right to indemnification set forth above includes the right to be paid
by the Company the expenses (including attorneys' fees) incurred in defending
any such proceeding in advance of its final disposition; provided, however,
that, to the extent required by the DGCL, an advancement of expenses incurred by
an indemnitee shall be made only upon delivery to the Company of an undertaking,
by or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is not
further right to appeal that such indemnitee is not entitled to be indemnified
for such expenses under the relevant provisions of the DGCL or otherwise. The
rights to indemnification and to the advancement of expenses conferred are
contract rights and continue as to an indemnitee who has ceased to be
II-1
<PAGE> 90
a Director, officer, employee or agent and inures to the benefit of the
indemnitee's heirs, executors and administrators.
Section 145 of the DGCL provides that indemnification is permissible only
when the Director, officer, employee, or agent acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. Section
145 of the DGCL also precludes indemnification in respect of any claim, issue,
or matter as to which an officer, Director, employee, or agent shall have been
adjudged to be liable to the Company unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite such adjudication of liability
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
The Company has agreed to indemnify the Underwriters and their controlling
persons, and the Underwriters have agreed to indemnify the Company and its
controlling persons, against certain liabilities, including liabilities under
the Securities Act. Reference is made to the Underwriting Agreement filed as
part of the Exhibits hereto.
For information regarding the Company's undertaking to submit to
adjudication the issue of indemnification for violation of the securities laws,
see Item 17 hereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On September 20, 1995, the Company issued 271,276 shares of its Series D
Convertible Preferred Stock to Schering Berlin Venture Corporation at an
aggregate price of approximately $3.0 million pursuant to a Series D Convertible
Preferred Stock Purchase Agreement between such parties. The sale of stock to
Schering Berlin Venture Corporation was an integral part of, and condition
precedent to, the Development Agreement. In July 1996, the Company and Schering
AG, Germany converted the Development Agreement to the Support Agreement for
which Schering AG, Germany paid $3.5 million in consideration for its release
from the Development Agreement and 200,000 shares of the Company's Series D
Convertible Preferred Stock, which shares Schering AG, Germany subsequently
converted to Common Stock.
On April 17, 1997, the Company issued 67,819 shares of its Series D
Convertible Preferred Stock to Almirall at an aggregate price of approximately
$750,000 in connection with the Almirall Agreement.
On July 15, 1997, the Company entered into the Medeva Agreement. Under the
Medeva Agreement, in the event that the Company has not obtained certain NDA
approvals for Valstar by December 31, 2002, Medeva has the right to require the
Company to issue to it such number of shares of Common Stock equal to 20% of the
outstanding voting equity securities of the Company at the time of its exercise
of such right. As of the date hereof, no equity securities of the Company have
been issued to Medeva pursuant to the Medeva Agreement.
On October 14, 1997, the Company issued 300,000 shares of its Series D
Convertible Preferred Stock to Nycomed at an aggregate price of $4.5 million in
connection with the Nycomed Agreement.
Exemption from registration for each transaction described above was
claimed pursuant to Section 4(2) of the Securities Act regarding transactions by
an issuer not involving any public offering.
II-2
<PAGE> 91
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1 Form of Underwriting Agreement by and between the
Representatives and the Company.[ ]
3.1 Certificate of Amendment of Amended and Restated Certificate
of Incorporation [ ] (Amended and Restated Certificate of
Incorporation of the Company, as previously amended,
included as Exhibit 3.1 to the Registration Statement#).
3.2 Bylaws of the Company.#
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Specimen Common Stock Certificate.+
4.3 Fifth Amended and Restated Registration Rights Agreement,
dated October 14, 1997, by and among the Company, Advanced
Technology Ventures III, L.P., Sevin Rosen Fund III, L.P.,
Allstate Insurance Company, Allstate Life Insurance Company,
Aperture Associates, L.P., Schering Berlin Venture
Corporation, Prodesfarma, S.A. and Nycomed Pharma AS.#
5 Form of Opinion of Morrison & Foerster LLP. [ ]
10.1 Agreement, dated November 6, 1990, by and between the
Company and Dana-Farber Cancer Institute.*#
10.2 Letter agreement, dated December 5, 1990, by and between the
Company and Michael C. Walker.#
10.3 Letter agreement, dated December 5, 1990, by and between the
Company and Mervyn Israel.#
10.4 Exclusive Supply Agreement, dated June 1, 1991, by and
between the Company and Omnichem S.A.*#
10.5 Termination, Settlement and Investment Agreement, dated July
16, 1996, by and between the Company and Schering AG,
Germany (f/k/a Schering AG).*#
10.6 Agreement, dated September 1996, between the Company and
Allen L. Thunberg.#
10.7 Agreement, dated September 1996, between the Company and
Michael C. Walker.#
10.8 Agreement, dated November 27, 1996, between the Company and
Dr. Joseph V. Gulfo.#
10.9 Exclusive License Agreement, dated April 17, 1997, by and
between the Company and Prodesfarma, S.A. (a/k/a Almirall
Prodesfarma, S.A.).*#
10.10 Sublease, dated July 2, 1997, by and between the Company and
the Presbyterian Homes of New Jersey Foundation, Inc.#
10.11 Development Agreement, dated July 15, 1997, by and between
the Company and Medeva California Inc.*#
10.12 Supply Agreement, dated September 11, 1997, by and between
the Company and Genchem Pharma Ltd.*#
10.13 1990 Stock Plan, as amended.#
10.14 Exclusive License, Sale and Distribution Agreement, dated
October 14, 1997, by and between the Company and Nycomed
Pharma AS.*#
10.15 Term Sheet, dated December 12, 1997, by and among Berlex
Laboratories, Inc., the Company and Leiras Oy.*#
10.16 Underlease of Suite B Second Floor Premises known as The
Malt House, Malt House Square, Princes Risborough,
Buckinghamshire, dated December 27, 1997, by and between the
Company and Allen-Martin Conservation Limited.#
</TABLE>
II-3
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
21 Subsidiary.#
23.1 Consent of KPMG Peat Marwick LLP. [ ]
23.2 Consent of MedProbe, Inc. [ ]
24 Powers of Attorney (set forth on signature page to the
Registration Statement or included in Exhibit 24 to
Amendment No. 1 to the Registration Statement). [ ]
27.1 Summary Financial Data Schedule.#
</TABLE>
- ---------------
+ To be filed by amendment.
* Confidential treatment has been requested with respect to certain portions of
this Exhibit. Omitted portions will be filed separately with the Commission.
# Previously filed.
[ ] Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denomination and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by 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 in the Offering, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
the Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act, shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, 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.
II-4
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on May 15, 1998.
ANTHRA PHARMACEUTICALS, INC.
By: /s/ MICHAEL C. WALKER
------------------------------------
Michael C. Walker
President and Chief Executive
Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act, this Amendment to
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
<C> <S> <C>
/s/ MERVYN ISRAEL* Chairman of the Board and Secretary May 15, 1998
- ------------------------------------------
Mervyn Israel
/s/ MICHAEL C. WALKER Director, Chief Executive Officer and May 15, 1998
- ------------------------------------------ President (Principal Executive Officer)
Michael C. Walker
/s/ JOSEPH V. GULFO* Chief Operating Officer, Executive Vice May 15, 1998
- ------------------------------------------ President and Director
Joseph V. Gulfo
/s/ KAREN KRUMEICH* Chief Financial Officer and Vice May 15, 1998
- ------------------------------------------ President -- Finance (Principal
Karen Krumeich Financial and Accounting Officer)
/s/ PIETER J. SCHILLER* Director May 15, 1998
- ------------------------------------------
Pieter J. Schiller
/s/ PAUL G. GOODING* Director May 15, 1998
- ------------------------------------------
Paul G. Gooding
/s/ WILLIAM ENGBERS* Director May 15, 1998
- ------------------------------------------
William Engbers
</TABLE>
II-5
<PAGE> 94
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
<C> <S> <C>
/s/ STEPHEN M. DOW* Director May 15, 1998
- ------------------------------------------
Stephen M. Dow
*By: /s/ MICHAEL C. WALKER
- ------------------------------------------
Michael C. Walker
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 95
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ------------
<C> <S> <C>
1 Form of Underwriting Agreement by and between the
Representatives and the Company.[ ]
3.1 Certificate of Amendment of Amended and Restated Certificate
of Incorporation [ ] (Amended and Restated Certificate of
Incorporation of the Company, as previously amended,
included as Exhibit 3.1 to the Registration Statement#).
3.2 Bylaws of the Company.#
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Specimen Common Stock Certificate.+
4.3 Fifth Amended and Restated Registration Rights Agreement,
dated October 14, 1997, by and among the Company, Advanced
Technology Ventures III, L.P., Sevin Rosen Fund III, L.P.,
Allstate Insurance Company, Allstate Life Insurance Company,
Aperture Associates, L.P., Schering Berlin Venture
Corporation, Prodesfarma, S.A. and Nycomed Pharma AS.#
5 Form of Opinion of Morrison & Foerster LLP. [ ]
10.1 Agreement, dated November 6, 1990, by and between the
Company and Dana-Farber Cancer Institute.*#
10.2 Letter agreement, dated December 5, 1990, by and between the
Company and Michael C. Walker.#
10.3 Letter agreement, dated December 5, 1990, by and between the
Company and Mervyn Israel.#
10.4 Exclusive Supply Agreement, dated June 1, 1991, by and
between the Company and Omnichem S.A.*#
10.5 Termination, Settlement and Investment Agreement, dated July
16, 1996, by and between the Company and Schering AG,
Germany (f/k/a Schering AG).*#
10.6 Agreement, dated September 1996, between the Company and
Allen L. Thunberg.#
10.7 Agreement, dated September 1996, between the Company and
Michael C. Walker.#
10.8 Agreement, dated November 27, 1996, between the Company and
Dr. Joseph V. Gulfo.#
10.9 Exclusive License Agreement, dated April 17, 1997, by and
between the Company and Prodesfarma, S.A. (a/k/a Almirall
Prodesfarma, S.A.).*#
10.10 Sublease, dated July 2, 1997, by and between the Company and
the Presbyterian Homes of New Jersey Foundation, Inc.#
10.11 Development Agreement, dated July 15, 1997, by and between
the Company and Medeva California Inc.*#
10.12 Supply Agreement, dated September 11, 1997, by and between
the Company and Genchem Pharma Ltd.*#
10.13 1990 Stock Plan, as amended.#
10.14 Exclusive License, Sale and Distribution Agreement, dated
October 14, 1997, by and between the Company and Nycomed
Pharma AS.*#
10.15 Term Sheet, dated December 12, 1997, by and among Berlex
Laboratories, Inc., the Company and Leiras Oy.*#
</TABLE>
<PAGE> 96
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ------------
<C> <S> <C>
10.16 Underlease of Suite B Second Floor Premises known as The
Malt House, Malt House Square, Princes Risborough,
Buckinghamshire, dated December 27, 1997, by and between the
Company and Allen-Martin Conservation Limited.#
21 Subsidiary.#
23.1 Consent of KPMG Peat Marwick LLP. [ ]
23.2 Consent of MedProbe, Inc. [ ]
24 Powers of Attorney (set forth on signature page to the
Registration Statement or included in Exhibit 24 to
Amendment No. 1 to the Registration Statement).#
27.1 Summary Financial Data Schedule.#
</TABLE>
- ---------------
+ To be filed by amendment.
* Confidential treatment has been requested with respect to certain portions of
this Exhibit. Omitted portions will be filed separately with the Commission.
# Previously filed.
[ ] Filed herewith.
<PAGE> 1
================================================================================
2,400,000 SHARES
ANTHRA PHARMACEUTICALS, INC.
COMMON STOCK
____________________________
UNDERWRITING AGREEMENT
SELECTED DEALER AGREEMENT
____________________________
____________, 1998
================================================================================
<PAGE> 2
2,400,000 SHARES
ANTHRA PHARMACEUTICALS, INC.
COMMON STOCK
____________________________
UNDERWRITING AGREEMENT
____________________________
___________, 1998
ALLEN & COMPANY INCORPORATED
GRUNTAL & CO., L.L.C.
