AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 2000
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PHARMANETICS, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-2098302
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5301 DEPARTURE DRIVE
RALEIGH, NORTH CAROLINA 27616
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JOHN P. FUNKHOUSER
PRESIDENT
PHARMANETICS, INC.
5301 DEPARTURE DRIVE
RALEIGH, NORTH CAROLINA 27616
(919) 954-9871
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
KEVIN A. PRAKKE
WYRICK ROBBINS YATES & PONTON LLP
4101 LAKE BOONE TRAIL, SUITE 300
RALEIGH, NORTH CAROLINA 27607
(919) 781-4000
FAX (919) 781-4865
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
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Common Stock, 1,596,000 shares $14.8125 $23,640,750 $6,241.16
no par value per share ......
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(1) Estimated solely for the purpose of calculating the registration fee, based
upon the average of the high and low prices of the Common Stock on the Nasdaq
National Market on May 15, 2000, in accordance with Rule 457.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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The information in this prospectus is not complete. It might change. We
cannot sell these securities until the registration statement that we have filed
with the SEC is effective. This prospectus is not an offer to sell, nor does it
solicit offers to buy, these securities in any state where the offer or sale is
not permitted.
SUBJECT TO COMPLETION, DATED MAY 16, 2000
1,596,000 SHARES
PHARMANETICS, INC.
COMMON STOCK
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The shareholders of PharmaNetics, Inc. listed below are offering and
selling from time to time all of the 1,596,000 shares of our common stock under
this prospectus. We will not receive any proceeds from the sale of the shares.
However, we will pay substantially all of the expenses of this offering,
estimated at approximately $49,742. See "Selling Shareholders ."
Our common stock is traded on the Nasdaq National Market under the
symbol "PHAR." On May 15, 2000, the last sale price of our common stock on the
Nasdaq National Market was $15.00 per share.
The selling shareholders may offer the shares through public or private
transactions, on or off the Nasdaq National Market, at prevailing market prices
or at privately negotiated prices. See "Plan of Distribution."
Our principal executive offices are located at 5301 Departure Drive,
Raleigh, North Carolina 27616, Attention: Investor Relations. Our telephone
number at that location is (919) 954-9871.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OUR SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. IT IS ILLEGAL FOR ANYONE TO TELL YOU OTHERWISE.
THE DATE OF THIS PROSPECTUS IS MAY ___, 2000.
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AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. You should call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available to
the public on the SEC's web site at "http:/www.sec.gov."
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"):
1. Annual Report on Form 10-K for the year ended December 31, 1999.
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
3. Our proxy statement dated April 11, 2000 for our 2000 Annual Meeting
of Shareholders held on May 9, 2000.
4. The description of our common stock contained in our registration
statement filed pursuant to Section 12 of the Exchange Act, as
amended from time to time.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
PharmaNetics, Inc.
Investor Relations
5301 Departure Drive
Raleigh, North Carolina 27616
(919) 954-9871
This prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different information.
We are not making an offer of these securities in any state where the offer is
not permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of the document.
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THE COMPANY
PharmaNetics, Inc., through its wholly owned subsidiary Cardiovascular
Diagnostics, Inc., develops, manufactures and markets rapid turnaround
diagnostics to assess blood clot formation and dissolution. Our products are a
proprietary cardiovascular analyzer and dry chemistry tests (known as the
"Thrombolytic Assessment System" or "TAS") that provide, at the point of patient
care, rapid accurate evaluation of hemostasis. We are also establishing ourself
in the emerging field of theranostics or rapid near-patient testing in which the
diagnostic results may influence treatment decisions. Our current tests and
tests under development are used in the treatment of angina, heart attack,
stroke, deep vein thrombosis and pulmonary and arterial emboli.
We believe that the TAS is the only stat, or "as soon as possible",
point-of-care system capable of monitoring the formation and dissolution of
blood clots. Such monitoring provides information which is critical in
administering anticoagulant and thrombolytic (clot-dissolving) drugs, which are
used in the treatment of a variety of medical disorders. Hemostatic test results
must be provided quickly because a majority of the drugs used to regulate
clotting are cleared rapidly from the body, and these drugs must be closely
monitored to maintain drug levels within an effective treatment range. We
believe that hospital central and stat laboratories, which currently provide the
majority of such testing, generally cannot provide timely information to
clinicians regarding drugs that affect coagulation and thrombolysis. Delay in
providing such information can be a problem because the physician is likely to
leave the patient area during this time, which may result in a further delay of
diagnosis and treatment. We believe that the TAS can provide information
regarding coagulation and thrombolysis as well as drug monitoring on a timely
basis, permitting quicker diagnosis and therapeutic intervention, which will
improve hemostatic therapy and the quality of patient care. We believe that this
improvement may facilitate quicker transfers out of expensive critical care
settings, reduce the overall length of hospital stays, reduce expenditures for
laboratory equipment and its associated maintenance, and reduce the unnecessary
use of pharmaceuticals. In addition, point-of-care testing can reduce hospitals'
costs by reducing the numerous steps, paperwork and personnel used in
collecting, transporting, documenting and processing blood samples.
We currently sell domestically and internationally our TAS analyzer and
a menu of tests and controls. Five of these tests have received FDA clearance
under Section 510(k) of the Food, Drug and Cosmetic Act (the "FDC Act") and are
currently sold for commercial use. Two other tests have been sold for
investigational use only, pending FDA review and clearance. In January 2000, we
received FDA clearance to market our Heparin Management Panel and Accent system.
The Accent is a hardware accessory to the TAS analyzer, and it will be used with
the currently marketed Heparin Management Test along with two new test cards.
These products are used to facilitate anticoagulation management during
cardiopulmonary bypass procedures. In April 2000, we received FDA clearance to
market out low range Heparin Management Test (LHMT). This test measures lower
doses of Heparin and will be used primarily in diagnostic and interventional
cardiology procedures.
The TAS analyzer weighs approximately four pounds and is about the size
of a typical office telephone. The TAS analyzer has a four-line LCD display,
which is driven by software to prompt the technician to input the user and
patient ID numbers, sample type, and timing of application of the blood.
Our analyzer and test cards are designed to work effectively in a
decentralized testing environment where they are used by healthcare personnel
who do not need formal central laboratory training. To operate TAS, a test card
is swiped through the magnetic strip reader of the analyzer, which automatically
initiates quality controls and begins to elicit information from the operator
through a series of prompts outlining the operating procedure for the specific
test to be performed. The test card is then inserted into the TAS analyzer. A
single drop of whole blood or plasma is then placed into the reaction chamber of
the test card. Typically within three minutes, the screen on the TAS analyzer
displays a numerical test result, which is comparable to the result which would
be achieved in a central laboratory using traditional testing procedures. Our
analyzer is currently marketed by our distributor, Bayer Diagnostics, as the
Rapidpoint Coag analyzer.
