<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 2000.
REGISTRATION NO. 333-95439
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------------
ALLOS THERAPEUTICS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2834 54-1655029
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
7000 NORTH BROADWAY, SUITE 400
DENVER, COLORADO 80221
(303) 426-6262
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
---------------------------
STEPHEN J. HOFFMAN, PH.D., M.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ALLOS THERAPEUTICS, INC.
7000 NORTH BROADWAY, SUITE 400
DENVER, COLORADO 80221
(303) 426-6262
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------------
Copies to:
<TABLE>
<S> <C>
STEVEN E. SEGAL, ESQ. ALAN L. JAKIMO, ESQ.
MARC H. GRABOYES, ESQ. BROWN & WOOD LLP
COOLEY GODWARD LLP ONE WORLD TRADE CENTER, 58TH FLOOR
ONE TABOR CENTER NEW YORK, NEW YORK 10048
1200 SEVENTEENTH STREET, SUITE 2100 (212) 839-5300
DENVER, COLORADO 80202
(303) 606-4800
</TABLE>
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If 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,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 27, 2000
PROSPECTUS
5,000,000 SHARES
[ALLOS LOGO]
COMMON STOCK
This is an initial public offering of shares of common stock of Allos
Therapeutics, Inc. Allos expects that the initial public offering price will be
between $17.00 and $19.00 per share.
We have applied for approval for trading and quotation of our common stock
on the Nasdaq National Market under the symbol "ALTH."
OUR BUSINESS INVOLVES SIGNIFICANT RISKS. THESE RISKS ARE DESCRIBED UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 9.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to Allos......................... $ $
</TABLE>
The underwriters may also purchase up to an additional 750,000 shares of
common stock at the public offering price, less the underwriting discounts and
commissions, to cover over-allotments.
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
SG COWEN
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
U.S. BANCORP PIPER JAFFRAY
, 2000
<PAGE> 3
In the lungs, oxygen inhaled from
the atmosphere attaches onto
hemoglobin within red blood cells
(top). As red blood cells circulate
throughout the body, more oxygen is
released from hemoglobin within red
blood cells to body tissues in
patients treated with RSR13 (lower
right), compared to patients not
treated with RSR13 (lower left).
[The top half of this inside cover contains a color illustration depicting
oxygen delivered to tissues from the lungs by
red blood cells, and enhanced release by RSR13.]
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[The bottom half of this inside cover contains a color illustration depicting
RSR13 increasing the tumor tissue oxygen levels which
increase the effects of radiation therapy.]
More oxygen is released from red blood cells into the tumor of a brain cancer
patient treated with RSR13 (top), compared to a patient not treated with RSR13
(bottom). Increased oxygen within the tumor of the RSR13-treated patient at the
time of radiation therapy leads to more tumor cell death, and increased tumor
shrinkage.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 5
Risk Factors.......................... 9
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Financial Data............... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 26
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Management............................ 39
Certain Transactions.................. 47
Principal Stockholders................ 49
Description of Capital Stock.......... 52
Shares Eligible for Future Sale....... 55
Underwriting.......................... 57
Legal Matters......................... 59
Experts............................... 59
Where You Can Find Additional
Information......................... 59
Financial Statements.................. F-1
</TABLE>
---------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. WE ARE
OFFERING TO SELL AND SEEKING OFFERS TO BUY SHARES OF OUR COMMON STOCK ONLY IN
JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS
OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
IN THIS PROSPECTUS, REFERENCES TO "ALLOS THERAPEUTICS," "ALLOS," "WE," "US" AND
"OUR" REFER TO ALLOS THERAPEUTICS, INC., A DELAWARE CORPORATION.
3
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[Intentionally Left Blank Page]
4
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PROSPECTUS SUMMARY
The following is only a summary. You should carefully read the more
detailed information contained in this prospectus, including our financial
statements and related notes included in this prospectus. Our business involves
significant risks. You should carefully consider the information under the
heading "Risk Factors" beginning on page 9. Unless otherwise noted, all
information in this prospectus:
- has been adjusted to reflect a 0.62-for-one reverse stock split of our
common stock which will be effected prior to consummation of this
offering;
- assumes the conversion of all outstanding shares of our preferred stock
into 15,678,737 shares of common stock upon the closing of this offering;
and
- assumes no exercise by the underwriters of the over-allotment option.
THE COMPANY
Allos Therapeutics is a pharmaceutical company focused on developing and
commercializing innovative small molecule drugs, initially for improving cancer
treatments. Our lead product candidate is RSR13. RSR13 is a synthetic small
molecule that increases the release of oxygen from hemoglobin, the
oxygen-carrying protein contained within red blood cells. In February 2000, we
commenced a Phase III trial of RSR13 in combination with radiation therapy for
the treatment of brain metastases, or tumors which have spread to the brain. We
believe that this trial, if positive, will serve as the basis for seeking
marketing approval for RSR13 from the U.S. Food and Drug Administration, or FDA,
for this indication. In addition to improving existing treatments for cancer, we
believe RSR13 can be used to treat many other diseases and clinical conditions
attributed to or aggravated by oxygen deprivation in the body, known as hypoxia.
We currently retain worldwide commercialization rights for all of our product
candidates for all target indications.
The presence of oxygen in tumors is an essential element for the
effectiveness of radiation therapy in the treatment of cancer. Our studies
indicate that RSR13 effectively increases tumor oxygenation, thereby reducing
the percentage of hypoxic cells within malignant tumors and enhancing the
cell-killing, or cytotoxic, effects of radiation therapy. The fact that RSR13
does not have to actually enter the cancer cell to increase radiosensitivity is
an important difference between RSR13 and other pharmacological attempts to
improve the efficacy of radiation therapy. The beneficial effects of RSR13 are
the result of causing increased amounts of oxygen release from blood flowing
through the tumor. It is the oxygen, and not the drug, which diffuses across the
cancer cell membranes to oxygenate the tumors. This is particularly important in
the case of primary or metastatic brain tumors, where the blood brain barrier
acts to exclude or impede the entry of most chemical agents into the brain
tissue.
Each year in the United States, approximately 50% of all newly diagnosed
cancer patients, or 600,000 patients, receive radiation therapy as part of their
primary treatment, in addition to 150,000 patients who receive radiation therapy
for persistent or recurrent cancer. The 750,000 cancer patients who receive
radiation therapy annually is approximately twice the number of cancer patients
who are treated with chemotherapy. Although radiation therapy can be effective
in treating certain types of cancer, an unmet medical need exists for products
to increase the effectiveness of radiation therapy.
RSR13 has been administered safely to more than 360 patients, over 250 of
whom were cancer patients receiving concurrent radiation therapy. We have 15
completed or ongoing clinical trials of RSR13, five of which have been completed
in patients receiving radiation therapy.
We have demonstrated in Phase II clinical trials that RSR13 significantly
improves the efficacy of radiation therapy for treating brain metastases and
glioblastoma multiforme, a highly aggressive form of primary brain cancer. In
our Phase II brain metastases trial, the primary efficacy endpoint was survival
compared to historical data using the Brain Metastases Database maintained by
the Radiation Therapy Oncology Group of the
5
<PAGE> 7
American College of Radiology. In this trial, RSR13-treated patients, when
compared to the historical database, demonstrated:
- overall median survival time of 6.9 months compared to 4.1 months, or a
68% improvement in median survival time;
- one-year survival rates of 32% compared to 15%, or an approximate
doubling of survival rates; and
- death due to tumor progression in the brain of 9% compared to 37%.
When case-match analysis was performed using patient information from the
historical database that most closely paralleled RSR13 patients, overall median
survival time showed a 92% improvement over the historical database and one-year
survival rates were improved from 9% to 32%. Our Phase II glioblastoma
multiforme trial results showed that RSR13-treated patients, when compared to a
different, applicable historical database, demonstrated overall survival of 12.1
months compared to 9.2 months. We are also currently conducting a Phase II
clinical trial of RSR13 in combination with radiation therapy in patients with
locally advanced, inoperable non-small cell lung cancer, and plan to develop
RSR13 for improving the efficacy of radiation therapy in treating other forms of
cancer.
In addition to improving the treatment of cancer, we believe RSR13 can be
used to treat many other diseases and clinical conditions. We intend to seek
corporate partners to jointly develop RSR13 for treating the hypoxic effects of
acute blood loss and decreased blood flow encountered in surgical procedures and
also for improving the effectiveness of treatments for cardiovascular disease
and stroke. Moreover, we plan to extend our expertise in developing drugs to
other compounds and technology platforms to which we have access through our
research collaborations or that we may acquire or in-license from third parties.
Our strategy includes the following key elements:
- focus on commercializing RSR13 in oncology markets;
- establish collaborations to commercialize RSR13 in additional therapeutic
applications; and
- expand our product candidate portfolio.
We intend to market RSR13 directly to the approximately 3,700 radiation
therapists in the United States through a specialty sales force. We expect to
begin hiring this sales force around the time we submit a New Drug Application
to the FDA for the use of RSR13. To penetrate the non-oncology market in the
United States and all markets outside the United States, we will seek to develop
relationships with one or more pharmaceutical companies with established
distribution systems and direct sales forces.
We were incorporated in the Commonwealth of Virginia in September 1992 as
Hemotech Sciences, Inc., we changed our name to Allos Therapeutics, Inc. in 1994
and reincorporated in Delaware in October 1996. Our executive office is located
at 7000 North Broadway, Suite 400, Denver, Colorado 80221. Our telephone number
at that location is (303) 426-6262 and our Internet address is www.allos.com.
Information contained on our web site is not intended to constitute part of this
prospectus.
6
<PAGE> 8
THE OFFERING
Common stock we are offering............ 5,000,000 shares
Common stock to be outstanding after the
offering................................ 22,837,151 shares
Underwriters' over-allotment option..... 750,000 shares
Use of proceeds......................... We intend to use the net proceeds
for research and development
activities, including clinical
trials, process development and
manufacturing support, and for
general corporate purposes,
including working capital. See "Use
of Proceeds."
Proposed Nasdaq National Market
symbol.................................. ALTH
The number of shares of our common stock to be outstanding immediately
after this offering is based on the number of shares outstanding on March 24,
2000. This number does not take into account:
- 1,781,881 shares of our common stock issuable upon exercise of options
outstanding under our stock option plan at March 24, 2000, with a
weighted average exercise price of $1.24 per share;
- 802,705 shares of our common stock available for future grant or issuance
under our stock option plan; and
- 14,275 shares of our common stock issuable upon conversion of preferred
stock issuable upon exercise of outstanding warrants at March 24, 2000,
excluding warrants which will expire without exercise prior to
consummation of this offering, with a weighted average exercise price of
$2.66 per share.
7
<PAGE> 9
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table contains a summary of our statement of operations data.
The pro forma net loss per share data below gives effect to (1) the conversion
of each outstanding share of preferred stock into 0.62 shares of common stock
upon the closing of this offering and (2) the pro forma basis of presentation
described in "Selected Financial Data" on page 21. See Note 2 to Financial
Statements.
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
SEPTEMBER 1,
1992 (DATE OF
INCEPTION)
YEARS ENDED DECEMBER 31, THROUGH
-------------------------------------------------------------- DECEMBER 31,
1995 1996 1997 1998 1999 1999
--------- ---------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses...........
Research and development... $ 1,807 $ 2,842 $ 3,865 $ 5,942 $ 7,836 $ 22,946
Clinical manufacturing..... 113 269 1,564 1,768 1,382 5,164
General and
administrative.......... 542 1,262 1,262 1,486 2,379 7,171
--------- ---------- ---------- ---------- ----------- -----------
Total operating
expenses......... 2,462 4,373 6,691 9,195 11,598 35,281
Loss from operations......... (2,462) (4,373) (6,691) (9,195) (11,598) (35,281)
Interest and other income,
net........................ 78 320 178 621 310 1,546
--------- ---------- ---------- ---------- ----------- -----------
Net loss..................... (2,384) (4,053) (6,513) (8,574) (11,288) (33,735)
Dividend related to
beneficial conversion
feature of preferred
stock...................... -- -- -- -- (9,613) (9,613)
Net loss attributable to
common stockholders........ $ (2,384) $ (4,053) $ (6,513) $ (8,574) $ (20,901) $ (43,348)
========= ========== ========== ========== =========== ===========
Weighted-average basic and
diluted net loss per
share...................... $ (1.92) $ (2.46) $ (3.52) $ (4.38) $ (10.48)
Weighted-average shares used
in computing basic and
diluted net loss per
share...................... 1,240 1,645 1,848 1,959 1,995
Pro forma basic and diluted
net loss per share......... $ (1.38)
Shares used in computing pro
forma basic and diluted net
loss per share............. 15,184
</TABLE>
The following table contains a summary of our balance sheet at December 31,
1999:
- on an actual basis;
- on a pro forma basis to reflect the conversion of each of the 25,288,286
outstanding shares of preferred stock into 0.62 shares of common stock,
or an aggregate of 15,678,737 shares of common stock, effective upon the
closing of this offering; and
- on a pro forma as adjusted basis to additionally reflect the sale of
5,000,000 shares of common stock offered hereby at an assumed initial
public offering price per share of $18.00.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 9,475 $ 9,475 $ 92,175
Working capital............................................. 8,784 8,784 91,484
Total assets................................................ 10,206 10,206 92,906
Long-term obligations, less current portion................. 69 69 69
Convertible preferred stock................................. 49,899 -- --
Common stock................................................ 7,022 56,921 139,621
Accumulated deficit......................................... (43,348) (43,348) (43,348)
Total stockholders' equity.................................. 8,991 8,991 91,691
</TABLE>
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. You should also refer to the other information in this
prospectus, including our financial statements and the related notes. The risks
and uncertainties described below are those that we currently believe may
materially affect our company. Additional risks and uncertainties that we are
unaware of or that we currently deem immaterial also may become important
factors that affect our company.
RISKS RELATED TO OUR COMPANY AND BUSINESS
WE HAVE A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT, AND WE MAY NOT
ACHIEVE OR MAINTAIN REVENUE OR PROFITABILITY IN THE FUTURE.
We may never generate revenue from selling products or achieve
profitability. We have experienced operating losses since we began operations in
1994. As of December 31, 1999, we had an accumulated deficit of approximately
$43.3 million. We expect to incur additional operating losses over the next
several years and expect cumulative losses to increase substantially as our
research and development, preclinical, clinical and manufacturing efforts
expand. We have had no revenue to date. Our ability to achieve revenue and
profitability is dependent on our ability, alone or with partners, to
successfully complete the development of our product candidates, conduct
clinical trials, obtain the necessary regulatory approvals, and manufacture and
market our product candidates.
OUR PRODUCT CANDIDATES ARE IN THE EARLY STAGES OF DEVELOPMENT AND MAY NEVER BE
FULLY DEVELOPED IN A MANNER SUITABLE FOR COMMERCIALIZATION. IF WE DO NOT DEVELOP
COMMERCIALLY SUCCESSFUL PRODUCTS, OUR ABILITY TO GENERATE REVENUE WILL BE
LIMITED.
If we are unable to successfully commercialize our product candidates, we
will be unable to generate any meaningful amounts of revenue and will incur
continued losses. We may not be able to continue as a going concern if we are
unable to generate meaningful amounts of revenue to support our operations or
cannot otherwise raise the necessary funds to support our operations. We have no
products that have received regulatory approval for commercial sale. All of our
product candidates are in early stages of development, and significant research
and development, financial resources and personnel will be required to develop
commercially viable products and obtain regulatory approvals. Substantially all
of our efforts and expenditures over the next few years will be devoted to
RSR13. Accordingly, our future prospects are substantially dependent on
favorable results from clinical trials utilizing RSR13. None of our product
candidates, including RSR13, is expected to be commercially available until at
least 2002.
WE CANNOT PREDICT WHEN OR IF WE WILL OBTAIN REGULATORY APPROVAL TO COMMERCIALIZE
OUR PRODUCT CANDIDATES.
A pharmaceutical product cannot be marketed in the United States or most
other countries until it has completed a rigorous and extensive regulatory
approval process. If we fail to obtain regulatory approval to market our product
candidates, we will be unable to sell our products and generate revenue, which
would jeopardize our ability to continue operating our business. Satisfaction of
regulatory requirements typically takes many years, is dependent upon the type,
complexity and novelty of the product and requires the expenditure of
substantial resources. Of particular significance are the requirements covering
research and development, testing, manufacturing, quality control, labeling and
promotion of drugs for human use. We may not obtain regulatory approval for any
product candidates we develop or we may not obtain regulatory review in a timely
manner, including RSR13. See "Business -- Government Regulation" for a detailed
discussion of the regulatory approval process.
We intend to seek "Fast Track" approval for the use of RSR13 in combination
with radiation therapy for treating brain metastases. If this approval is
granted, the time required for the FDA to review any New Drug Application, or
NDA, that we submit for this use of RSR13 would be shorter than would otherwise
be the case. In order to be considered for "Fast Track" approval, we must be
attempting to treat a serious, life threatening illness and we must demonstrate
that there exists a significant, unmet medical need. Although we believe we
satisfy these criteria, the FDA may not grant "Fast Track" status to any NDA
that we may submit for the use of RSR13. If it is granted, such status may not
result in faster approval or any approval at all.
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WE WILL NOT BE ABLE TO OBTAIN REGULATORY APPROVAL TO COMMERCIALIZE OUR PRODUCT
CANDIDATES IF WE FAIL TO ADEQUATELY DEMONSTRATE THEIR SAFETY AND EFFICACY.
Product candidates developed by us, alone or with others, may not prove to
be safe and efficacious in clinical trials and may not meet all of the
applicable regulatory requirements needed to receive regulatory approval. To
demonstrate safety and efficacy, we must conduct significant additional
research, animal testing, referred to as preclinical testing, and human testing,
referred to as clinical trials, for our product candidates. Preclinical testing
and clinical trials are long, expensive and uncertain processes. It may take us
several years to complete our testing, and failure can occur at any stage. We
have limited experience in conducting and managing clinical trials.
Data obtained from preclinical and clinical activities are susceptible to
varying interpretations that could delay, limit or prevent regulatory
clearances, and the FDA can request that we conduct additional trials. For
example, we are currently planning to perform only one Phase III clinical trial
prior to seeking FDA approval for our first product candidate. We believe that
if the results of this Phase III clinical trial are consistent with our prior
Phase II clinical results, this Phase III clinical trial can serve as the basis
for obtaining FDA approval. Although the FDA has indicated its agreement with
this if the results are sufficiently positive, it has recommended that we
conduct two Phase III clinical trials concurrently to protect against the risk
that the results of one trial may be inconclusive as to necessary efficacy and
safety for approval. If we have to conduct further clinical trials, whether for
RSR13 or other product candidates we develop in the future, it would
significantly increase our expenses and delay marketing of our product
candidates. See "Business -- Government Regulation" for a detailed discussion of
the regulatory approval process.
WE MAY EXPERIENCE DELAYS IN OUR CLINICAL TRIALS THAT COULD ADVERSELY AFFECT OUR
FINANCIAL POSITION AND OUR COMMERCIAL PROSPECTS.
We do not know whether planned clinical trials will begin on time or
whether any of our clinical trials will be completed on schedule or at all. Our
product development costs will increase if we have delays in testing or
approvals or if we need to perform more or larger clinical trials than planned.
If the delays are significant, our ability to generate revenue from product
sales will be correspondingly delayed, and we may have insufficient capital
resources to support our operations. Even if we do have sufficient capital
resources, our ability to become profitable will be delayed. We typically rely
on third-party clinical investigators at medical institutions to conduct our
clinical trials and we occasionally rely on other third-party organizations to
perform data collection and analysis. As a result, we may face additional
delaying factors outside our control.
WE MAY BE REQUIRED TO SUSPEND, REPEAT OR TERMINATE OUR CLINICAL TRIALS IF THEY
ARE NOT CONDUCTED IN ACCORDANCE WITH REGULATORY REQUIREMENTS, THE RESULTS ARE
NEGATIVE OR INCONCLUSIVE, OR THE TRIALS ARE NOT WELL DESIGNED.
Clinical trials must be conducted in accordance with the FDA's Good
Clinical Practices and are subject to oversight by the FDA and institutional
review boards at the medical institutions where the clinical trials are
conducted. In addition, clinical trials must be conducted with product
candidates produced under the FDA's Good Manufacturing Requirements, and may
require large numbers of test subjects. Clinical trials may be suspended by us
or the FDA at any time if it is believed that the subjects participating in
these trials are being exposed to unacceptable health risks or if the FDA finds
deficiencies in the conduct of these trials.
Even if we achieve positive interim results in clinical trials, these
results do not necessarily predict final results, and acceptable results in
early trials may not be repeated in later trials. A number of companies in the
pharmaceutical industry have suffered significant setbacks in advanced clinical
trials, even after promising results in earlier trials. Negative or inconclusive
results or adverse medical events during a clinical trial could cause a clinical
trial to be repeated or terminated. In addition, failure to construct clinical
trial protocols to screen patients for risk profile factors relevant to the
trial for purposes of segregating patients into the patient populations treated
with the drug being tested and the control group could result in either group
experiencing a disproportionate number of adverse events and could cause a
clinical trial to be repeated or terminated.
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ACCEPTANCE OF OUR PRODUCTS IN THE MARKETPLACE IS UNCERTAIN, AND FAILURE TO
ACHIEVE MARKET ACCEPTANCE WILL LIMIT OUR ABILITY TO GENERATE REVENUE AND BECOME
PROFITABLE.
Even if approved for marketing, our products may not achieve market
acceptance. The degree of market acceptance will depend upon a number of
factors, including:
- the receipt of regulatory approval for the uses that we are studying;
- the establishment and demonstration in the medical community of the
safety and efficacy of our products and their potential advantages over
existing and newly developed therapeutic products;
- ease of use of our products;
- pricing and reimbursement policies of government and third-party payors
such as insurance companies, health maintenance organizations and other
plan administrators; and
- the effectiveness of our sales and marketing efforts.
Physicians, patients, payors or the medical community in general may be
unwilling to accept, utilize or recommend any of our products.
IF WE FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE WILL BE
UNABLE TO SUCCESSFULLY DEVELOP OUR PRODUCT CANDIDATES.
We expect that significant additional financing will be required in the
future to continue our research and development efforts and to commercialize our
product candidates. If adequate funds are not available to us, we will be
required to delay, reduce the scope of or eliminate one or more of our
development programs and our business and future prospects for revenue and
profitability may be harmed. We do not know whether additional financing will be
available when needed, or that, if available, we will obtain financing on terms
favorable to our stockholders or us. We have consumed substantial amounts of
cash to date and expect capital outlays and operating expenditures to increase
over the next several years as we expand our infrastructure and preclinical and
clinical trial activities. We may raise this financing through public or private
equity offerings, debt financings or additional corporate collaboration and
licensing arrangements.
We believe that the net proceeds from this offering and existing cash and
investment securities will be sufficient to support our current operating plan
through at least the end of 2002. We have based this estimate on assumptions
that may prove to be wrong. Our future capital requirements depend on many
factors that affect our research, development, collaboration and sales and
marketing activities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
To the extent we raise additional capital by issuing equity securities, our
stockholders may experience substantial dilution. To the extent that we raise
additional funds through collaboration and licensing arrangements, we may be
required to relinquish some rights to our technologies or product candidates, or
grant licenses on terms that are not favorable to us.