As Representatives of the Several
Underwriters
c/o Allen & Company Incorporated
711 Fifth Avenue
New York, New York 10022
Dear Sirs:
Anthra Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement with the several Underwriters named in
schedule A hereto (the "Underwriters"), for which you are acting as
representatives (the "Representatives"), as follows:
1. DESCRIPTION OF SECURITIES. The Company has authorized by appropriate
corporate action and proposes to issue and sell to the Underwriters its shares
of Common Stock, $.01 par value. As further described in Section 3 hereof,
2,400,000 of such shares (the "Purchased Shares") are being sold by the Company
to the Underwriters and the Company is granting to the Underwriters an option to
purchase up to 360,000 additional shares (the "Option Shares"). The Purchased
Shares and Option Shares are herein collectively referred to as the "Shares".
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The Company
represents and warrants to and agrees with each Underwriter that:
(a) A registration statement on Form S-1 (File No. 333-47725) with
respect to the Shares, including a preliminary
<PAGE> 3
form of prospectus, copies of which have heretofore been delivered to you, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act, and has been filed with the Commission under the
Act; such amendment or amendments to such registration statement, copies of
which have heretofore been delivered to you, as may have been made prior to the
date of this Agreement have been so prepared and filed; and the Company has so
prepared and proposes so to file in a timely manner after the effective date of
such registration statement the final form of prospectus. Such registration
statement (including all exhibits thereto), as finally amended and revised as of
the time the Underwriters first offer the Shares for sale to the public together
with information, if any, which is permitted to be, and is, subsequently filed
pursuant to Rule 430A of the Rules and Regulations, is herein referred to as the
"Registration Statement". Such prospectus in the form filed pursuant to Rule
424(b) of the Rules and Regulations, or, if no final prospectus is filed with
the Commission pursuant to Rule 424(b), in such form as such final prospectus is
included in the Registration Statement, is herein referred to as the
"Prospectus". Each preliminary form of prospectus is herein referred to as a
"Preliminary Prospectus".
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. At the time of filing of each Preliminary
Prospectus, such prospectus did not include any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. When the Registration Statement was or is declared effective and at
all times subsequent thereto up to and at each Closing Date (hereinafter
defined) (i) the Registration Statement contained or will contain as of its date
all material statements and information which are required to be included
therein in accordance with the Act and Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, and (ii) the Registration Statement did not or will not include as
of its date any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading. When the
Prospectus or any amendment or supplement thereto is filed with the Commission
pursuant to Rule 424(b) (or, if the Prospectus or such amendment or supplement
is not required to be so filed, when the Registration Statement or the amendment
thereto containing such amendment or supplement to the Prospectus was or is
declared effective), on the date when the Prospectus is otherwise amended or
supplemented and on each Closing Date (as hereinafter defined), the Prospectus,
as amended or supplemented at any such time, (i) contained or will contain all
statements required to be
3
<PAGE> 4
stated therein in accordance with, and complied or will comply in all material
respects with the requirements of, the Act and the Rules and Regulations and
(ii) did not or will not include any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
foregoing representations and warranties shall not apply to information
contained in or omitted from the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon, and in conformity with, written
information furnished to the Company by any Underwriter through you specifically
for use in the preparation thereof.
(c) Set forth on Schedule B hereto is the name of each subsidiary of
the Company which holds assets or conducts operations which are material to the
condition (financial or otherwise), results of operations, business or prospects
of the Company and its subsidiaries taken as a whole, and, unless otherwise
indicated thereon, the Company holds all right, title and interest in and to the
entire equity interest in each such subsidiary. Except as described in the
Prospectus, subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, neither the Company, nor any
entity which is either identified in the Prospectus as a subsidiary of the
Company or listed on Schedule B hereto (each individually a "Subsidiary" and
collectively the "Subsidiaries"), taken as a whole, has incurred any direct or,
to the best of the Company's knowledge, contingent material liabilities or
material obligations, or entered into any material transactions or contracts not
in the ordinary course of business, and there has not been any change in its
capital shares, options or warrants, nor any material increase or decrease in
the amount thereof outstanding or in any of its long-term debt outstanding,
except pursuant to the terms of the instruments governing the same, or any
material adverse change in the condition (financial or otherwise), results of
operations, business or prospects of the Company and the Subsidiaries taken as a
whole.
(d) Except as set forth in the Prospectus, there is not now pending
or, to the knowledge of the Company, threatened, any action, suit or proceeding
to which the Company or any Subsidiary is a party before any court or
governmental agency or body which could reasonably be expected to result in any
material adverse change in the condition (financial or otherwise), results of
operations, business or prospects of the Company and the Subsidiaries taken as a
whole, or could reasonably be expected to materially and adversely affect the
properties, assets or ability to do business as contemplated in the Prospectus
of the Company and the Subsidiaries taken as a whole; and there are no contracts
or documents required to be filed as exhibits to the Registration Statement by
the Act or by the Rules and Regulations which have not been filed as exhibits to
the Registration Statement.
4
<PAGE> 5
(e) This Agreement has been duly authorized, executed and delivered
on behalf of the Company and constitutes a valid and binding agreement of the
Company, enforceable in accordance with its terms, except (1) that such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
and (2) as rights to indemnity or contribution hereunder may be limited by
federal or state securities laws; the execution, delivery and performance of
this Agreement and the consummation of the transactions herein contemplated will
not result in a breach or violation of any term or provision of, or constitute a
default under, (i) any currently existing statute, any indenture, mortgage, deed
of trust, note agreement or other agreement or instrument filed as an exhibit to
the Registration Statement or any other material indenture, mortgage, deed of
trust, note or agreement or other agreement or instrument to which the Company
or any Subsidiary is a party or by which it or its property is bound; (ii) the
charter or by-laws of the Company or any Subsidiary; or (iii) any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or over their properties; no consent, approval, authorization or
order of any court or governmental agency or body is required for the
consummation by the Company of the transactions on its part herein contemplated,
except such as have been obtained or such as may be required under the Act or as
may be required under state or other securities or blue sky laws in connection
with the purchase and distribution of the Shares by the Underwriters; and
neither the Company nor any of the Subsidiaries is now in default, and no event
has occurred which with the giving of notice or lapse of time or both would be a
default, under any contract, agreement, indenture, mortgage or other undertaking
to which such entity is a party and which is material to the condition
(financial or otherwise), results of operations, business or prospects of the
Company and the Subsidiaries taken as a whole.
(f) Each of the Company and the Subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, with full power and authority,
corporate or otherwise, to own its properties and conduct its business as
described and contemplated in the Registration Statement, and is duly qualified
to do business as a foreign corporation in good standing in all other
jurisdictions where its operations or ownership of property requires such
qualifications and where failure so to qualify would impair title to any
material properties of the Company or its rights to enforce contracts against
others or expose it to liabilities material to the Company and the Subsidiaries
taken as a whole in such jurisdictions.
5
<PAGE> 6
(g) The Company has the authorized and outstanding capital stock set
forth in the Prospectus; the outstanding capital stock of the Company conforms,
and the Shares when issued and sold as herein contemplated will conform, in all
material respects, to all statements in relation thereto contained in the
Registration Statement and the Prospectus and all such stock has been duly
authorized and the outstanding capital stock has been and the Shares, when
issued and delivered against payment therefor as provided herein, will be
validly issued, fully-paid and nonassessable; except as stated in the
Prospectus, the stockholders of the Company have no preemptive rights with
respect to the Shares and there are no outstanding rights, options or warrants
to acquire any securities of the Company; to the extent that any rights, options
or warrants to acquire any securities of the Company are outstanding, except as
otherwise set forth in the Prospectus, the issuance of the Shares as described
in the Prospectus will not result in an adjustment of the exercise price or
number of shares issuable upon the exercise in respect of any such rights,
options or warrants; and, except as otherwise set forth in the Prospectus, the
Company owns (directly or indirectly) under valid title the respective
outstanding shares of capital stock of the Subsidiaries, free and clear of any
material liens, encumbrances or claims.
(h) Except as otherwise set forth in the Prospectus, each of the
Company and the Subsidiaries owns or possesses, or can acquire on reasonable
terms, adequate patents, patent licenses, trademarks, service marks and trade
names necessary to carry on its business as presently conducted, and except as
set forth in the Prospectus, neither the Company nor any of the Subsidiaries has
received any notice of infringement of or conflict with asserted rights of
others with respect to any patents, patent licenses, trademarks, service marks
or trade names which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could materially and adversely affect
the condition (financial or otherwise), earnings, affairs, business or prospects
of the Company and the Subsidiaries taken as a whole.
(i) Except as set forth in the Prospectus, the Company and its
Subsidiaries hold in good standing or have applied for all material licenses,
permits, authorizations, franchises, consents and orders of all federal, state,
local, and foreign governmental bodies necessary to carry on their respective
businesses as reflected or contemplated in the Prospectus; except as stated in
the Prospectus the Company has good and marketable title in fee simple to all
real property and good and marketable title to all personal property owned by
it, in each case free and clear of all liens, encumbrances and defects, other
than for, in each case, such exceptions as are not material to the Company and
the Subsidiaries taken as a whole; and the real property and personal property
referred to in the Prospectus as held under
6
<PAGE> 7
lease by the Company is held by it under valid, subsisting and enforceable
leases with only such exceptions as in the aggregate are not material and do not
materially interfere with the conduct of the business of the Company and the
Subsidiaries taken as a whole as contemplated by the Prospectus.
(j) The Company is conducting and proposes to conduct its business
so as to comply in all material respects with all applicable federal, state,
local and foreign governmental statutes, rules and regulations; and except as
set forth in the Prospectus, neither the Company nor any Subsidiary is charged
with, or, is under investigation with respect to, any violation of any of such
statutes, rules or regulations or is the subject of any pending or threatened
proceeding by a governmental body or regulatory authority relating to any such
violation, except for such violations which, individually or in the aggregate,
would not materially and adversely affect the business or financial condition of
the Company and the Subsidiaries taken as a whole.
(k) The Company and each of the Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are customary in the business in which they are engaged; and neither
the Company nor any of the Subsidiaries has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not materially and adversely
affect the business or financial condition of the Company and the Subsidiaries
taken as a whole, except as described or contemplated in the Prospectus.
(l) KPMG Peat Marwick LLP, which has examined and expressed its
opinion on certain of the financial statements of the Company filed with the
Commission as a part of the Registration Statement, are, to the Company's best
knowledge, independent accountants with respect to the Company within the
meaning of the Act and the Rules and Regulations; the financial statements,
together with the related notes, forming part of the Registration Statement and
Prospectus fairly present the financial condition of the Company and its results
of operations as of the dates and for the periods described in such opinion in
the Prospectus; and such financial statements have been prepared in accordance
with the requirements of the Commission.
(m) The Company and each of the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
transactions are executed in accordance with management's general or specific
authorizations and are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles.
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(n) Except as stated in the Prospectus, the Company knows of no
outstanding claims for services, either in the nature of a finder's fee or
origination fee, with respect to the transactions contemplated hereby, and the
Company agrees to indemnify and hold the Underwriters harmless from any such
claim for any such services of such nature arising from the act of any person
other than any Underwriter.
(o) No person holds a right to require or participate in the
registration under the Act of the Common Stock of the Company to be effected by
the Registration Statement, which right has not been effectively waived by the
holder thereof as of the date hereof.
(p) The Company has obtained from each of its officers and
directors, and from each of its shareholders owning in excess of 1.0% of the
shares of the Company's Common Stock outstanding immediately prior to the
consummation of the offering contemplated hereby, and will use its best efforts
to seek from each of its other shareholders (provided that a failure to obtain
agreements from such other shareholders will not be deemed a breach of this
representation), an executed agreement in form and substance satisfactory to the
Representatives that each such party will not, without the prior written consent
of the Representatives on behalf of the Underwriters, sell, offer for sale,
contract to sell or otherwise dispose of any shares of the Company's Common
Stock or any securities exercisable for or convertible into its Common Stock or
any rights to acquire Common Stock for a period of 180 days from the date of the
final Prospectus.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to each
Underwriter and each Underwriter agrees, severally and not jointly, to purchase
from the Company, at a purchase price of $______ per Share, the number of Shares
set forth opposite the name of such Underwriter in Schedule A hereto.
The Company will deliver the Purchased Shares to you for the
accounts of the several Underwriters at the office of Allen & Company
Incorporated, 711 Fifth Avenue, New York, New York, against payment of the
purchase price therefor by certified or official bank check or checks in New
York Clearing House funds, payable to the order of Anthra Pharmaceuticals, Inc.,
at 10:00 A.M., New York Time, on ____________, 1998 or at such other time and
date not later than five full business days thereafter as you and the Company
may mutually determine, such time and date of delivery and payment being herein
called the "First Closing Date". The certificates for the Purchased Shares to be
so delivered will be made available to you at such office for
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<PAGE> 9
checking at least one full business day prior to such Closing Date and will be
in such names and denominations as you may request in writing not less than two
full business days prior to such Closing Date.