The Accent is a hardware accessory to the TAS analyzer cleared for
marketing by the FDA in January 2000. The Accent is a microprocessor-based
device that connects to the TAS analyzer and automatically calculates the
information required by physicians to manage the anticoagulation of patients
during cardiopulmonary bypass procedures. It is used in conjunction with three
of our test cards and will be marketed by Bayer as Rapidpoint ACCENT.
In August 1998, we signed a five-year global distribution agreement,
subject to minimum annual sales, with Chiron Diagnostics (now Bayer Diagnostics)
to distribute five of our test cards. We believe that Bayer Diagnostics has a
strong global presence and that its shared strategy for expanding rapid
diagnostic platforms into critical care settings and its considerable presence
in these specialized areas of the hospital will lead to increased placements of
TAS products. We also believe that the TAS products are complementary with Bayer
Diagnostics' leading market position in blood gas
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analysis. Bayer Diagnostics began marketing our products in January 1999.
We also market TAS products in Europe and other foreign countries.
Bayer Diagnostics has become our exclusive distributor in these territories.
To further the goal of establishing ourself in the emerging field of
theranostics, we have entered into collaborative agreements with Knoll AG,
AstraZeneca, Aventis and Bayer in which we are developing test cards for
potential use in patient identification and monitoring of therapies affecting
coagulation being investigated by these companies. We are focused on becoming a
leader in the theranostic testing market, specifically managing new therapeutics
which affect coagulation. Many drugs currently under development may require
faster, more accurate assessment given short half-lives and narrow therapeutic
windows, and thus we believe physicians will increasingly demand therapeutic
drug monitoring. Within the cardiovascular market, drugs affecting coagulation
are under development by pharmaceutical companies. Our strategy is to increase
our number of collaborations, expand current collaborations, increase
involvement of leading research centers and physician "thought leaders" and
further the involvement of Bayer in providing outcome studies related to new
theranostic tests.
Our strategy is to focus our theranostic test development efforts on
drugs in Phase II or Phase III development by the pharmaceutical company which
helps reduce development risk as these drugs have a greater chance of approval
than those just beginning clinical trials. Additionally, under this model the
pharmaceutical company pays for the clinical trials and provides us access to
the regulatory data associated with the test to be used in submitting a 510(k)
application. This approach is designed to allow us to cost-effectively develop
our tests.
THE OFFERING
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Shares of common stock offered by us......................................None
Shares of common stock which may be.......................................1,596,000(1)
sold by the selling shareholders
Use of proceeds ........................................................We will not receive any proceeds
from the resale of shares offered
hereby, all of which proceeds will be
paid to the selling shareholders
Risk factors..............................................................The purchase of our common stock
involves a high degree of risk. You
should carefully review and consider
"Risk Factors" beginning on page 6.
Nasdaq National Market Trading Symbol.....................................PHAR
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(1) Consists of: (a) 1,200,000 shares of common stock issuable upon conversion
of Series A preferred stock; (b) 252,000 shares of common stock issuable upon
exercise of warrants; and (c) 144,000 shares of common stock representing our
estimate of the number of shares that we might issue in payment of in-kind
dividends on our Series A preferred stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus discuss our plans
and strategies for our business and are "forward-looking statements" as that
term is defined in the Private Securities Litigation Reform Act. The words
"anticipates," "believes," "estimates," "expects," "plans," "intends" and
similar expressions are meant to identify these statements as forward-looking
statements, but they a2re not the exclusive means of identifying them. The
forward-looking statements in this prospectus reflect the current views of our
management; however, various risks, uncertainties and
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contingencies could cause our actual results, performance or achievements to
differ materially from those expressed or implied by these statements,
including:
o The success or failure of our efforts to implement our business
strategy; and
o The other factors discussed in the "Risk Factors" section and
elsewhere in this prospectus
We assume no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
For a discussion of important risks of an investment in our common stock,
including factors that could cause actual results to differ materially from
results referred to in the forward-looking statements, see the "Risk Factors"
section of this prospectus. In light of the risks and uncertainties discussed in
"Risk Factors" and elsewhere in this prospectus, events referred to in
forward-looking statements in this prospectus might not occur.
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RISK FACTORS
You should be aware that there are various risks to an investment in
our common stock, including those described below. You should carefully consider
these risk factors, together with all of the other information included in this
prospectus, before you decide to invest in shares of our common stock.
WE EXPECT CONTINUED LOSSES.
We anticipate that we will continue to incur losses and negative
operating cash flows for the foreseeable future. Since our inception as a public
company, we have reported operating losses and operating cash flow deficits as
we organized and launched our business operations. During this period, we
incurred significant operating expenses and made significant investments in our
business without an established source of revenue. There can be no assurance
that our business plan, when fully implemented, will generate sufficient revenue
to make us profitable.
WE MIGHT NEED TO RAISE ADDITIONAL CAPITAL.
In the near future, we may need to raise additional funds through
public or private sale of our equity or debt securities or from other sources
for the following purposes:
o to build our core business; and
o to maintain compliance with Nasdaq listing requirements.
As of the date of this filing, we believe we have sufficient capital to
fund operations for at least the next 12 months. However, we may need to raise
additional capital as early as 2001 to support operations and execute our
business strategy. We cannot assure you that additional funds will be available
when we need them, or that if funds are available, they will be on terms
favorable to us and our shareholders. If we are unable to obtain sufficient
funds or if adequate funds are not available on terms acceptable to us, we may
be unable to meet our business objectives. A lack of sufficient funds could also
prevent us from taking advantage of important opportunities or being able to
respond to competitive conditions. Any of these results could have a material
adverse effect on our business, financial condition and results of operations.
Our need to raise additional funds could also directly and adversely
affect your investment in our common stock in another way. When a company raises
funds by issuing shares of stock, the percentage ownership of the existing
shareholders of that company is reduced or diluted. If we raise funds in the
future by issuing additional shares of stock, you may experience significant
dilution in the value of your shares. Additionally, certain types of equity
securities that we may issue in the future could have rights, preferences or
privileges senior to your rights as a holder of our common stock.
OUR PRODUCTS HAVE NOT ACHIEVED AND MIGHT NOT ACHIEVE MARKET ACCEPTANCE IN AN
ESSENTIALLY NEW MARKET.
The commercial success of our products will depend upon their
acceptance by the medical community as being useful and cost-effective. Market
acceptance will depend upon several factors, including the establishment of the
utility and cost-effectiveness of our tests and the receipt of regulatory
clearances in the United States and elsewhere. The availability of point-of-care
hemostasis test systems has been limited to date, so by selling point-of-care
hemostasis test products, we are targeting an essentially new market. Diagnostic
tests similar to those developed by us are generally performed by a central
laboratory at a hospital or clinic. The approval of the purchase of diagnostic
equipment by a hospital is generally controlled by its central laboratory. We
expect there will be resistance by central laboratories to yield control of
tests they have previously performed. We will also have to demonstrate to
physicians that our diagnostic products perform as intended, meaning that the
level of accuracy and precision attained by our products must be comparable to
test results achieved by central laboratory systems. Failure of our products to
achieve market acceptance would have a material adverse effect on us.