IF WE ARE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY, WE WOULD BE
UNABLE TO PREVENT THIRD PARTIES FROM USING OUR TECHNOLOGY, WHICH WOULD IMPAIR
OUR COMPETITIVENESS AND ABILITY TO COMMERCIALIZE OUR PRODUCT CANDIDATES. IN
ADDITION, THE COST OF ENFORCING OUR PROPRIETARY RIGHTS MAY BE EXPENSIVE AND
RESULT IN INCREASED LOSSES.
Our success will depend in part on our ability to obtain and maintain
meaningful patent protection for our products, both in the United States and in
other countries. We rely on patents to protect a large part of our intellectual
property and our competitive position. We currently license 25 patents and
patent applications, both in the United States and in other countries, in
addition to owning one patent ourselves. Any patents issued to or licensed by us
could be challenged, invalidated, infringed, circumvented or held unenforceable.
In addition, it is possible that no patents will issue on any of our licensed
patent applications. It is possible that the claims in patents that have been
issued or licensed to us or that may be issued or licensed to us in the future
will not be sufficiently broad to protect our intellectual property or that the
patents will not provide protection against
11
<PAGE> 13
competitive products or otherwise be commercially valuable. Failure to obtain
and maintain adequate patent protection for our intellectual property would
impair our ability to be commercially competitive.
Our commercial success will also depend in part on our ability to
commercialize our product candidates without infringing patents or other
proprietary rights of others or breaching the licenses granted to us. We may not
be able to obtain a license to third-party technology that we may require to
conduct our business or, if obtainable, we may not be able to license such
technology at a reasonable cost. If we fail to obtain a license to any
technology that we may require to commercialize our technologies or product
candidates, or fail to obtain a license at a reasonable cost, we will be unable
to commercialize the affected product or to commercialize it at a price that
will allow us to become profitable.
In addition to patent protection, we also rely upon trade secrets,
proprietary know-how and technological advances which we seek to protect through
confidentiality agreements with our collaborators, employees and consultants.
Our employees and consultants are required to enter into confidentiality
agreements with us. We also have entered into non-disclosure agreements which
are intended to protect our confidential information delivered to third parties
for research and other purposes. However, these agreements could be breached and
we may not have adequate remedies for any breach, or our trade secrets and
proprietary know-how could otherwise become known or be independently discovered
by others.
Furthermore, as with any pharmaceutical company, our patent and other
proprietary rights are subject to uncertainty. Our patent rights related to our
product candidates might conflict with current or future patents and other
proprietary rights of others. For the same reasons, the products of others could
infringe our patents or other proprietary rights. Litigation or patent
interference proceedings, either of which could result in substantial costs to
us, may be necessary to enforce any of our patents or other proprietary rights,
or to determine the scope and validity or enforceability of other parties'
proprietary rights. The defense and prosecution of patent and intellectual
property claims are both costly and time consuming, even if the outcome is
favorable to us. Any adverse outcome could subject us to significant liabilities
to third parties, require disputed rights to be licensed from third parties, or
require us to cease selling our future products. We are not currently a party to
any infringement claims.
IF OUR COMPETITORS DEVELOP AND MARKET PRODUCTS THAT ARE MORE EFFECTIVE THAN
OURS, OUR COMMERCIAL OPPORTUNITY WILL BE REDUCED OR ELIMINATED.
Even if we obtain the necessary governmental approvals to market RSR13 or
other product candidates, our commercial opportunity will be reduced or
eliminated if our competitors develop and market products that are more
effective, have fewer side effects or are less expensive than our product
candidates. Our potential competitors include large fully integrated
pharmaceutical companies and more established biotechnology companies, both of
which have significant resources and expertise in research and development,
manufacturing, testing, obtaining regulatory approvals and marketing. Academic
institutions, government agencies, and other public and private research
organizations conduct research, seek patent protection and establish
collaborative arrangements for research, development, manufacturing and
marketing. It is possible that competitors will succeed in developing
technologies that are more effective than those being developed by us or that
would render our technology obsolete or noncompetitive. We are not aware of any
products in research or development by any potential competitors which address
allosteric regulation of proteins in the way being targeted by us. There are,
however, other companies addressing the same indications as we are.
WE RELY ON THIRD-PARTY COLLABORATORS TO CONDUCT OUR RESEARCH AND DEVELOPMENT
ACTIVITIES AND MANUFACTURE OUR PRODUCT CANDIDATES. IF OUR COLLABORATIVE PARTNERS
DO NOT PERFORM AS EXPECTED, WE MAY BE UNABLE TO DEVELOP AND COMMERCIALIZE OUR
PRODUCT CANDIDATES, WHICH WOULD LIMIT OUR ABILITY TO GENERATE REVENUE AND BECOME
PROFITABLE AND OUR ABILITY TO DEVELOP AND COMMERCIALIZE OUR PRODUCT CANDIDATES
COULD BE SEVERELY LIMITED.
We do not have our own research or manufacturing facilities and currently
do not plan to establish such facilities. Instead, we depend upon academic,
research and non-profit institutions and commercial service and manufacturing
organizations for chemical synthesis and analysis, product formulation, assays,
preclinical and
12
<PAGE> 14
clinical testing, and manufacture of our product candidates. If our
collaborative partners do not perform these functions satisfactorily, our
ability to develop and commercialize our product candidates could be severely
limited which would limit our ability to sell our products or to sell them in
quantities sufficient to generate enough revenue to allow us to become
profitable.
Currently, we are supporting research with respect to allosteric
modification of proteins at Virginia Commonwealth University in the laboratories
of Dr. Donald Abraham, a founder, stockholder and director. In addition, we
currently have contracts with two third-party manufacturers. One is with our
sole source supplier of RSR13 bulk drug substance, and the other is with our
sole source supplier of formulated drug product. Our current supply of finished
product of RSR13 is limited and is not sufficient for completion of all phases
of clinical development. Any failure by our two third-party manufacturers to
supply our requirements for clinical trial materials would jeopardize the
completion of such trials and our ultimate ability to commercialize RSR13. Prior
to regulatory approval of RSR13, we may seek to establish supply agreements with
alternative sources of supply for bulk drug substance and formulated drug
product. However, only a limited number of contract manufacturers are both
capable of manufacturing our product candidates and complying with current
federal and state good manufacturing practice regulations. Accordingly, we may
not be able to enter into supply agreements on commercially acceptable terms
and, even if we do, any manufacturers with which we contract may not be able to
deliver supplies in appropriate quantity.
If conflicts arise between us and our academic collaborators, scientific
advisors, manufacturers or other suppliers, including Dr. Abraham, the other
party may act in its self-interest and not in the interest of our stockholders.
We generally do not have control over the resources or degree of effort that any
of our existing collaborative partners may devote to our collaborations. If our
collaborators breach or terminate their agreements with us or otherwise fail to
conduct their collaborative activities successfully and in accordance with
agreed upon schedules, our ability to develop, commercialize and sell products
would be limited. In addition, our collaborative partners could cease operations
or offer, design, manufacture or promote competing products. Any of these
occurrences could materially limit our potential revenue and profitability.
IF PRODUCT LIABILITY LAWSUITS ARE SUCCESSFULLY BROUGHT AGAINST US, WE MAY INCUR
SUBSTANTIAL LIABILITIES AND MAY BE REQUIRED TO LIMIT COMMERCIALIZATION OF OUR
PRODUCT CANDIDATES.
The testing and marketing of pharmaceutical products entail an inherent
risk of product liability. Product liability claims might be brought against us
by consumers, health care providers or by pharmaceutical companies or others
selling our future products. If we cannot successfully defend ourselves against
such claims, we may incur substantial liabilities or be required to limit the
commercialization of our product candidates. We have obtained limited product
liability insurance coverage for our human clinical trials. However, insurance
coverage is becoming increasingly expensive, and no assurance can be given that
we will be able to maintain insurance coverage at a reasonable cost or in
sufficient amounts to protect us against losses due to liability. A successful
product liability claim in excess of our insurance coverage could have a
material adverse effect on our business, financial condition and results of
operations. We may not be able to obtain commercially reasonable product
liability insurance for any products approved for marketing.
OUR OPERATING RESULTS MAY FLUCTUATE, AND ANY FAILURE TO MEET FINANCIAL
EXPECTATIONS MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND RESULT IN A
DECLINE IN OUR STOCK PRICE, CAUSING INVESTOR LOSSES.
Our results of operations have fluctuated in the past and are likely to do
so in the future. These fluctuations could cause our stock price to decline.
Some of the factors that could cause our results of operations to fluctuate
include:
- the status of development of our various product candidates;
- the time at which we enter into research and license agreements with
corporate partners, if any, that provide for payments to us, and the
timing and accounting treatment of payments to us under those agreements;
- whether or not we achieve specified research or commercialization
milestones;
- timely payment by our corporate partners, if any, of amounts payable to
us;
13
<PAGE> 15
- the addition or termination of research programs or funding support; and
- variations in the level of expenses related to our proprietary product
candidates during any given period.
We believe that period-to-period comparisons of our results of operations
are not necessarily meaningful and should not be relied upon as an indication of
future performance. It is possible that in some future quarter or quarters, our
operating results will be below the expectations of securities analysts or
investors. In that case, our stock price could fluctuate significantly or
decline.
FAILURE TO ATTRACT, RETAIN AND MOTIVATE SKILLED PERSONNEL AND CULTIVATE KEY
ACADEMIC COLLABORATIONS WILL DELAY OUR PRODUCT DEVELOPMENT PROGRAMS AND OUR
RESEARCH AND DEVELOPMENT EFFORTS.
We are a small company with only 29 employees, and our success depends on
our continued ability to attract, retain and motivate highly qualified
management and scientific personnel and on our ability to develop and maintain
important relationships with leading academic institutions and scientists.
Competition for personnel and academic collaborations is intense. In particular,
our product development programs depend on our ability to attract and retain
highly skilled chemists and clinical development personnel. If we lose the
services of any of these personnel, in particular, Dr. Stephen J. Hoffman, our
President and Chief Executive Officer, or Dr. Michael J. Gerber, our Senior Vice
President, Clinical Development and Regulatory Affairs, the loss could
significantly impede the achievement of our research and development objectives.
We do not have employment agreements with either of the foregoing individuals or
with any of our other employees. In addition, we will need to hire additional
personnel and develop additional academic collaborations as we continue to
expand our research and development activities. We do not know if we will be
able to attract, retain or motivate personnel or maintain relationships. If we
fail to negotiate additional acceptable collaborations with academic
institutions and scientists, or if our existing academic collaborations were to
be unsuccessful, our product development programs may be delayed.
RISKS RELATED TO THIS OFFERING
THE MARKET PRICE OF OUR COMMON STOCK MAY BE HIGHLY VOLATILE, AND YOU MAY NOT BE
ABLE TO RESELL YOUR SHARES AT OR ABOVE THE INITIAL OFFERING PRICE.
Prior to this offering, there has been no public market for our common
stock and an active public market for our common stock may not develop or be
sustained after the offering. You may not be able to sell your shares quickly or
at the market price if trading in our stock is not active. The initial public
offering price will be determined by negotiations between the representatives of
the underwriters and us and may not be indicative of future market prices. See
"Underwriting" for more information regarding our arrangement with the
underwriters and the factors considered in setting the initial public offering
price.
The trading price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in price in response to various factors,
many of which are beyond our control, including:
- announcements of technological innovations or new commercial products by
our competitors or us;
- developments concerning proprietary rights, including patents, by our
competitors or us;
- developments concerning any research and development, manufacturing, and
marketing collaborations;
- publicity regarding actual or potential medical results relating to
products under development by our competitors or us;
- regulatory developments in the United States and other countries;
- litigation;
- economic and other external factors, including disasters or crises; or
- period-to-period fluctuations in financial results.
14
<PAGE> 16
In addition, the stock market in general, and the Nasdaq National Market
and the market for technology companies in particular, have experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of those companies. Further, there has been
particular volatility in the market prices of securities of pharmaceutical
companies. These broad market and industry factors may seriously harm the market
price of our common stock, regardless of operating performance. In the past,
following periods of volatility in the market, securities class-action
litigation has often been instituted against these companies. Any litigation
instituted against us could result in substantial costs and a diversion of
management's attention and resources, which could seriously harm our ability to
achieve profitability.
CERTAIN EXISTING STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK AND
THUS YOU WILL HAVE MINIMAL INFLUENCE ON STOCKHOLDER DECISIONS.
Upon completion of this offering, we anticipate that our executive
officers, directors and greater than five percent stockholders, along with their
affiliates, will, in the aggregate, own approximately 66.77% of our outstanding
common stock. As a result, such persons, acting together, will have the ability
to substantially influence all matters submitted to the stockholders for
approval, including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets. These persons
will also have the ability to control our management and affairs. Accordingly,
such concentration of ownership may have the effect of delaying, deferring or
preventing a change in control, impeding a merger, consolidation, takeover or
other business combination involving us or discouraging a potential acquirer
from making a tender offer or otherwise attempting to obtain control of our
business, even if such a transaction would be beneficial to other stockholders.
IF OUR STOCKHOLDERS SELL SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK AFTER THIS
OFFERING, THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE.
The market price for our common stock could fall substantially if our
stockholders sell large amounts of our common stock in the public market
following this offering. These sales, or the possibility that these sales may
occur, could also make it more difficult for us to sell equity or equity related
securities if we need to do so in the future to address then-existing financing
needs. The number of shares of common stock available for sale in the public
market is limited by restrictions under federal securities law requiring the
registration or exemption from registration in connection with the sale of
securities. In addition, sales of our common stock are restricted by lock-up
agreements that we, our directors and officers and substantially all of our
existing stockholders have entered into with the underwriters. The lock-up
agreements restrict us, our directors and officers and substantially all of our
existing stockholders, from selling or otherwise disposing of any shares for a
period of 180 days after the date of this prospectus without the prior written
consent of SG Cowen Securities Corporation. SG Cowen Securities Corporation may,
however, in its sole discretion and without notice, release all or any portion
of the shares from the restrictions in the lock-up agreements.
After this offering, we will have 22,837,151 outstanding shares of common
stock. These shares will become eligible for sale in the public market as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE ELIGIBLE FOR PUBLIC RESALE
- ---------------- -------------------------------
<S> <C>
5,008,177 Date of this prospectus (includes the 5,000,000 shares sold
in this offering)
3,936,260 180 days after the date of this prospectus
13,892,714 At various times thereafter, subject to applicable holding
period requirements
</TABLE>
We intend to file one or more registration statements to register shares of
common stock subject to outstanding stock options and common stock reserved for
issuance under our stock option plan not before 30 days after the closing of
this offering. We expect these additional registration statements to become
effective immediately upon filing. In addition, upon completion of this offering
and the conversion of our outstanding preferred stock into common stock, which
will happen upon the completion of this offering, the holders of 15,678,737
shares of our common stock will have the right to require us to register their
shares for sale to the public. Substantially all of these shares are subject to
the 180-day lock-up, described above. If these holders
15
<PAGE> 17
cause a large number of shares to be registered and sold in the public market,
our stock price could fall. See "Shares Eligible for Future Sale."
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW MAY
MAKE AN ACQUISITION OF US, WHICH MAY BE BENEFICIAL TO OUR STOCKHOLDERS, MORE
DIFFICULT.
Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would benefit our stockholders.
These provisions:
- authorize the issuance of "blank check" preferred stock that could be
issued by our Board of Directors to increase the number of outstanding
shares and thwart a takeover attempt;
- limit who may call a special meeting of stockholders;
- prohibit stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders;
- establish advance notice requirements for nominations for election to the
Board of Directors or for proposing matters that can be acted upon at
stockholder meetings; and
- require approval by the holders of at least 66 2/3% of the outstanding
common stock to amend any of the foregoing provisions.
In addition, Section 203 of the Delaware General Corporation Law may
discourage, delay or prevent a third party from acquiring us.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION AS A RESULT OF THIS OFFERING.
The initial public offering price is substantially higher than the net
tangible book value per share of our outstanding common stock immediately after
this offering. Accordingly, at the initial public offering price of $18.00 per
share, if you purchase common stock in this offering, you will incur immediate
and substantial dilution of approximately $13.96 in the net tangible book value
per share of our common stock from the price you pay for our common stock. In
addition, we have issued options to acquire common stock at prices significantly
below the initial public offering price. To the extent these outstanding options
are ultimately exercised, there will be further dilution to investors in this
offering.
16
<PAGE> 18
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and in other sections of this
prospectus that are forward-looking statements. You can identify these
statements by forward-looking words such as "may," "will," "expect," "intend,"
"anticipate," "believe," "estimate," "plan," "could," "should" and "continue" or
similar words. These forward-looking statements may also use different phrases.
We have based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements, which are
subject to risks, uncertainties, and assumptions about us, may include, among
other things, projections of our future results of operations or of our
financial condition, our anticipated product commercialization strategies, and
anticipated trends in our business.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or which we do not fully control that could cause actual
results to differ materially from those expressed or implied in our
forward-looking statements. Because these forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by these
forward-looking statements, including the following:
- competitive factors;
- general economic conditions;
- the ability to develop safe and efficacious drugs;
- ability to enter into future collaborative agreements;
- variability of royalty, license and other revenue;
- failure to achieve positive results in clinical trials;
- failure to achieve regulatory approval to market our product candidates;
- uncertainty regarding our owned and our licensed patents and patent
rights, including the risk that we may be forced to engage in costly
litigation to protect such patent rights and the material harm to us if
there were an unfavorable outcome of any such litigation;
- governmental regulation and suspension;
- technological change;
- changes in industry practices; and
- one-time events.
You should also consider carefully the statements under "Risk Factors" and
other sections of this prospectus, which address additional factors that could
cause our results to differ from those set forth in the forward-looking
statements.
17
<PAGE> 19
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 5,000,000 shares of
common stock offered by us at an assumed initial public offering price of $18.00
per share will be approximately $82.7 million, after deducting the underwriting
discounts and estimated offering expenses. If the underwriters exercise in full
their option to purchase an additional 750,000 shares of common stock, we
estimate that such net proceeds will be approximately $95.3 million.
The principal reasons for this offering are to raise funds for research and
development and for working capital and other general corporate purposes. We
have not yet determined our expected use of these proceeds, but we anticipate
that we will use approximately $50 million of the net proceeds from this
offering for research and development activities, including clinical trials,
process development and manufacturing support and the remainder for general
corporate purposes, including working capital. The amounts we actually expend in
the areas may vary significantly and will depend on a number of factors,
including our product development initiatives and success and future revenue.
Accordingly, management will retain broad discretion in the allocation of the
net proceeds of this offering. You will not have the opportunity to evaluate the
product development, economic, financial or other information on which we base
our decisions on how to use the proceeds. We may use a portion of the proceeds
to acquire or invest in complementary businesses, products or technologies,
although we are not currently in negotiations concerning any such acquisitions
or investments. Based upon the current status of our product development and
commercialization plans, we believe that the net proceeds of this offering,
together with our cash, cash equivalents and investments, will be adequate to
satisfy our capital needs through at least the calendar year 2002. Pending these
uses, we intend to invest the net proceeds of this offering in interest bearing,
investment grade securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently intend to retain all of our future earnings, if any, to finance our
operations and do not anticipate paying any cash dividends on our capital stock
in the foreseeable future.
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<PAGE> 20
CAPITALIZATION
The following table sets forth our capitalization at December 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect the conversion of each of the 25,288,286
outstanding shares of preferred stock into 0.62 shares of common stock,
or an aggregate of 15,678,737 shares of common stock, effective upon the
closing of this offering; and
- on a pro forma as adjusted basis to additionally reflect the sale of
5,000,000 shares of common stock offered hereby at an assumed initial
offering price of $18.00 per share, and our receipt of the estimated net
proceeds after deducting underwriting discounts and commissions and
estimated offering expenses.
You should read the following table in conjunction with our financial
statements and related notes included in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term debt, net of current portion...................... $ 69 $ 69 $ 69
Stockholders' equity
Convertible preferred stock, Series A: $0.001 par value,
5,000,000 shares authorized, issued and outstanding.... 5 -- --
Convertible preferred stock, Series B: $0.001 par value,
5,050,000 shares authorized; 5,032,500 shares issued
and outstanding........................................ 5 -- --
Convertible preferred stock, Series C: $0.001 par value,
16,610,000 shares authorized; 15,255,786 shares issued
and outstanding........................................ 15 -- --
Common stock: $0.001 par value, 31,000,000 shares
authorized, actual; 75,000,000 shares authorized, pro
forma and pro forma as adjusted; 2,022,138 shares
issued and outstanding, actual; 17,700,875 shares
outstanding, pro forma; 22,700,875 shares outstanding,
pro forma as adjusted.................................. 2 18 23
Additional paid-in capital preferred stock................ 49,874 -- --
Additional paid-in capital common stock................... 7,020 56,903 139,598
Notes receivable -- related parties....................... (140) (140) (140)
Accumulated deficit....................................... (43,348) (43,348) (43,348)
Deferred compensation..................................... (4,442) (4,442) (4,442)
-------- -------- --------
Total stockholders' equity........................... 8,991 8,991 91,691
-------- -------- --------
Total capitalization.............................. $ 9,060 $ 9,060 $ 91,760
======== ======== ========
</TABLE>
The information in the table above does not include:
- shares of our common stock issuable upon exercise of options outstanding
under our stock option plan, of which 1,781,881 were outstanding at March
24, 2000, with a weighted average exercise price of $1.24 per share;
- shares of our common stock available for future grant or issuance under
our stock option plan, of which 802,705 were available at March 24, 2000;
and
- shares of our common stock issuable upon conversion of preferred stock
issuable upon exercise of outstanding warrants, of which 14,275 were
outstanding at March 24, 2000, excluding warrants which will expire
without exercise prior to consummation of this offering, with a weighted
average exercise price of $2.66 per share.
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<PAGE> 21
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $9.0 million, or $0.51 per share of common stock. Our pro forma
net tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the shares of common stock outstanding as of
December 31, 1999, assuming the conversion of all outstanding shares of
preferred stock.
After giving effect to the sale of 5,000,000 shares of common stock we are
offering hereby at an assumed initial public offering price of $18.00 per share
and after deducting estimated underwriting discounts and commissions and
offering expenses, our pro forma net tangible book value as of December 31, 1999
would have been approximately $91.7 million, or $4.04 per share. This represents
an immediate increase in pro forma net tangible book value of $3.53 per share to
existing stockholders and an immediate and substantial dilution of $13.96 per
share to new investors purchasing shares of common stock in this offering. The
following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $18.00
Pro forma net tangible book value per share at December 31,
1999...................................................... $ 0.51
Increase attributable to this offering...................... 3.53
------
Pro forma net tangible book value per share after
offering.................................................. 4.04
------
Dilution per share to new investors......................... $13.96
======
</TABLE>
The following table summarizes, as of December 31, 1999, on the pro forma
basis described above, the number of shares of common stock purchased in this
offering, the aggregate cash consideration paid and the average price per share
paid by existing stockholders for common stock and by new investors purchasing
shares of common stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................. 17,700,875 78.0% $ 40,876,231 31.2% $ 2.31
New Investors......................... 5,000,000 22.0 90,000,000 68.8 18.00
---------- ----- ------------ ----- ------
Total....................... 22,700,875 100.0% $130,876,231 100.0% $ 5.77
========== ===== ============ ===== ======
</TABLE>
This discussion and tables above assume no exercise of options outstanding
under our stock option plan. As of March 24, 2000, there were options
outstanding to purchase a total of 1,781,881 shares of common stock at a
weighted average exercise price of $1.24 per share and 802,705 shares available
for future grant or issuance under our stock option plan. The discussion and
tables above also assume no exercise of any outstanding warrants. As of March
24, 2000, there were outstanding warrants to purchase 14,275 shares of our
common stock, excluding warrants which will expire without exercise prior to
consummation of this offering, with a weighted average exercise price of $2.66
per share. To the extent that any of these options or warrants are exercised,
there will be further dilution to new investors.