On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company grants to the Underwriters an option to purchase up to 360,000 Option
Shares at the same price per share as the Underwriters shall pay for the
Purchased Shares. Such option may be exercised only to cover over-allotments
arising in connection with the sale of Purchased Shares by the Underwriters,
such exercise to be upon written notice by you to the Company within 30 days of
the date hereof setting forth the number of Options Shares as to which the
Underwriters are exercising the option, the denominations and names in which
certificates for such Shares should be registered and the time and place at
which such certificates are to be delivered. Such time and place (unless such
time is the First Closing Date), herein referred to as the "Second Closing
Date", shall be determined by you but shall not be earlier than the First
Closing Date, nor earlier than three full business days or later than ten full
business days after the exercise of such option. The Company will deliver Option
Shares to you for the accounts of the several Underwriters against payment of
the purchase price therefor by certified or official bank check or checks in New
York Clearing House funds payable to the order of Anthra Pharmaceuticals, Inc.
The number of Option Shares to be purchased by each Underwriter shall be in the
same proportion to the aggregate number of Option Shares purchased as the number
of Purchased Shares set forth opposite the name of such Underwriter in Schedule
A hereto bears to 2,400,000.
It is understood that you, individually and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment on behalf of any Underwriter or Underwriters for Shares to be
purchased by such Underwriter or Underwriters. Any such payment by you shall not
relieve any such Underwriter or Underwriters of any of its or their obligations
hereunder.
After the Registration Statement becomes effective, the several
Underwriters propose to offer the Shares to the public as set forth in the
Prospectus.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any subsequent amendment thereto to become effective as promptly
as possible; it will notify you, promptly after it shall receive notice thereof,
of the time when
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<PAGE> 10
the Registration Statement or any subsequent amendment to the Registration
Statement has become effective or any supplement to the Prospectus has been
filed; it will notify you promptly of any request by the Commission for the
amending or supplementing of the Registration Statement or Prospectus or for
additional information; it will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration Statement
or Prospectus which, in your reasonable opinion, may be necessary or advisable
in connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading; in case any Underwriter
is required to deliver a prospectus after the nine-month period referred to in
Section 10(a)(3) of the Act in connection with sales of the Shares purchased by
the Underwriters from the Company pursuant to Section 3 or otherwise acquired by
the Underwriters during the distribution of the Shares in connection with
stabilization or otherwise, the Company will prepare and file with the
Commission promptly upon request of, but at the expense of, such Underwriter,
any amendments or supplements to the Registration Statement or Prospectus as may
be necessary, in such Underwriter's reasonable opinion, to permit the sale of
such Shares in the manner determined by such Underwriter, in compliance with the
requirements of the Act, including Section 10(a)(3) thereunder; and it will file
no amendment or supplement to the Registration Statement or Prospectus that
shall not previously have been submitted to you in writing a reasonable time
prior to the proposed filing thereof or to which you shall reasonably object in
writing.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or of any
order suspending trading in the Shares or other of the Company's securities or
of the initiation or threat of any proceeding for that purpose; and it will use
promptly its best efforts to prevent the issuance of any stop order or to obtain
its withdrawal if such a stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
sale under the blue sky or securities laws of such jurisdictions as you may
reasonably designate and to continue such qualifications in effect for so long
as may be required for
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<PAGE> 11
purposes of the distribution of the Shares, except that the Company shall not be
required in connection therewith or as a condition thereof to qualify as a
foreign corporation or to execute a general consent to service of process in any
state.
(d) The Company will furnish to you, as soon as available, copies of
the Registration Statement (two of which will be signed and will include all
exhibits), each Preliminary Prospectus, the Prospectus, and any amendments or
supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, all in such quantities as you may
from time to time reasonably request.
(e) The Company will make generally available to its security
holders as soon as practicable, an earnings statement (which will be in
reasonable detail but need not be audited) covering a 12-month period beginning
after the effective date of the Registration Statement which shall satisfy the
provisions of Section 11(a) of the Act.
(f) The Company agrees, during each fiscal year for a period of five
years from the date hereof, to furnish to its stockholders as promptly as may be
practicable an annual report (including financial statements audited by
independent public accountants) and to publish quarterly financial statements
(which need not be audited) for each of the first three quarters of each fiscal
year, and to furnish, upon request, to each Underwriter hereunder (i) as soon as
practicable after the end of each of the first three quarters of each fiscal
year, the Company's quarterly report on Form 10-Q or statements of operations
and surplus of the Company for such quarter in reasonable detail and certified
by the Company's principal financial or accounting officer; (ii) as soon as
practicable after the end of each fiscal year, financial statements of the
Company as at the end of such fiscal year, including statements of operations,
retained earnings and changes in financial position of the Company for such
fiscal year, all in reasonable detail and accompanied by a copy of the report
thereon of independent public accountants or the Company's annual report on Form
10-K; and (iii) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission. During such
period, if and so long as the Company shall have active subsidiaries, the
foregoing financial statements shall be on a combined or consolidated basis to
the extent that the accounts of the Company and its subsidiaries are combined or
consolidated.
(g) The Company covenants and agrees with the several Underwriters
that the Company will pay or cause to be paid the
following: (i) the fees, disbursements, and expenses of the Company's counsel
and accountants in connection with the registration of the Shares under the Act;
(ii) all other expenses in connection with the preparation, printing, and filing
of the
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<PAGE> 12
Registration Statement, each Preliminary Prospectus, and the Prospectus
and amendments and supplements thereto, and the mailing and delivering of copies
thereof to the Underwriters and dealers; (iii) the cost of printing this
Agreement, the Selected Dealer Agreement, the Blue Sky Memorandum, and any other
documents in connection with the offering, purchase, sale and delivery of the
Shares; (iv) all costs and expenses in connection with the issuance and delivery
of the Shares hereunder to the Underwriters, including related transfer taxes,
if any; (v) all expenses in connection with the qualification of the Shares for
offering and sale under the securities laws of various jurisdictions, including
the fees and disbursements of counsel for the Underwriters in connection with
such qualification and in connection with the Blue Sky Survey; (vi) the filing
fees incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Shares; (vii) the costs
of preparing stock certificates; (viii) the cost and charges of any transfer
agent or registrar; and (ix) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section 4. In addition to the foregoing, the Company shall
reimburse the Underwriters, upon request from time to time, for their reasonable
itemized out-of-pocket expenses up to a maximum of $150,000, including their
legal fees and disbursements and travel, roadshow and syndicate expenses, upon
the presentation of reasonable documentation thereof. If the Company determines
not to proceed with the offering for any reason, other than the Underwriters'
unwillingness to proceed on the terms and conditions set forth in this
Agreement, or if the Representatives exercise their right to terminate this
Agreement pursuant to Section 10(b)(i) hereof, the Company shall reimburse the
Underwriters for all reasonable out-of-pocket expenses including legal fees and
disbursements and travel, roadshow and syndicate expenses actually incurred by
the Underwriters up to a maximum of $150,000. The Company shall not in any event
be liable to any of the Underwriters for the loss of anticipated profits from
the transactions covered by this Agreement.
(h) The Company agrees that it will not, without the prior written
consent of the Representatives on behalf of the Underwriters, sell, offer for
sale, contract to sell or otherwise dispose of any shares of its Common Stock or
any securities exercisable for or convertible into shares of its Common Stock or
any rights to acquire Common Stock, for a period of 180 days after the date of
the final Prospectus.
(i) The Company understands that no action has been or will be taken
in any jurisdiction (except in the United States) that would permit a public
offering of the Shares or the possession, circulation or distribution of the
Prospectus or any amendment or supplement thereto or any other material
relating to the Company or the Shares in any jurisdiction where action for that
purpose is required. Accordingly, the Company agrees that it will not offer or
sell, directly or indirectly, the Shares, nor will it distribute or publish the
Prospectus or any amendment or supplement thereto nor any other offering
material or advertisements in connection with the Shares, in or from any country
or jurisdiction except in compliance with any applicable rules and regulations
of any such country or jurisdiction.
5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several
Underwriters to purchase and pay for the Purchased Shares on the First Closing
Date and the Option Shares on the Second Closing Date, as provided herein shall
be subject to the accuracy, as of the date hereof and such Closing Date (as if
made on and as of such Closing Date), of the
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<PAGE> 13
representations and warranties of the Company herein, to the performance by the
Company of its obligations hereunder, and to the following additional
conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., New York City Time, on the date of this Agreement, or such later
date as shall be consented to in writing by you; if required, the Prospectus and
any amendment or supplement thereto shall have been filed with the Commission in
the manner and within the time period required by Rule 424(b) under the Act; and
no stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company or any Underwriter, threatened by the Commission, and any request of
the Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to your
satisfaction.
(b) Prior to such Closing Date, except as contemplated in the
Prospectus, there shall not have been any change in the capital shares, nor the
issuance of any rights, options, or warrants to purchase any capital shares, nor
any material increase or decrease in any long-term debt of the Company or any of
the Subsidiaries or any material adverse change in the condition (financial or
otherwise), results of operations, business or prospects of the Company or any
of the Subsidiaries which in your reasonable judgment renders it inadvisable to
proceed with the offering and sale of the Shares.
(c) You shall have received the opinion of Morrison & Foerster LLP,
counsel for the Company, dated such Closing Date, in the form substantially set
forth as Exhibit A attached hereto.
(d) You shall have received from Covington & Burling, regulatory
counsel to the Company, an opinion, dated such Closing Date, in form and
substance satisfactory to you, to the effect that the statements in the
Prospectus under the captions "Risk Factors - Uncertainty of Government
Regulatory Requirements; Lengthy Approval Process" and "Business - Government
Regulation", insofar as they pertain to legal matters, fairly present in all
material respects the information presented therein.
(e) You shall have received from Werbel & Carnelutti, A Professional
Corporation, counsel for the several Underwriters, an opinion or opinions, dated
such Closing Date, in form and substance satisfactory to you, with respect to
the sufficiency of all such corporate proceedings and other legal matters
relating to this Agreement and the transactions contemplated hereby as you
may reasonably require, and the Company shall have furnished to such counsel
such documents as they may have requested for the purpose of enabling them to
pass upon such matters.
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<PAGE> 14
(f) You shall have received, at the time of execution of this
Agreement and on such Closing Date from KPMG Peat Marwick LLP, independent
public accountants, a letter or letters, dated the date of delivery thereof,
substantially in the form and substance heretofore approved by you.
(g) You shall have received a certificate, dated such Closing Date,
of each of the President and Chief Executive Officer and the Chief Financial
Officer of the Company, delivered on behalf of the Company, to the effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects as if made
on and as of such Closing Date; and the Company has complied with
all the agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to such Closing Date in all
material respects;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that
purpose have been instituted or, to their knowledge, are
contemplated by the Commission; and
(iii) except as contemplated by or described in the Prospectus,
the Company and/or its Subsidiaries taken as a whole have not
incurred any direct or, to the best of the Company's knowledge,
contingent material liabilities or obligations, or entered into any
material transactions or contracts not in the ordinary course of
business, and there has not been any change in the capital shares of
the Company and/or its Subsidiaries, nor the issuance of any rights,
options, or warrants to purchase any capital shares, nor any
material increase or decrease in any thereof or in any long-term
debt or any material adverse change in the condition (financial or
otherwise) results of operations, business or prospects of the
Company and its Subsidiaries taken as a whole; provided, however,
that all of the outstanding shares of the Company's preferred stock
shall have been converted, simultaneously with the First Closing
Date, into shares of Common Stock as contemplated in the Prospectus.
(h) The Company shall have furnished to you such certificates, in
addition to those specifically mentioned herein, as you may have reasonably
requested, as to the accuracy and completeness at such Closing Date of any
statement in the Registration Statement or Prospectus, as to the accuracy at
such Closing Date of the representations and warranties of the Company herein,
as to the performance by the Company of its obligations
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<PAGE> 15
hereunder, and as to the fulfillment of the conditions concurrent and precedent
to the obligations of the Underwriters hereunder.
(i) The Company shall have furnished to you the agreements described
in Section 2(p) of this Agreement.