We are substantially dependent upon Bayer Diagnostics as our principal
distributor for marketing and distribution of its products. There can be no
assurance that Bayer Diagnostics will be successful in marketing or selling our
products or that we could build a cost-effective and adequate sales and
marketing staff. The loss of one or more of our distributors or the inability to
enter into agreements with new distributors to sell TAS products in additional
countries could have a material adverse effect on us.
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WE FACE INTENSE COMPETITION AND THE RISK OF TECHNOLOGICAL OBSOLESCENCE.
The medical diagnostic testing industry is characterized by rapidly
evolving technology and intense competition. Our currently marketed TAS menu
competes in the coagulation and hematology testing market with manufacturers
providing testing equipment to central and stat laboratories of hospitals, since
such laboratories currently perform a substantial portion of such testing, and
with other point-of-care coagulation and hematology test system manufacturers.
Laboratories provide some of the same tests performed by TAS.
We have several competitors, including Roche Diagnostics (which
acquired Boehringer Mannheim Corporation in 1998), International Technidyne
Corporation ("ITC") and Medtronic, that manufacture and market point-of-care
coagulation and hematology test systems. ITC, in particular, has a large
installed base of systems, which it has been selling for over 20 years. Despite
the fact that we believe that TAS competes favorably with these systems, ITC's
installed base could give it a competitive advantage. Although the market for
point-of-care coagulation and hematology test systems is in its early stages of
development, we believe that potential customers will base their purchasing
decisions upon a combination of factors, including accuracy and precision,
speed, cost-effectiveness, data management, ease-of-use, compliance with CLIA
guidelines, and availability of a comprehensive test menu.
If we introduce additional blood tests beyond our initial coagulation
and hematology tests, we will compete with other companies that market similar
products to hospitals for use in laboratories and at the point of patient care.
Other manufacturers and academic institutions may be conducting research and
development with respect to blood testing technologies and other companies may
in the future engage in research and development activities regarding products
competitive with our products. Many of the companies in the medical technology
industry, including those listed above, have substantially greater capital
resources, research and development staffs, sales and manufacturing capabilities
and manufacturing facilities than us. Such entities may be developing or could
in the future attempt to develop additional products competitive with TAS. Many
of these companies also have substantially greater experience than us in
research and development, obtaining regulatory clearances, manufacturing and
marketing, and may therefore represent significant competition for us. There can
be no assurance that our competitors will not succeed in developing or marketing
technologies and products that will be more effective or less expensive than
those being marketed by us or that would render our technology and products
obsolete or noncompetitive.
WE FACE EXTENSIVE GOVERNMENT REGULATION.
The medical devices we market and manufacture are subject to extensive
regulation by the FDA. Pursuant to the FDC Act, the FDA regulates the clinical
testing, manufacture, labeling, distribution and promotion of medical devices.
Noncompliance with applicable requirements can result in, among other things:
o fines
o injunction
o civil penalties
o recall or seizure of products
o total or partial suspension of production
o failure of the government to grant premarket clearance or premarket
approval ("PMA") for devices
o withdrawal of marketing approvals or
o criminal prosecution.
The FDA also has the authority to request repair, replacement or refund of the
cost of any device we manufacture or distribute.
We received 510(k) clearance to market our PT and aPTT test cards,
along with a first generation analyzer, in 1988. In 1993, we received 510(k)
clearance for the current TAS analyzer to be marketed with PT and aPTT tests and
received 510(k) clearance in May 1995 to commercially market the HMT test. We
received 510(k) clearance for PT, HMT and aPTT controls in 1996 and for PT-NC
controls in 1997. During 1999, we received 510(k) clearance for our EQC card. In
January 2000, we received 510(k) clearance for the HTT and PRT tests as well as
the Accent accessory for the TAS analyzer. In April 2000, we received 510(k)
clearance for the LHMT test card. We submitted a 510(k) for our SK Panel in
September 1993. This submission was withdrawn in October 1994, after
consultation with the FDA, pending the conclusion of additional clinical
evaluations of the SK Panel. The SK Panel and LOT tests are currently available
to be sold in Europe for investigational use only in connection with clinical
evaluations of the safety and effectiveness of the products. In January 1998, we
submitted a 510(k) application for the ECT test card and in August 1998, the FDA
notified us that it would require additional data before commencing its review
of this application. We currently plan to resubmit the 510(k) after compiling
the requested additional data. We may not be able to obtain necessary regulatory
approvals on a timely basis, or at all, and delays in receipt of or failure to
receive such approvals, the loss of previously
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received approvals, or failure to comply with existing or future regulatory
requirements would have a material adverse effect on our business, financial
condition and results of operations.
Pursuant to FDA policy, manufacturers of devices labeled "for
investigational use only" must establish a controlled program under which
investigational devices are distributed to or utilized only by individuals,
laboratories or healthcare facilities that have provided the manufacturer with a
written certification of compliance indicating that:
o the device will be used for investigational purposes only
o results will not be used for diagnostic purposes without
confirmation of the diagnosis under another medically established
diagnostic device or procedure
o all investigations will be conducted with approval from an
institutional review board ("IRB"), using an IRB-approved study
protocol, and patient informed consent and
o the device will be labeled, and labeling will be maintained, in
accordance with the applicable labeling regulations
Failure by us or recipients of our "investigational use only" products
to comply with these requirements could result in enforcement action by the FDA
that would adversely affect our ability to conduct testing necessary to obtain
market clearance and, consequently could have a material adverse effect on us.
Any products we manufacture or distribute pursuant to FDA clearances or
approvals are subject to pervasive and continuing regulation by the FDA,
including recordkeeping requirements and reporting of adverse experiences with
the use of the device. Device manufacturers are required to register their
facilities and list their devices with the FDA, and are subject to periodic
inspections by the FDA and certain state agencies. The FDC Act requires devices
to be designed and manufactured in accordance with quality regulations which
impose certain procedural and documentation requirements upon us with respect to
design, manufacturing and quality assurance activities. The FDA has approved
changes to the regulations which will and have increased the cost of complying
with such requirements.
Export of products that have market clearance from the FDA in the
United States do not require FDA authorization. However, foreign countries often
require an FDA certificate for products for export (a "CPE"). To obtain a CPE,
the device manufacturer must certify to the FDA that the product has been
granted clearance in the United States and that the manufacturing facilities
appeared to be in compliance with quality regulations at the time of the last
FDA inspection. The FDA will refuse to issue a CPE if significant outstanding
quality violations exist.