20
<PAGE> 22
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with our financial statements and the related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," included in this
prospectus. The statement of operations data for the years ended December 31,
1997, 1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999,
are derived from, and qualified by reference to, our audited financial
statements included elsewhere in this prospectus. The statement of operations
data for the years ended December 31, 1995 and 1996, and the balance sheet data
as of December 31, 1995, 1996 and 1997 are derived from our audited financial
statements that do not appear in this prospectus. The historical results are not
necessarily indicative of the operating results to be expected in the future.
Unaudited pro forma basic and diluted net loss per share have been
calculated assuming the conversion of each of the 25,288,286 outstanding shares
of preferred stock into 0.62 shares of common stock, or an aggregate of
15,678,737 shares of common stock, as if the shares had converted immediately
upon their issuance.
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
SEPTEMBER 1,
1992 (DATE OF
INCEPTION)
YEARS ENDED DECEMBER 31, THROUGH
-------------------------------------------------------------- DECEMBER 31,
1995 1996 1997 1998 1999 1999
--------- ---------- ---------- ---------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses....................
Research and development............ $ 1,807 $ 2,842 $ 3,865 $ 5,942 $ 7,836 $ 22,946
Clinical manufacturing.............. 113 269 1,564 1,768 1,382 5,164
General and administrative.......... 542 1,262 1,262 1,486 2,379 7,171
--------- ---------- ---------- ---------- ----------- -----------
Total operating expenses..... 2,462 4,373 6,691 9,195 11,598 35,281
Loss from operations.................. (2,462) (4,373) (6,691) (9,195) (11,598) (35,281)
Interest and other income, net........ 78 320 178 621 310 1,546
--------- ---------- ---------- ---------- ----------- -----------
Net loss.............................. (2,384) (4,053) (6,513) (8,574) (11,288) (33,735)
Dividend related to beneficial
conversion feature of preferred
stock............................... -- -- -- -- (9,613) (9,613)
Net loss attributable to common
stockholders........................ $ (2,384) $ (4,053) $ (6,513) $ (8,574) $ (20,901) $ (43,348)
========= ========== ========== ========== =========== ===========
Weighted-average basic and diluted net
loss per share...................... $ (1.92) $ (2.46) $ (3.52) $ (4.38) $ (10.48)
Weighted-average shares used in
computing basic and diluted net loss
per share........................... 1,240 1,645 1,848 1,959 1,995
Pro forma basic and diluted net loss
per share........................... $ (1.38)
Shares used in computing pro forma
basic and diluted net loss per
share............................... 15,184
</TABLE>
The following table contains a summary of our balance sheet on an actual
basis at December 31, 1995, 1996, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------
1995 1996 1997 1998 1999
------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments..... $ 1,864 $ 6,043 $ 479 $ 9,581 $ 9,475
Working capital (deficiency).......................... 1,476 5,411 (1,149) 8,146 8,784
Total assets.......................................... 1,953 6,357 830 10,480 10,206
Long-term obligations, less current portion........... -- 102 89 147 69
Convertible preferred stock........................... 5,095 12,804 12,804 30,751 49,899
Common stock.......................................... 40 134 204 207 7,022
Accumulated deficit................................... (3,597) (7,361) (13,874) (22,447) (43,348)
Total stockholders' equity (deficit).................. 1,538 5,487 (1,005) 8,371 8,991
</TABLE>
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and related notes included in this prospectus. The following
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those discussed below and elsewhere in this prospectus, particularly under the
heading "Risk Factors."
OVERVIEW
We are a pharmaceutical company focused on developing and commercializing
innovative small molecule drugs initially for improving cancer treatments. Our
lead product candidate is RSR13. RSR13 is a synthetic small molecule that
increases the release of oxygen from hemoglobin, the oxygen carrying protein
contained within red blood cells. We believe RSR13 can be used to improve
existing treatments for cancer and treat many diseases attributed to or
aggravated by tissue oxygen deprivation.
To date, we have devoted substantially all of our resources to research and
clinical development. We have not derived any commercial revenues from product
sales, and we do not expect to receive product revenues for at least the next
several years. We have incurred significant operating losses since our inception
in 1992 and, as of December 31, 1999, had an accumulated deficit of $43,348,000.
There can be no assurance if or when we will become profitable. We expect to
continue to incur significant operating losses over the next several years as we
continue to incur increasing research and development costs, in addition to
costs related to clinical trials and manufacturing activities. We expect that
losses will fluctuate from quarter to quarter and that such fluctuations may be
substantial. Our achieving profitability depends upon our ability, alone or with
others, to successfully complete the development of our product candidates, and
obtain required regulatory clearances and successfully manufacture and market
our future products.
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Expenses
Research and Development. Research and development expenses were $7,836,000
for the year ended December 31, 1999, compared to $5,942,000 for the year ended
December 31, 1998 and $3,865,000 for the year ended December 31, 1997. The
$1,895,000, or 32%, increase from 1998 to 1999 was due primarily to non-cash
charges comprising amortization of deferred compensation expense of $1,533,000
and stock compensation expense of $156,000 resulting from the extension of notes
receivable from two officers initially issued in exchange for the exercise of
stock options. In addition, we increased clinical trial costs which were offset
by the completion of one Phase II clinical trial. We expect research and
development expenses to increase in 2000 as we begin our first Phase III
clinical trial of RSR13. The $2,076,000, or 54%, increase in research and
development spending from 1997 to 1998 was due primarily to supporting multiple
Phase II clinical trials for RSR13 in oncology and cardiovascular indications.
These increased costs included clinical trial costs and personnel expenses.
Clinical Manufacturing. Clinical manufacturing expenses include the cost of
manufacturing RSR13 for use in clinical trials and costs associated with the
scale-up of manufacturing to support commercial requirements. Clinical
manufacturing expenses for the years ended December 31, 1999, 1998 and 1997 were
$1,382,000, $1,768,000 and $1,564,000, respectively. The $386,000, or 22%,
decrease in 1999 compared to 1998 primarily resulted from needing less RSR13 to
meet clinical trial requirements. The $204,000, or 13%, increase in expenses in
1998 over 1997 was primarily related to costs incurred in evaluating alternative
containers for commercial use.
General and Administrative. General and administrative expenses for the
years ended December 31, 1999, 1998 and 1997 were $2,379,000, $1,486,000 and
$1,262,000, respectively. The $894,000, or 60%, increase for 1999 compared to
1998 primarily resulted from non-cash charges comprising amortization of
deferred
22
<PAGE> 24
compensation expense of $21,000 and stock compensation expense of $659,000
resulting from the extension of notes receivable from two officers initially
issued in exchange for the exercise of stock options. In addition, we increased
personnel and related expenses, and incurred additional costs associated with
hiring new employees. General and administrative expenses increased $224,000, or
18%, for 1998 compared to 1997. The increase in fiscal 1998 expense was
primarily related to personnel and related expenses.
Future Non-cash Charges. In 1999 we recorded aggregate deferred stock
compensation of $5,996,000 in connection with the grant of certain options to
employees with exercise prices below the fair value for financial reporting
purposes of our common stock on their respective grant dates. Amortization of
deferred stock compensation amounted to approximately $1,554,000 in 1999. In
2000 we will record an additional $8,837,000 of deferred stock compensation
related to option grants to employees in January and February 2000. We expect to
recognize stock compensation expense related to the 1999 and 2000 grants of
approximately 7,028,000 in 2000.
In March 1996, we obtained recourse notes receivable (the "1996 Notes")
from two officers in the amount of $90,000 upon the officers' exercise of
558,000 stock options. The notes bear interest at 8% annually with interest and
principal originally due March 1998. In December 1997, we obtained additional
notes receivable (the "1997 Notes") from these officers in the amount of $49,687
upon exercise of options to acquire 123,225 shares. These notes bear interest at
6% annually with interest and principal originally due December 1999. The notes
are classified as an offset to stockholders' equity. The maturity dates for the
1996 and 1997 Notes were extended by two years and, in connection therewith, we
subsequently treated the underlying stock options as variable awards and
recorded $815,000 of stock compensation expense during 1999 based on the
difference between the fair market value of the underlying common stock and
option exercise prices.
During March 2000, we extended the 1996 Notes and, in connection therewith,
expect to record a charge during the first quarter of 2000 based on the
difference between the exercise price of the underlying options and the fair
market value of our common stock. Based on the assumed initial offering price of
$18.00 per share, the charge to expense will be approximately $10 million. Going
forward, as long as the 1996 Notes are outstanding, the difference between the
exercise price of the underlying options and the fair market value of our common
stock will be remeasured each quarter and, if different from the fair value used
in determining the expense in a prior quarter, the difference will be reflected
as an additional charge or credit at that time. We are currently negotiating for
the extinguishment of the 1996 Notes prior to the end of the first quarter of
2000. We do not intend to extend the 1997 Notes a second time.
Interest and Other Income, Net
Interest income, net of interest expense, was $310,000, $621,000 and
$178,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The
$311,000, or 50%, decrease in 1999 as compared to 1998 was attributable to a
decrease in the amount of cash available for investing. The $443,000, or 249%,
increase in 1998 as compared to 1997 was primarily the result of interest earned
on higher average cash balances from a private offering of Series C Convertible
preferred stock.
Income Taxes
As of December 31, 1999, we had net operating loss carryforwards and
research and development credit carryforwards of $30,174,000 and $2,120,000,
respectively, available to offset future regular and alternative taxable income.
These net operating loss carryforwards expire between 2009 and 2013. The
research and development credit carryforwards will expire between 2009 and 2013.
The utilization of the loss carryforwards to reduce future income taxes will
depend on our ability to generate sufficient taxable income prior to the
expiration of the net operating loss carryforwards and research and development
credit carryforwards. In addition, the maximum annual use of the net operating
loss carryforwards is limited in certain situations where changes occur in our
stock ownership.
23
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
placements of preferred stock, which have resulted in net proceeds to us of
$40,286,000 through December 31, 1999. Since inception, we have used $30,490,000
of cash for operating activities. We had cash, cash equivalents and short-term
investments of $9,475,000 at December 31, 1999, compared with $9,582,000 at
December 31, 1998 and $479,000 at December 31, 1997. Working capital at December
31, 1999 was $8,784,000, as compared to $8,146,000 at December 31, 1998, and a
deficit of $1,149,000 at December 31, 1997. Long-term debt was $69,000,
$147,000, and $89,000 for the years ending December 31, 1999, 1998 and 1997,
respectively. Long-term debt consists primarily of capital equipment lease
obligations.
Net cash used in operating activities was $9,502,000, $8,803,000, and
$5,488,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
The increases resulted from increases in net losses from operations. During
1999, the Company reached a settlement agreement with a third party for failure
to achieve specified milestones under a research and development contract. The
total amount of the settlement was $178,000 of which $100,000 was received in
February 2000 and the remainder is expected in April 2000.
Net cash provided by investing activities was $1,024,000 for the year ended
December 31, 1999 and consisted primarily of proceeds from the sale of
short-term investments, partially offset by the purchase of short-term
investments and property and equipment. Net cash used in investing activities
was $7,929,000 for the year ended December 31, 1998 and consisted primarily of
net purchases of investments. Net cash provided by investing activities was
$4,880,000 for the year ended December 31, 1997 and consisted primarily of net
sales of investments.
Net cash provided by financing activities was $9,420,000 and $17,910,000
for the years ended December 31, 1999 and 1998, respectively, and consisted
primarily of proceeds from the sale of preferred stock. Net cash used in
financing activities for the year ended December 31, 1997 was $33,000 and was
primarily due to principal payments under capital leases.
Based upon the current status of our product development and
commercialization plans, we believe that the net proceeds of this offering,
together with our existing cash, cash equivalents and investments, will be
adequate to satisfy our capital needs through at least the calendar year 2002.
However, our actual capital requirements will depend on many factors, including
the status of product development; the time and cost involved in conducting
clinical trials and obtaining regulatory approvals; filing, prosecuting and
enforcing patent claims; competing technological and market developments; and
our ability to market and distribute our future products and establish new
collaborative and licensing arrangements.
IMPACT OF YEAR 2000
Many currently installed computer systems and software products were unable
to distinguish between twentieth century dates and twenty first century dates.
As a result, many companies' software and computer systems needed to be upgraded
or replaced to comply with Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
State of Readiness
The majority of the computer programs and hardware we currently use in our
own internal operations did not require replacement or modification as a result
of the Year 2000 issue. We believe that our significant vendors and service
providers are Year 2000 compliant and have not, to date, been made aware that
any of our significant vendors or service providers have suffered Year 2000
disruptions in their systems.
Costs
To date, we have not incurred any material costs in identifying or
evaluating Year 2000 compliance issues, although consideration of the Year 2000
question is an integral part of our ongoing developmental and operational
reviews. We have incurred some expenses related to the operating costs
associated with time spent by
24
<PAGE> 26
employees in the evaluation process and Year 2000 compliance testing generally.
We presently do not anticipate that future expenditures will be material.
Risks
We completed internal assessments of our Year 2000 readiness prior to
December 31, 1999, with emphasis on our operating and administrative systems and
are not aware of any Year 2000 problems that could reasonably be expected to
have a material adverse effect on our business. Our assessment plans consisted
of internal testing of our systems, contacting third-party vendors of hardware,
software and services, assessing and implementing repairs or replacements as
required and developing contingency plans if Year 2000 problems still arise. We
contacted our major vendors for software, hardware and related services. These
vendors indicated that they are Year 2000 compliant. However, we can not
guarantee that we have identified or will identify all Year 2000 compliance
problems in our infrastructure that may require substantial revisions and
repairs. Also, despite our testing and reviews, we may experience Year 2000
problems related to the third-party software, hardware or other systems on which
we are reliant, and any of these problems may be time consuming or expensive to
fix.
Contingency Plan
We have been engaged in an ongoing assessment of our readiness and have
developed contingency plans to address Year 2000 problems that may arise. The
results of our analyses and the responses received from third-party vendors and
service providers were taken into account in developing these plans.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ON MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that a change in prevailing interest rates may
cause the fair value of the principal amount of the investment to fluctuate. For
example, if we hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises, the fair
value of the principal amount of our investment will probably decline. To
minimize this risk in the future, we intend to maintain our portfolio of cash
equivalents and short-term investments in a variety of securities, including
commercial paper, money market funds, government and non-government debt
securities. The average duration of all of our investments has generally been
less than one year. Due to the short-term nature of these investments, we
believe we have no material exposure to interest rate risk arising from our
investments.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
changes the previous accounting definition of derivative which focused on
freestanding contracts such as options and forwards, including futures and
swaps, expanding it to include embedded derivatives and many commodity
contracts. Under the statement, every derivative is recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
requires that changes in the derivatives' fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. We do not anticipate
that the adoption of SFAS No. 133 will have a material impact on our financial
position or results of operations.
25
<PAGE> 27
BUSINESS
OVERVIEW
We are a pharmaceutical company focused on developing and commercializing
innovative small molecule drugs, initially for improving cancer treatments.
Small molecule drugs, in general, are non-protein products produced by chemical
synthesis rather than biologic methods. Our lead product candidate is RSR13.
RSR13 is a synthetic small molecule that increases the release of oxygen from
hemoglobin, the oxygen-carrying protein contained within red blood cells. We
believe RSR13 can be used to improve existing cancer treatments and treat many
diseases and clinical conditions attributed to or aggravated by oxygen
deprivation. Deprivation of oxygen in the body is called hypoxia.
The presence of oxygen in tumors is an essential element for the
effectiveness of radiation therapy in the treatment of cancer. We have
demonstrated in Phase II clinical trials that RSR13 significantly improves the
efficacy of radiation therapy for treating brain metastases, or tumors which
have spread to the brain, and glioblastoma multiforme, a highly aggressive form
of primary brain cancer. In February 2000, we commenced a Phase III trial of
RSR13 in combination with radiation therapy for the treatment of brain
metastases. We believe that this trial, if positive, will serve as the basis for
seeking marketing approval for RSR13 from the FDA for this indication. In
addition, we are currently conducting a Phase II clinical trial of RSR13 in
combination with radiation therapy in patients with locally advanced, inoperable
non-small cell lung cancer, and are developing RSR13 for improving the efficacy
of radiation therapy in treating other forms of cancer.
We believe RSR13 can be used to treat many other diseases and clinical
conditions. We intend to seek corporate partners to jointly develop RSR13 for
treating the hypoxic effects of acute blood loss and decreased blood flow
encountered in surgical procedures and also for improving the effectiveness of
treatments for cardiovascular disease and stroke. In addition, we plan to extend
our expertise in developing drugs to other compounds and technology platforms to
which we have access through our research collaborations or that we may acquire
or in-license from third parties.
Since July 1994 we have focused substantially all of our attention on
research and development activities for pharmaceutical product development.
These efforts include pre-clinical and clinical development of RSR13 aimed
toward commercialization and use in cancer and cardiovascular disease, and the
discovery and development of new products.
SCIENTIFIC BACKGROUND
Oxygen is indispensable to all human tissues. It is transported through the
body by hemoglobin, a protein contained within red blood cells, and is consumed
in the production of energy for sustaining life. Each hemoglobin protein can
bind up to four molecules of oxygen. After picking up oxygen in the lungs and
circulating to various tissues in the body, each hemoglobin protein, on average,
releases one of its four oxygen molecules and retains the other three in
reserve. Thus, approximately 75% of the oxygen carried by hemoglobin represents
an untapped reservoir of oxygen potentially available to the body. When
hemoglobin returns to the lungs, it replenishes its store of oxygen for its next
round trip through the body.
Although oxygen is ordinarily vital for life, in some instances, energized
forms of oxygen, called oxygen radicals, can be toxic to cells. For example,
during radiation therapy for a cancerous tumor, radiation-induced oxygen
radicals contribute to the death of cells in the tumor. Therapies that increase
oxygen levels in tumors at the time of radiation can therefore enhance the
cytotoxicity of radiation therapy.
Malignant tumors often have a poorly regulated blood supply caused by the
disorganized growth of new blood vessels into the tumor. This, in addition to
the rapid cell growth of malignant tumors, leads to the formation of hypoxic
regions within the tumor, a phenomenon known as tumor hypoxia. Research shows
that hypoxic regions within malignant tumors are substantially more resistant to
cell damage from radiation than oxygenated regions. Even small hypoxic regions
in a tumor may affect the overall response to radiation therapy and increase the
number of surviving tumor cells. Tumor cells that survive radiation therapy can
become resistant to therapy, and can cause the tumor to recur in the same
location and metastasize to distant sites, causing continued illness and death.
26
<PAGE> 28
Tissue hypoxia is also a factor in many other diseases and clinical
conditions. For example, during cardiac and other types of surgery, tissue
hypoxia can occur from decreased oxygen carrying capacity caused by acute blood
loss or decreased blood flow to major organs, such as the brain, heart, liver
and kidneys. In addition, hypoxia caused by the acute blockage of a major blood
vessel can lead to conditions that cause significant morbidity and mortality,
such as acute angina, or chest pain caused by decreased blood flow to the heart,
myocardial infarction, or heart attack, and stroke.
The body has developed certain natural responses to mitigate or reverse the
damage of some forms of hypoxia. For example, when the body is suddenly
subjected to acute hypoxia, such as during acute blood loss, several highly
predictable responses occur. Initially, the body increases the rate of breathing
to more fully oxygenate the blood as it passes through the lungs. The body also
attempts to improve blood flow by increasing the rate and force of cardiac
contractions. Subsequently, the red blood cells produce increased amounts of
2,3-diphosphoglycerate (2,3-DPG), a naturally occurring small molecule that
chemically decreases the oxygen binding affinity of hemoglobin. 2,3-DPG
essentially taps into hemoglobin's oxygen reservoir, and increases the average
unloading of oxygen from hemoglobin from 25% to approximately 35%. Finally, over
the next several weeks to months, the body produces a natural hormone known as
erythropoetin to stimulate production of new red blood cells.
Although production of 2,3-DPG is effective as a natural response
mechanism, it is not a viable candidate for therapeutic applications. 2,3-DPG is
produced inside the red blood cells and cannot by itself penetrate the red blood
cell membrane if medically administered to a patient. As a result, therapeutic
administration of 2,3-DPG cannot be used to oxygenate cancerous tumors to
enhance the effectiveness of radiation therapy. In addition, the natural
increase of 2,3-DPG levels during acute hypoxic episodes takes several hours to
days to reach a peak effect. 2,3-DPG, therefore, is not effective in treating or
preventing acute hypoxic conditions associated with surgical blood loss or
cardiovascular disease, conditions that require an immediate response.
THE ALLOS SOLUTION
In traditional approaches to drug development, a small molecule drug is
used to bind to the active site of a protein to modify the protein's function.
In some cases, the drug activates, and in others it inhibits, the protein's
function.
In contrast to traditional approaches, our core technology is based on
using small molecules to modify a protein's function by altering the protein's
three-dimensional structure. This is called allosteric modification. In
allosteric modification, a small molecule drug alters a protein's three
dimensional structure by binding to the protein at a site different from the
protein's active site. This change in conformational structure affects the
binding affinity of the protein for the molecules that normally bind to its
active site. The ability of a drug to increase or decrease this affinity can
have important clinical implications. For example, an allosteric modifier that
decreases the oxygen-binding affinity of hemoglobin, and thereby stimulates the
release of oxygen into tissues, can be used to mitigate the adverse effects of
many forms of tissue hypoxia.
RSR13
Our lead product candidate, RSR13, is designed to mitigate the effects of
tissue hypoxia. RSR13 has been administered safely to more than 360 patients,
over 250 of whom were cancer patients receiving concurrent radiation therapy.
Our clinical studies have indicated that RSR13 is generally well tolerated and
has an acceptable safety profile.
RSR13 has a well-defined mechanism of action and is the first synthetic
drug to emulate and amplify the action of 2,3-DPG, the naturally occurring
allosteric modifier of hemoglobin. Like 2,3-DPG, RSR13 binds to hemoglobin away
from the hemoglobin's oxygen-binding site and increases the unloading of oxygen
from hemoglobin, thus increasing the amount of oxygen deliverable to hypoxic
tissues. RSR13 has several distinguishing characteristics from 2,3-DPG that make
it particularly well suited for therapeutic applications:
- RSR13 is able to cross the red blood cell membrane when medically
administered to a patient;
- RSR13 has an immediate onset of action; and
27
<PAGE> 29
- on average, RSR13 increases the normal 25% unloading of oxygen from
hemoglobin to an estimated 50% by increasing oxygen release from the
large reservoir of unused hemoglobin-bound oxygen in the blood.