6. INDEMNIFICATION. (a) The Company will indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter or such controlling person may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each Underwriter and each such controlling person for any legal or
other expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending against any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus, the Prospectus or such amendment or such supplement
in reliance upon and in conformity with written information furnished to the
Company by any Underwriter through you specifically for use therein; and
provided further, that the foregoing indemnity with respect to Preliminary
Prospectuses shall not inure to the benefit of any Underwriter (or to the
benefit of any person controlling such Underwriter) if such untrue statement or
omission or alleged untrue statement or omission made in any Preliminary
Prospectus is eliminated or remedied in the Prospectus and a copy of the
Prospectus has not been furnished to the person asserting any such losses,
claims, damages, or liabilities at or prior to the written confirmation of the
sale of such Shares to such person. Such indemnity obligation will be in
addition to any liability which the Company may otherwise have. The indemnity
agreement of the Company contained in this paragraph (a) and the representations
and warranties of the Company contained in Section 2 hereof shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any indemnified party and shall survive the delivery of and
payment for the Shares.
(b) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company, each of its directors,
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<PAGE> 16
each of its officers who signed the Registration Statement, and each person, if
any, who controls the Company within the meaning of the Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company or any
such director, officer or controlling person may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through you specifically for use therein; and will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer or
controlling person in connection with investigating or defending against any
such loss, claim, damage, liability or action. Such indemnity obligation will be
in addition to any liability which such Underwriter may otherwise have. The
indemnity agreement of each Underwriter contained in this paragraph (b) shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any indemnified party and shall survive the delivery of
and payment for the Shares.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify the indemnifying party of the commencement thereof.
Indemnification shall not be available to any party who shall fail so to give
notice, if the party to whom notice was required to be given was unaware of the
action, suit, investigation, inquiry or proceeding to which the notice would
have related, to the extent that such party was prejudiced by the failure to
give notice; but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
otherwise than under this Section. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel chosen by such indemnifying party which is reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying
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<PAGE> 17
party will not be liable to such indemnified party under this Section for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that (i) if the indemnified party reasonably
determines that there may be a conflict between the positions of the
indemnifying party and of the indemnified party in conducting the defense of
such action, suit, investigation, inquiry or proceeding or that there may be
legal defenses available to such indemnified party different from or in addition
to those available to the indemnifying party, then counsel for the indemnified
party shall be entitled to conduct the defense to the extent reasonably
determined by such counsel to be necessary to protect the interests of the
indemnified party and (ii) in any event, the indemnified party (at its own
expense) shall be entitled to have counsel chosen by such indemnified party
participate in, but not conduct, the defense. No indemnifying party shall be
liable to any indemnified party in respect to any settlement effected without
its prior written consent, which consent shall not be unreasonably withheld. In
addition, the indemnifying party will not, without the prior written consent of
an indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not such
indemnified party is a party to such claim, action or suit or proceeding),
unless such settlement, compromise or consent includes an unconditional release
of such indemnified party from all liability arising out of such claim, action,
suit or proceeding.
7. CONTRIBUTION. In order to provide for just and equitable contribution
in case the indemnification provided for in Section 6 shall be unavailable to or
insufficient to hold harmless an indemnified party under Sections 6(a) or 6(b)
hereof, then each indemnifying party under any such paragraph, in lieu of
indemnifying such party thereunder, shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other from the offering of the Shares. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to
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<PAGE> 18
be in the same proportion as the total net proceeds from the offering of the
Shares (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or the Underwriters on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 7 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this Section 7, (i)
except as may be provided in its Master Agreement Among Underwriters provided to
Allen & Company Incorporated, in no case shall any Underwriter be responsible
for any amount in excess of the underwriting discount and commission applicable
to the Shares purchased by such Underwriter hereunder and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls an Underwriter within the meaning of Section 15 of the Act
shall have the same rights to contribution as such Underwriter, and each person,
if any, who controls the Company within the meaning of Section 15 of the Act,
each officer of the Company who shall have signed the Registration Statement and
each director of the Company shall have the same right to contribution as the
Company, subject in each case to clauses (i) and (ii) of this Section 7. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 7, notify such party or parties from whom contribution may be
sought, but the omission to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any other
obligation it or they may have hereunder or otherwise than under this Section 7.
No party shall be liable for contribution with respect to any action or claim
settled
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without its consent, which consent shall not be unreasonably withheld.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements of the Company or of the Underwriters
herein or in certificates delivered pursuant hereto shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
any Underwriter or any controlling person, the Company, or any of its officers,
directors, or controlling persons, and shall survive delivery of the Shares to
the several Underwriters hereunder.
9. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters shall
fail to take up and pay for the number of Shares to be purchased by such
Underwriter or Underwriters hereunder upon tender of such Shares in accordance
with the terms hereof, and if the aggregate number of Shares which such
defaulting Underwriter or Underwriters so agreed but failed to purchase does not
exceed 10% of the Shares, the remaining Underwriters shall be obligated
severally in proportion to their respective commitments hereunder to take up and
pay for the Shares of such defaulting Underwriter or Underwriters. If one or
more of the Underwriters shall fail or refuse (other than for a reason
sufficient to justify the termination of this Agreement) to purchase on any
Closing Date the aggregate number of Shares agreed to be purchased by such
Underwriter or Underwriters and the aggregate number of Shares agreed to be
purchased by such Underwriter or Underwriters shall exceed 10% of the aggregate
number of Shares to be sold on any Closing Date hereunder by the Company to the
Underwriters, then the other Underwriters shall have the right to purchase or
procure one or more other underwriters to purchase, in such proportions as they
may agree upon and upon the terms herein set forth, the Shares which such
defaulting Underwriter or Underwriters agreed to purchase, and this Agreement
shall be carried out accordingly. If such other Underwriters do not exercise
such right within thirty-six hours after receiving notice of any such default,
which notice the Representatives shall have also promptly delivered to the
Company, then the Company shall have the right, but not the obligation, to
procure another party or parties reasonably satisfactory to the Representatives
to purchase or agree to purchase such Shares on the terms herein set forth. If
the Company is unable to procure another such party, the Company shall have the
right, but not the obligation, to notify the Representatives that the
non-defaulting Underwriters are, by the giving of such notice, released from
their obligations to purchase such number of Shares being sold hereunder by the
Company as are indicated in such notice as, when subtracted from the total
number of Shares originally agreed to be purchased by all of the Underwriters
hereunder, shall leave a reduced number of Shares to be purchased by the
non-defaulting Underwriters not in excess of 110% of the aggregate number of
Shares originally
19
<PAGE> 20
contracted to be purchased hereunder by the non-defaulting Underwriters, and
each of them, in which event such non-defaulting Underwriters shall purchase
such reduced number of Shares. In any such case, either the Representatives or
the Company shall have the right to postpone any Closing Date for a period of
not more than seven business days in order that necessary changes and
arrangements may be effected by the Representatives and the Company. If neither
the non-defaulting Underwriters nor the Company shall make arrangements within
the period stated for the purchase of the Shares which such defaulting
Underwriter or Underwriters agreed to purchase, including such arrangements for
the purchase of a reduced number of Shares as are provided for in this Section
9, then this Agreement shall terminate without liability on the part of any
non-defaulting Underwriters to the Company and without liability on the part of
the Company to the Underwriters.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section, the Company shall not be under any
liability to any Underwriter (except as provided in Section 4(g) and 6 hereof)
nor shall any Underwriter (other than an Underwriter who shall have failed,
otherwise than for some reason permitted under this Agreement, to purchase the
number of Shares to be purchased by such Underwriter hereunder, which
Underwriter shall remain liable to the Company and the other Underwriters for
damages resulting from such default) be under any liability to the Company
(except as provided in Section 6 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 9.
10. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at such time after the
declaration by the Commission of the effectiveness of the Registration Statement
as you in your discretion shall first release the Shares for sale to the public.
For the purposes of this Section, the Shares shall be deemed to have been
released for sale to the public upon release by you for publication of a
newspaper advertisement relating to the Shares or upon release by you of letters
or telegrams offering the Shares for sale to securities dealers, whichever shall
first occur. By giving notice as hereinafter specified before the time this
Agreement becomes effective, you, as Representatives of the several
Underwriters, or the Company may prevent this Agreement from becoming effective
without liability on the part of the Company to any Underwriter or of any
Underwriter to the Company, other than as provided in Sections 4(g) and 6
hereof.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by
20
<PAGE> 21
giving notice as hereinafter specified at any time at or prior to the First
Closing Date if (i) the Company shall have failed, refused or been unable, at or
prior to the First Closing Date, to perform any material agreement on its part
to be performed, or because any other material condition of the Underwriters'
obligations hereunder required to be fulfilled by the Company is not fulfilled;
(ii) trading on the New York Stock Exchange shall have been suspended, or
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required, on the New York Stock
Exchange by the New York Stock Exchange or by order of the Commission or any
other governmental authority having jurisdiction, since the execution of this
Agreement; (iii) a banking moratorium shall have been declared by Federal or New
York authorities since the execution of this Agreement; or (iv) an outbreak of
major hostilities or other national calamity shall have occurred. Any such
termination shall be without liability on the part of the Company to any
Underwriter or of any Underwriter to the Company other than as provided in
Sections 4(g) and 6 hereof.
(c) If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section, the Company shall be
notified promptly by you by telephone or telegram, confirmed by letter. If the
Company shall elect to prevent this Agreement from becoming effective, you shall
be notified promptly by the Company by telephone or telegram, confirmed by
letter.
11. AGREEMENTS OF THE UNDERWRITERS.
(a) Each Underwriter understands that no action has been or will be
taken in any jurisdiction (except in the United States) that would permit a
public offering of the Shares or the possession, circulation or distribution of
the Prospectus or any amendment or supplement thereto or any other material
relating to the Company or the Shares in any jurisdiction where action for that
purpose is required. Accordingly, each Underwriter agrees, on a several basis,
that it will not offer or sell, directly or indirectly, the Shares, nor will it
distribute or publish the Prospectus or any amendment or supplement thereto nor
any other offering material or advertisements in connection with the Shares, in
or from any country or jurisdiction except in compliance with any applicable
rules and regulations of any such country or jurisdiction.
(b) Each Underwriter represents and agrees, on a several basis, that
(i) it has not offered or sold and, for a period of six months following
consummation of the Offering, will not offer or sell any shares of Common Stock
to persons in the United Kingdom, except to a person whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Common Stock in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and
will only issue or pass on to any person in the United Kingdom any document
received by it in connection with the issuance of Common Stock if that person
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996, as amended, or is a person
to whom such document may otherwise lawfully be issued or passed on.
12. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered or telecopied and confirmed to you c/o Allen & Company
Incorporated, 711 Fifth Avenue, New York, New York 10022, with copy to Werbel &
Carnelutti, a Professional Corporation, 711 Fifth Avenue, New York, New York
10022, Attention: Guy N. Molinari, Esq. or if sent to the Company shall be
mailed, delivered or telecopied and confirmed to the Company at 103 Carnegie
Center, Suite 102, Princeton, New Jersey 08540, Attention: Mr. Michael C.
Walker, President with a copy to Morrison & Foerster LLP, 1290 Avenue of the
Americas, New York, New York 10104-0012, Attention: Joseph W. Bartlett, Esq.
Notice to any Underwriter pursuant to Section 6 shall be mailed, delivered or
telecopied and confirmed to such Underwriter's address as set forth in its
Master Agreement Among Underwriters furnished to Allen & Company Incorporated.
13. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and their respective successors
and assigns. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person or corporation, other than the parties
hereto and their respective successors and assigns and the controlling
21
<PAGE> 22
persons, officers and directors referred to in Section 6, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
herein contained; this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective successors and assigns and said controlling persons
and said officers and directors, and for the benefit of no other person or
corporation. No purchaser of any of the Shares from any Underwriter shall be
construed a successor or assign merely by reason of such purchase.
In all dealings with the Company under this Agreement, you shall be
and are authorized to act on behalf of each of the several Underwriters, and the
Company shall be entitled to act and rely upon any statement request, notice or
agreement on behalf of each of the several Underwriters if the same shall have
been made or given in writing by you.
14. APPLICABLE LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made, and to be fully performed, therein.
22
<PAGE> 23
If the foregoing correctly sets forth the understanding between the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose whereupon this letter shall constitute a binding
agreement between the Company and the several Underwriters.
Very truly yours,
ANTHRA PHARMACEUTICALS, INC.