Export of products subject to the 510(k) requirements, but not yet
cleared to market, are permitted without FDA authorization provided certain
requirements are met. Unapproved products subject to the PMA requirements must
be approved by the FDA for export. To obtain FDA export approvals certain
requirements must be met and information must be provided to the FDA, including
documentation demonstrating that the product is approved for import into the
country to which it is to be exported and, in some instances, safety data from
animal or human studies. There can be no assurance that the FDA will grant
export approval when such approval is necessary, or that the countries to which
the devices are to be exported will approve the devices for import.
We have obtained CPEs for the PT, PT One, aPTT and HMT tests and the
TAS analyzer. Our failure to obtain a CPE for the export of our products in the
future could have a material adverse effect on us. Products which we export that
do not have premarket clearance in the United States include the SK Panel, the
LOT test, the ECT test and the modified ECT test. We believe that these products
are subject to the 510(k) requirements and, consequently, have not requested FDA
approval for export. However, there can be no assurance that the FDA would agree
with us that a 510(k) is needed rather than a PMA. If the FDA disagreed, it
could significantly delay and impair our ability to continue exporting these
tests and could have a material adverse effect on us.
Sales of our test products outside the United States are also subject
to foreign regulatory requirements that vary widely from country to country.
These laws and regulations range from simple product registration requirements
in some countries to complex clearance and production controls in others. As a
result, the processes and time periods required to obtain foreign marketing
approval may be longer or shorter than those necessary to obtain FDA approval.
These differences may affect the efficiency and timeliness of international
market introduction of our products, and there can be no assurance that we will
be able to obtain regulatory approvals or clearances for our products in foreign
countries. Delays in receipt of, or a failure to receive, such approvals or
clearances, or the loss of any previously received approvals or clearances,
could have a material adverse effect on us.
In order to market our products in the member countries of the European
Union (the "EU"), we are required to comply with the European Medical Devices
Directive ("MDD") and to obtain CE Mark certification for the TAS
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analyzer. The CE Mark denotes conformity with European standards for safety and
allows certified devices to be placed on the market in all EU countries. Medical
devices may not be sold in EU countries unless they display the CE Mark. All of
our applicable products marketed in Europe have obtained CE Mark certification.
There can be no assurance that we will be successful in maintaining CE Mark
certification of its products. The TAS Analyzer also must and does meet the
requirements of the Electromagnetic Capability Directive. Failure to maintain CE
Mark certification in Europe or to obtain or maintain other foreign regulatory
approvals could have a material adverse effect on our business, financial
condition and results of operations.
Our products are also subject to the requirements of CLIA (Clinical
Laboratories Improvement Amendments). This law requires all laboratories,
including those performing blood chemistry tests, to meet specified standards in
the areas of personnel qualification, administration, participation in
proficiency testing, patient test management, quality control, quality assurance
and inspections. The regulations have established three levels of regulatory
control based on test complexity -- "waived", "moderate complexity" and "high
complexity". The PT, aPTT and HMT tests performed by TAS have been categorized
by the FDA and the Centers for Disease Control and Prevention as moderate
complexity tests. There can be no assurance that these tests will not be
recategorized, or that other tests performed by the TAS will not be categorized
as high complexity tests or that such a categorization will not have a material
adverse effect on us. Furthermore, regulations under and future administrative
interpretations of CLIA could have an adverse impact on the potential market for
our products.
WE ARE HEAVILY DEPENDENT ON PATENTS AND PROPRIETARY TECHNOLOGY.
Our success will depend in part on our ability to enforce our patents,
to preserve our trade secrets and to operate without infringing the proprietary
rights of third parties. Our ability to protect our proprietary position is also
in part dependent on the issuance of additional patents on current and future
applications. No assurance can be given that any patent applications will be
issued, that the scope of any patent protection will exclude competitors or
provide competitive advantages to us, that any of our patents will be held valid
if subsequently challenged or that others will not claim rights in or ownership
to the patents and other proprietary rights held by us. Furthermore, others may
have or will develop similar products, duplicate our products or design around
our patents. If any relevant claims of third-party patents are upheld as valid
and enforceable, we could be prevented from practicing the subject matter
claimed in such patents or could be required to obtain licenses from the patent
owners of each of such patents or to redesign its products or processes to avoid
infringement. Such licenses may not be available or, if available, could be on
terms unacceptable to us.
We also rely upon unpatented trade secrets to protect our proprietary
technology. In particular, we believe that our custom-designed automated test
card production line embodies proprietary process technology. Others may
independently develop or otherwise acquire equivalent technology or otherwise
gain access to our proprietary technology and we may not ultimately be able to
protect meaningful rights to such unpatented proprietary technology. There has
been substantial litigation regarding patent and other intellectual property
rights in the medical device industry.
THE SALE OF THE SHARES REGISTERED IN THIS OFFERING COULD CAUSE OUR STOCK PRICE
TO DECLINE.
All shares registered in this offering will be freely tradable upon
effectiveness of this registration statement. The sale of a significant amount
of shares registered in this offering at any given time could cause the trading
price of our common stock to decline and to be highly volatile.
WE FACE THE ADVERSE EFFECTS OF A SIGNIFICANT NUMBER OF OUTSTANDING WARRANTS,
OPTIONS AND CONVERTIBLE PREFERRED STOCK.
We have outstanding:
o warrants to purchase an aggregate of approximately 252,000 shares of
our common stock; and
o preferred stock that is convertible into an aggregate of
approximately 1,200,000 shares of common stock.
We have also reserved for issuance 1,464,234 shares of our common stock
pursuant to stock plans, under which options to purchase 1,170,771 shares of
common stock were outstanding as of April 30, 2000.
The existence of these securities may adversely affect us or our
shareholders for many reasons, including:
o the market price of our common stock might be adversely affected;
-9-
<PAGE>
o if any of these securities are exercised, the value of the common
stock held by stockholders will be diluted if the value of the
common stock immediately prior to the exercise of these securities
exceeds the exercise price;
o some of these securities give the holders of them the opportunity,
at nominal cost, to profit from a rise in the market price of our
common stock; and
o the terms upon which we could issue additional shares of common
stock or obtain other sources of financing may be adversely
affected.
Holders of warrants and options are also likely to exercise them when,
in all likelihood, we could obtain additional financing from other sources on
terms more favorable than those provided by the warrants and options.
WE HAVE LIMITED MANUFACTURING EXPERIENCE.
To be successful, we must manufacture our products in compliance with
regulatory requirements, in sufficient quantities and on a timely basis, while
maintaining product quality and acceptable manufacturing costs. We have limited
experience producing our products in large commercial quantities. We may not be
able to manufacture accurate and reliable products in large commercial
quantities on a timely basis and at an acceptable cost.