By emulating and amplifying the body's natural response to acute hypoxia,
RSR13 has the potential for treating a wide variety of diseases and clinical
conditions caused by tissue hypoxia. We believe that increasing oxygen levels in
hypoxic tumors can enhance the effects of radiation therapy. In addition, RSR13
could also be used to prevent complications associated with tissue hypoxia that
frequently occur during or after surgery. In the cardiovascular area, we believe
RSR13 can be used to help treat acute angina, myocardial infarction and stroke,
among other conditions.
BUSINESS STRATEGY
Our objective is to become a leading pharmaceutical company focused on
developing and commercializing innovative drugs. The key elements of our
strategy to achieve this objective are described below:
- Focus on commercializing RSR13 in oncology markets. Initially, we intend
to seek FDA approval for the use of RSR13 in combination with radiation
therapy for the treatment of patients with brain metastases. Thereafter,
we intend to seek approval for the use of RSR13 in combination with
radiation therapy for treating other types of cancerous tumors. In the
United States, we plan to develop a focused sales force of between 10 and
20 sales representatives to market RSR13 directly to radiation
oncologists. We will seek to identify one or more corporate partners to
accelerate product commercialization in Europe and possibly Asia.
- Establish collaborations to commercialize RSR13 in additional therapeutic
applications. We believe RSR13 has the potential for treating a wide
variety of other diseases and clinical conditions caused by tissue
hypoxia. These indications include, among others, surgical hypoxia, acute
angina, myocardial infarction and stroke. We intend to pursue
commercialization of RSR13 in these other indications with one or more
corporate partners. We expect that these collaborations will enable us to
develop RSR13 for treating more indications than would otherwise be
possible by us alone, and provide us with domestic and international
marketing and sales expertise for our partnered product indications.
- Expand our product candidate portfolio. We intend to acquire rights to
other product candidates that complement our existing programs and that
enable us to capitalize on our clinical development expertise through
acquisitions and in-licensing. We will continue our drug discovery
collaborations which have yielded several development candidates.
28
<PAGE> 30
PRODUCTS UNDER DEVELOPMENT
We currently retain exclusive, worldwide commercial rights for all of our
product candidates for all target indications. The table below summarizes our
current product candidates, their target indications, and clinical program
status.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRODUCT CANDIDATE TARGET INDICATION CLINICAL PROGRAM STATUS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
RSR13
Radiation Enhancer Brain metastases Phase III
Non-small cell lung cancer Phase II
Glioblastoma multiforme Phase II complete
Other cancer types Phase II's planned
Chemotherapy Enhancer Recurrent glioblastoma multiforme Phase I/II planned
Surgical Hypoxia Cardiopulmonary bypass surgery Phase II
Cardiovascular Disease Angina Phase II
Myocardial infarction Preclinical
Stroke Preclinical
- ------------------------------------------------------------------------------------------------------
RSR46 Acute hypoxia Preclinical
- ------------------------------------------------------------------------------------------------------
JP7 Acute hypoxia Preclinical
- ------------------------------------------------------------------------------------------------------
PYRUVATE KINASE INHIBITORS Chronic hypoxia Research
-----------------------------------------------------------------------------------------------------
</TABLE>
RSR13 for Treating Cancer
The worldwide oncology drug market was estimated at $16 billion in 1998,
representing 15% growth from 1997. Despite the enormous effort undertaken by the
pharmaceutical industry to develop oncology products, cancer remains the
second-leading cause of death in the United States and remains a largely unmet
medical need. Over 1.2 million new cases of cancer are diagnosed each year in
the United States, and approximately 565,000 patients die each year of cancer.
The appropriate cancer therapy for each patient depends on the cancer type
and careful assessment of the size, location and extent to which the tumor has
spread. Therapy typically includes some combination of surgery, radiation
therapy or chemotherapy. Radiation therapy is used to cure certain cancers, to
control local tumor invasion and thus prolong life, and to treat symptomatic
problems in patients who are expected to die of their cancer. Chemotherapy is
used to cure certain cancers or prolong life in some patients with malignant
tumors.
RSR13 as a Radiation Enhancer. Radiation therapy is the principal
non-surgical means of treating malignant tumors in patients with cancer. Each
year in the United States, approximately 50% of all newly diagnosed cancer
patients, or 600,000 patients, receive radiation therapy as part of their
primary treatment, in addition to 150,000 patients who receive radiation therapy
for persistent or recurrent cancer. The 750,000 cancer patients who receive
radiation therapy annually is approximately twice the number of cancer patients
who are treated with chemotherapy. A course of radiation therapy can cost
between $10,000 and $25,000 depending on the complexity and duration of
treatment. Although radiation therapy can be effective in treating certain types
of cancer, an unmet medical need exists for products to increase the
effectiveness of radiation therapy.
29
<PAGE> 31
RSR13 is administered by a 30-minute intravenous infusion through a central
venous catheter commencing approximately one hour before scheduled radiation
therapy. Patients are also given supplemental oxygen, like that commonly
administered to individuals with chronic lung disease, to fully saturate
hemoglobin and increase the therapeutic potential of RSR13. RSR13 has an
immediate onset of action after administration and has a duration of action of
several hours.
Unlike existing drugs and other attempts to enhance the effects of
radiation therapy, the radioenhancement effect of RSR13 is not dependent on its
direct diffusion into the cancerous tumor. Instead, the beneficial effects of
RSR13 are the result of causing increased amounts of oxygen release from blood
flowing through the tumor. It is the oxygen, and not the drug, which diffuses
across the cancer cell membranes to oxygenate the tumors. This is particularly
important in the case of primary or metastatic brain tumors, where the blood
brain barrier acts to exclude or impede the entry of most chemical agents into
the brain tissue. The fact that RSR13 does not have to actually enter the cancer
cell to increase radiosensitivity is an important difference between RSR13 and
other pharmacologic attempts to improve the efficacy of radiation therapy.
We have completed five clinical trials of RSR13 in patients receiving
radiation therapy and have shown that RSR13 is generally well tolerated and has
an acceptable safety profile for use in cancer patients. The most common side
effects of RSR13 in cancer patients are dose and frequency related. These side
effects include low hemoglobin oxygen saturation (which is readily treated with
supplemental oxygen like that used in patients with chronic lung disease),
reversible kidney dysfunction (typically in patients who are also taking blood
pressure medications or common anti-inflammatory drugs), allergic rash and other
symptoms often seen in cancer patients receiving radiation therapy, such as
headache, nausea and vomiting.
RSR13 in the Treatment of Brain Metastases
We intend to seek FDA approval of RSR13 first for treatment of patients who
are receiving radiation therapy for brain metastases. This condition occurs in
approximately one out of five cancer patients, most often in patients with lung
or breast cancer. Radiation therapy for treatment of brain metastases is
administered to approximately 170,000 patients per year in the United States and
is intended to prevent or reduce complications and increase survival. The median
survival of all patients with brain metastases is about four months and can vary
depending on various clinical factors such as age, general health, whether the
primary cancer is controlled, and the extent of cancer metastases to other
regions in the body. Approximately 30% to 50% of patients with brain metastases
will die from disease progression in the brain, and the remainder will die from
disease progression in other regions in the body.
We previously completed a 20-patient Phase Ib safety study in patients
receiving RSR13 in combination with radiation therapy that suggested a potential
role for RSR13 in treating patients with brain metastases. Based on this study,
we completed a 69-patient, multi-center, open-label, Phase II clinical trial to
evaluate the efficacy and safety of RSR13 in cancer patients receiving standard
radiation therapy for treatment of brain metastases. The primary efficacy
endpoint of this study was survival compared to historical data using the Brain
Metastases Database, or BMD, maintained by the Radiation Therapy Oncology Group,
or RTOG, of the American College of Radiology. The study results showed that
RSR13-treated patients demonstrated overall median survival time of 6.9 months
compared to 4.1 months for the BMD control group, representing a statistically
significant improvement in median survival of 68%. In addition, the
RSR13-treated group had one-year survival rates of 32%, more than double the
one-year survival rate of 15% for the BMD control group. In patients where the
cause of death was determined, death due to tumor progression in the brain was
seen in only 9% of the RSR13-treated patients compared to 37% of the BMD control
group. When case-match analysis was performed using patients in the BMD that
most closely paralleled the RSR13-treated patients, the median survival time of
RSR13 treated patients was increased by 92% and one-year survival rates were
increased to 32%, compared to 9% for the BMD control group.
Based on this positive Phase II trial, we received concurrence from the FDA
to proceed with a Phase III trial of RSR13 in patients with brain metastases.
This study began in February 2000. We plan to enroll up to 408 adult patients at
approximately 45 to 60 investigative sites in North America. Patients will be
randomly assigned to treatment with either standard whole brain radiation
therapy or treatment with standard whole brain radiation
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therapy plus RSR13. The primary efficacy endpoint is survival. The secondary
endpoints are time to tumor progression in the brain, response rate in the
brain, cause of death and quality of life. Under the trial protocol, a 35%
improvement in median survival will be considered as satisfying the primary end
point of the trial, and may provide the basis for marketing approval of RSR13.
If the Phase III trial is positive, we will file a new drug application with the
FDA to obtain marketing approval for RSR13 for the treatment of patients who are
receiving radiation therapy for brain metastases.
RSR13 in the Treatment of Non-Small Cell Lung Cancer
Non-small cell lung cancer, or NSCLC, is a type of cancer that occurs in
approximately 130,000 patients per year in the United States. We are currently
evaluating RSR13 as a radiation enhancer for the treatment of patients with
locally advanced, inoperable NSCLC, also known as Stage III NSCLC. Radiation
therapy for treatment of Stage III NSCLC is administered to approximately 60,000
patients per year in the United States and is intended to prevent or reduce
complications and control local tumor growth in the chest. The median survival
time of patients with Stage III NSCLC is approximately nine to twelve months. In
addition to patients with Stage III NSCLC, we believe RSR13 could also be used
to treat approximately 70,000 patients with other Stages of NSCLC who are
treated with radiation therapy each year in the United States.
We are currently conducting a 40-patient, multi-center Phase II clinical
trial of RSR13 in patients receiving chemotherapy followed by radiation therapy
for the treatment of Stage III NSCLC. This trial, which will measure response
rates as the primary efficacy endpoint, is enrolling patients. If the results
are positive, we will proceed toward conducting a Phase III clinical trial.
RSR13 in the Treatment of Glioblastoma Multiforme
Glioblastoma multiforme, or GBM, is a deadly form of primary brain cancer.
This condition occurs in approximately 20% of all brain cancer patients in the
United States, or approximately 3,400 people per year. The median survival time
of patients with GBM is approximately nine to ten months. Radiation therapy is
administered to most patients with GBM and is intended to prevent or reduce
complications and improve survival time.
We have collaborated with the National Cancer Institute, or NCI, sponsored
New Approaches to Brain Tumor Therapy, or NABTT, Consortium to complete Phase Ib
and Phase II clinical trials of RSR13 in patients with GBM. Based on a
19-patient Phase Ib study which showed RSR13 was safe and well-tolerated, the
NABTT consortium conducted a 50-patient, multi-center, Phase II efficacy and
safety study of RSR13 combined with a standard six-week course of cranial
radiation therapy in newly diagnosed GBM patients. The primary efficacy endpoint
of the study was survival time. The Phase II study showed that RSR13-treated
patients demonstrated overall survival time of 12.1 months compared to 9.2
months for the NABTT historical control group. Based on these positive survival
results, the NABTT consortium has recommended that a Phase III trial be
conducted with RSR13 in patients with newly diagnosed GBM.
We have also completed enrollment in a 67-patient, multi-center, Phase II
companion trial of RSR13 in newly diagnosed GBM patients. This trial is
comparable in design and methods to the NABTT Phase II trial. Once patient
follow-up is completed, we will conduct the efficacy analyses in conjunction
with the RTOG statistics group.
We have also received concurrence from the FDA to proceed with a Phase III
trial of RSR13 in patients receiving radiation therapy for the treatment of GBM.
We will decide whether to proceed with a Phase III GBM trial or a Phase III
NSCLC trial after analyzing the final results of the respective Phase II
clinical trials.
RSR13 in the Treatment of Other Cancers
We believe that RSR13 eventually could be used in many other tumor types
and clinical situations requiring radiation therapy, such as pediatric brain,
head and neck, uterine cervix, prostate, rectal and breast cancers. We have been
asked by NCI-sponsored consortia to consider collaborating on Phase I/II
clinical trials in pediatric brain cancer. Similarly, various United States and
Canadian consortia have proposed conducting Phase II trials in
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head and neck and uterine cervix cancers. We anticipate conducting one or more
of these Phase II trials in the future.
We are currently conducting a 12-patient, randomized, double-blinded
placebo-controlled, Phase II trial evaluating tumor oxygen level before and
immediately after a single administration of RSR13. This physiology study is
intended to determine if the instrument being used can accurately and
reproducibly measure tumor oxygen levels, and whether RSR13 can change the level
in a fashion similar to that shown in animal studies. This study is ongoing and
it is not certain, considering the techniques used, if the data will produce
reliable results for analysis.
RSR13 as a Chemotherapy Enhancer. Chemotherapy is administered to more than
350,000 cancer patients each year in the United States. Depending on the
complexity and duration of treatment, a course of chemotherapy can cost between
$6,000 and $10,000. As with radiation therapy, certain types of chemotherapy
drugs require the presence of oxygen for optimal cytotoxic effects on cancer
cells. Thus, stimulating oxygen release from hemoglobin to hypoxic tumor tissue,
by the administration of RSR13, may also enhance the beneficial effects of
certain types of chemotherapy.
We have conducted preclinical studies with RSR13 as a chemotherapy enhancer
for use in conjunction with certain chemotherapy agents. Our preclinical studies
suggest that RSR13 increases the activity of certain chemotherapy agents in
animal tumor models and enhances tumor response. We believe this effect may be
related to increasing the oxygen level in the tumors and enhancing the effect of
specific chemotherapy agents.
An NCI-sponsored consortium is interested in conducting a Phase I/II
clinical study of RSR13 as a chemotherapy enhancer in patients with recurrent
GBM receiving treatment with a standard chemotherapy drug. The protocol for the
study has been submitted to the NCI for its approval. Contingent upon approval
of the study protocol, we have agreed to provide RSR13 to the consortium, which
will conduct and fund the trial.
RSR13 for Treating Surgical Hypoxia
Each year in the United States, approximately 600,000 people undergo
cardiopulmonary bypass surgery, or CPB, and approximately seven million patients
who have significant cardiovascular risk factors undergo non-cardiac surgery.
Over one million of these patients experience cardiovascular complications which
frequently result in death or permanent disability. In patients undergoing
non-cardiac surgery who have chronic medical conditions, such as coronary artery
disease, diabetes and hypertension, complications resulting from tissue hypoxia
can be as high as 20%. By inducing hemoglobin to release a greater amount of
oxygen during surgery, RSR13 can help mitigate tissue hypoxia resulting from
decreased oxygen carrying capacity, decreased blood flow, and, in the case of
CPB, decreased body temperature.
Based on preclinical studies of RSR13 in CPB and a successful Phase Ib
study in elective surgery patients, we conducted a randomized 30-patient Phase
II clinical trial of RSR13 in patients undergoing CPB for first time coronary
artery bypass grafting. This study demonstrated that RSR13 can be safely given
during CPB and provided preliminary evidence of a protective effect on heart
function. Although the patients undergoing this surgery were generally healthy
beyond having coronary artery disease, myocardial protective effects from RSR13
were still observed. There was also a trend toward a lower blood transfusion
requirement in the RSR13-treated group.
Based on the results of the Phase Ib general surgery study and the Phase II
CPB study, an additional randomized 164-patient Phase II study was initiated.
The purpose of this trial was to assess the ability of RSR13 treatment to
decrease the morbidity and mortality associated with heart and brain hypoxia in
patients with moderate to high risk factors undergoing CPB. This study was
terminated when it was determined in an interim safety analysis of 62 patients,
32 of whom received RSR13 and 30 of whom received placebo, that there was a
significant imbalance of patients with high risk factors in the RSR13-treated
group compared to the placebo group. Based on these findings, we are considering
conducting a new Phase II trial designed to better account for stratification of
risk factors in the treatment groups.
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RSR13 for Treating Cardiovascular Disease and Stroke
There are approximately 1.7 million hospitalizations per year in the United
States for acute coronary syndrome, which includes unstable angina and
myocardial infarction. We believe that RSR13 could play a major role in the
treatment of patients with acute coronary syndrome. We currently anticipate
clinical development for this indication would be in cooperation with a
corporate partner, although we are not in discussions with any parties in this
regard.
We have demonstrated that increasing oxygen release from hemoglobin with
RSR13 results in a significant decrease in myocardial hypoxia experienced in
animals during reduced coronary artery blood flow. We have also shown that
treatment with RSR13 results in a decrease in the release of a biochemical
marker associated with heart damage in animal models of myocardial infarction.
Based on these findings, an initial Phase Ib safety study was performed in 24
patients with chronic angina taking multiple medications for treatment of their
heart disease. This study demonstrated that RSR13 was safe and well tolerated in
this patient population. In addition, a 10-patient Phase II clinical trial is
being performed to determine if RSR13 can improve the exercise tolerance of
patients with coronary artery disease.
Additionally, our preclinical studies have demonstrated that RSR13 may play
a beneficial role in the treatment of stroke.
Other Synthetic Allosteric Modifiers
We have evaluated over 250 other synthetic allosteric modifiers of
hemoglobin which are analogues of RSR13. Two of these analogues, RSR46 and JP7,
are second-generation molecules to RSR13, and, based on preliminary animal
studies, are potential candidates for clinical development. In addition, through
our research collaborations, we have expanded our drug discovery efforts on the
development of synthetic allosteric modifiers for targets of therapeutic
interest other than hemoglobin. One such target is red blood cell pyruvate
kinase, an enzyme central to the control of red blood cell 2,3-DPG metabolism.
Red blood cell pyruvate kinase is an allosteric protein that is structurally
very similar to hemoglobin. Increasing red blood cell 2,3-DPG levels by
inhibiting red blood cell pyruvate kinase may lead to the development of orally
administered products for chronic hypoxic indications, such as peripheral
vascular disease, chronic angina and congestive heart failure.
MANUFACTURING
We have entered into arrangements with two third-party manufacturers for
the supply of RSR13 bulk drug substance and formulated drug product,
respectively. This enables us to focus on our clinical development strengths,
minimize fixed costs and capital expenditures, and gain access to advanced
manufacturing process capabilities and expertise.
Hovione Group, our supplier of RSR13 sodium salt, the bulk drug substance,
operates under current Good Manufacturing Practices using cost-effective and
readily available materials and reliable processes. Under the terms of our
contract, Hovione is committed to manufacture sufficient quantities to support
commercial scale manufacturing for the foreseeable future. Hovione is currently
manufacturing RSR13 sodium salt in commercial-scale batches.
Pursuant to our agreement, Hovione will manufacture and deliver quantities
of the bulk drug substance as determined by us for both pre-commercialization
and post-commercialization phases of production. Prior to commercialization,
Hovione has agreed to complete several objectives, including: process scale-up
and validation, manufacture and delivery of independent validation batches which
demonstrate successful validation, and successful characterization and delivery
of samples of final bulk drug substance. All bulk drug substance batches must
meet certain performance criteria and Hovione has assured us an uninterrupted
supply of the bulk drug substance. We have the exclusive right to sublicense
inventions, process improvements and analytical methods developed under this
agreement in return for certain payments to Hovione.
After manufacture, RSR13 sodium salt is formulated under contract for us
into the drug product under current Good Manufacturing Practice guidelines by
Taylor Pharmaceuticals, a company that specializes in the manufacture of sterile
injectable products. Under our contract with Taylor, Taylor has agreed to
manufacture
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stability batches, clinical batches and placebo, and support full release and
stability testing. We have agreed to provide release specifications for active
drug substance, furnish released and certified active substance for development
and manufacture of at least one pilot formulation and the required exhibit
batches, provide camera-ready artwork for labeling, and prepare any applicable
product import/export registrations. We anticipate that Taylor will be able to
provide sufficient drug product to complete our ongoing and currently planned
clinical trials and early commercial needs.
We may establish manufacturing agreements with other parties for additional
commercial scale manufacturing of RSR13 bulk drug substance and formulated drug
product.
SALES AND MARKETING
We intend to market RSR13 directly to the approximately 3,700 radiation
therapists in the United States through a specialty sales force of 10 to 20
sales representatives. We expect to begin hiring this sales force around the
time we submit a New Drug Application to the FDA for the use of RSR13 in an
oncology indication.
To penetrate the non-oncology markets in the United States, and all markets
outside the United States, we will seek to develop relationships with one or
more pharmaceutical companies with established distribution systems and direct
sales forces. We expect these relationships will help us achieve our sales
objectives for RSR13 in these markets while allowing us to focus on the oncology
market in the United States.
GOVERNMENT REGULATION
FDA Regulation and Product Approval
The FDA and comparable regulatory agencies in state and local jurisdictions
and in foreign countries impose substantial requirements upon the clinical
development, manufacture and marketing of pharmaceutical products. These
agencies and other federal, state and local entities regulate research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of our product candidates.
The process required by the FDA before our product candidates may be
marketed in the United States generally involves the following:
- preclinical laboratory and animal tests;
- submission to the FDA of an Investigational New Drug, or IND, application
which must become effective before clinical trials may begin;
- adequate and well-controlled human clinical trials to establish the
safety and efficacy of the proposed pharmaceutical in our intended use;
and
- submission to the FDA of a New Drug Application that must be approved.
The testing and approval process requires substantial time, effort, and
financial resources and we cannot be certain that any approval will be granted
on a timely basis, if at all.
Preclinical tests include laboratory evaluation of the product candidate,
its chemistry, formulation and stability, as well as animal studies to assess
its potential safety and efficacy. We then submit the results of the preclinical
tests, together with manufacturing information and analytical data, to the FDA
as part of an IND application, which must become effective before we may begin
human clinical trials. The IND automatically becomes effective 30 days after the
FDA acknowledges that the filing is complete, unless the FDA, within the 30-day
time period, raises concerns or questions about the conduct of the trials as
outlined in the IND. In such a case, the IND sponsor and the FDA must resolve
any outstanding concerns before clinical trials can begin. Further, an
independent Institutional Review Board at each medical center proposing to
conduct the clinical trials must review and approve any clinical study.
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Human clinical trials are typically conducted in three sequential phases
which may overlap:
- PHASE I: The drug is initially administered into healthy human subjects
or patients and tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion.
- PHASE II: The drug is administered to a limited patient population to
identify possible adverse effects and safety risks, to determine the
efficacy of the product for specific targeted diseases and to determine
dosage tolerance and optimal dosage.
- PHASE III: When Phase II evaluations demonstrate that a dosage range of
the drug is effective and has an acceptable safety profile, Phase III
trials are undertaken to further evaluate dosage, clinical efficacy and
to further test for safety in an expanded patient population at
geographically dispersed clinical study sites.
In the case of product candidates for severe or life-threatening diseases
such as cancer, the initial human testing is often conducted in patients rather
than in healthy volunteers. Since these patients already have the target
disease, these studies may provide initial evidence of efficacy traditionally
obtained in Phase II trials and thus these trials are frequently referred to as
Phase Ib trials.