By:_________________________
President
Accepted as of the date
first above written:
ALLEN & COMPANY INCORPORATED
GRUNTAL & CO., L.L.C.
By: ALLEN & COMPANY INCORPORATED
By:___________________________
On behalf of each of the several
Underwriters named in Schedule A hereto.
23
<PAGE> 24
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER
OF
NAME OF UNDERWRITER SHARES
------
<S> <C>
Allen & Company Incorporated......................................
Gruntal & Co., L.L.C. ............................................
Total............................................................. 2,400,000
</TABLE>
<PAGE> 25
SCHEDULE B
SUBSIDIARIES OF THE COMPANY
<PAGE> 26
2,400,000 Shares
ANTHRA PHARMACEUTICALS, INC.
Common Stock
________________________
SELECTED DEALER AGREEMENT
________________, 1998
Dear Sirs:
1. PURCHASE OF SECURITIES BY THE SEVERAL UNDERWRITERS. The several
Underwriters named in the enclosed Prospectus, on whose behalf we are acting as
Representatives, have severally agreed to purchase from Anthra Pharmaceuticals,
Inc. (the "Company") an offering of 2,400,000 Shares of the Company's Common
Stock (the "Shares"), as set forth in the Prospectus and subject to the terms of
the Underwriting Agreement between the several Underwriters and the Company. The
Shares are described in the Prospectus, additional copies of which will be
supplied in reasonable quantities upon request to us.
2. OFFERING TO SELECTED DEALERS. One or more of the several Underwriters
acting through us are severally offering a portion of the Shares to certain
dealers ("Selected Dealers") as principals, subject to the terms and conditions
of their purchase, to the terms and conditions hereof, and to the modification
or cancellation of the offering without notice, at the public offering price set
forth in the Prospectus, less a concession not in excess of $.____ per Share.
Shares purchased by the several Underwriters, and not sold to the Selected
Dealers as aforesaid, may be sold by the several Underwriters. Any of the
several Underwriters may be included among the Selected Dealers.
The offering of a portion of the Shares to Selected Dealers may be made on
the basis of reservations or allotments against subscription. We are advising
you by telegram of the method and terms of the offering. Acceptance of any
reserved Shares received by us at the office of Allen & Company Incorporated,
711 Fifth Avenue, New York, New York 10022, after the time specified therefor in
the telegrams, and any subscriptions for additional Shares, will be subject to
prior sale and allotment. Subscription books may be closed by us at any time
without notice, and the right is reserved to reject any subscriptions in whole
or in part.
3. OFFERING TO PUBLIC BY SELECTED DEALERS. Upon receipt of the
aforementioned telegram, the Shares purchased by you hereunder may be re-offered
to the public in conformity with the
1
<PAGE> 27
terms of offering set forth in the Prospectus. You may, in accordance with the
rules of the National Association of Securities Dealers, Inc., reallow a
concession of $.___ per Share sold by you to any other dealer or broker who is a
member of the National Association of Securities Dealers, Inc., provided such
discount is retained.
Neither you nor any other person is or has been authorized by the Company,
any of the several Underwriters or us to give information or make any
representations in connection with the sale of the Shares other than those
contained in the Prospectus.
In the event that during the term of this agreement we, as Representatives
for the account of the several Underwriters, shall purchase or contract to
purchase, at or below the original public offering price set forth in the
Prospectus, any of the Shares purchased by you hereunder (which Shares
theretofore were not effectively placed for investment by you, including Shares
represented by transfers), we may, at our election, either (a) require you to
repurchase such Shares at a price equal to the total cost of such Shares
purchased by us, including brokerage commissions, if any, and transfer taxes on
the redelivery, or (b) charge you with and collect from you an amount equal to
the selling concession with respect to the Shares so purchased by us.
4. PAYMENT AND DELIVERY. Payment for the Shares which you have agreed to
purchase hereunder shall be made by you on _______, 1998, or such later date as
we may advise you, at 9:00 a.m., New York Time, at Allen & Company
Incorporated's office at 711 Fifth Avenue, New York, New York 10022, by
certified or bank cashier's check payable in New York Clearing House funds to
the order of Allen & Company Incorporated, against delivery of such Shares.
Delivery instructions must be in our hands at said address at such time as we
request.
Additional Shares confirmed to you shall be delivered on such date or
dates as we shall advise you.
5. BLUE SKY MATTERS. Neither we nor any of the several Underwriters shall
have any obligation or responsibility with respect to the right of any dealer to
sell the Shares in any jurisdiction, notwithstanding any information which may
be furnished as to the states under the securities laws of which it is believed
the Shares may be sold.
6. TERMINATION. This agreement shall terminate 20 full days after the
First Closing Date (as defined in the Underwriting Agreement) but may be
extended for a period or periods not exceeding in the aggregate 20 days as we
may determine. We may terminate this Agreement at any time without prior notice.
Notwithstanding the termination of this agreement, you shall remain liable for
your portion of any transfer tax or other
2
<PAGE> 28
liability which may be asserted or assessed against us or any one or more of the
several Underwriters or Selected Dealers based upon the claim that the Selected
Dealers or any of them constitute a partnership, an association, an
unincorporated business or other separate entity.
7. OBLIGATIONS OF SELECTED DEALERS. Your acceptance hereof will constitute
an obligation on your part to purchase, upon the terms and conditions hereof,
the aggregate amount of the Shares reserved for and accepted by you and to
perform and observe all the terms and conditions hereof.
You are not authorized to act as agent for any of the several Underwriters
in offering Shares to the public or otherwise. Nothing contained herein shall
constitute the Selected Dealers an association, or partners with the several
Underwriters, with us, or with each other.
8. POSITION OF THE REPRESENTATIVES. We shall have full authority to take
such action as we may deem advisable in respect of all matters pertaining to the
offering or arising hereunder, but shall act only as Representatives of the
several Underwriters. Neither we nor any of the several Underwriters shall be
under any liability to you, except for our own want of good faith, obligations
assumed in this agreement, or any liabilities arising under the Securities Act
of 1933. No obligation not expressly assumed by us in this agreement shall be
implied hereby or inferred herefrom.
9. NOTICES. All communications from you should be addressed to us, c/o
Allen & Company Incorporated, 711 Fifth Avenue, New York, New York 10022. Any
notice from us to you shall be deemed to have been duly given if mailed or
telegraphed to you at the address to which this letter is mailed.
Please confirm the foregoing by signing the duplicate copy of this
agreement enclosed herewith and returning it to us at the address in Section 9
above.
Very truly yours,
ALLEN & COMPANY INCORPORATED
GRUNTAL & CO., L.L.C.
By: ALLEN & COMPANY INCORPORATED
By:_________________________
Vice President
3
<PAGE> 29
ALLEN & COMPANY INCORPORATED
GRUNTAL & CO., L.L.C.
As Representatives of the Several
Underwriters
c/o Allen & Company Incorporated
711 Fifth Avenue
New York, New York 10022
Sirs:
We hereby confirm our agreement to purchase Shares of the Anthra
Pharmaceuticals, Inc. (the "Shares"), subject to your acceptance or rejection in
whole or in part in the case of a subscription subject to allotment or in excess
of any reservation, and subject to all the other terms and conditions stated in
the foregoing letter.
We hereby acknowledge receipt of the prospectus relating to the above
described Shares (the "Prospectus") and we further state that in purchasing the
Shares confirmed to us we have relied upon such Prospectus and on no other
statements whatsoever, written or oral.
We hereby represent that we are a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD") and agree to comply with the
provisions of Article III, Section 24 of the NASD's Rules of Fair Practice (the
"NASD Rules"), or, if we are not such a member, we are a foreign dealer or
institution that is not registered under Section 15(b) of the Securities
Exchange Act of 1934 and that hereby agrees (i) to make no sales within the
United States, its territories or its possessions or to persons who are citizens
thereof or residents therein, (ii) if the offering of the Shares is one within
the scope of the NASD's Interpretation with Respect to Free-Riding and
Withholding, not to make other sales of Shares to persons enumerated in
paragraphs "1" through "5" of such Interpretation or in a manner inconsistent
with paragraph "6" thereof and (iii) to comply with the provisions of Article
III, Sections 8, 24, 25 (as applicable to a non-member broker/dealer in a
foreign country) and 36 of the NASD Rules.
Name of Selected Dealer
____________________________________
____________________________________
(Authorized Signature)
Dated:________________ , 199__
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ANTHRA PHARMACEUTICALS, INC.
(Pursuant to Section 242 of the General
Corporate Law of the State of Delaware)
Anthra Pharmaceuticals, Inc., a corporation organized and existing by
virtue of the General Corporation Law of the State of Delaware (hereinafter
called the "Corporation"), DOES HEREBY CERTIFY:
FIRST: that by unanimous written consent of the Board of Directors of the
Corporation dated as of April 30, 1998 resolutions were duly adopted setting
forth a proposed amendment to the Amended and Restated Certificate of
Incorporation of the Corporation, declaring said amendment to be advisable and
directing that said amendment be considered by the stockholders of the
Corporation entitled to vote in respect thereof.
SECOND: That thereafter, in accordance with Section 228 of the General
Corporation Law of the State of Delaware, stockholders of the Corporation
holding the necessary number of shares as required by statute and the Amended
and Restated Certificate of Incorporation approved by said amendment by written
consent dated as of April 30, 1998 and prompt written notice of the taking of
such corporate action without a meeting by less than unanimous written consent
was given to those stockholders who did not consent thereto in writing.
THIRD: That said amendment would amend the Amended and Restated Certificate of
Incorporation of the Corporation by striking out Article FOURTH thereof and
substituting in lieu thereof the following new Article FOURTH:
FOURTH: A. Designation and Number of Shares
The aggregate number of shares of all classes of stock which the
Corporation shall have the authority to issue is Nineteen Million Seven Hundred
Eighty Nine Thousand Six Hundred Eighty Three (19,789,683) shares, of which
Fifteen Million (15,000,000) shares, of the par value $0.01 each shall be common
stock (the "Common Stock") and Four Million Seven Hundred Eighty Nine Thousand
Six Hundred and Eighty Three(4,789,683) shares of the par value $0.01 each,
shall be preferred stock the "Preferred Stock"), of which Preferred Stock One
Million (1,000,000) shares
- 1 -
<PAGE> 2
shall be Series A Convertible Preferred Stock (the "Series A Stock"), Six
Hundred and Eighty Thousand (680,000) shares shall be Series B Convertible
Preferred Stock (the "Series B Stock"), One Million Four Hundred Seventy
Thousand, Five Hundred Eighty Eight (1,470,588) shares shall be Series C
Convertible Preferred Stock (the "Series C Stock"), Six Hundred Thirty Nine
Thousand and Ninety Five (639,095) shares shall be Series D Convertible
Preferred Stock (the "Series D Stock") and One Million (1,000,000) shares will
be undesignated Preferred Stock (the "Undesignated Preferred Stock"). The Series
A Stock, Series B Stock and Series C Stock are collectively referred to herein
as the "Senior Preferred Stock" and the Series A Stock, Series B Stock, Series C
Stock and Series D Stock are collectively referred to herein as the "Designated
Preferred Stock".
The relative powers, designations, preferences, special rights,
restrictions and other matters relating to the Common Stock and the Designated
Preferred Stock are as set forth below in this Article Fourth. The Undesignated
Preferred Stock may be issued, from time to time, in one or more series, as
authorized by the Board of Directors. Prior to the issuance of a series, the
Board of Directors by resolution shall designate it from other series and
classes of stock of the Corporation, shall specify the number of shares to be
included in the series, and shall fix the terms, rights, restrictions and
qualifications of the shares of a series, including any preferences, voting
powers, dividend rights and redemption rights, sinking fund and conversion
rights. Subject to the express terms of the Undesignated Preferred Stock
outstanding at the time, the Board of Directors may increase or decrease the
number of shares or alter the designation or classify or re-classify any
unissued shares of a particular series of Undesignated Preferred Stock by fixing
or altering in any one or more respects from time to time before issuing the
shares, any terms, rights, restrictions and qualifications of the shares.
B. Common Stock.
1. General. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held. There shall be no cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefore as and when determined by the Board of
Directors, subject to the provisions
- 2 -
<PAGE> 3
of Paragraph C.3 of this Article FOURTH.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject, however, to the liquidation rights of the holders of
Designated Preferred Stock as set forth in Paragraph C.4 of this Article FOURTH
and any liquidation rights of the Undesignated Preferred Stock as determined by
the Board of Directors of the Corporation.