Most of the raw materials and components used to manufacture our TAS
products are readily available. However, certain of these materials are obtained
from a sole supplier or a limited group of suppliers. PIOP and some reagents
used in the TAS test cards are obtained from single sources. However, we
maintain enough supply to produce test cards for an extended period of time. We
believe that, in the event of an interruption in the availability of supplies,
we have enough supply at our facility to fulfill our needs until an alternative
source can be procured. We seek to maintain long-term agreements with our
suppliers when possible. The reliance on sole or limited suppliers and the
inability to maintain long-term agreements with suppliers involves several
risks, including the inability to obtain an adequate supply of required raw
materials and components and reduced control over pricing, quality and timely
delivery. Any interruption in supply could have a material adverse effect on us.
WE FACE UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT.
Our ability to commercialize our products successfully may depend in
part on the extent to which reimbursement for the cost of such products and
related treatment will be available from government health administration
authorities (such as the Health Care Financing Administration (the "HCFA")),
which determines Medicare reimbursement levels, private health insurers and
other organizations ("Payors"). Payors are increasingly challenging the prices
of medical products and services. Payors may deny reimbursement if they
determine that a prescribed device has not received appropriate FDA or other
governmental regulatory clearances, is not used in accordance with
cost-effective treatment methods, or is experimental, unnecessary or
inappropriate. Also, the trend towards managed healthcare in the United States
and the concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of healthcare services and products, as
well as legislative proposals to reform healthcare or reduce government
insurance programs, may result in customers demanding lower prices for our TAS
products. The cost containment measures that healthcare providers are
instituting and the impact of any healthcare reform could have an adverse effect
on our ability to sell our products and may have a material adverse effect on
us.
Effective October 1991, HCFA adopted new regulations providing for the
inclusion of capital-related costs in the prospective payment system, under
which providers are reimbursed on a per-discharge basis at fixed rates unrelated
to actual costs, based on diagnostic related groups. Under this system of
reimbursement, equipment costs generally will not be reimbursed separately, but
rather, will be included in a single, fixed-rate, per-patient reimbursement.
These regulations are being phased in over a 10-year period, and, although the
full implications of these regulations cannot yet be known, we believe that the
new regulations will place more pressure on hospitals' operating margins,
causing them to limit capital expenditures. These regulations could have an
adverse effect on our results of operations if hospitals decide to defer
obtaining medical equipment as a result of any such limitation on their capital
expenditures. We are unable to predict the effect on us, if any, of additional
government regulations, legislation or initiatives or changes by other Payors
affecting reimbursement or other matters which may influence decisions to obtain
medical equipment.
There can be no assurance that reimbursement in the United States or
foreign countries will be available for any of our products, or that if
available it will not be decreased in the future, or that any reduction in
reimbursement amounts
-10-
<PAGE>
will not reduce the demand for or the price of our products. The unavailability
of third-party reimbursement or the inadequacy of the reimbursement for medical
procedures using our tests would have a material adverse effect on us. Moreover,
we are unable to forecast what additional legislation or regulations, if any,
relating to the healthcare industry or third-party coverage and reimbursement
may be enacted in the future or what effect such legislation or regulations
would have on us.
WE COULD ISSUE PREFERRED STOCK AND TAKE OTHER ACTIONS THAT MIGHT DISCOURAGE
THIRD PARTIES FROM ACQUIRING US.
Our board of directors has the authority, without further action by the
shareholders, to issue up to 1,000,000 shares of preferred stock, 120,000 of
which are already outstanding as Series A preferred stock, and to fix the
rights, preferences, privileges and restrictions, including voting rights, of
such shares. The current outstanding class of Series A preferred stock must
approve as a class any merger or other change of control. The rights of the
holders of the common stock are subject to the rights of the holders of our
outstanding preferred stock, and will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that may be issued
in the future. Issuing preferred stock could have the effect of making it more
difficult for a third party to acquire a majority of our outstanding voting
stock, thereby delaying, deferring or preventing a change in control of our
company. Furthermore, the preferred stock may have other rights, including
economic rights, senior to our common stock, and as a result, issuing preferred
stock could have a material adverse effect on the market value of our common
stock.
Certain provisions of our articles of incorporation and our bylaws
could make it more difficult for a third party to acquire, and could discourage
a third party from attempting to acquire, control of our company. Some of them
eliminate the right of shareholders to act by written consent and impose various
procedural and other requirements which could make it more difficult for
shareholders to undertake certain corporate actions. These provisions could
limit the price that certain investors might be willing to pay in the future for
shares of our common stock and may have the effect of delaying or preventing a
change in control of the company. We may in the future adopt other measures that
may have the effect of delaying, deferring or preventing a change in control of
the company. Certain of these measures may be adopted without any further vote
or action by the shareholders, although we have no present plans to adopt any
such measures.
WE ARE SUBJECT TO PRODUCT LIABILITY RISKS.
We face an inherent business risk of exposure to product liability
claims in the event that the use of our products is alleged to have resulted in
adverse effects. We maintain product liability insurance with coverage of up to
$11 million per claim, with an annual aggregate policy limit of $12 million.
There can be no assurance that liability claims will not exceed the coverage
limits of such policies or that such insurance will continue to be available on
commercially acceptable terms, or at all. Consequently, product liability claims
could have a material adverse effect on our business, financial condition and
results of operations.
WE MIGHT NOT BE ABLE TO USE NET OPERATING LOSS CARRYFORWARDS.
As of December 31, 1999, we had net operating loss carryforwards for
federal income tax purposes of approximately $28.0 million, which will expire at
various dates through 2019. Our ability to use these net operating loss and
credit carryforwards to offset future tax obligations, if any, may be limited by
changes in ownership. Any limitation on the use of net operating loss
carryforwards, to the extent it increases the amount of federal income tax that
we must actually pay, may have an adverse impact on our financial condition.
WE DO NOT PRESENTLY ANTICIPATE PAYING CASH DIVIDENDS ON OUR COMMON STOCK.
We intend to retain all earnings for the foreseeable future for funding
our business operations. In addition, our outstanding preferred stock and credit
facilities contain restrictions on our ability to declare and pay dividends on
our common stock. Consequently, we do not anticipate paying any cash dividends
on our common stock for the foreseeable future.
WE FACE UNCERTAINTIES AND RISKS RELATING TO OUR NASDAQ NATIONAL MARKET LISTING.
Our common stock is currently listed on the Nasdaq National Market.
Nasdaq has certain requirements that a company must meet in order to remain
listed on the Nasdaq National Market. If we continue to experience losses from
our operations or if we are unable to raise additional funds, we may not be able
to maintain the standards for continued quotation on the Nasdaq National Market.