We cannot be certain that we will successfully complete Phase I, Phase II
or Phase III testing of our product candidates within any specific time period,
if at all. Furthermore, the FDA or the Institutional Review Boards or the
sponsor may suspend clinical trials at any time on various grounds, including a
finding that the subjects or patients are being exposed to an unacceptable
health risk.
The results of product development, preclinical studies and clinical
studies are submitted to the FDA as part of a new drug application for approval
of the marketing and commercial shipment of the product candidate. The FDA may
deny a new drug application if the applicable regulatory criteria are not
satisfied or may require additional clinical data. Even if such data is
submitted, the FDA may ultimately decide that the new drug application does not
satisfy the criteria for approval. Once issued, the FDA may withdraw product
approval if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. In addition, the FDA may
require testing and surveillance programs to monitor the effect of approved
products which have been commercialized, and the agency has the power to prevent
or limit further marketing of a product based on the results of these
post-marketing programs.
On November 21, 1997, President Clinton signed into law the Food and Drug
Administration Modernization Act. That act codified the FDA's policy of granting
"Fast Track" approval for cancer therapies and other therapies intended to treat
severe or life-threatening diseases. Previously, the FDA approved cancer
therapies primarily based on patient survival rates and/or data on improved
quality of life. This new policy is intended to facilitate the study of cancer
therapies and shorten the total time for marketing approvals; however, it is too
early to tell what effect, if any, these provisions may actually have on product
approvals. We intend to apply to the FDA for "Fast Track" approval for the use
of RSR13 in combination with radiation therapy for treating brain metastases.
Satisfaction of the above FDA requirements or similar requirements of
state, local and foreign regulatory agencies typically takes several years and
the actual time required may vary substantially, based upon the type, complexity
and novelty of the pharmaceutical product candidate. Government regulation may
delay or prevent marketing of potential products for a considerable period of
time and to impose costly procedures upon our activities. We cannot be certain
that the FDA or any other regulatory agency will grant approval for any of our
product candidates on a timely basis, if at all. Success in preclinical or early
stage clinical trials does not assure success in later stage clinical trials.
Data obtained from preclinical and clinical activities is not always conclusive
and may be susceptible to varying interpretations which could delay, limit or
prevent regulatory approval. Even if a product candidate receives regulatory
approval, the approval may be significantly limited to specific indications.
Further, even after regulatory approval is obtained, later discovery of
previously unknown problems with a product may result in restrictions on the
product or even complete withdrawal of the product from the market. Delays in
obtaining, or failures to obtain regulatory approvals would have a material
adverse effect on our business. Marketing our product candidates abroad will
require similar regulatory approvals and is subject to
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similar risks. In addition, we cannot predict what adverse governmental
regulations may arise from future United States or foreign governmental action.
Any products manufactured or distributed by us pursuant to FDA clearances
or approvals are subject to pervasive and continuing regulation by the FDA,
including record-keeping requirements and reporting of adverse experiences with
the drug. Drug manufacturers and their subcontractors are required to register
their establishments with the FDA and certain state agencies, and are subject to
periodic unannounced inspections by the FDA and certain state agencies for
compliance with current Good Manufacturing Practices, which impose certain
procedural and documentation requirements upon us and our third-party
manufacturers. We cannot be certain that we or our present or future suppliers
will be able to comply with the current Good Manufacturing Practices and other
FDA regulatory requirements.
The FDA regulates drug labeling and promotion activities. The FDA has
actively enforced regulations prohibiting the marketing of products for
unapproved uses. Under the Modernization Act of 1997, the FDA will permit the
promotion of a drug for an unapproved use in certain circumstances, but subject
to very stringent requirements.
We and our product candidates are also subject to a variety of state laws
and regulations in those states or localities where they are or will be
marketed. Any applicable state or local regulations may hinder our ability to
market our product candidates in those states or localities.
The FDA's policies may change and additional government regulations may be
enacted which could prevent or delay regulatory approval of our potential
products. Moreover, increased attention to the containment of health care costs
in the United States and in foreign markets could result in new government
regulations which could have a material adverse effect on our business. We
cannot predict the likelihood, nature or extent of adverse governmental
regulation which might arise from future legislative or administrative action,
either in the United States or abroad.
Foreign Regulation and Product Approval
Outside the United States, our ability to market a product candidate is
contingent upon receiving a marketing authorization from the appropriate
regulatory authorities. The requirements governing the conduct of clinical
trials, marketing authorization, pricing and reimbursement vary widely from
country to country. At present, foreign marketing authorizations are applied for
at a national level, although within the European Community, or EC, registration
procedures are available to companies wishing to market a product in more than
one EC member state. If the regulatory authority is satisfied that adequate
evidence of safety, quality and efficiency has been presented, a marketing
authorization will be granted. This foreign regulatory approval process involves
all of the risks associated with FDA clearance discussed above.
Other Regulations
We are also subject to numerous federal, state and local laws relating to
such matters as safe working conditions, manufacturing practices, environmental
protection, fire hazard control, and disposal of hazardous or potentially
hazardous substances. We may incur significant costs to comply with such laws
and regulations now or in the future.
INTELLECTUAL PROPERTY
We believe that patent protection and trade secret protection are important
to our business and that our future success will depend, in part, on our ability
to maintain our technology licenses, maintain trade secret protection, obtain
patents and operate without infringing the proprietary rights of others both in
the United States and abroad. We believe that obtaining patents in countries
other than the United States may, in some cases, be more difficult than
obtaining United States patents because of differences in patent laws. In
addition, the protection provided by non-U.S. patents may be weaker than that
provided by United States patents.
Under a 1994 agreement with the Center for Innovative Technology, or CIT,
we have obtained exclusive worldwide rights to 15 United States patents, a
European patent which has been validated in the United Kingdom,
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France, Italy, and Germany, two pending patent applications which have been
approved in Canada, two pending patent applications which have been approved in
Japan, and one pending patent application in Europe. Pursuant to this agreement,
we have agreed to sponsor research at Virginia Commonwealth University, or VCU,
relating to allosteric hemoglobin modifier compounds, and are entitled to an
exclusive worldwide license of any technology developed in connection with such
research. We will be required to pay a quarterly royalty based on percentages,
as defined in the agreement, of either net revenues arising from sales of
products produced in Virginia or net revenues from sales of products produced
outside Virginia. This agreement was assigned by CIT to the Virginia
Commonwealth University Intellectual Property Foundation, or VCUIPF, in 1997.
Under the agreement, we have the right to grant sublicenses, for which we must
also pay royalties to VCUIPF for products produced by the sublicensees. VCUIPF
has the primary responsibility to file, prosecute, and maintain intellectual
property protection, but we have agreed to reimburse costs incurred by VCUIPF
after July 1, 1993 related to obtaining and maintaining intellectual property
protection. Also, pursuant to the agreement, we will pay VCUIPF a running
royalty of 1.25% of our worldwide net revenue arising from the sale, lease or
other commercialization of the allosteric hemoglobin modifier compounds. This
agreement terminates on the date the last United States patent licensed to us
under the agreement expires, which is October 2016.
The licensed patents, which expire at various times between February 2010
and October 2016, contain claims covering methods of allosterically modifying
hemoglobin with RSR13 and other compounds, the site within hemoglobin where
RSR13 binds, and certain clinical applications of RSR13 and other allosteric
hemoglobin modifier compounds, including, among others:
- treating cancerous tumors;
- treating ischemia or oxygen deprivation;
- treating stroke or cerebral ischemia;
- treating surgical blood loss;
- performing cardiopulmonary bypass surgery; and
- treating hypoxia.
Under a separate agreement with VCUIPF, we have rights to acquire an
exclusive worldwide license to any technology which is developed using research
funding provided by us to VCU under a Sponsored Research Agreement. This
agreement allows us to access a drug discovery presence without having to
develop in-house research and development capabilities. We have the option to
acquire a license for six months from the date any developed technology is
disclosed to us. All that is required to exercise our option is to provide
notification to VCUIPF, and to assume responsibility for all legal expenses for
securing intellectual property protection for technology developed under the
Sponsored Research Agreement. We have the exclusive right to sublicense any
technology to third parties and affiliates. We are required to pay VCUIPF a
running royalty on our worldwide net revenue arising from commercialization of
the technology developed. We have exercised our option on one technology under
this agreement which pertains to allosteric inhibitors and activators of
pyruvate kinase. We may terminate this agreement without cause by giving VCUIPF
ninety days written notice. VCUIPF may terminate this agreement upon certain
payment and reporting breaches by us. Either party may terminate this agreement
for certain uncured breaches.
In order to protect the confidentiality of our technology, including trade
secrets and know-how and other proprietary technical and business information,
we require all of our employees, consultants, advisors and collaborators to
enter into confidentiality agreements that prohibit the use or disclosure of
confidential information. The agreements also oblige our employees, consultants,
advisors and collaborators to assign to us ideas, developments, discoveries and
inventions made by such persons in connection with their work with us. We cannot
be sure that these agreements will maintain confidentiality, will prevent
disclosure, or will protect our proprietary information or intellectual
property, or that others will not independently develop substantially equivalent
proprietary information or intellectual property.
The pharmaceutical industry is highly competitive and patents have been
applied for by, and issued to, other parties relating to products competitive
with those being developed by us. Therefore, our product candidates may give
rise to claims that they infringe the patents or proprietary rights of other
parties now and in the future. Furthermore, to the extent that we, or our
consultants or research collaborators, use intellectual property owned
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by others in work performed for us, disputes may also arise as to the rights in
such intellectual property or in related or resulting know-how and inventions.
An adverse claim could subject us to significant liabilities to such other
parties and/or require disputed rights to be licensed from such other parties. A
license required under any such patents or proprietary rights may not be
available to us, or may not be available on acceptable terms. If we do not
obtain such licenses, we may encounter delays in product market introductions,
or may find that we are prevented from the development, manufacture or sale of
products requiring such licenses. In addition, we could incur substantial costs
in defending ourselves in legal proceedings instituted before the United States
Patent and Trademark Office or in a suit brought against us by a private party
based on such patents or proprietary rights, or in a suit by us asserting our
patent or proprietary rights against another party, even if the outcome is not
adverse to us.
COMPETITION
The pharmaceutical industry is characterized by rapidly evolving technology
and intense competition. Many companies of all sizes, including a number of
large pharmaceutical companies as well as several specialized biotechnology
companies, are developing cancer drugs similar to ours. There are products on
the market that will compete directly with the products that we are developing.
In addition, colleges, universities, governmental agencies and other public and
private research institutions will continue to conduct research and are becoming
more active in seeking patent protection and licensing arrangements to collect
license fees, milestone payments and royalties in exchange for license rights to
technologies that they have developed, some of which may directly compete with
our technologies. These companies and institutions also compete with us in
recruiting qualified scientific personnel. Many of our competitors have
substantially greater financial, research and development, human and other
resources than do we. Furthermore, large pharmaceutical companies have
significantly more experience than we do in preclinical testing, human clinical
trials and regulatory approval procedures.
Our competitors may:
- develop safer and more effective products;
- obtain patent protection or intellectual property rights that limit our
ability to commercialize products; or
- commercialize products earlier than we.
We expect technology developments in our industry to continue to occur at a
rapid pace. Commercial developments by our competitors may render some or all of
our potential products obsolete or non-competitive, which would materially harm
our business and financial condition.
EMPLOYEES
As of March 24, 2000, we had a total of 26 full-time employees and three
part-time employees. Of those, 22 are in research and development and seven are
in general and administrative. We believe that we have good relationships with
our employees. We have never had a work stoppage, and none of our employees is
represented under a collective bargaining agreement.
FACILITIES
Our corporate headquarters facility consists of approximately 11,700 square
feet in Denver, Colorado. We lease our corporate headquarters facility pursuant
to a lease agreement that expires in July 2002. We believe that our leased
facilities are adequate to meet our needs for the next 18 months and that
additional facilities in the area are available for lease to meet our future
needs. We also lease approximately 1,800 square feet of office and laboratory
space in Richmond, Virginia. We lease this space under a renewable operating
lease, which expires in October 2004.
LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth certain information regarding our executive
officers, key employees and directors as of March 24, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stephen J. Hoffman, Ph.D., M.D. ..................... 46 President, Chief Executive Officer and
Director
Michael E. Hart...................................... 47 Chief Financial Officer and Senior Vice
President, Operations
Michael J. Gerber, M.D. ............................. 47 Senior Vice President, Clinical
Development and Regulatory Affairs
John O. Hackman...................................... 46 Director of Biometrics and Statistics
Douglas G. Johnson, Ph.D. ........................... 43 Director of Manufacturing
Jean-Francois Liard, M.D. ........................... 56 Senior Director, Research and Clinical
Development
Robert P. Steffen, Ph.D. ............................ 49 Director, Pharmacology and Toxicology
Donald J. Abraham, Ph.D. ............................ 63 Director
Stephen K. Carter, M.D.(1) .......................... 62 Director
Robert E. Curry, Ph.D. .............................. 53 Director
Mark G. Edwards(1)................................... 42 Director
John Freund, M.D.(2)................................. 46 Director
Hingge Hsu, M.D.(2).................................. 42 Director
Marvin E. Jaffe, M.D.(1)............................. 63 Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
STEPHEN J. HOFFMAN, PH.D., M.D. has served as a member of our Board of
Directors and our President and Chief Executive Officer since 1994. Prior to
that, from inception to 1994, Dr. Hoffman served as a consultant to our investor
group. From 1990 to 1994, he completed a fellowship in clinical oncology and a
residency/ fellowship in dermatology, both at the University of Colorado. Dr.
Hoffman was the scientific founder of Somatogen Inc., where he held the position
of Director of Corporate Research and Vice President of Science and Technology
from 1987 until 1990. Dr. Hoffman received his Ph.D. in bio-organic chemistry
from Northwestern University and his M.D. from the University of Colorado School
of Medicine, where he is currently Clinical Assistant Professor.
MICHAEL E. HART has served as our Chief Financial Officer and Senior Vice
President, Operations since 1999. From 1995 to 1999, Mr. Hart was Vice President
and Chief Financial Officer of NeXstar Pharmaceuticals, Inc., where he also
served as Chairman of the Management Committee from 1998 to 1999. From 1990 to
1995 Mr. Hart was Executive Vice President and Chief Financial Officer of
Vestar, Inc. and served as Chairman, Office of the President from 1994 to 1995.
From 1982 to 1990, Mr. Hart was Treasurer and Director of Finance for Avantek,
Inc. and prior to that held various financial positions with high technology
companies. Mr. Hart received his M.B.A from California State University, Fresno,
and his undergraduate degrees in business economics and geography from the
University of California, Santa Barbara.
MICHAEL J. GERBER, M.D. has served as our Senior Vice President, Clinical
Development and Regulatory Affairs since 1999, and served as our Vice President,
Medical Affairs from 1994 until 1999. From 1991 to 1994, Dr. Gerber was
Executive Director, Clinical Sciences and Medical Affairs at Somatogen Inc.,
where he directed nonclinical and clinical development. Prior to joining
Somatogen, Dr. Gerber had been in private practice since
39
<PAGE> 41
1987 and directed the Pulmonary Drug Evaluation Program subsidiary of Pulmonary
Consultants, Inc. Dr. Gerber is board certified in internal, pulmonary and
critical care medicine, and is Clinical Assistant Professor of Medicine at the
University of Colorado Health Sciences Center. Dr. Gerber received his M.D. from
the University of Colorado School of Medicine.
JOHN O. HACKMAN has served as our Director of Biometrics and Statistics
since December 1997. Prior to joining us, Mr. Hackman was Associate Director
Biometrics at Pfizer Central Research where he directed the statistical analysis
and reporting group from 1996 to 1997. He has held various positions in his 17
years experience in the pharmaceutical industry, including positions with Pfizer
Inc., Miles Inc., a division of Bayer Diagnostics, Rhone-Poulenc and CytRx
Corporation. Mr. Hackman received his M.S. from North Carolina State University.
DOUGLAS G. JOHNSON, PH.D. has served as our Director of Manufacturing since
1997. Prior to joining us, Dr. Johnson was with Baxter Healthcare, a unit of
Baxter International, Inc. for over eight years. At Baxter, he was most recently
manager of the Global Solutions Development Group for the Renal Division. He
also worked in the I.V. Systems Division for several years developing
formulations of pre-mixed drugs. Dr. Johnson received his Ph.D. in organic
chemistry from the University of Minnesota. He did postdoctoral work at the
University of Chicago. He worked for three years at Argonne National Laboratory
prior to joining Baxter Healthcare.
JEAN-FRANCOIS LIARD, M.D. has served as our Senior Director, Research and
Clinical Development since 1997. Prior to joining us, Dr. Liard was Director,
Clinical Development at Otsuka America Pharmaceutical from 1993 to 1997. Prior
to that, he was Professor of Physiology at the Medical College of Wisconsin from
1983 to 1993. Dr. Liard received his M.D. from the University of Lausanne School
of Medicine. He subsequently worked in several clinical and basic sciences
departments, including stays at the Cleveland Clinic and the Nephrology Clinic
of Necker Hospital in Paris.
ROBERT P. STEFFEN, PH.D. has served as our Director, Pharmacology and
Toxicology since 1996. From 1995 to 1996, Dr. Steffen was Director, Product
Development at EpiGenesis Pharmaceuticals, Inc. From 1987 to 1995, he served as
Senior Research Pharmacologist and Group Leader at Burroughs Wellcome, Co. From
1982 to 1987, he held various preclinical research positions at Parke-Davis, a
division of Warner-Lambert Company. Dr. Steffen received his Ph.D. in physiology
from the University of South Dakota.
DONALD J. ABRAHAM, PH.D. is a founder of Allos and has served as a member
of our Board of Directors since our inception in 1992. He has been a Professor
and Chairman of the Department of Medicinal Chemistry at Virginia Commonwealth
University since 1988. From 1972 to 1988, he was a Professor and Chairman of the
Department of Medicinal Chemistry at the University of Pittsburgh. Dr. Abraham
received his Ph.D. in organic chemistry from Purdue University. He currently is
Director of the Institute for Structural Biology and Drug Discovery at the
Virginia Commonwealth University.
STEPHEN K. CARTER, M.D. has served as a member of our Board of Directors
and as a drug development consultant to us since 1998. Since 1997, Dr. Carter
has served as Senior Vice President of Sugen Inc., a pharmaceutical company.
From 1995 to 1996, he served as Senior Vice President of Research and
Development at Boehringer Ingelheim Pharmaceuticals, Inc. From 1982 to 1995, Dr.
Carter served as Senior Vice President of Worldwide Clinical Research and
Development for Bristol-Myers Squibb Co. Dr. Carter is a member of the Board of
Directors of Cytogen Corporation. Dr. Carter received his M.D. from the New York
Medical College.
ROBERT E. CURRY, PH.D. has served as a member of our Board of Directors
since 1999. Since 1991, he has served as a General Partner and Vice President of
The Sprout Group, a venture capital affiliate of Donaldson, Lufkin & Jenrette.
From 1984 to 1991, Dr. Curry served in various capacities with Merrill Lynch R&D
Management Inc. and Merrill Lynch Venture Capital Inc., including serving as
President of both organizations from 1990 to 1991. From 1980 to 1984, Dr. Curry
was a Vice President of Becton Dickinson & Co. and from 1976 to 1980 he was
General Manager of Bio-Rad Laboratories, Inc.'s Diagnostics Systems Division.
From 1974 to 1976, he was a professor in the chemistry department at the
University of Delaware and was a consultant for Du Pont Instrument Products. Dr.
Curry is a member of the Board of Directors of numerous organizations, including
Adeza Biomedical Corp., Tripath Imaging, Inc., Instrumentation Metrics, Inc.,
Mycotech, Pathology
40
<PAGE> 42
Partners, Prometheus, Inc. and UroSurge, Inc. Dr. Curry received an M.S. and
Ph.D. in Chemistry from Purdue University.
MARK G. EDWARDS has served as a member of our Board of Directors since
1999. He is Managing Director of Recombinant Capital, Inc., a pharmaceutical and
biotechnology consulting firm he founded in 1988. Since 1999, he has also served
as a General Partner of International Biomedicine Management Partners A.G., a
venture capital fund based in Switzerland. Mr. Edwards received his B.A. and
M.B.A. from Stanford University.
JOHN FREUND, M.D. has served as one of our directors since 1996. Dr. Freund
is Managing Director of Skyline Ventures, which he founded in October 1997.
Through its affiliates, Skyline manages several venture capital limited
partnerships which specialize in early stage health care investments. He was a
Managing Director in the Alternative Assets Group of Chancellor Capital
Management, Inc. (later Chancellor LGT Asset Management, Inc.) from August 1995
to September 1997. From July 1988 through December 1994, Dr. Freund was employed
at Acuson Corporation, where he was Vice President, Corporate Development and
later Executive Vice President. Previously, he was a partner in Morgan Stanley
Venture Partners, a venture capital firm, and also co-founded the healthcare
group in the corporate finance department of Morgan Stanley & Co. Incorporated.
Dr. Freund currently serves as a director of LJL Biosystems, Inc. and several
private companies. Dr. Freund received an M.D. from the Harvard Medical School
and an M.B.A. from Harvard Business School.
HINGGE HSU, M.D. has served as one of our directors since 1999. He has been
a partner with Schroder Venture Life Sciences Advisors, Inc. since 1998. Dr. Hsu
was Principal at Robertson, Stephens & Company from 1996 to 1998. Prior to his
position at Robertson, Stephens & Company, he held various positions in
strategic planning and business development with Chiron Corp. and Gensia, Inc.,
and was affiliated with Lehman Brothers and Montgomery Securities. He obtained
his M.D. from the Yale University School of Medicine and his M.B.A from Harvard
Business School.
MARVIN E. JAFFE, M.D. has served as a member of our Board of Directors and
as a drug development consultant to us since 1994. Since 1994, Dr. Jaffe has
been a self-employed research and development consultant for the pharmaceutical
industry. From 1988 to 1994, Dr. Jaffe was President of the R.W. Johnson
Pharmaceutical Research Institute, a unit of Johnson & Johnson. From 1970 to
1988, Dr. Jaffe was with Merck Sharp & Dohme Research Laboratories, most
recently as Senior Vice President, Medical Affairs. He is a director of several
biopharmaceutical companies including Matrix Pharmaceutical, Inc., Titan
Pharmaceutical, Inc., Immunomedics, Inc., Vanguard Medica Group, plc., and
Celltech Chiroscience, plc. Dr. Jaffe received his M.D. from Jefferson Medical
College.
BOARD COMPOSITION
Our Board of Directors currently has eight members. Under our Amended and
Restated Certificate of Incorporation and Bylaws, which will become effective
upon the closing of this offering, the number of authorized directors will be
determined by resolution of the Board of Directors. After completion of this
offering, our directors will be elected by the stockholders at each annual
meeting of stockholders to serve until the next annual meeting of stockholders
or until their successors are duly elected and qualified. Executive officers are
chosen by, and serve at the discretion of, the Board of Directors.
BOARD COMMITTEES
We have established an audit committee and a compensation committee.