C. Designated Preferred Stock. Except as specifically set forth herein,
the holders of Series A Stock, the holders of Series B Stock, the holders of
Series C Stock and the holders of Series D Stock shall have the same powers,
preferences and rights, and the same qualifications, limitations and
restrictions, with respect to the shares of Designated Preferred Stock held by
them, and except as specifically set forth herein, such shares of Series A
Stock, Series B Stock, Series C Stock and Series D Stock shall rank on a parity
with each other with respect to such powers, preferences or rights.
1. Number of Shares. The series of Designated Preferred Stock
designated and known as "Series A Stock" shall consist of 1,000,000 shares, the
series of Designated Preferred Stock designated and known as "Series B Stock"
shall consist of 680,000 shares, the series of Designated Preferred Stock
designated and known as "Series C Stock" shall consist of 1,470,588 shares and
the series of Designated Preferred Stock designated and known as "Series D
Stock" shall consist of 639,095 shares.
2. Voting.
2A. General. Except as may be otherwise provided in these
terms of the Designated Preferred Stock or by law, the Designated Preferred
Stock shall vote together with all other classes and series of stock of the
Corporation as a single class on all actions to be taken by the stockholders of
the Corporation. Each share of Designated Preferred Stock shall entitle the
holder thereof to such number of votes per share on each such action as shall
equal the number of shares of Common Stock (including fractions of a share) into
which each share of Designated Preferred Stock is then convertible.
2B. Board Size. The Corporation shall not, without the written
consent or affirmative vote of the holders of at least sixty (60%) percent of
the then outstanding shares of the Designated Preferred Stock, given in writing
or by vote at a
- 3 -
<PAGE> 4
meeting, consenting or voting (as the case may be) separately as a series,
increase the maximum number of directors constituting the Board of Directors to
a number in excess of five. The terms of this Section 2B shall terminate at such
time as the Corporation shall effect a firm commitment underwritten public
offering of shares of Common Stock in which (a) the aggregate price paid for
such shares by the public shall be at least $10,000,000 and (b) the price paid
by the public for such shares shall be at least $7.50 per share (appropriately
adjusted to reflect the occurrence of any event described in subparagraph 6F).
2C. Board Seats. The holders of the Senior Preferred Stock,
all series voting together as a separate class, shall be entitled to select two
directors of the Corporation. The holders of the Common Stock, voting as a
separate class, shall be entitled to elect two directors of the Corporation. A
fifth director shall be such person, if any, who has received a plurality vote
of the holders of the Senior Preferred Stock, all series voting together as a
separate class, and a plurality vote of the holders of the Common Stock, voting
as a separate class. Notwithstanding the foregoing or anything to the contrary
provided in the Amended and Restated Certificate of Incorporation, if the
Corporation fails or refuses, for any reason or for no reason, to redeem on the
Redemption Date (as defined in paragraph 7) all of the then outstanding shares
of Senior Preferred Stock in accordance with the terms and provisions of
paragraph 7, the holders of the Senior Preferred Stock, all series voting
together as a separate class, shall be entitled to elect a majority of the
directors of the Corporation. At any meeting (or in a written consent in lieu
thereof) held for the purpose of electing directors, the presence in person or
by proxy (or the written consent) of the holders of a majority of the Senior
Preferred Stock then outstanding shall constitute a quorum of the Senior
Preferred Stock for the election of directors to be elected solely by the
holders of the Senior Preferred Stock or jointly by the holders of the Senior
Preferred Stock and the Common Stock. A vacancy in any directorship elected by
the holders of the Senior Preferred Stock shall be filled only by vote or
written consent of the holders of the Senior Preferred Stock and a vacancy in
the directorship elected jointly by the holders of the Senior Preferred Stock
and the Common Stock shall be filled only by vote or written consent of the
Senior Preferred Stock and the Common Stock as provided above. The terms of this
Section 2C shall terminate at such time as the Corporation shall effect a firm
commitment underwritten public offering of shares of Common Stock in which (a)
the aggregate price paid for such shares by the public shall be at least
$10,000,000 and (b) the price paid by the public for such shares shall be at
least $7.50 per share (appropriately adjusted
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<PAGE> 5
to reflect the occurrence of any event described in subparagraph 6F).
3. Dividends. The holders of the Series A Stock, holders of the Series
B Stock and holders of the Series C Stock shall be entitled to receive, out of
funds legally available therefor, when and if declared by the Board of
Directors, quarterly dividends at the rate per annum of $0.12 per share of
Series A Stock, $0.20 per share of Series B Stock and $0.27 per share of Series
C Stock (the "Accruing Dividends"). Accruing Dividends shall accrue from day to
day, whether or not earned or declared, and shall be cumulative.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Designated
Preferred Stock shall first be entitled, before any distribution or payment is
made upon any stock ranking on liquidation junior to the Designated Preferred
Stock, to be paid an amount equal to $1.50 per share for the Series A Stock,
$2.50 per share for the Series B Stock, $3.40 per share for the Series C Stock
and $11.0588 per share for the Series D Stock plus, in the case of each share of
Series A Stock, Series B Stock and Series C Stock, an amount equal to all
Accruing Dividends unpaid thereon (whether or not declared) and any other
dividends declared but unpaid thereon, computed to the date payment thereof is
made available, such amount payable with respect to one share of Designated
Preferred Stock being sometimes referred to as the "Liquidation Preference
Payment" and with respect to all shares of Designated Preferred Stock being
sometimes referred to as the "Liquidation Preference Payments". If upon such
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed among the holders of Designated
Preferred Stock shall be insufficient to permit payment in full to the holders
of the Designated Preferred Stock of the Liquidation Preference Payments, then
(i) the holders of Series A Stock, Series B Stock and Series C Stock shall share
ratably in any distribution of assets according to the respective amounts which
would be payable in respect of the shares of Series A Stock, Series B Stock and
Series C Stock held by them upon such distribution if all amounts payable on or
with respect to said shares were paid in full, prior to the payment of any
amounts to the holders of Series D Stock and (ii) any assets of the Corporation
available for distribution in excess of those necessary to pay the holders of
Series A Stock, Series B Stock and Series C Stock the full amounts to which they
shall be entitled shall be shared ratably by the holders of Series D Stock. Upon
any such liquidation, dissolution or winding up of the Corporation, immediately
after the holders of Designated Preferred Stock shall have been paid in
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full the Liquidation Preference Payments, the remaining net assets of the
Corporation available for distribution shall be distributed as follows: the
first remaining $300,000 shall be distributed ratably among the holders of the
Common Stock, and thereafter, the remaining net assets shall be distributed
ratably among the holders of Preferred Stock and Common Stock (with each share
of Designated Preferred Stock being deemed, for such purpose, to be equal to the
number of shares of Common Stock (including fractions of a share) into which
such share of Designated Preferred Stock is convertible immediately prior to the
close of business on the business day fixed for such distribution). Written
notice of such liquidation, dissolution or winding up, stating a payment date
and the place where said payments shall be made, shall be given by mail, postage
prepaid, or by telex to non-U.S. residents, not less than 20 days prior to the
payment date stated therein, to the holders of record of Designated Preferred
Stock, such notice to be addressed to such holder at its address as shown by the
records of the Corporation. The consolidation or merger of the Corporation into
or with any other entity or entities which results in the exchange of
outstanding shares of the Corporation for securities or other consideration
issued or paid or caused to be issued or paid by any such entity or affiliate
thereof, and the sale or transfer by the Corporation of all or substantially all
of its assets, shall be deemed to be a liquidation, dissolution or winding up of
the Corporation within the meaning of the provisions of this paragraph 4, unless
the stockholders of the Corporation immediately prior thereto shall, immediately
thereafter, hold as a group the right to cast at least a majority of the votes
of all holders of voting securities of the resulting or surviving corporation or
entity on any matter on which any such holders of voting securities shall be
entitled to vote. For purposes hereof, the Common Stock shall rank on
liquidation junior to the Designated Preferred Stock; the Series D Stock shall
rank on liquidation junior to the Series A Stock, Series B Stock and Series C
Stock but senior to the Common Stock; and the Series A Stock, Series B Stock and
Series C Stock shall rank on liquidation pari passu with each other but senior
to the Series D Stock and the Common Stock.
5. Restrictions. At any time when any shares of the Senior Designated
Preferred Stock are outstanding, except where the vote or written consent of the
holders of a greater number of shares of the Corporation is required by law or
by the Amended and Restated Certificate of Incorporation, and in addition to any
other vote required by law or the Amended and Restated Certificate of
Incorporation, without the approval of the holders of at least sixty percent
(60%) of the then outstanding shares of Senior Preferred Stock, given in writing
or by vote at a meeting,
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consenting or voting (as the case may be) separately as a series, the
Corporation will not:
5A. Create or authorize the creation of any additional class
or series of shares of stock unless the same ranks junior to the Senior
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, or increase the authorized amount of the
Senior Preferred Stock or increase the authorized amount of any additional class
or series of shares of stock unless the same ranks junior to the Senior
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, or create or authorize any obligation or
security convertible into shares of Senior Preferred Stock or into shares of any
other class or series of stock unless the same ranks junior to the Senior
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, whether any such creation, authorization or
increase shall be by means of amendment to the Amended and Restated Certificate
of Incorporation or by merger, consolidation or otherwise;
5B. Consent to any liquidation, dissolution or winding up of
the Corporation or consolidate or merge into or with any other entity or
entities or sell or transfer all or substantially all its assets;
5C. Amend, alter or repeal its Amended and Restated
Certificate of Incorporation or By-laws;
5D. Purchase or set aside any sums for the purchase of, or pay
any dividend or make any distribution on, any shares of stock other than the
Senior Preferred Stock, except for dividends or other distributions payable on
the Common Stock solely in the form of additional shares of Common Stock and
except for the purchase of shares of Common Stock from former employees of the
Corporation who acquired such shares directly from the Corporation, if each such
purchase is made pursuant to contractual rights held by the Corporation relating
to the termination of employment of such former employee and the purchase price
does not exceed the original issue price paid by such former employee to the
Corporation for such shares; or
5E. Redeem or otherwise acquire any shares of Designated
Preferred Stock except as expressly authorized in paragraph 7 hereof or pursuant
to a purchase offer made pro rata to all holders of the shares of Senior
Preferred Stock on the basis of the aggregate number of outstanding shares of
Senior Preferred Stock held by each such holder.
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6. Conversions. The holders of shares of Designated Preferred Stock
shall have the following conversion rights:
6A. Right to Convert. Subject to the terms and conditions of
this paragraph 6, the holder of any share or shares of Designated Preferred
Stock shall have the right, at its option at any time to convert any such shares
of Designated Preferred Stock (except that upon any liquidation of the
Corporation the right of conversion shall terminate at the close of business on
the business day fixed for payment of the amount distributable on the Designated
Preferred Stock) into such number of fully paid and nonassessable shares of
Common Stock as is obtained by (i) multiplying the number of shares of
Designated Preferred Stock to be converted by $1.50 in the case of the Series A
Stock, $2.50 in the case of the Series B Stock, $3.40 in the case of the Series
C Stock and $11.0588 in the case of the Series D Stock and (ii) dividing the
result by the conversion price of $1.50 per share in the case of the Series A
Stock (the "Series A Conversion Price"), $2.50 per share in the case of the
Series B Stock (the "Series B Conversion Price"), $3.40 per share in the case of
the Series C Stock (the "Series C Conversion Price") and $11.0588 per share in
the case of the Series D Stock (the "Series D Conversion Price") or, in case an
adjustment of such price has taken place pursuant to the further provisions of
this paragraph 6, then by the Conversion Price as last adjusted and in effect at
the date any share or shares of Designated Preferred Stock are surrendered for
conversion (such Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price and Series D Conversion Price, or such prices as last adjusted,
being referred to as the "Conversion Price"). Such rights of conversion shall be
exercised by the holder thereof by giving written notice that the holder elects
to convert a stated number of shares of Designated Preferred Stock into Common
Stock and by surrender of a certificate of certificates for the shares to be
converted to the Corporation at its principal office (or such other office or
agency of the Corporation as the Corporation may designate by notice in writing
to the holders of the Designated Preferred Stock) at any time during its usual
business hours on the date set forth in such notice, together with a statement
of the name or names (with address) in which the certificate or certificates for
shares of Common Stock shall be issued.