-11-
<PAGE>
Furthermore, Nasdaq recently adopted new rules that make continued
listing of companies on either the Nasdaq National Market or the Nasdaq SmallCap
Market more difficult. If as a result of the application of these new rules, our
common stock were delisted from the Nasdaq National Market, our stock could be
subject to what are known as the "penny stock" rules. The "penny stock" rules
place additional requirements on broker-dealers who sell or make a market in
such securities. Consequently, if we were removed from, the Nasdaq National
Market, the ability or willingness of broker-dealers to sell or make a market in
our common stock could decline. As a result, your ability to resell your shares
of our common stock could be adversely affected.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares
of the common stock offered by the selling shareholders. We are registering the
shares for sale to provide the holders thereof with freely tradable securities,
but the registration of such shares does not necessarily mean that any of such
shares will be offered or sold by the holders thereof.
-12-
<PAGE>
SELLING SHAREHOLDERS
The shares offered under this prospectus may be sold from time to time
for the account of the selling shareholders named in the following table. The
table also contains information regarding the selling shareholder's beneficial
ownership of shares of our common stock as of May 9, 2000, and as adjusted to
give effect to the sale of the shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING (1)
----------------- ------------------
NUMBER
NUMBER OF SHARES NUMBER PERCENT
NAME OF SHARES(2) TO BE SOLD(3) OF SHARES OF CLASS(4)
- ---- ------------ ------------- --------- -----------
<S> <C> <C> <C> <C>
AIG SoundShore Holdings, Ltd. 52,008 57,209 - -
AIG SoundShore Opportunity Holding Fund Ltd. 16,728 18,401 - -
AIG SoundShore Strategic Holding Fund Ltd. 9,264 10,190 - -
Elliot Bossen 120,000 132,000 - -
Janet D. Branch & J. Read Branch, Jr. 12,000 13,200 - -
Martin L. Brill 6,000 6,600 - -
Austin Brockenbrough, III 12,000 13,200 - -
Richard J. Clark and Linda S. Clark 6,000 6,600 - -
Comm-Cell Limited Partnership 28,800 31,680 - -
Davenport & Company, LLC 666,535 (5) 12,000 654,535 7.2%
Overton D. Dennis, Jr. 6,000 6,600 - -
Elizabeth O. Dennis 6,000 6,600 - -
Carl H. Doerge, Jr. 6,000 6,600 - -
Mary M. Fowlkes 6,000 6,600 - -
Grace Associates 12,000 13,200 - -
G. Bernard Hamilton 56,000 (6) 6,600 50,000 *
HCI Healthcare Investments, Limited 240,000 264,000 - -
James C. Hill, Jr. 3,000 3,300 - -
J. M. Hull Associates, L. P. 42,000 46,200 - -
Hull Overseas, Ltd. 42,000 46,200 - -
R. Walter Jones IV and Leila H. Jones 6,000 6,600 - -
Philip W. Klaus, Jr. 6,000 6,600 - -
Leonardo, L. P. 240,000 264,000 - -
James F. Lipscomb, Jr. 6,000 6,600 - -
Thomas E. Love 6,000 6,600 - -
Anthony F. Markel 6,000 6,600 - -
Dale T. Marks and Madeline K. Marks 6,000 6,600 - -
Robert F. Mizell 7,000 (7) 6,600 1,000 *
Willliam M. Noftsinger, Jr. 6,000 6,600 - -
Robert F. Norfleet, Jr. 6,000 6,600 - -
Robert H. Pope 12,450 (8) 6,600 6,450 *
E. Bryson Powell 12,000 13,200 - -
Samuel W. Purviance and Alice A. Purviance 6,000 6,600 - -
William D. Rivas 6,000 6,600 - -
J. Hamilton Scherer, Jr. and Dorn E. Scherer 6,000 6,600 - -
Jerry Shearer 92,457 (9) 6,600 86,457 *
Joseph H. Sherrill, Jr. 540,597 (10) 79,200 468,597 5.1%
Special Situations Cayman Fund, L. P. 52,500 57,750 - -
Special Situations Fund III, L. P. 157,500 173,250 - -
Special Situations Private Equity Fund, L. P. 90,000 99,000 - -
William J. Tamblyn 6,000 6,600 - -
Trent Technology Fund, L. P. 31,200 34,320 - -
George A. Trivette 12,000 13,200 - -
Donald E. Upton 6,000 6,600 - -
E. Massie Valentine, TSTEE Massie Valentine Trust 6,000 6,600 - -
Charles F. Warren, Jr. 6,000 6,600 - -
Coleman Wortham, III 24,000 26,400 - -
Carl R. Yudell, as Trustee of the Carl R. Yudell 4,500 (11) 3,300 1,500 *
Money Purchase Pension Plan
Jerry Zucker 6,000 6,600 - -
------------ ------------ ----------- -----------
Totals: 2,720,539 1,596,000 1,268,539 13.9%
</TABLE>
-13-
<PAGE>
- ----------------------------------------
*Less than 1%
(1) Assumes the sale of all the shares offered hereby. This registration
statement also shall cover any additional shares of common stock which
become issuable in connection with the shares registered for resale hereby
by reason of any stock dividend, stock split, recapitalization or other
similar transaction effected without the receipt of consideration which
results in an increase in the outstanding shares of our common stock.
(2) 16.67% of the shares listed in this column, with respect to each selling
shareholder (except as otherwise disclosed in the footnotes), represents
shares of common stock issuable upon exercise of warrants and the remaining
shares represent shares of common stock issuable upon conversion of Series
A preferred stock on a 10-for-1 basis.
(3) Includes 144,000 total shares which we estimate we will need to satisfy our
obligations relating to a 6% annual dividend on the Series A preferred
stock, payable at our option in shares of our common stock in lieu of cash.
(4) Based on 7,524,334 shares of our common stock outstanding as of May 9, 2000
plus an additional 1,584,000 shares to be outstanding assuming conversion
of all the Series A preferred stock, exercise of the corresponding warrants
and payment of in-kind dividends.
(5) Includes 654,535 shares as reported in the Schedule 13G dated January 7,
2000 filed with the SEC by Davenport & Company, LLC, consisting of shares
held by individuals who are customers, or representatives (or members of a
representatives' family), of Davenport & Company, LLC, which disclaims
beneficial ownership. Also includes 12,000 shares of common stock issuable
pursuant to exercise of a warrant issued to Davenport & Company, LLC in
consideration for placement agent services provided to us in connection
with the Series A preferred stock private placement. Davenport & Company,
LLC also received sales commissions of approximately $660,000 for such
services.
(6) Consists of 5,000 shares of common stock issuable upon conversion of Series
A preferred stock, 1,000 shares of common stock issuable upon exercise of a
warrant and 50,000 shares of common stock held by a limited partnership of
which Mr. Hamilton is a general partner. Mr. Hamilton disclaims beneficial
ownership of the shares held by the limited partnership, except to the
extent of his pecuniary interest therein.