Audit Committee
The audit committee reports to the Board of Directors with regard to the
selection of our independent auditors, the scope of our annual audits, fees to
be paid to the auditors, the performance of our independent auditors, compliance
with our accounting and financial policies, and management's procedures and
policies relative to the adequacy of our internal accounting controls. The
members of the audit committee are Dr. Carter, Dr. Jaffe and Mr. Edwards.
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<PAGE> 43
Compensation Committee
The compensation committee reviews and makes recommendations to the Board
of Directors regarding our executive compensation policies and programs and all
forms of compensation to be provided to our senior management. The compensation
committee also administers our stock option plan. The members of the
compensation committee are Dr. Hsu and Dr. Freund.
DIRECTOR COMPENSATION
We do not provide cash compensation to members of our Board of Directors
for serving on our Board of Directors and for attendance at committee meetings.
Members of our Board of Directors are reimbursed for some expenses in connection
with attendance at board and committee meetings.
In January 2000, our Board of Directors adopted a stock option grant
program for our nonemployee directors under our 1995 stock option plan. Upon
adoption of our 2000 Stock Incentive Compensation Plan, this program will be
assumed under the 2000 plan and will be administered thereunder. Under this
program, each nonemployee director will automatically receive a nonqualified
stock option to purchase 10,000 shares of common stock upon initial election or
appointment to the Board of Directors following this offering. One-third of this
option will vest on each of the first, second and third anniversaries of the
grant date. Thereafter, beginning with the annual meeting of stockholders in
2001, each nonemployee director who continues to serve on the Board of Directors
will receive an additional option to purchase 10,000 shares of common stock upon
reelection or reappointment to the Board of Directors, which will fully vest on
the first anniversary of the date of grant, assuming continued service as a
director during the year after the grant date. The exercise price for all
options granted under the program will be the fair market value of the common
stock on the grant date.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the Board of Directors
or compensation committee of any entity that has one or more of its executive
officers serving as a member of our Board of Directors or compensation
committee.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our Amended and Restated Certificate of Incorporation, which will be
effective upon the closing of this offering, limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors except liability for breach of
their duty of loyalty to the corporation or its stockholders, acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, unlawful payments of dividends or unlawful stock repurchases or
redemptions, or any transaction from which the director derived an improper
personal benefit. Such limitation of liability does not apply to liabilities
arising under the federal or state securities laws and does not affect the
availability of equitable remedies such as injunctive relief or rescission.
Our Bylaws provide that we shall indemnify our directors, officers,
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our Bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our Bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the Bylaws permit such indemnification.
Prior to the closing of this offering, we will have entered into agreements
to indemnify our directors and executive officers, in addition to the
indemnification provided for in our Bylaws. These agreements, among other
things, indemnify our directors and executive officers for certain expenses
including attorneys' fees, judgments, fines and settlement amounts incurred by
any such person in any action or proceeding, services as a director, officer,
employee, agent or fiduciary of us, any subsidiary of us or any other company or
enterprise to which the person provides services at our request. We believe that
these provisions and agreements are necessary to attract and retain qualified
persons as directors and executive officers.
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<PAGE> 44
At present, there is no pending litigation or proceeding involving any of
our directors or officers in which indemnification is required or permitted, and
we are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned during
the year ending December 31, 1999 by our Chief Executive Officer and two other
most highly compensated executive officers whose total salary and bonus exceeded
$100,000 for services rendered to us in all capacities during 1999. The
executive officers listed in the table below are referred to as the Named
Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
----------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS (#) ($)(2)
- --------------------------- ---------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
Stephen J. Hoffman, Ph.D., M.D. .............. 225,000 37,500 -- 8,400
President and Chief Executive Officer
Michael J. Gerber, M.D. ...................... 238,000 35,000 308,003 7,200
Senior Vice President, Clinical Development
and Regulatory Affairs
Philip Petersen(1)............................ 163,800 26,000 27,900 5,600
Vice President, Commercial Development
</TABLE>
- ---------------
(1) Mr. Petersen resigned as our Vice President, Commercial Development
effective as of December 31, 1999.
(2) Includes for each Named Executive Officer a 401(k) Plan matching
contribution by us of $2,000 and short-term disability insurance premiums
paid by us on behalf of the Named Executive Officers as follows: Dr.
Hoffman: $6,400; Dr. Gerber: $5,200; and Mr. Petersen: $3,600.
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1999
The following table sets forth information concerning the individual grants
of stock options to each of the Named Executive Officers during the fiscal year
ended December 31, 1999. All options were granted under our stock option plan.
The exercise price of each option was equal to the fair market value of our
common stock as valued by the Board of Directors on the date of grant. In
determining the fair market value of our common stock on the date of grant our
Board of Directors considered many factors, including:
- the fact that option grants involved illiquid securities in a nonpublic
company;
- prices of preferred stock issued by us to outside investors in
arm's-length transactions, and the rights, preferences and privileges of
the preferred stock over the common stock;
- our performance and operating results at the time of grant;
- the status of research and development efforts;
- the status and results of our clinical trials;
- the time and risks involved in receiving regulatory approval to
commercialize RSR13;
- our stage of development;
- general economic and market conditions for development-stage
pharmaceutical companies; and
- the likelihood of achieving a liquidity event for the shares of common
stock underlying these options, such as an initial public offering or a
sale of us.
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<PAGE> 45
The potential realizable value is calculated based on the term of the
option at the time of grant. Stock price appreciation of 5% and 10% is assumed
pursuant to rules promulgated by the Securities and Exchange Commission and does
not represent our prediction of our stock price performance. In addition, the
potential realizable value computation does not take into account federal or
state income tax consequences of option exercises or sales of appreciated stock.
The potential realizable values at 5% and 10% appreciation are calculated by:
- multiplying the number of shares of common stock under the option by the
assumed initial public offering price of $18.00 per share;
- assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the options; and
- subtracting from that result the aggregate option exercise price.
<TABLE>
<CAPTION>
INDIVIDUAL GRANT
--------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED ANNUAL
NUMBER OF TOTAL OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(2)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED (#) YEAR(%)(1) ($/SH) DATE 5%($) 10%($)
- ---- ----------- ------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stephen J. Hoffman, Ph.D.,
M.D. ....................... -- -- -- -- -- --
Michael J. Gerber, M.D. ...... 62,000 10.6 .56 3/4/09 679,520 1,722,980
31,000 5.3 .56 5/12/09 339,760 861,490
153,003 26.2 .56 7/1/09 1,676,913 4,251,953
62,000 10.6 .56 8/3/09 679,520 1,722,980
Philip Petersen(3)............ 27,900 4.8 .56 8/3/09 305,784 775,341
</TABLE>
- ---------------
(1) In 1999, we granted options to employees to purchase an aggregate of 584,833
shares of common stock.
(2) The actual gains, if any, on the stock option exercises will depend on the
future performance of the common stock, the optionee's continued employment
through applicable vesting periods and the date on which the options are
exercised and the underlying shares are sold.
(3) In connection with Mr. Petersen's resignation, 25,962 of these options
expired unvested as of December 31, 1999. The remaining 1,938 options were
exercised by Mr. Petersen on January 11, 2000.
AGGREGATE OPTION EXERCISES IN 1999
AND 1999 YEAR-END OPTION VALUES
The following table provides certain summary information concerning stock
options held as of December 31, 1999, by each of the Named Executive Officers.
None of the Named Executive Officers exercised stock options in 1999.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1999(#) AT DECEMBER 31, 1999($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen J. Hoffman, Ph.D., M.D. ................ 248,000 -- $4,334,000 $ --
Michael J. Gerber, M.D. ........................ 308,023 -- 5,370,181 --
Philip Petersen................................. 63,550 -- 1,117,963 --
</TABLE>
- ---------------
(1) There was no public trading market for our common stock as of December 31,
1999. Accordingly, the value of unexercised in-the-money options as of that
date was calculated on the basis of an assumed initial public offering price
of $18.00 per share, less the aggregate exercise price of the options.
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<PAGE> 46
EMPLOYEE BENEFIT PLANS
2000 Stock Incentive Compensation Plan
Prior to consummation of this offering, we intend to adopt a 2000 stock
incentive compensation plan. The purpose of the 2000 plan will be to enhance
long-term stockholder value by offering opportunities to our officers,
directors, employees, consultants, agents, advisors and independent contractors
to participate in our growth and success, and to encourage them to remain in the
service of our company and to own our stock. Our 2000 plan will provide for
awards of stock options and stock. Our Board intends to reserve a total of 100
shares of common stock, plus:
- any shares reserved but not granted under our 1995 option plan or
returned to the 1995 option plan upon termination of options; and
- an automatic annual increase, to be added on the first day of our fiscal
year beginning in 2001, equal to the least of (1) 440,000 shares, (2) 2%
of the average common shares outstanding as used to calculate fully
diluted earnings per share as reported in our Annual Report for the
preceding year, and (3) a lesser amount determined by the Board. Any
shares from increases in previous years that are not actually issued
shall be added to the aggregate number of shares available for issuance
under the 2000 plan.
Stock Options. The 2000 plan will provide for the granting to employees,
including officers and directors, of incentive stock options within the meaning
of Section 422 of the Internal Revenue Code and for the granting to employees
and consultants, agents, advisors and independent contractors, including
nonemployee directors, of nonqualified stock options. To the extent an optionee
would have the right in any calendar year to exercise for the first time one or
more incentive stock options for shares having an aggregate fair market value
(determined for each share as of the date the option to purchase the shares was
granted) in excess of $100,000, any such excess options shall be treated as
nonqualified stock options. Unless terminated earlier, our 2000 plan will
terminate in March, 2010.
The 2000 plan will be administered by the Board or a committee or
committees of the Board. The plan administrator will determine the terms of
options granted under the 2000 plan, including the number of shares subject to
an option and its exercise price (which, for incentive stock options, must be at
least equal to the fair market value of the common stock on the date of grant),
term and exercisability.
The plan administrator will determine the term of options, which may not
exceed ten years (five years in the case of an incentive stock option granted to
a 10% shareholder). Optionees will not be able to transfer options other than by
will or the laws of descent or distribution, with the provision that the plan
administrator will be able to grant nonqualified stock options with the limited
transferability rights in certain circumstances. The plan administrator will
determine when options vest and become exercisable. We expect that options
granted under the 2000 plan generally will vest at the rate of 1/4(th) of the
total number of shares subject to the options 12 months after the date of grant,
and 1/48(th) of the total number of shares subject to the options each month
thereafter.
Stock Awards. The plan administrator will be authorized under the 2000 plan
to issue shares of common stock to eligible participants with terms, conditions
and restrictions established by the plan administrator in its sole discretion.
Restrictions may be based on continuous service with us or the achievement of
performance goals. Holders of restricted stock will be stockholders of ours and
will have, subject to certain restrictions, all the rights of stockholders with
respect to such shares.
Adjustments. The plan administrator will be required to make proportional
adjustments to the aggregate number of shares issuable under the 2000 plan and
to outstanding awards in the event of stock splits or other capital adjustments.
Corporate Transactions. In the event of the sale of all or substantially
all of our assets, or a merger or consolidation of us with or into another
corporation, all options outstanding under the 2000 plan will be required to be
assumed or equivalent options substituted by the successor corporation, unless
such successor corporation does not agree to such assumption or substitution, in
which case each outstanding option and restricted stock
45
<PAGE> 47
award will automatically accelerate and become 100% vested and exercisable
immediately before the corporate transaction, and any unexercised options will
terminate upon consummation of the transaction.
1995 Stock Option Plan
The 1995 option plan was adopted by our Board and has been approved by our
stockholders. As of March 24, 2000, 3,503,000 shares of common stock were
reserved for issuance under this plan. Of these shares 918,414 were issued upon
exercise of stock options, 1,781,881 shares were subject to outstanding options
and 802,705 shares were available for future grant. Simultaneous with the
effectiveness of this offering, our board of directors intends to suspend the
1995 option plan such that no further grants will be made pursuant to it. Any
shares remaining for future option grants and any future cancellations of
options from our 1995 option plan will become available for future grant under
the 2000 plan.
Currently, the 1995 option plan is administered by the compensation
committee. The terms and conditions of the 1995 option plan and options granted
under the 1995 option plan are substantially similar to those described above
for the 2000 plan, except as follows:
- generally options granted under the 1995 plan may be exercised
immediately after the grant date, but to the extent the shares subject to
the options are not vested as of the date of such exercise, we retain a
right to repurchase any shares that remain unvested at the time of the
optionee's termination of employment by paying an amount equal to the
exercise price times the number of unvested shares;
- no option may be transferred by the optionee other than by will or the
laws of descent or distribution; and
- in the event of the sale of substantially all of our assets, or a merger
or consolidation of us with or into another corporation, options
outstanding under the 1995 option plan may be assumed or equivalent
options substituted by the successor corporation, or vesting of the
options may be accelerated at the discretion of the plan administrator.
401(k) Plan
We have established a tax qualified employee savings and retirement plan,
or 401(k) Plan. Under the 401(k) Plan, employees may defer up to 15% of their
pre-tax earnings, subject to the Internal Revenue Service's annual contribution
limit. We match contributions equal to 50% of the employee's deferral up to a
maximum of $2,000 per year. The 401(k) Plan permits additional discretionary
matching contributions by us on behalf of all participants in the 401(k) Plan in
such percentage amount as may be determined annually by the Board of Directors
up to a maximum of 10% of each participant's compensation. The 401(k) Plan is
intended to qualify under Section 401 of the Internal Revenue Code so that
contributions by employees or by us to the 401(k) Plan, and income earned on
plan contributions, are not taxable to employees until withdrawn from the 401(k)
Plan, and so that our contributions will be deductible by us when made. The
trustee under the 401(k) Plan, at the direction of each participant, invests the
assets of the 401(k) Plan in any number of investment options.
EMPLOYMENT AGREEMENTS
We do not have employment agreements with any of our executive officers or
employees.
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<PAGE> 48
CERTAIN TRANSACTIONS
We have issued, in private placement transactions, shares of our preferred
stock as follows: an aggregate of 5,000,000 shares of Series A preferred stock
in 1994 and 1995 at a purchase price of $1.00 per share; 5,032,500 shares of
Series B preferred stock in 1996 at a purchase price of $1.60 per share, and
warrants to purchase an aggregate of 17,500 shares of Series B preferred stock
at an exercise price of $1.60 per share; 15,255,786 shares of Series C preferred
stock in 1998 and 1999 at a purchase price of $1.81 per share, and warrants to
purchase an aggregate of 33,149 shares of Series C preferred stock at an
exercise price of $1.81 per share.
Each share of preferred stock is convertible, without payment of any
additional consideration, into 0.62 shares of common stock, and all of the
25,288,286 shares of preferred stock shall be converted into 15,678,737 shares
of common stock upon closing of this offering.
The following table summarizes the shares of preferred stock purchased by
our Named Executive Officers, directors and 5% stockholders, and entities
associated with them, in private placement transactions:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
INVESTOR(1) PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
- ----------- --------------- --------------- ---------------
<S> <C> <C> <C>
Directors and Executive Officers
Stephen J. Hoffman, Ph.D., M.D. ................. -- 3,125 --
Michael J. Gerber, M.D. ......................... -- 3,125 --
Entities Affiliated with Directors
Sprout Capital(2)................................ -- -- 3,812,156
International BM Biomedicine Holdings, Inc.(3)... -- -- 2,762,430
Schroder Ventures International Life Sciences
Fund(4)....................................... -- -- 2,529,604
5% Stockholders
Oak Investment Partners(5)....................... 1,666,668 833,333 1,343,733
Johnson & Johnson Development Corporation........ 1,666,666 833,333 1,045,787
Marquette Venture Partners(6).................... 1,666,666 833,334 414,364
Chancellor Capital Management(7)................. -- 1,562,500 625,001
</TABLE>
- ---------------
(1) See "Principal Stockholders" for more detail on shares held by these
purchasers.
(2) Affiliates of Sprout Capital include DLJ Capital Corp., DLJ ESC II, L.P.,
Sprout Capital VIII, L.P., Sprout Venture Capital, L.P., Sprout Capital VII,
L.P., Sprout CEO Fund, L.P. Robert Curry, one of our directors, is a partner
of The Sprout Group, an affiliate of Sprout Capital.
(3) International Biomedicine Management Partners AG has a management contract
with International BM Biomedicine Holdings, Inc. Mark Edwards, one of our
directors, is a partner of International Biomedicine Management Partners AG.
(4) Affiliates of Schroder Ventures International Life Sciences Fund include
Schroder Ventures International Life Sciences Fund L.P. 1, Schroder Ventures
International Life Sciences Fund L.P. 2, Schroder Ventures International
Life Sciences Fund Trust, and Schroder Ventures International Life Sciences
Fund Co-Investment Scheme. Hingge Hsu, one of our directors, is a partner of
Schroder Ventures Life Sciences Advisors, Inc., an affiliate of Schroder
Ventures International Life Sciences Fund.
(5) Affiliates of Oak Investment Partners include Oak Investment Partners V,
Limited Partnership and Oak V Affiliates Fund, Limited Partnership. Oak
Associates V, L.L.C. is the general partner of Oak Investment of Oak
Investment Partners V, Limited Partnership. Oak V Affiliates is the general
partner of Oak V Affiliates Fund, Limited Partnership.
(6) Affiliates of Marquette Venture Partners include Marquette Venture Partners
II, L.P. and MVP II Affiliates Fund, L.P.
(7) Affiliates of Chancellor Capital Management, now known as INVESCO Private
Capital, Inc., include Citiventure Private Participations III Ltd. and KME
Venture III, L.P.
We have entered into a stockholders agreement with each of the purchasers
of preferred stock shown above. This agreement provides that these and other
stockholders will have registration rights with respect to their shares of
common stock issuable upon conversion of their preferred stock following the
offerings.
Dr. Donald Abraham and Mr. James Farinholt, our founders, purchased 892,800
and 99,200 shares, respectively, of our common stock for nominal consideration
on January 14, 1994. Also in January 1994, we entered into a license agreement
with the CIT under which CIT granted to us an exclusive, worldwide license to
47
<PAGE> 49
practice, develop and use the technology and licensed patent rights to develop
and market our products. In exchange for the license agreement, we paid CIT
$50,000 in cash and issued 248,000 shares of our common stock. Under the license
agreement with CIT, we will be required to pay a quarterly royalty based on
percentages, as defined in the agreement, of either net revenues arising from
sales of products produced in Virginia or net revenues from products produced
outside of Virginia. In 1997, this agreement was assigned by CIT to VCUIPF. The
license agreement will remain in effect until the last licensed United States
patent expires, which is currently October 2016.
In 1996, we entered into several sponsored research agreements with VCU
pursuant to which we fund certain research activities in Dr. Abraham's
laboratories. A portion of this funding is also used to pay part of Dr.
Abraham's salary. These agreements are for one-year terms, and are renewable
each year at our option for subsequent one-year terms. In 1999, we paid VCU
$498,335 under these agreements. Since 1996, we have paid VCU an aggregate of
$1,840,202 under all of these agreements. We intend to continue renewing these
agreements with VCU for the foreseeable future.
In March 1996, we received recourse notes from two of our officers, Dr.
Hoffman, our President and Chief Executive Officer, and Dr. Gerber, our Senior
Vice President for Clinical Development and Regulatory Affairs. Dr. Hoffman
issued us a note in the aggregate principal amount of $64,000 upon exercise of
options to acquire 396,800 shares of common stock. Dr. Gerber issued us a note
in the aggregate principal amount of $26,000 upon exercise of options to acquire
161,200 shares of common stock. The notes bear interest at 8% annually with
interest and principal originally due on March 8, 1998. In January 1998, these
notes were extended two years. In December 1997, we received additional notes
from each of Dr. Hoffman and Dr. Gerber in the principal amounts of $9,687 and
$40,000, respectively, upon exercise of options to acquire 24,025 shares of
common stock and 99,200 shares of common stock, respectively. These notes bear
interest at 6% annually with interest and principal due December 31, 1999. The
maturity dates for the 1996 and 1997 Notes were extended by two years and, in
connection therewith, the Company recorded $815,000 of stock compensation
expense based on the difference between the fair market value of the underlying
common stock and option exercise prices.
We believe that the foregoing transactions were in our best interests. As a
matter of policy, these transactions were, and all future transactions between
us and any of our officers, directors or principal stockholders will be,
approved by a majority of the independent and disinterested members of the Board
of Directors (or committee thereof), will be on terms no less favorable to us
than could be obtained from unaffiliated third parties and will be in connection
with bona fide business purposes of ours.
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<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 24, 2000, and as adjusted to reflect
the sale of common stock offered hereby for:
- each person who is known by us to beneficially own more than 5% of our
common stock;
- our Chief Executive Officer and each of our Named Executive Officers;
- each of our directors; and
- all of our directors and Named Executive Officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to the securities. Except as indicated by footnote, and subject to
applicable community property laws, the persons and entities named in the table
below have sole voting and sole investment power with respect to the shares set
forth opposite such person's or entity's name.
The percentage of beneficial ownership before the offering is based on
17,837,151 shares, consisting of 2,158,414 shares of common stock outstanding as
of March 24, 2000, and 15,678,737 shares issuable upon the conversion of the
preferred stock. The percentage of beneficial ownership after the offering is
based on 22,837,151 shares, including the 5,000,000 shares to be sold in this
offering. Shares of common stock subject to options or warrants currently
exercisable or exercisable within 60 days of March 24, 2000 are deemed
outstanding for purposes of computing the percentage ownership of the person
holding such options or warrants, but are not deemed outstanding for purposes of
computing the percentage ownership of any other person. The post-offering
ownership percentages in the table below do not take into account any exercise
of the underwriters' over-allotment option. Unless otherwise indicated, the
address for each of the individuals listed in the table is c/o Allos
Therapeutics, Inc., 7000 North Broadway, Suite 400, Denver, CO 80221.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
SHARES -----------------------
BENEFICIALLY BEFORE THE AFTER THE
BENEFICIAL OWNER OWNED OFFERING OFFERING
- ---------------- ------------ ---------- ---------
<S> <C> <C> <C>
Entities affiliated with Oak Investment Partners(1)........ 2,383,115 13.4% 10.4%
One Gorham Island
Westport, CT 06880
Entities affiliated with Sprout Capital(2)................. 2,363,536 13.3% 10.3%
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, CA 94025
Robert E. Curry, Ph.D.(3).................................. 2,363,536 13.3% 10.3%
Johnson & Johnson Development Corporation.................. 2,198,387 12.3% 9.6%
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
Entities affiliated with Marquette Venture Partners(4)..... 1,806,906 10.1% 7.9%
520 Lake Cook Road, Suite 450
Deerfield, IL 60015
International BM Biomedicine Holdings, Inc.(5) ............ 1,712,707 9.6% 7.5%
Aeschenplatz 7, P.O. Box 1336
Basel, CH-4010 Switzerland
Mark G. Edwards(5)......................................... -- -- --
Entities affiliated with Schroder Ventures International
Life Sciences Fund(6).................................... 1,568,354 8.8% 6.9%
22 Church Street
Hamilton HM 11 Bermuda
Hingge Hsu, M.D.(7)........................................ 1,568,354 8.8% 6.9%
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
SHARES -----------------------
BENEFICIALLY BEFORE THE AFTER THE
BENEFICIAL OWNER OWNED OFFERING OFFERING
- ---------------- ------------ ---------- ---------
<S> <C> <C> <C>
Entities affiliated with INVESCO Private Capital,
Inc.(8).................................................. 1,356,250 7.6% 5.9%
1166 Avenue of the Americas, 27th Floor
New York, NY 10036
Donald J. Abraham, Ph.D.(9)................................ 936,200 5.2% 4.1%
Stephen J. Hoffman, Ph.D., M.D.(10)........................ 931,841 5.1% 4.0%
Michael J. Gerber, M.D.(11)................................ 647,841 3.6% 2.8%
Philip Petersen............................................ 63,550 * *
Marvin E. Jaffe, M.D.(12).................................. 55,800 * *
Stephen K. Carter, M.D.(13)................................ 34,100 * *
John Freund, M.D.(14)...................................... 43,400 * *
All directors and executive officers as a group (10
persons)(15)............................................. 6,883,322 35.9% 28.5%
</TABLE>
- ---------------
* Less than one percent (1%) outstanding shares.