6B. Issuance of Certificates; Time Conversion Effected.
Promptly after the receipt of the written notice referred to in subparagraph 6A
and surrender of the certificate or certificates for the share or shares of
Designated Preferred Stock to be converted, the Corporation shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in such
name or names as such holder may direct, a certificate or
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<PAGE> 9
certificates for the number of whole shares of Common Stock issuable upon the
conversion of such share or shares of Designated Preferred Stock. To the extent
permitted by law, such conversion shall be deemed to have been effected and the
applicable Conversion Price shall be determined as of the close of business on
the date on which such written notice shall have been received by the
Corporation and the certificate or certificates for such share or shares shall
have been surrendered as aforesaid, and at such time the rights of the holder of
such share or shares of Designated Preferred Stock shall cease, and the person
or persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No
fractional shares shall be issued upon conversion of the Designated Preferred
Stock into Common Sock and no payment or adjustment shall be made upon any
conversion on account of any cash dividends on the Common Stock issued upon such
conversion. At the time of each conversion, the Corporation shall pay in cash an
amount equal to all dividends, excluding Accruing Dividends, accrued and unpaid
on the shares of Designated Preferred Stock surrendered for conversion to the
date upon which such conversion is deemed to take place as provided in
subparagraph 6B. In case the number of shares of Designated Preferred Stock
represented by the certificate or certificates surrendered pursuant to
subparagraph 6A exceeds the number of shares converted, the Corporation shall,
upon such conversion, execute and deliver to the holder, at the expense of the
Corporation, a new certificate or certificates for the number of shares of
Designated Preferred Stock represented by the certificate or certificates
surrendered which are not to be converted. If any fractional share of Common
Stock would, except for the provisions of the first sentence of this
subparagraph 6C, be delivered upon such conversion, the Corporation, in lieu of
delivering such fractional share, shall pay to the holder surrendering the
Designated Preferred Stock for conversion an amount in cash equal to the current
market price of such fractional share as determined in good faith by the Board
of Directors of the Corporation.
6D. Adjustment of Price Upon Issuance of Common Stock. Except
as provided in subparagraph 6E, if and whenever the Corporation shall issue or
sell, or is, in accordance with subparagraphs 6D(1) through 6D(7), deemed to
have issued or sold, any shares of Common Stock for a consideration per share
less than the applicable Conversion Price for any series of the Senior Preferred
Stock in effect immediately prior to the time of such issue or sale, then,
forthwith upon such issue or sale, the
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<PAGE> 10
Conversion Price with respect to such series of Senior Preferred Stock shall be
reduced to the price at which the Corporation issued or sold, or is deemed to
have issued or sold, such shares of Common Stock.
For purposes of this subparagraph 6D, the following subparagraphs 6D(1)
to 6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any warrants or other rights to
subscribe for or to purchase, or any options for the purchase of,
Common Stock or any stock or security convertible into or exchangeable
for Common Stock (such warrants, rights or options being called
"Options" and such convertible exchangeable stock or securities being
called "Convertible Securities") whether or not such Options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock
is issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (determined by dividing (i) the
total amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the case of such
Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise
of such Options) shall be less than the applicable Conversion Price for
any series of Senior Preferred Stock in effect immediately prior to the
time of the granting of such Options, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall
be deemed to have been issued for such price per share as of the date
of granting of such Options or the issuance of such Convertible
Securities and thereafter shall be deemed to be outstanding. Except as
otherwise provided in subparagraph 6D(3), no adjustment of such
Conversion Price shall be made upon the actual
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<PAGE> 11
issue of Common Stock or of such Convertible Securities upon exercise
of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
6D(2) Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert any such
Convertible Securities are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the total amount received or
receivable by the Corporation as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the applicable
Conversion Price for any series of Senior Preferred Stock in effect
immediately prior to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall be deemed to have
been issued for such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter shall be deemed to
be outstanding, provided that (a) except as otherwise provided in
subparagraph 6D(3), no adjustment of such Conversion Price shall be
made upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities and (b) if any such issue or
sale of such Convertible Securities is made upon exercise of any
Options to purchase any such Convertible Securities for which
adjustments of such Conversion Price have been or are to be made
pursuant to other provisions of this subparagraph 6D, no further
adjustment of such Conversion Price shall be made by reason of such
issue or sale.
6D(3) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in subparagraph 6D(1), the
additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subparagraph
6D(1) or 6D(2), or the rate at which Convertible Securities referred to
in subparagraph 6D(1) or 6D(2) are convertible into or exchangeable for
Common Stock shall change at any time (including, but not limited to,
changes under or by reason of provisions designated to protect against
dilution), the applicable Conversion Price for each series of Senior
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<PAGE> 12
Preferred Stock in effect at the time of such event shall forthwith be
readjusted to the Conversion Price which would have been in effect at
such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted,
issued or sold; and on the expiration of any such Option or the
termination of any such right to convert or exchange such Convertible
Securities, the applicable Conversion Price for each series of Senior
Preferred Stock then in effect hereunder shall forthwith be increased
to the Conversion Price which would have been in effect at the time of
such expiration or termination had such Option or Convertible
Securities to the extent outstanding immediately prior to such
expiration or termination, never been issued.
6D(4) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the
Corporation payable in Common Stock (except for dividends or
distributions upon the Common Stock), Options or Convertible
Securities, any Common Stock, Options or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall
be deemed to have been issued or sold at a price per share equal to
$.00001.
6D(5) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith.
In case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Corporation shall
be deemed to be the fair value of such consideration as determined in
good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith.
In case any Options shall be issued in connection with the issue and
sale of other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to
have been issued for such consideration as determined in good faith by
the Board of Directors of the Corporation.
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<PAGE> 13
6D(6) Record Date. In case the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them
(i) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities or (ii) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
6D(7) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by
or for the account of the Corporation, and the disposition of any such
shares shall be considered an issue or sale of Common Stock for the
purpose of this subparagraph 6D.
6E. Certain Issues of Common Stock Excepted. Anything herein
to the contrary notwithstanding, the Corporation shall not be required to make
any adjustment of the Conversion Price for any series of Designated Preferred
Stock in the case of the issuance of up to an aggregate of 1,700,000 shares
(appropriately adjusted to reflect the occurrence of any event described in
subparagraph 6F) of Common Stock to directors, officers of employees of or
consultants to the Corporation in connection with their service as directors of
the Corporation or their employment by the Corporation or their service as
consultants to the Corporation.
6F. Subdivision or Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the applicable Conversion Price for each series of Designated Preferred
Stock in effect immediately prior to such subdivision shall be proportionately
reduced, and, conversely, in case the outstanding shares of Common Stock shall
be combined into a smaller number of shares, the applicable Conversion Price for
such series of Designated Preferred Stock in effect immediately prior to such
combination shall be proportionately increased.
6G. Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as
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a condition of such reorganization or reclassification, lawful and adequate
provisions shall be made whereby each holder of a share or shares of any series
of Designated Preferred Stock shall thereupon have the right to receive, upon
the basis and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore receivable upon the conversion of
such share or shares of such series of Designated Preferred Stock such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such Common Stock immediately theretofore receivable upon
such conversion had such reorganization or reclassification not taken place, and
in any such case appropriate provisions shall be made with respect to the rights
and interests of such holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the applicable Conversion
Price) shall thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
of such conversion rights.
6H. Notice of Adjustment. Upon any adjustment of a Conversion
Price for any series of Designated Preferred Stock, then and in each such case
the Corporation shall give written notice thereof, by first class mail, postage
prepaid, or by telex to non-U.S. residents, addressed to each holder of shares
of Designated Preferred Stock at the address of such holder as shown on the
books of the Corporation, which notice shall state the Conversion Price
resulting from such adjustment, setting forth in reasonable detail the method
upon which such calculation is based.
6I. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend upon
its Common Stock payable in cash or stock or make any other distribution to the
holders of its Common Stock;
(2) the Corporation shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock of any
class or other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with or into, or a sale of all or substantially all
its assets to, another entity or entities; or
(4) there shall be a voluntary or involuntary
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<PAGE> 15
dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex to non-U.S. residents, addressed to
each holder of any shares of Designated Preferred Stock at the address of such
holder as shown on the books of the Corporation, (a) at least 20 days' prior
written notice of the date on which the books of the Corporation shall close or
a record shall be taken for such dividend, distribution or subscription rights
or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (a) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
6J. Stock to be Reserved. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon the conversion of Designated Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Designated Preferred Stock. The
Corporation covenants that all shares of Common Stock which shall be so issued
shall be duly and validly issued and fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof, and, without
limiting the generality of the foregoing, the Corporation covenants that it will
from time to time take all such action as may be requisite to assure that the
par value per share of the Common Stock is at all times equal to or less than
the Conversion Price in effect at the time. The Corporation will take all such
action as may be necessary to assure that all such shares of Common Stock may be
so issued without violation of any applicable law or regulation, or of any
requirement of any national securities exchange upon which the Common Stock may
be listed. The Corporation will not take any action which results in any
adjustment of the Conversion Price if the total number of shares of Common Stock
issued and issuable after such action upon conversion of the Designated
Preferred Stock would exceed the
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<PAGE> 16
total number of shares of Common Stock then authorized by the Amended and
Restated Certificate of Incorporation.
6K. No Reissuance of Designated Preferred Stock. Shares of
Designated Preferred Stock which are not converted into shares of Common Stock
as provided herein shall not be reissued.
6L. Issue Tax. The issuance of certificates for shares of
Common Stock upon conversion of Designated Preferred Stock shall be made without
charge to the holders thereof for any issuance tax in respect thereof, provided
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Designated Preferred
Stock which is being converted.
6M. Closing of Books. The Corporation will at no time close
its transfer books against the transfer of any Designated Preferred Stock or of
any shares of Common Stock issued or issuable upon the conversion of any shares
of Designated referred Stock in any manner which interferes with the timely
conversion of such Designated Preferred Stock, except as may otherwise be
required to comply with applicable securities laws.
6N. Definition of Common Stock. As used in this paragraph 6,
the term "Common Stock" shall mean and include the Corporation's authorized
Common Stock, par value $.01 per share, as constituted on the date of filing of
these terms of the Designated Preferred Stock, and shall also include any
capital stock of any class of the Corporation thereafter authorized which shall
neither be limited to a fixed sum or percentage of par value in respect of the
rights of the holders thereof to participate in dividends nor entitled to a
preference in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; provided that the
shares of Common Stock receivable upon conversion of the shares of Designated
Preferred Stock shall include only shares designated as Common Stock of the
Corporation on the date of filing of this instrument, or in case of any
reorganization or reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in subparagraph 6G.
6O. Mandatory Conversion. If at any time:
(1) the Corporation shall effect a firm commitment
underwritten public offering of shares of Common Stock in which (a) the
aggregate price paid for such shares by the public shall be at least $10,000,000
and (b) the price paid by
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<PAGE> 17
the public for such shares shall be at least $7.50 per share (appropriately
adjusted to reflect the occurrence of any event described in subparagraph 6F),
then effective upon the closing of the sale of such shares by the Corporation
pursuant to such public offering, all outstanding shares of Senior Preferred
Stock shall automatically convert to shares of Common Stock; and
(2) the Corporation shall (i) effect a firm
commitment underwritten public offering of shares of Common Stock in which (a)
the aggregate price paid for such shares by the public shall be at least
$10,000,000 and (b) the price paid by the public for such shares shall be at
least $11.0588 per share (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F) or (ii) have its Common Stock publicly
traded on a national securities exchange (including NASDAQ) and the average of
the closing sale prices for the Common Stock within any 10 consecutive trading
day period is $11.0588 or more, then effective upon the earlier of the closing
of the sale of such shares by the Corporation pursuant to a public offering
described in subsection (i) and the close of business on the 10th consecutive
trading day described in subsection (ii), all outstanding shares of Series D
Stock shall automatically convert to shares of Common Stock.