(7) Includes 5,000 shares of common stock issuable upon conversion of Series A
preferred stock and 1,000 shares of common stock issuable upon exercise of
a warrant. Mr. Mizell is an employee of Davenport & Company, LLC.
(8) Includes 5,000 shares of common stock issuable upon conversion of Series A
preferred stock and 1,000 shares of common stock issuable upon exercise of
a warrant.
(9) Includes: (a) 5,000 shares of common stock issuable upon conversion of
Series A preferred stock; (b) 1,000 shares of common stock issuable upon
exercise of warrants; (c) 73,000 shares of common stock owned jointly with
his wife; (d) 5,457 shares of common stock owned by IRAs for himself and
his wife; and (e) 8,000 shares owned by a corporation controlled by Mr.
Shearer
(10) Includes 60,000 share of common stock issuable upon conversion of Series A
preferred stock and 12,000 shares of common stock issuable upon exercise of
a warrant.
(11) Includes 2,500 of common stock issuable upon conversion of Series A
preferred stock and 500 shares of common stock issuable upon exercise of a
warrant.
We issued an aggregate of 120,000 shares of Series A preferred stock,
convertible 10-for-1 into a total of 1,200,000 of our common stock, to the
selling shareholders in connection with our $12 million private placement in
February 2000. We also issued warrants to purchase a total of 240,000 shares of
common stock in connection with this private placement. We agreed to register
all of these shares, along with accrued dividends payable in common stock, and
to pay substantially all of the expenses of offering them under this prospectus.
Mr. Sherrill, one of our significant shareholders, purchased a total of 6,000
shares of Series A preferred stock in this private placement and received
corresponding warrants to purchase 12,000 shares of common stock on the same
terms as the other Series A investors.
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<PAGE>
PLAN OF DISTRIBUTION
The selling shareholders may offer the shares at various times in one or more of
the following transactions:
o on the Nasdaq National Market;
o in the over-the-counter market;
o in transactions other than market transactions;
o in connection with short sales of Company shares;
o by pledge to secure debts or other obligations;
o in connection with the writing of non-traded and exchange-traded
call options, in hedge transactions and in settlement of other
transactions in standardized or over-the-counter options; or
o in a combination of any of the above.
The selling shareholders may sell shares at market prices then
prevailing, at prices related to prevailing market prices, at negotiated prices
or at fixed prices.
In order to comply with the securities laws of certain states, if
applicable, the shares may be sold only through registered or licensed brokers
or dealers.
The selling shareholders may use broker-dealers to sell shares. If this
happens, broker-dealers will either receive discounts or commissions from the
selling shareholders, or they will receive commissions from purchasers of shares
for whom they have acted as agents.
THE SELLING SHAREHOLDERS AND ANY BROKER-DEALERS WHO ACT IN CONNECTION
WITH THE SALE OF THE SHARES HEREUNDER MAY BE DEEMED TO BE "UNDERWRITERS" WITHIN
THE MEANING OF THE SECURITIES ACT, AND ANY COMMISSIONS THEY RECEIVE AND PROCEEDS
OF ANY SALE OF THE SHARES MAY BE DEEMED TO BE UNDERWRITING DISCOUNTS AND
COMMISSIONS UNDER THE SECURITIES ACT.
Neither we nor the selling shareholders can presently estimate the
amount of such compensation. We know of no existing arrangements between any
selling shareholders, any other shareholder, broker, dealer, underwriter or
agent relating to the sale or distribution of the shares.
We will pay all of the expenses incident to the registration, offering
and sale of the shares to the public other than commissions or discounts of
underwriters, broker-dealers or agents. We also agreed to indemnify the selling
shareholders and certain related persons against certain liabilities, including
liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons, we have
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore,
unenforceable.
We have advised the selling shareholders that during such time as they
may be engaged in a distribution of the shares included in this prospectus they
are required to comply with Regulation M promulgated under the Securities
Exchange Act of 1934, as amended. With certain exceptions, Regulation M
precludes the selling shareholders, any affiliated purchasers, and any
broker-dealer or other person who participates in such distribution from bidding
for or purchasing, or attempting to induce any person to bid for or purchase any
security which is the subject of the distribution until the entire distribution
is complete. Regulation M also prohibits any bids or purchases made in order to
stabilize the price of a security in connection with the distribution of that
security. All of the foregoing may affect the marketability of the shares
offered hereby.
This offering will terminate on the earlier of (a) the date on which
the shares are eligible for resale without restrictions pursuant to Rule 144(k)
under the Securities Act, (b) the date on which all shares offered by this
prospectus
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<PAGE>
have been sold by the selling shareholders, or (c) February 25, 2002.
EXPERTS
The financial statements incorporated in this Prospectus by reference
to the Annual Report on Form 10-K of PharmaNetics, Inc. for the year ended
December 31, 1999 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered
hereby will be passed upon for us by Wyrick Robbins Yates & Ponton LLP, Raleigh,
North Carolina.
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<PAGE>
================================================================================
NO ONE (INCLUDING ANY SALESMAN OR BROKER) IS AUTHORIZED TO PROVIDE ORAL
OR WRITTEN INFORMATION ABOUT THIS OFFERING THAT IS NOT INCLUDED IN THIS
PROSPECTUS.
----------------------
TABLE OF CONTENTS
Page
----
Available Information ............................... 2
The Company.......................................... 3
The Offering......................................... 4
Special Note Regarding Forward-Looking
Statements......................................... 4
Risk Factors......................................... 6
Use of Proceeds...................................... 12
Selling shareholders ................................ 13
Plan of Distribution................................. 15
Experts.............................................. 16
Legal Matters........................................ 16
----------------------
==========================
1,596,000 SHARES
PHARMANETICS, INC.
COMMON STOCK
----------
PROSPECTUS
----------
, 2000
-17-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses payable by the
registrant in connection with the filing of this Form S-3 Registration
Statement:
SEC registration...................................... $ 6,241.16
Nasdaq National Market listing fee............ 17,500.00
Printing costs.......................................... 5,000.00
Legal fees.............................................. 15,000.00
Accounting fees and expenses................... 5,000.00
Miscellaneous expenses........................... 1,000.00
- - - - -
Total................................................... $ 49,741.16
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Incorporation and Bylaws include
provisions to (i) eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty to the fullest extent
permitted by Section 55-8-30(e) of the North Carolina Business Corporation Act
(the "Business Corporation Act"), and (ii) require the Registrant to indemnify
its directors and officers to the fullest extent permitted by Sections 55-8-50
through 55-8-58 of the Business Corporation Act, including circumstances in
which indemnification is otherwise discretionary. Pursuant to Sections 55-8-51
and 55-8-57 of the Business Corporation Act, a corporation generally has the
power to indemnify its present and former directors, officers, employees and
agents against expenses incurred by them in connection with any suit to which
they are, or are threatened to be made, a party by reason of their serving in
such positions so long as they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, they had no reasonable
cause to believe their conduct was unlawful. The Registrant believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers. These provisions do not eliminate the directors' duty of care,
and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under the Business
Corporation Act. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant, for
acts or omissions that the director believes to be contrary to the best
interests of the Registrant or its shareholders, for any transaction from which
the director deprived an improper personal benefit, for acts or omissions
involving a reckless disregard for the director's duty to the Registrant or its
shareholders when the director was aware or should have been aware of a risk of
serious injury to the Registrant or its shareholders, for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the Registrant or its shareholders, for improper
transactions between the director and the Registrant and for improper
distributions to shareholders and loans to directors and officers. These
provisions do not affect a director's responsibilities under any other laws,
such as the federal securities laws or state or federal environmental laws.