(1) Includes 2,330,688 shares held by Oak Investment Partners V, L.P. and
52,427 shares held by Oak V Affiliates Fund, L.P. Oak Associates V, L.L.C.
is the general partner of Oak Investment Partners V, L.P. and may be deemed
to indirectly beneficially own the shares reported as directly beneficially
owned by Oak Investment Partners V, L.P. Oak V Affiliates is the general
partner of Oak V Affiliates Fund, L.P. and may be deemed to indirectly
beneficially own the shares reported as directly beneficially owned by Oak
V Affiliates Fund, L.P.
(2) Includes 31,503 shares held by DLJ Capital Corp., 182,637 shares held DLJ
ESC II, L.P., 1,174,610 shares held by Sprout Capital VIII, L.P., 70,477
shares held by Sprout Venture Capital, L.P., 892,145 shares held by Sprout
Capital VII, L.P., and 12,164 shares held by Sprout CEO Fund, L.P. DLJ
Capital Corp. is the managing general partner of Sprout Capital VIII, L.P.,
Sprout Capital VII, L.P., and Sprout Venture Capital, L.P., as well as the
general partner of Sprout CEO Fund, L.P. DLJ LBO Plans Management
Corporation is the general partner of DLJ ESC II, L.P.
(3) Includes 31,503 shares held by DLJ Capital Corp., 182,637 shares held DLJ
ESC II, L.P., 1,174,610 shares held by Sprout Capital VIII, L.P., 70,477
shares held by Sprout Venture Capital, L.P., 892,145 shares held by Sprout
Capital VII, L.P., and 12,164 shares held by Sprout CEO Fund, L.P. DLJ
Capital Corp. is the managing general partner of Sprout Capital VIII, L.P.,
Sprout Capital VII, L.P., and Sprout Venture Capital, L.P., as well as the
general partner of Sprout CEO Fund, L.P. DLJ LBO Plans Management
Corporation is the general partner of DLJ ESC II, L.P. Robert Curry is an
officer of DLJ Capital Corp. and has voting and dispositive power over the
shares owned by the entities referenced in this note, other than DLJ ESC
II, L.P. Robert Curry disclaims beneficial ownership of these shares,
except to the extent of his pecuniary interest.
(4) Includes 1,756,714 shares held by Marquette Venture Partners II, L.P. and
50,192 shares held by MVP II Affiliates Fund, L.P. The sole general partner
of Marquette Venture Partners II, L.P. and MVP II Affiliates Fund, L.P. is
Marquette General II, L.P. Marquette General II, L.P. may be deemed to be
the indirect beneficial owner of the shares reported as directly
beneficially owned by Marquette Venture Partners II, L.P. and MVP II
Affiliates Fund, L.P.
(5) International Biomedicine Management Partners AG has a management contract
with International BM Biomedicine Holdings, Inc. pursuant to which it
renders non-binding advisory services. Mark Edwards is a partner of
International Biomedicine Management Partners AG. Mr. Edwards disclaims
beneficial ownership of these shares, except to the extent of his pecuniary
interest.
(6) Includes 991,291 shares held by Schroder Ventures International Life
Sciences Fund L.P. 1, 220,287 shares held by Schroder Ventures
International Life Sciences Fund L.P. 2,348,935 shares held by Schroder
Ventures International Life Sciences Fund Trust, and 7,841 shares held by
Schroder Ventures International Life Sciences Fund Co-Investment Scheme.
Hingge Hsu is a partner of Schroder Ventures International Life Sciences
Advisors, Inc., an affiliate of Schroder Ventures International Life
Sciences Fund.
(7) Includes 991,291 shares held by Schroder Ventures International Life
Sciences Fund L.P. 1, 220,287 shares held by Schroder Ventures
International Life Sciences Fund L.P. 2,348,935 shares held by Schroder
Ventures International Life Sciences Fund Trust, and 7,841 shares held by
Schroder Ventures International Life Sciences Fund Co-Investment Scheme.
Hingge Hsu is a partner of Schroder Venture Life Sciences Advisors, Inc.,
an affiliate of Schroder Ventures International Life Sciences Fund. Dr. Hsu
disclaims beneficial ownership of these shares.
(8) Includes 1,288,460 shares held by Citiventure Private Participations III
Limited and 67,790 held by KME Venture III, L.P. INVESCO Private Capital,
Inc. is the investment manager for Citiventure Private Participations III
Limited and KME Venture III, L.P. INVESCO Private Capital, Inc. has voting
and dispositive power for these shares. INVESCO Private Capital, Inc.
disclaims beneficial ownership of these shares.
(9) Includes 186,000 shares held by Nancy W. Abraham, Trustee U/A 12-14-94. Ms.
Abraham is the spouse of Donald Abraham. Dr. Abraham is not a trustee and
disclaims beneficial ownership of the shares.
(10) Includes 576,971 shares of common stock issuable upon exercise of options.
(11) Includes 385,503 shares of common stock issuable upon exercise of options.
50
<PAGE> 52
(12) Includes 18,600 shares of common stock issuable upon exercise of options.
(13) Includes 34,100 shares of common stock issuable upon exercise of options.
(14) Includes 18,600 shares of common stock issuable upon exercise of options.
(15) Includes shares described in the notes above, as applicable to our
directors and current executive officers. Includes an aggregate of
1,336,024 shares issuable upon the exercise of stock options.
51
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our Amended and Restated Certificate of Incorporation, which will become
effective upon the closing of this offering, authorizes the issuance of up to
75,000,000 shares of common stock, par value $0.001 per share, and 10,000,000
shares of preferred stock, par value $0.001 per share, the rights and
preferences of which may be established from time to time by our Board of
Directors. As of March 24, 2000, 2,158,414 shares of common stock were issued
and outstanding and 25,288,286 shares of preferred stock convertible into
15,678,737 shares of common stock upon the completion of this offering were
issued and outstanding. As of March 24, 2000, we had 24 common stockholders of
record.
Immediately after the closing of this offering, we will have 22,837,151
shares of common stock outstanding, assuming no exercise of options to acquire
1,781,881 additional shares of common stock or warrants to purchase 23,024
additional shares of preferred stock convertible into 14,275 shares of common
stock that are outstanding as of the date of this prospectus.
The description set forth below gives effect to the filing of the Amended
and Restated Certificate of Incorporation and the adoption of the Amended and
Restated Bylaws. The following summary is qualified in its entirety by reference
to our Amended and Restated Certificate of Incorporation and Bylaws, copies of
which are filed as exhibits to the registration statement of which this
prospectus is a part.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders and there are no cumulative voting
rights. Subject to preferences to which holders of preferred stock issued after
the sale of the common stock offered hereby may be entitled, holders of common
stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of us, holders of common stock would be entitled to share in our
assets remaining after the payment of liabilities and the satisfaction of any
liquidation preference granted the holders of any outstanding shares of
preferred stock. Holders of common stock have no preemptive or conversion rights
or other subscription rights and there are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are, and the shares of common stock offered by us in this offering, when
issued and paid for, will be, fully paid and nonassessable. The rights,
preferences and privileges of the holders of common stock are subject to, and
may be adversely affected by, the rights of the holders of shares of any series
of preferred stock, which we may designate in the future.
PREFERRED STOCK
Upon the closing of this offering, our Board of Directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, to issue from time to time up to an aggregate of 10,000,000 shares of
preferred stock, in one or more series, each of such series to have such rights
and preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences as shall be determined by the
Board of Directors. The rights of the holders of common stock will be subject
to, and may be adversely affected by, the rights of holders of any preferred
stock that may be issued in the future. Issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, 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, a majority of the outstanding voting stock of us. We have no present
plans to issue any shares of preferred stock.
WARRANTS
We have issued and outstanding warrants to purchase an aggregate of 23,024
shares of our preferred stock convertible into 14,275 shares of common stock,
excluding warrants which will expire without exercise prior to consummation of
this offering. In April 1996, we issued to Comdisco, Inc. a warrant to purchase
17,500 shares
52
<PAGE> 54
of Series B preferred stock at an exercise price of $1.60 per share, which is
exercisable until the later of April 15, 2006, or five years from the effective
date of an initial public offering. In May 1998, we issued to Comdisco, Inc. a
warrant to purchase 5,524 shares of Series C preferred stock at an exercise
price of $1.81 per share, which is exercisable until the later of May 5, 2008,
or five years from the effective date of an initial public offering.
REGISTRATION RIGHTS
Demand Registration
According to the terms of a stockholders rights agreement dated as of
October 4, 1999, beginning 180 days after the closing of this offering, the
holders of 15,678,737 shares of common stock will have the right to require us
to register their shares with the Securities and Exchange Commission so that
those shares may be resold to the public. To demand such registration, holders
who together hold an aggregate of at least 40% of the shares having such
registration rights must request that the registration statement register shares
for an aggregate offering price of at least $5,000,000, net of underwriting
discounts and commissions. We are not required to effect more than two demand
registrations. We may defer the filing of a demand registration for a period of
up to 120 days once in any twelve-month period.
Piggyback Registration
In addition, if we register in an underwritten offering any securities for
public sale, other than a registration relating solely to employee benefit
plans, a registration relating solely to a Rule 145 transaction, or any
registration on any registration form that does not permit secondary sales,
holders of demand registration rights will have the right to include their
shares in the registration statement.
Form S-3 Registration
At any time after we become eligible to file a registration statement on
Form S-3 or any comparable or successor form, holders of shares of common stock
having demand and piggyback registration rights may require us to file up to
four Form S-3 registrations. We only have to file one Form S-3 registration
statement in any six-month period, and the aggregate offering proceeds, net of
underwriting discounts and commissions, must be at least $1,000,000. We may
defer one request in any twelve-month period for a period of up to 120 days.
The registration rights are subject to conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares of common stock to be included in the registration. We are generally
required to bear the expenses of all registrations, except underwriting
discounts and commissions. However, we will not pay for any expenses of any
demand registration if the request is subsequently withdrawn by the holders
requesting such registration. The stockholders rights agreement also contains
our commitment to indemnify the holders of registration rights for losses
attributable to statements or omissions by us incurred in connection with
registrations under the agreement. The registration rights terminate five years
from the closing of this offering.
EFFECT OF CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS,
AND THE DELAWARE ANTI-TAKEOVER LAW
Certain provisions of our Amended and Restated Certificate of Incorporation
and Bylaws, which will become effective upon the closing of this offering, may
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of us. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our common stock. Our Bylaws eliminate the right of
stockholders to call special meetings of stockholders or to act by written
consent without a meeting and require advance notice for stockholder proposals
and director nominations, which may preclude stockholders from bringing matters
before an annual meeting of stockholders or from making nominations for
directors at an annual meeting of stockholders. The authorization of
undesignated preferred stock makes it possible for the Board of Directors to
issue preferred stock with voting or other rights or preferences that could
impede the success of any attempt to change control of us. These and other
provisions may have the effect of deferring hostile takeovers or delaying
changes in control or management of us. The amendment of any of these provisions
would require approval by holders of at least 66 2/3% of the outstanding common
stock. In addition, we
53
<PAGE> 55
are subject to Section 203 of the Delaware General Corporation Law which,
subject to certain exceptions, prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder, unless:
- prior to such date, the Board of Directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding (a) shares owned by persons who are
directors and also officers, and (b) shares owned by employee stock plans
in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered
in a tender or exchange offer; or
- on or subsequent to such date, the business combination is approved by
the Board of Directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services LLC.
54
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for the common stock will
develop or be sustained after this offering. Future sales of substantial amounts
of common stock, including shares issued upon exercise of outstanding options
and warrants, in the public market following this offering could adversely
affect market prices prevailing from time to time and could impair our ability
to raise capital through the sale of our equity securities. As described below,
5,008,177 shares currently outstanding will be available for sale immediately
after this offering.
SALES OF RESTRICTED SECURITIES
Upon completion of this offering, we will have outstanding 22,837,151
shares of common stock, based upon shares outstanding as of March 24, 2000,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants that do not expire prior to completion of
this offering. Of these shares, the shares sold in this offering will be freely
tradable without restriction under the Securities Act, except for any shares
purchased by our "affiliates" as defined in Rule 144 under the Securities Act.
The remaining 17,837,151 shares of common stock held by existing stockholders
are "restricted shares" as defined in Rule 144. Substantially all of these
restricted shares are subject to lock-up agreements providing that the
stockholder will not offer to sell, contract to sell or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common stock
owned as of the date of this prospectus or acquired directly from us by the
stockholder or with respect to which they have or may acquire the power of
disposition for a period of 180 days after the date of this prospectus without
the prior written consent of SG Cowen Securities Corporation. As a result of
these lock-up agreements, notwithstanding possible earlier eligibility for sale
under the provisions of Rules 144, 144(k) and 701, none of these shares will be
resellable until 181 days after the date of this prospectus. SG Cowen Securities
Corporation may, in its sole discretion, and at any time without notice, release
all or any portion of the restricted shares subject to lock-up agreements.
Beginning 181 days after the date of this prospectus, approximately
17,828,974 restricted shares will be eligible for sale in the public market. All
of these shares are subject to volume limitations under Rule 144, except
3,028,572 shares eligible for sale under Rule 144(k) and 918,414 shares eligible
for sale under Rule 701, subject in some cases to repurchase rights of us.
In addition, as of March 24, 2000, there were outstanding warrants to
purchase 23,024 shares of preferred stock convertible into 14,275 shares of
common stock, excluding warrants which will expire without exercise prior to
consummation of this offering.
Rule 144
In general, under Rule 144, as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year, including the holding period of any prior owner
except an affiliate, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- 1.0% of the number of shares of common stock then outstanding, which will
equal approximately 228,372 shares immediately after this offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been an
affiliate of us at any time during the three months preceding a sale, and who
has beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is entitled
to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
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<PAGE> 57
Rule 701
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions of Rule 144. Any
employee, officer or director of or consultant to us who purchased shares
pursuant to a written compensatory plan or contract may be entitled to rely on
the resale provisions of Rule 701. Rule 701 permits affiliates to sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
their Rule 701 shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. All holders of Rule 701 shares are required to wait until 90 days
after the date of this prospectus before selling their Rule 701 shares. However,
certain Rule 701 shares are subject to lock-up agreements and will only become
eligible for sale at the earlier of the expiration of the 180-day lock-up
agreements or the receipt of the written consent of SG Cowen Securities
Corporation more than 90 days after the date of this prospectus.
After this offering, we intend to file a registration statement on Form S-8
registering shares of common stock subject to outstanding options or reserved
for future issuance under our stock option plan. As of March 24, 2000, options
to purchase a total of 1,781,881 shares were outstanding and 802,705 shares were
reserved for future issuance under our stock plans. Any shares of common stock
issued upon exercise of outstanding vested options or issued pursuant to our
employee stock purchase plan, other than common stock issued to our affiliates
or subject to lock-up agreements, will be available for immediate resale in the
open market following the effectiveness of such registration statement.
LOCK-UP AGREEMENTS
We, all of our executive officers and directors, all principal stockholders
and other existing stockholders who, upon the closing of this offering, will
beneficially own an aggregate of 17,828,974 outstanding shares of common stock,
together with holders of options to purchase 1,054,544 shares of common stock,
have agreed that for a period of 180 days following the date of this prospectus,
without the prior written consent of SG Cowen Securities Corporation, they will
not:
- directly or indirectly, offer, sell, assign, transfer, encumber, pledge,
contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise dispose of, other than by operation of law,
any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock (including, without
limitation, common stock which may be deemed to be beneficially owned in
accordance with the rules and regulations promulgated under the
Securities Act); or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock whether any such transaction described above is to be settled by
delivery of common stock or such other securities, in cash or otherwise.
In addition, holders of options to purchase 727,337 shares of common stock
will be required, pursuant to the terms of their stock option agreements, to
become subject to the foregoing provisions upon exercise of their options at any
time after the date of this prospectus until the end of the 180-day period
following the effective date of this prospectus.
56
<PAGE> 58
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
, 2000, the underwriters named below, through their representatives
SG Cowen Securities Corporation, Prudential Securities Incorporated and U.S.
Bancorp Piper Jaffray Inc., have severally agreed to purchase from us the number
of shares of common stock set forth opposite their names at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ----------
<S> <C>
SG Cowen Securities Corporation.............................
Prudential Securities Incorporated..........................
U.S. Bancorp Piper Jaffray Inc..............................
----------
Total............................................. 5,000,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are conditional and may be terminated at their discretion based on
their assessment of the state of the financial markets. The obligations of the
underwriters may also be terminated upon the occurrence of other events
specified in the underwriting agreement. The underwriters are severally
committed to purchase all of the common stock offered by us if any shares are
purchased, other than those covered by the over-allotment option described
below.
At our request, the underwriters have reserved up to 5% of the shares of
common stock for sale at the initial public offering price to our employees,
friends and family members of our employees and employees of companies with
which we do business. The number of shares available for sale to the general
public will be reduced to the extent that any reserved shares are purchased. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the shares sold hereby.
The underwriters propose to offer the common stock directly to the public
at the public offering price set forth on the cover page of this prospectus. The
underwriters may offer the common stock to securities dealers at that price less
a concession not in excess of $ per share. Securities dealers may reallow a
concession not in excess of $ per share to other dealers. After the shares
of the common stock are released for sale to the public, the underwriters may
vary the offering price and other selling terms from time to time.
We have granted to the underwriters an option to purchase up to an
aggregate of 750,000 additional shares of common stock at the public offering
price set forth on the cover of this prospectus to cover over-allotments, if
any. The option is exercisable for a period of 30 days. If the underwriters
exercise the over-allotment option, the underwriters have severally agreed to
purchase shares in approximately the same proportion as shown in the tables
above.
The following table shows the per share and total public offering price,
the underwriting discount to be paid by us to the underwriters and the proceeds
from the sale of shares to the underwriters before our expenses. This
information is presented assuming either no exercise or full exercise by the
underwriters of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- -------- --------
<S> <C> <C> <C>
Public offering price...............................
Underwriting discount...............................
Proceeds, before expenses, to Allos.................
</TABLE>
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
that the underwriters may be required to make in respect of those liabilities.
We, our directors and executive officers, all principal stockholders and
other existing stockholders who hold an aggregate of 17,828,974 shares, together
with holders of options to purchase 1,054,544 shares of common
57
<PAGE> 59
stock, have agreed that for a period of 180 days following the date of this
prospectus, without the prior written consent of SG Cowen Securities
Corporation, not to directly or indirectly, offer, sell, assign, transfer,
pledge, contract to sell, or otherwise dispose of, other than by operation of
law, any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock, including, without limitation,
common stock which may be deemed to be beneficially owned in accordance with
rules and regulations promulgated under the Securities Act. In addition, holders
of options to purchase 716,611 shares of common stock will be required, pursuant
to the terms of their stock option agreements, to become subject to the
foregoing provisions upon exercise of their options at any time after the date
of this prospectus until the end of the 180-day period following the effective
date of this prospectus.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the common stock originally sold by such syndicate member
is purchased in a syndicate covering transaction to cover syndicate short
positions. These stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
The underwriters have advised us that they do not intend to confirm sales
in excess of 5% of the common stock offered hereby to any account over which
they exercise discretionary authority.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price range will be determined
by negotiations between us and the underwriters. Among the factors considered in
these negotiations will be prevailing market conditions, the market
capitalizations and the stages of development of other companies that we and the
underwriters believe to be comparable to us, estimates of our business
potential, our results of operation in recent periods, the present state of our
development and other factors deemed relevant.
One of the underwriters, Prudential Securities, also markets securities
online through its PrudentialSecurities.com division. Clients of Prudential
Advisor(SM), a full service brokerage firm program, may view offering terms and
a prospectus online and place orders through their financial advisors. Other
than the prospectus in electronic format, the information on this Web site is
not intended to be part of this prospectus or the registration statement of
which this prospectus forms a part and has not been approved and/or endorsed by
us or any underwriter in such capacity and should not be relied on by
prospective investors.
We estimate that our out-of-pocket expenses for this offering, not
including the underwriting discount, will be approximately $1,000,000.
58
<PAGE> 60
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Cooley Godward LLP, Denver, Colorado. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Brown
& Wood LLP, New York, New York.
EXPERTS
The financial statements of Allos Therapeutics, Inc. as of December 31,
1998 and 1999, and for each of the three years in the period ended December 31,
1999, and the cumulative period from September 1, 1992 (date of inception)
through December 31, 1999, included in this prospectus and elsewhere in this
registration statement have been so included in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
such firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, and the rules and regulations promulgated thereunder, with
respect to the shares of common stock offered buy this prospectus. This
prospectus, which constitutes part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits thereto. Statements contained in this prospectus as to the contents of
any contract or other document that is filed as an exhibit to the registration
statement are not necessarily complete and each such statement is qualified in
all respects by reference to the full text of such contract or document.
You may read and copy all or any portion of the registration statement and
the exhibits at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC 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. You can request
copies of these documents, upon payment of a duplication fee, by writing to the
SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the SEC's public reference rooms. Also, the SEC maintains a World
Wide Web 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 SEC.
As a result of this offering, we will become subject to the information and
periodic reporting requirements of the Securities Exchange Act of 1934 and, in
accordance therewith, will file periodic reports, proxy and information
statements and other information with the SEC. These periodic reports, proxy and
information statements and other information will be available for inspection
and copying at the public reference facilities, regional offices and SEC's Web
site referred to above.