7. Redemption. The shares of Senior Preferred Stock shall be redeemed
as follows:
7A. Redemption. On January 27 of each of the years listed
below (a "Redemption Date"), the Corporation shall redeem such number of shares
of then outstanding shares of Senior Preferred Stock, as are equal to that
percentage of the number of shares of Senior Preferred Stock outstanding as of
January 27, 2000 set forth below:
2000 : 10%
2001 : 15%
2002 : 25%
2003 : 25%
2004 : 25%
provided, however, that the holders or at least 60% of the then outstanding
shares of Senior Preferred Stock may waive such redemption as to such series by
written action or vote at a meeting, by written notice to the Corporation not
later than 30 days prior to such Redemption Date. All shares of Senior Preferred
Stock which are not redeemed because the holders have waived such redemption, as
described above, shall be subject to redemption by the Corporation on the next
Redemption Date unless the holders of at least 60% of the then outstanding
shares of
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Senior Preferred Stock by written action or vote at a meeting shall have waived
such redemption by written notice to the Corporation not later than 30 days
prior to such Redemption Date. Unless such redemption is waived in accordance
with the terms set forth herein, each redemption of Senior Preferred Stock shall
be made so that the number of shares of Senior Preferred Stock held by each
registered owner shall be reduced in an amount bearing the same ratio to the
total number of shares of Senior Preferred Stock to be redeemed as the number of
shares of Senior Preferred Stock then held by such registered owner bears to the
aggregate number of shares of Senior Preferred Stock then outstanding.
7B. Redemption Price and Payment. The Senior Preferred Stock
to be redeemed on each Redemption Date shall be redeemed by payment for each
share in cash the amount of the Liquidation Preference Payment, such amounts
being referred to as the "Redemption Price". Such payment shall be made in full
on each Redemption Date to the holders entitled thereto.
7C. Redemption Mechanics. At least 20 but not more than 30
days prior to each Redemption Date, written notice (a "Redemption Notice") shall
be given by the Corporation by mail, postage prepaid, or by telex to non-U.S.
residents, to each holder of record (at the close of business on the business
day next preceding the day on which the Redemption Notice is given) of shares of
Senior Preferred Stock notifying such holder of the Redemption and specifying
the Redemption Price which shall be payable. Each Redemption Notice shall be
addressed to each holder at this address as shown by the records of the
Corporation. From and after the close of business on each Redemption Date,
unless there shall have been a default in the payment of the Redemption Price,
all rights with respect to shares of Senior Preferred Stock which have been
redeemed pursuant to this paragraph 7 (except the right to receive the
Redemption Price) shall cease, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever. If the funds of the Corporation legally available for
redemption of shares of Senior Preferred Stock on each Redemption Date are
insufficient to redeem the total number of outstanding shares of Senior
Preferred Stock to be redeemed on such Redemption Date, the holders of shares of
Senior Preferred Stock shall share ratably in any funds legally available for
redemption of such shares according to the respective amounts which would be
payable with respect to the full number of shares owned by them if all
outstanding shares of Senior Preferred Stock were redeemed in full. At any time
thereafter when additional funds of the Corporation are legally available for
redemption of shares of Senior Preferred Stock which would have been redeemed
except that
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<PAGE> 19
funds of the Corporation legally available for redemption of such shares were
insufficient, such funds will be used, at the end of the next succeeding fiscal
quarter, to redeem the balance of such shares, or such portion thereof or which
funds are then legally available, on the basis set forth above. The shares of
Senior Preferred Stock not redeemed shall remain outstanding and entitled to all
rights and preferences provided herein.
7D. Redeemed or Otherwise Acquired Shares to be Retired. Any
shares of Senior Preferred Stock redeemed pursuant to this Paragraph 7 or
otherwise acquired by the Corporation in any manner whatsoever shall be
cancelled and shall not under any circumstances be reissued; and the Corporation
may from time to time take such appropriate corporate action as may be necessary
to reduce accordingly the number of authorized shares of Senior Preferred Stock.
8. Amendments. No provision of the Amended and Restated Certificate of
Incorporation which specifies the rights and privileges of the Designated
Preferred Stock may be amended, modified or waived without the written consent
or affirmative vote of the holders of at least 60% of the then outstanding
shares of Designated Preferred Stock.
9. Special Mandatory Conversion.
(a) If the holder of shares of Senior Preferred Stock is
entitled to exercise the right of first refusal as set forth in Article V,
Section 5.02, of the Series C Convertible Preferred Stock Purchase Agreement
(the "Purchase Agreement") dated January 27, 1994 between the Corporation and
the holders of Senior Preferred Stock (the "Right of First Refusal") with
respect to any equity financing (the "Equity Financing") of the Corporation
which would result in the reduction of the Series C Conversion Price and (i) the
Corporation has fully complied in all respects (except to the extent that the
timing provisions contained therein have been waived by the holders as provided
in the Purchase Agreement) with its obligation pursuant to Article V, Section
5.02, of the Purchase Agreement in respect thereof, and (ii) the provision of
the Right of First Refusal set forth in Article V, Section 5.02 of the Purchase
Agreement have not been waived at the request of the Corporation by such holder,
if such holder (a "Non-Participating Holder") does not, by exercise of such
holder's Right of First Refusal, acquire at least his Special Proportionate
Percentage (as hereinafter defined) of the Allocated Offered Securities (as in
hereinafter defined) offered to the holders of Senior Preferred Stock in such
Equity Financing (a "Mandatory Offering"), then all of such holder's shares of
Senior Preferred Stock, shall automatically and without further
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<PAGE> 20
action on the part of such holder be converted effective subject to and
concurrently with consummation of the Mandatory Offering (the "Mandatory
Offering Date") as follows; each share of Senior Preferred Stock held by such
Non-Participating Holder shall be converted into that number of shares of Common
Stock into which such share of Senior Preferred Stock could be converted by the
holder thereof pursuant to Paragraph 6A hereof immediately prior to the
consummation of such Mandatory Offering, without any adjustment for the
securities issued in the Equity Financing which is the subject of such Mandatory
Offering. As used in this Paragraph 9, the following terms shall have the
following respective meanings:
(1) "Allocated Offered Securities" shall mean as to any holder
of Senior Preferred Stock that portion of the gross amount of offered
securities which has expressly been allocated for purchase by the
holders of the Senior Preferred Stock as a group, it being understood
that for purposes of this Paragraph 9(a) that Allocated Offered
Securities may represent an amount of offered securities that is less
(but in no event greater) than the amount of offered securities which
the Corporation is otherwise required to offer to the holders of Senior
Preferred Stock pursuant to Article V, Section 5.02, of the Purchase
Agreement; and
(2) "Special Proportionate Percentage" shall mean as to any
holder of Senior Preferred Stock, that percentage figure which
expresses the ratio which (x) the number of shares of outstanding
Common Stock (including all shares of capital stock convertible into
Common Stock, on a fully-diluted basis) then owned by such holder bears
to (y) the aggregate number of shares of outstanding Common Stock
(including all shares of capital stock convertible into Common Stock,
on a fully-diluted basis) then owned by all holders of shares of Senior
Preferred Stock. For purposes solely of the computation required for
determination of the Special Proportionate Percentage, each holder of
outstanding Senior Preferred Stock shall be treated as the holder of
the number of shares of Common Stock which would be issuable to such
holder upon conversion, exercise or exchange of all securities
(including any shares of Preferred Stock) held by such holder at the
time of such Equity Financing, that are convertible, exercisable or
exchangeable into or for (whether directly or indirectly) shares of
Common Stock.
Notwithstanding the above, in the event that any holder of
Senior Preferred Stock shall have assigned its Right of First Refusal
pursuant to Article V, Section 5.02 of the
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<PAGE> 21
Purchase Agreement to a member or members of the Group (as defined in
the Purchase Agreement) of which such holder is a member, and such
member or members of such holders' Group shall have exercised such
Right of First Refusal to acquire not less than such holder's Special
Proportionate Percentage of the Allocated Offered Securities of a
Mandatory Offering, then such holder shall not be deemed a
Non-Participating Holder hereunder and the Senior Preferred Stock held
by such holder shall not be subject to mandatory conversion pursuant to
this Paragraph 9 with respect to such Mandatory Offering.
(b) The holder of any shares of Senior Preferred Stock
converted pursuant to Paragraph 9(a) hereof, shall deliver to the Corporation
during regular business hours at the office of any transfer agent of the
Corporation for the Preferred Stock, or at such other place as may be designated
by the Corporation, the certificate or certificates for the shares so converted,
duly endorsed or assigned in blank or to the Corporation. As promptly as
practicable thereafter, the Corporation shall issue and deliver to such holder,
at the place designated by such holder, a certificate or certificates for the
number of full shares of Common Stock to which such holder is entitled. The
person in whose name the certificate for such Common Stock is to be issued shall
be deemed to have become a stockholder of record on the Mandatory Offering Date
unless the transfer books of the Corporation are closed on that date, in which
event he shall be deemed to have become a stockholder of record on the next
succeeding date on which the transfer books are open.
C. Undesignated Preferred Stock. The Board of Directors is expressly
authorized, subject to the limitations and the provisions of this Amended and
Restated Certificate of Incorporation and as prescribed by the Delaware General
Corporation Law, to provide by resolution and by filing a certificate of
designations pursuant to the Delaware General Corporation Law, for the issuance
of Undesignated Preferred Stock, from time to time, in one or more series, to
specify the number of shares to be included in the series, and to fix the terms,
rights, restrictions and qualifications of the shares of a series, including any
preferences, voting powers, dividend rights and redemption rights, sinking fund
and conversion rights. Subject to the express terms of the Undesignated
Preferred Stock outstanding at the time, the Board of Directors may increase or
decrease the number of shares or alter the designation or classify or
re-classify any unissued shares of a particular series of Undesignated Preferred
Stock by fixing or altering in any one or more respects from time to time before
issuing the shares, any terms, rights, restrictions and qualifications of the
shares.
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<PAGE> 22
FOURTH: That said amendment was duly adopted in accordance with the provision of
Section 242 of the General Corporation Law of the State of Delaware.
FIFTH: That the capital of the Corporation will not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, the Corporation has caused its
corporate seal to be hereunto affixed and this certificate to be signed by its
President and attested by its Secretary on this 5th day of May, 1998.
ANTHRA PHARMACEUTICALS, INC.
By: /s/ Michael C. Walker
Michael C. Walker
President
Attest:
By: /s/ Mervyn Israel
Secretary
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<PAGE> 1
EXHIBIT 5
[MORRISON & FOERSTER LLP LETTERHEAD]
May __, 1998
Anthra Pharmaceuticals, Inc.
103 Carnegie Center, Suite 102
Princeton, NJ 08540
Ladies and Gentlemen:
At your request, we have examined the Registration Statement
on Form S-1 filed by Anthra Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), with the Securities and Exchange Commission on March 11, 1998
(Registration No. 333-47725), Amendment No. 1 thereto filed on April 28, 1998,
Amendment No. 2 thereto filed on May __, 1998 and Amendment No. 3 thereto filed
on _________, 1998 (collectively, the "Registration Statement"), relating to the
registration under the Securities Act of 1933, as amended, of up to 2,760,000
shares of the Company's common stock, $0.01 par value per share (the "Stock")
(including up to 360,000 shares of Stock subject to the underwriters'
over-allotment option). The Stock is to be sold to the underwriters named in the
Registration Statement for resale to the public.
As counsel to the Company, we have examined such corporate
records, documents, instruments, certificates of public officials and of the
Company and such questions of law as we have deemed necessary for the purpose of
rendering the opinions set forth herein.
We are of the opinion that the shares of Stock to be offered
and sold by the Company have been duly authorized and, when issued and sold by
the Company in the manner described in the Registration Statement and in
accordance with the resolutions adopted by the Board of Directors of the
Company, will be legally issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to all references to us in the
Registration Statement, the prospectus constituting a part thereof and any
amendments thereto.
Very truly yours,
Morrison & Foerster LLP
<PAGE> 1
EXHIBIT 23.1
The Board of Directors and Stockholders
Anthra Pharmaceuticals, Inc.:
We consent to the use of our report included herein and to the references to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
/s/ KPMG PEAT MARWICK LLP
Princeton, New Jersey
May 15, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT
The undersigned, on behalf of MedProbe, Inc. ("MedProbe"), hereby consents
to the use by Anthra Pharmaceuticals, Inc. of certain disease incidence
information of MedProbe in a registration statement filed or to be filed with
the Securities and Exchange Commission.
MEDPROBE, INC.
By: /s/ Mitchell Gersovitz
---------------------------
Name: Mitchell Gersovitz
Title: CEO
Date: May 15, 1998
It should be understood that MedProbe's conduct of the market research or the
reporting of results from the market research in no way represents MedProbe's
affirmation of market potential for any specific agent and also does not
represent an endorsement of the ultimate success or failure of any associated
agent.
/s/ Mitchell Gersovitz
May 15, 1998