The Registrant's Bylaws require the Registrant to indemnify its
directors and officers against expenses, judgments, fines, settlements and other
amounts actually and reasonably incurred (including expenses of a derivative
action) in connection with any proceeding, whether actual or threatened, to
which any such person may be made a party by reason of the fact that such person
is or was a director or officer of the Registrant or any of its affiliated
enterprises, provided such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interest of the
Registrant and with respect to any proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The Registrant's Bylaws also set forth
certain procedures that will apply in the event of a claim for indemnification
thereunder.
The Registrant maintains liability insurance insuring its officers and
directors against liabilities that they may incur in such capacities.
II-1
<PAGE>
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.3(a) Bylaws.
3.4(f) Amended and Restated Articles of Incorporation filed with the North Carolina Secretary of State
on February 24, 2000
4.1(a) Form of Common Stock certificate.
5.1 Opinion of Wyrick Robbins Yates & Ponton LLP.
10.2(a)* License Agreement with Tokuyama Soda Company, Ltd., dated October 6, 1988.
10.3(a) Form of International Distributor Agreement.
10.4(a)* Purchasing Agreement with VHA Inc., dated April 1,1995
10.5(a) Lease Agreement dated November 21, 1990 relating to 5301 Departure Drive, Raleigh, as amended.
10.8(a) 1994 Stock Plan, as amended.
10.9(a) 1995 Stock Plan, as amended.
10.10(a)* License Agreement with Duke University, dated January 22, 1993.
10.18(b)* Amendment Agreement, dated December 14, 1995, to License Agreement with Tokuyama Soda Company,
Ltd.
10.19(c)* Distribution Agreement dated October 18, 1996, with Dade International.
10.20(d)* Patent Sublicense Agreement, dated December 1, 1996, with Knoll AG.
10.21(d)* Development Agreement dated August 21, 1996, with Bayer Corporation.
10.22(e)* Distribution Agreement with Chiron Diagnostics Corporation dated August 28, 1998
10.23(e) Common Stock Purchase Agreement with Chiron Diagnostics Corporation dated August 28, 1998
10.24(f) Series A Preferred Stock and Warrant Purchase Agreement dated February 24, 2000
10.25(f) Form of Warrant between the Company and the Series A Investors dated February 25, 2000
21.1(a) List of Subsidiaries.
23.1 Consent of Independent Accountants.
23.2 Consent of Wyrick Robbins Yates & Ponton LLP (contained in Exhibit 5.1)
24.1 Power of Attorney (see page II-4).
- ------------------------------------
* Confidential treatment has been granted with respect to portions of this
exhibit.
(a) Incorporated herein by reference to the identically-numbered exhibits to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-98078) initially filed October 12, 1995, as amended.
(b) Incorporated herein by reference to the identically-numbered exhibit to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995
(c) Incorporated herein by reference to the identically-numbered exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996
(d) Incorporated herein by reference to the identically-numbered exhibit to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996
(e) Incorporated herein by reference to the identically-numbered exhibit to the Registrant's Registration
Statement on Form S-4 (No. 333-66017) as filed with the SEC on October 22, 1998
(f) Incorporated by reference to the identically-numbered exhibit to the Registrant's Current Report on Form
8-K filed March 1, 2000
</TABLE>
- ----------
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being made,
a post- effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do
not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
related to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer of controlling
person or the registrant in the successful defense of any action, suite or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certified that it has reasonable grounds to believe that it meets all
of the requirements for filing on From S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Raleigh, State of North Carolina, on this 15th day of
May 2000.
PHARMANETICS, INC.
By: /s/ John P. Funkhouser
-----------------------------
John P. Funkhouser
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John
P. Funkhouser and Paul T. Storey, and each of them, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any related Registration Statements filed
pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ John P. Funkhouser
- -------------------------------------------- May 15, 2000
John P. Funkhouser Director, President and Chief
Executive Officer (Principal
Executive Officer
/s/ Paul T. Storey
- -------------------------------------------- Treasurer and Director of May 15, 2000
Paul T. Storey Finance (Principal Financial
and Accounting Officer)
/s/ William A. Hawkins
- -------------------------------------------- Director May 15, 2000
William A. Hawkins
/s/ John K. Pirotte
- -------------------------------------------- May 15, 2000
John K. Pirotte Director
/s/ Stephen R. Puckett
- -------------------------------------------- May 15, 2000
Stephen R. Puckett Director
/s/ Philip R. Tracy
- -------------------------------------------- May 15, 2000
Philip R. Tracy Director
/s/ Frances L. Tuttle
- -------------------------------------------- May 15, 2000
Frances L. Tuttle Director
</TABLE>
II-4
EXHIBIT 5.1
May 16, 2000
PharmaNetics, Inc.
5301 Departure Drive
Raleigh, North Carolina 27616
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 filed on the
date hereof by PharmaNetics, Inc., a North Carolina corporation (the "Company"),
with the Securities and Exchange Commission (the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended,
of 1,596,000 shares of the Company's Common Stock, no par value per share (the
"Shares"). The Shares are to be resold as described in the Registration
Statement. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity with the original of all documents submitted to us as copies
thereof.
As our legal counsel, we have examined the proceedings taken, and are
familiar with the proceedings proposed to be taken, in connection with the sale
of the Shares.
It is our opinion that, upon completion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the sale of the
Shares, including the proceedings being taken in order to permit such
transactions to be carried out in accordance with applicable state securities
laws, the Shares when sold in the manner referred to in the Registration
Statement and in accordance with the resolutions adopted by the Board of
Directors of the Company, will be legally and validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name whenever appearing in the
Registration Statement, including the Prospectus constituting a party thereof,
and any amendments thereto.
Very truly yours,
/s/ WYRICK ROBBINS YATES & PONTON LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Registration Statement on Form S-3 of our report dated February 22, 2000
relating to the financial statements, which appears in PharmaNetics, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1999. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
May 16, 2000