59
<PAGE> 61
ALLOS THERAPEUTICS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheet as of December 31, 1998 and 1999.............. F-3
Statement of Operations..................................... F-4
Statement of Changes in Stockholders' Equity (Deficit)...... F-5
Statement of Cash Flows..................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 62
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Allos Therapeutics, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of Allos Therapeutics,
Inc. (a company in the development stage) at December 31, 1998 and 1999, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, and the cumulative period from September 1, 1992
(date of inception) through December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Denver, Colorado
January 26, 2000
F-2
<PAGE> 63
ALLOS THERAPEUTICS, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
--------------------------- DECEMBER 31,
1998 1999 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,656,546 $ 2,597,884
Short-term investments.................................... 7,924,988 6,877,303
Prepaid expenses -- research.............................. 462,483 223,117
Prepaid expenses -- other................................. 58,801 45,311
Other assets.............................................. 5,018 185,898
------------ ------------
Total current assets............................... 10,107,836 9,929,513
------------ ------------
Property and equipment (net of accumulated depreciation of
$175,814 and $322,227, respectively)...................... 336,767 230,360
Other assets................................................ 35,459 45,641
------------ ------------
Total assets....................................... $ 10,480,062 $ 10,205,514
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable -- related parties....................... $ 117,016 $ 8,087
Accounts payable -- trade................................. 110,646 65,123
Accrued expenses -- research.............................. 1,505,610 768,592
Accrued compensation and employee benefits................ 110,715 224,379
Current portion of capital lease obligations.............. 117,946 79,042
------------ ------------
Total current liabilities.......................... 1,961,933 1,145,223
Long-term portion of capital lease obligations.............. 146,717 69,320
------------ ------------
Total liabilities.................................. 2,108,650 1,214,543
Commitments (Notes 6 and 7)
Stockholders' equity:
Convertible preferred stock, Series A: $0.001 par value,
5,000,000 shares authorized, issued and outstanding at
December 31, 1998 and 1999 (liquidation value:
$6,368,107 and $6,718,107 at December 31, 1998 and 1999,
respectively)........................................... 5,000 5,000 --
Convertible preferred stock, Series B: $0.001 par value,
5,050,000 shares authorized; 5,032,500 shares issued and
outstanding at December 31, 1998 and 1999 (liquidation
value: $9,627,621 and $10,191,261 at December 31, 1998
and 1999, respectively)................................. 5,033 5,033 --
Convertible preferred stock, Series C: $0.001 par value,
16,610,000 shares authorized; 9,944,750 and 15,255,786
shares issued and outstanding at December 31, 1998 and
1999 (liquidation value: $19,124,792 and $30,161,846 at
December 31, 1998 and 1999, respectively)............... 9,945 15,256 --
Common stock: $0.001 par value, 31,000,000 shares
authorized, actual; 75,000,000 authorized, pro forma;
2,011,959 and 2,022,138 shares issued and outstanding at
December 31, 1998 and 1999, respectively, actual;
17,700,875 shares issued and outstanding, pro forma
(unaudited)............................................. 2,012 2,022 17,701
Additional paid-in capital preferred stock.................. 30,730,988 49,873,495 --
Additional paid-in capital common stock..................... 205,551 7,020,291 56,903,396
Notes receivable -- related parties......................... (139,687) (139,687) (139,687)
Accumulated deficit......................................... (22,447,430) (43,348,145) (43,348,145)
Deferred compensation....................................... -- (4,442,294) (4,442,294)
------------ ------------ ------------
Total stockholders' equity......................... 8,371,412 8,990,971 8,990,971
------------ ------------ ------------
Total liabilities and stockholders' equity......... $ 10,480,062 $ 10,205,514
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 64
ALLOS THERAPEUTICS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
SEPTEMBER 1,
1992
(DATE OF INCEPTION)
YEARS ENDED DECEMBER 31, THROUGH
---------------------------------------- DECEMBER 31,
1997 1998 1999 1999
----------- ----------- ------------ -------------------
<S> <C> <C> <C> <C>
Operating expenses:
Research and development............... $ 3,864,790 $ 5,941,523 $ 7,836,281 $ 22,945,887
Clinical manufacturing................. 1,563,778 1,767,707 1,381,722 5,164,833
General and administrative............. 1,262,226 1,485,735 2,379,435 7,170,733
----------- ----------- ------------ ------------
Total operating expenses....... 6,690,794 9,194,965 11,597,438 35,281,453
Loss from operations..................... (6,690,794) (9,194,965) (11,597,438) (35,281,453)
Interest and other income, net........... 178,203 621,042 309,698 1,546,283
----------- ----------- ------------ ------------
Net loss....................... (6,512,591) (8,573,923) (11,287,740) (33,735,170)
Dividend related to beneficial conversion
feature of preferred stock............. -- -- (9,612,975) (9,612,975)
----------- ----------- ------------ ------------
Net loss attributable to common
stockholders........................... $(6,512,591) $(8,573,923) $(20,900,715) $(43,348,145)
=========== =========== ============ ============
Net loss per share:
Basic and diluted...................... $ (3.52) $ (4.38) $ (10.48)
=========== =========== ============
Weighted average shares -- basic and
diluted............................. 1,848,209 1,959,071 1,994,764
=========== =========== ============
Pro forma net loss per share (unaudited):
Basic and diluted...................... $ (1.38)
============
Shares used in pro forma net loss per
share --
basic and diluted...................... 15,183,572
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 65
ALLOS THERAPEUTICS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
COMMON STOCK PREFERRED STOCK ADDITIONAL RECEIVABLE
------------------ -------------------- PAID-IN FROM ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT
--------- ------ ---------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Subscription receivable for common stock
at $1.61 per share...................... -- $ 90 -- $ -- $ -- $ -- $ --
--------- ------ ---------- ------- ----------- --------- ------------
BALANCE AT DECEMBER 31, 1992............. -- 90 -- -- -- -- --
Subscription receivable for common stock
at $1.61 per share.................... -- 10 -- -- -- -- --
Issuance of common stock for
subscription receivable............... 992,000 892 -- -- (892) -- --
Net loss................................ -- -- -- -- -- -- (24,784)
--------- ------ ---------- ------- ----------- --------- ------------
BALANCE AT DECEMBER 31, 1993............. 992,000 992 -- -- (892) -- (24,784)
Issuance of $.001 par value common stock
in exchange for license agreement..... 248,000 248 -- -- 39,752 -- --
Issuance of Series A convertible
preferred stock ($.001 par value)
together with Series A and Series B
stock warrants at $1.00 per share..... -- -- 700,000 704 529,023 -- --
Issuance of Series A convertible
preferred stock upon exercise of
Series A warrants at $1.00 per
share................................. -- -- 1,300,000 1,300 1,298,700 -- --
Accretion to redemption value of
preferred stock....................... -- -- -- -- 58,839 -- (58,839)
Net loss................................ -- -- -- -- -- -- (898,929)
--------- ------ ---------- ------- ----------- --------- ------------
BALANCE AT DECEMBER 31, 1994............. 1,240,000 1,240 2,000,000 2,004 1,925,422 -- (982,552)
Issuance of Series A convertible
preferred stock at $1.00 per share.... -- -- 3,000,000 3,000 2,973,454 -- --
Accretion to redemption value of
preferred stock....................... -- -- -- -- 229,837 -- (229,837)
Net loss................................ -- -- -- -- -- -- (2,384,176)
--------- ------ ---------- ------- ----------- --------- ------------
BALANCE AT DECEMBER 31, 1995............. 1,240,000 1,240 5,000,000 5,004 5,128,713 -- (3,596,565)
Issuance of Series B convertible
preferred stock at $1.60 per share,
net of issuance costs................. -- -- 5,032,500 5,033 7,992,705 -- --
Cancellation of Series B warrants
previously issued with Series A....... -- -- -- (4) 4 -- --
Cancellation of Series A redemption
rights................................ -- -- -- -- (288,676) -- 288,676
Issuance of common stock upon exercise
of stock options for cash of $4,024
and notes receivable of $90,000 at
$0.16 per share....................... 582,950 583 -- -- 93,441 (90,000) --
Net loss................................ -- -- -- -- -- -- (4,053,027)
--------- ------ ---------- ------- ----------- --------- ------------
BALANCE AT DECEMBER 31, 1996............. 1,822,950 1,823 10,032,500 10,033 12,926,187 (90,000) (7,360,916)
Issuance of common stock upon exercise
of stock options for cash of $20,288
and notes receivable of $49,687 at
$0.16-$0.40 per share................. 175,770 176 -- -- 69,799 (49,687) --
Net loss................................ -- -- -- -- -- -- (6,512,591)
--------- ------ ---------- ------- ----------- --------- ------------
BALANCE AT DECEMBER 31, 1997............. 1,998,720 1,999 10,032,500 10,033 12,995,986 (139,687) (13,873,507)
Issuance of Series C convertible
preferred stock at $1.81 per share,
net of issuance costs................. -- -- 9,944,750 9,945 17,937,102 -- --
Issuance of common stock upon exercise
of stock options for cash of $3,464 at
$0.16-$0.40 per share................. 13,239 13 -- -- 3,451 -- --
Net loss................................ -- -- -- -- -- -- (8,573,923)
--------- ------ ---------- ------- ----------- --------- ------------
BALANCE AT DECEMBER 31, 1998............. 2,011,959 2,012 19,977,250 19,978 30,936,539 (139,687) (22,447,430)
Issuance of Series C convertible
preferred stock at $1.81 per share,
net of issuance costs................. -- -- 5,311,036 5,311 9,529,532 -- --
Issuance of common stock upon exercise
of stock options for cash of $3,695 at
$0.16-$0.56 per share................. 10,179 10 -- -- 3,685 -- --
Deferred compensation related to
options............................... -- -- -- -- 6,811,055 -- --
Beneficial conversion feature related to
issuance of preferred stock........... -- -- -- -- 9,612,975 -- (9,612,975)
Net loss................................ -- -- -- -- -- -- (11,287,740)
--------- ------ ---------- ------- ----------- --------- ------------
BALANCE AT DECEMBER 31, 1999............. 2,022,138 $2,022 25,288,286 $25,289 $56,893,786 $(139,687) $(43,348,145)
========= ====== ========== ======= =========== ========= ============
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFERRED EQUITY
COMPENSATION (DEFICIT)
------------ -------------
<S> <C> <C>
Subscription receivable for common stock
at $1.61 per share...................... $ -- $ 90
------------ ------------
BALANCE AT DECEMBER 31, 1992............. -- 90
Subscription receivable for common stock
at $1.61 per share.................... -- 10
Issuance of common stock for
subscription receivable............... -- --
Net loss................................ -- (24,784)
------------ ------------
BALANCE AT DECEMBER 31, 1993............. -- (24,684)
Issuance of $.001 par value common stock
in exchange for license agreement..... -- 40,000
Issuance of Series A convertible
preferred stock ($.001 par value)
together with Series A and Series B
stock warrants at $1.00 per share..... -- 529,727
Issuance of Series A convertible
preferred stock upon exercise of
Series A warrants at $1.00 per
share................................. -- 1,300,000
Accretion to redemption value of
preferred stock....................... -- --
Net loss................................ -- (898,929)
------------ ------------
BALANCE AT DECEMBER 31, 1994............. -- 946,114
Issuance of Series A convertible
preferred stock at $1.00 per share.... -- 2,976,454
Accretion to redemption value of
preferred stock....................... -- --
Net loss................................ -- (2,384,176)
------------ ------------
BALANCE AT DECEMBER 31, 1995............. -- 1,538,392
Issuance of Series B convertible
preferred stock at $1.60 per share,
net of issuance costs................. -- 7,997,738
Cancellation of Series B warrants
previously issued with Series A....... -- --
Cancellation of Series A redemption
rights................................ -- --
Issuance of common stock upon exercise
of stock options for cash of $4,024
and notes receivable of $90,000 at
$0.16 per share....................... -- 4,024
Net loss................................ -- (4,053,027)
------------ ------------
BALANCE AT DECEMBER 31, 1996............. -- 5,487,127
Issuance of common stock upon exercise
of stock options for cash of $20,288
and notes receivable of $49,687 at
$0.16-$0.40 per share................. -- 20,288
Net loss................................ -- (6,512,591)
------------ ------------
BALANCE AT DECEMBER 31, 1997............. -- (1,005,176)
Issuance of Series C convertible
preferred stock at $1.81 per share,
net of issuance costs................. -- 17,947,047
Issuance of common stock upon exercise
of stock options for cash of $3,464 at
$0.16-$0.40 per share................. -- 3,464
Net loss................................ -- (8,573,923)
------------ ------------
BALANCE AT DECEMBER 31, 1998............. -- 8,371,412
Issuance of Series C convertible
preferred stock at $1.81 per share,
net of issuance costs................. -- 9,534,843
Issuance of common stock upon exercise
of stock options for cash of $3,695 at
$0.16-$0.56 per share................. -- 3,695
Deferred compensation related to
options............................... (4,442,294) 2,368,761
Beneficial conversion feature related to
issuance of preferred stock........... -- --
Net loss................................ -- (11,287,740)
------------ ------------
BALANCE AT DECEMBER 31, 1999............. $ (4,442,294) $ 8,990,971
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 66
ALLOS THERAPEUTICS, INC.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
SEPTEMBER 1,
1992 (DATE OF
INCEPTION)
YEARS ENDED DECEMBER 31, THROUGH
----------------------------------------- DECEMBER 31,
1997 1998 1999 1999
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net loss.......................................... $(6,512,591) $ (8,573,923) $(11,287,740) $(33,735,170)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 65,423 101,118 146,413 352,022
Stock-based compensation expense................ -- -- 2,368,761 2,368,761
Other........................................... -- (2,823) -- 52,406
Changes in operating assets and liabilities:
Decrease (increase) in prepaids and other
assets..................................... (1,639) (407,177) 61,794 (499,967)
(Increase) decrease in interest receivable on
short-term investments..................... -- (80,682) (13,810) (94,492)
Increase (decrease) in accounts
payable -- research........................ 713,793 303,390 (737,018) 768,592
Increase (decrease) in accounts
payable -- related parties................. 123,429 (51,865) (108,929) 8,087
Increase (decrease) in accounts
payable -- trade........................... (716) (15,320) (45,523) 65,123
Increase (decrease) in accrued compensation
and employee benefits...................... 124,012 (75,994) 113,664 224,379
----------- ------------ ------------ ------------
Net cash used in operating activities...... (5,488,289) (8,803,276) (9,502,388) (30,490,259)
----------- ------------ ------------ ------------
Cash Flows From Investing Activities
Acquisition of property and equipment............. (42,494) (85,029) (37,901) (293,192)
Purchases of short-term investments............... (2,957,296) (21,450,298) (11,713,177) (47,937,178)
Proceeds from sales of short-term investments..... 7,880,061 13,605,992 12,774,672 41,154,367
----------- ------------ ------------ ------------
Net cash provided by (used in) investing
activities............................... 4,880,271 (7,929,335) 1,023,594 (7,076,003)
----------- ------------ ------------ ------------
Cash Flows From Financing Activities
Principal payments under capital leases........... (53,654) (84,524) (118,406) (273,726)
Proceeds from sale leaseback...................... -- 43,908 -- 120,492
Proceeds from stockholder loan.................... -- -- -- 12,000
Repayment of stockholder loan..................... -- -- -- (12,000)
Proceeds from issuance of convertible preferred
stock, net of issuance costs.................... -- 17,947,047 9,534,843 40,285,809
Proceeds from issuance of common stock............ 20,288 3,464 3,695 31,571
----------- ------------ ------------ ------------
Net cash provided by (used in) financing
activities............................... (33,366) 17,909,895 9,420,132 40,164,146
----------- ------------ ------------ ------------
Net increase (decrease) in cash..................... (641,384) 1,177,284 941,338 2,597,884
Cash and cash equivalents, beginning of period...... 1,120,646 479,262 1,656,546 --
----------- ------------ ------------ ------------
Cash and cash equivalents, end of period............ $ 479,262 $ 1,656,546 $ 2,597,884 $ 2,597,884
=========== ============ ============ ============
Supplemental Schedule of Noncash Operating And
Financing Activities
Cash paid for interest............................ 8,339 -- -- 10,000
Issuance of stock in exchange for license
agreement....................................... -- -- -- 40,000
Capital lease obligations incurred for purchase of
property and equipment.......................... 59,330 197,334 2,105 422,088
Issuance of stock in exchange for notes
receivable...................................... 49,687 -- -- 139,687
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 67
ALLOS THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY
Allos Therapeutics, Inc. (the "Company") is a pharmaceutical company
focused on developing and commercializing innovative small molecule drugs,
initially for improving cancer treatments.
The Company was incorporated in the Commonwealth of Virginia on September
1, 1992 as HemoTech Sciences, Inc. and filed amended Articles of Incorporation
to change its name to Allos Therapeutics, Inc. on October 19, 1994. The Company
reincorporated in Delaware on October 28, 1996.
The Company's lead product candidate (RSR13) is a synthetic small molecule
that increases the release of oxygen from hemoglobin, the oxygen carrying
protein contained within red blood cells. The Company is currently conducting
clinical trials for RSR13. Prior to commercial sales of the product, the Company
must complete the clinical trials and receive the necessary Food and Drug
Administration ("FDA") approval. Should the Company be unable to obtain the
necessary FDA approvals, there could be a materially adverse effect on the
Company's financial condition, operating results and cash flows.
To date, the Company has devoted substantially all of its resources to
research and clinical development. The Company has not derived any commercial
revenues from product sales, and does not expect to receive product revenues for
at least the next several years. The Company has incurred significant operating
losses since its inception in 1992. The Company expects to continue to incur
significant operating losses over the next several years as it continues to
incur increasing research and development costs, in addition to costs related to
clinical trials and manufacturing activities. There can be no assurance if or
when the Company will become profitable. The Company's achieving profitability
depends upon its ability, alone or with others, to successfully complete the
development of its products under development, and obtain required regulatory
clearances and successfully manufacture and market its products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company has not generated any revenue to date and its activities have
consisted primarily of developing products, raising capital and recruiting
personnel. Accordingly, the Company is considered to be in the development stage
at December 31, 1999 as defined in Statement of Financial Accounting Standards
("SFAS") No. 7, Accounting and Reporting by Development Stage Enterprises.
Certain amounts in the prior years have been reclassified to be consistent
with current year presentation. These changes had no impact on previously
reported results of operations or stockholders' equity.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of expenses during the reporting period.
Actual results could differ materially from these estimates.
Cash and Cash Equivalents and Short-term Investments
All highly liquid investments with a maturity of three months or less are
considered to be cash equivalents. The carrying values of the Company's cash
equivalents and short-term investments approximate their market values based on
quoted market prices. Short-term investments are classified as held to maturity
and are carried at cost plus accrued interest and consist of commercial paper
and government obligations, having original maturities of longer than three
months, but less than one year, held at financial institutions.
Prepaid Expenses -- Research
In accordance with various research and development contracts, the Company
is obligated to pay a portion of the fee upon execution. The asset balance is
expensed as milestones within the contract are reached. In the
F-7
<PAGE> 68
ALLOS THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
event milestones within the contract are not reached, the Company evaluates
whether events and circumstances have occurred that indicate impairment of
remaining prepaid research expenses may be appropriate. Included in other assets
at December 31, 1999 is $178,000 related to a settlement agreement reached with
a third party for failure to achieve specified milestones.
Property and Equipment
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- ESTIMATED
1998 1999 LIVES
--------- --------- ---------
<S> <C> <C> <C>
Office furniture and equipment...................... $ 10,429 $ 15,598 5 years
Office furniture and equipment under capital
leases............................................ 197,379 197,379 3.5 years
Computer hardware and software...................... 31,444 58,208 3 years
Computer hardware under capital leases.............. 203,483 205,588 3.5 years
Lab equipment owned................................. 25,703 31,670 5 years
Lab equipment under capital leases.................. 23,216 23,217 3.5 years
Leasehold improvements.............................. 20,927 20,927 3-5 years
--------- ---------
512,581 552,587
Less accumulated depreciation and amortization...... (175,814) (322,227)
--------- ---------
$ 336,767 $ 230,360
========= =========
</TABLE>
Property and equipment is recorded at cost and is depreciated using the
straight-line method over estimated useful lives. Property and equipment
acquired under capital lease agreements are amortized using the straight-line
method over the shorter of the estimated useful life or the related lease term.
Accumulated amortization for leased equipment was $155,572 and $277,000 at
December 31, 1998 and 1999, respectively. Upon disposition of property and
equipment all cost and accumulated depreciation or amortization are removed from
the accounts and any gain or loss is reflected in operations.
Long-lived Assets
The Company evaluates whether events and circumstances have occurred that
indicate revision to the remaining useful life or impairment of remaining
balances of long-lived assets may be appropriate. Such events and circumstances
include, but are not limited to, change in business strategy or change in
current and long-term projected operating performance. The carrying value of
long-lived assets is considered impaired when the anticipated undiscounted cash
flows from the lowest level of assets for which there are identifiable cash
flows is less than the carrying value. In that event, a loss is recognized based
on the amount by which the carrying value exceeds the fair value of the
long-lived assets. Fair value is determined using the anticipated cash flows
discounted at a rate commensurate with the risk involved.
Stock-Based Compensation
The Company accounts for grants of stock options and according to
Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued
to Employees and related Interpretations. Proforma net loss information, as
required by SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"),
is included in Note 3. Any deferred stock compensation calculated according to
APB No. 25 is amortized over the vesting period of the individual options,
generally four years, in accordance with FASB Interpretation No. 28, Accounting
for Stock Appreciation Rights and Other Variable Stock Option and Award Plans.
Research and Development
Research and development expenditures are charged to operations as
incurred.
F-8
<PAGE> 69
ALLOS THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
As of January 1, 1994, the Company changed its tax status from an
S-Corporation to a C-Corporation. Accordingly, income taxes are accounted for
under SFAS No. 109, Accounting for Income Taxes. Deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities at each year end and their respective tax bases using enacted
tax rates in effect for the year in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized.
Concentration of Credit
The Company's cash and cash equivalents and short-term investments at
December 31, 1998 and 1999 are maintained in two financial institutions in
amounts which at times may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk in this area. It is the Company's practice to place its
investments in high-quality securities.
Net Loss Per Share
Net loss per share is calculated in accordance with SFAS No. 128, Earnings
Per Share. Under the provisions of SFAS 128, basic net loss per common share is
computed by dividing the net loss for the period by the weighted average number
of vested common shares outstanding during the period. Diluted net loss per
common share is computed giving effect to all dilutive potential common stock,
including options, non-vested common stock, convertible preferred stock and
convertible preferred stock warrants. Diluted net loss per share for the years
ended December 31, 1997, 1998, and 1999 is the same as basic net loss per share
because potential common shares are anti-dilutive.
Anti-dilutive securities as of December 31, 1997, 1998 and 1999 not
included in the diluted net loss per share calculations, are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- ---------- ----------
<S> <C> <C> <C>
Non-vested common stock........................... 60,036 32,593 8,680
Common stock options.............................. 463,140 448,260 822,120
Convertible preferred stock....................... 6,220,150 12,385,895 15,678,737
Convertible preferred stock warrants.............. 10,850 14,275 31,402
--------- ---------- ----------
6,754,176 12,881,023 16,540,939
========= ========== ==========
</TABLE>
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of common stock outstanding,
including the pro forma effects of the automatic conversion of the Company's
Series A, Series B and Series C convertible preferred stock into shares of the
Company's common stock upon the closing of the Company's initial public offering
as if such conversion occurred on January 1, 1999, or at the date of original
issuance, if later. Pro forma common equivalent shares, composed of unvested
restricted common stock and incremental common shares issuable upon the exercise
of stock options and warrants are not included in pro forma diluted net loss per
share because they would be anti-dilutive.
Pro Forma Stockholders' Equity (Unaudited)
Upon the closing of the Company's initial public offering the outstanding
shares of Series A, Series B and Series C convertible preferred stock will
convert into 15,678,737 shares of common stock. The pro forma effects
F-9
<PAGE> 70
ALLOS THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of such conversion has been reflected in the accompanying pro forma
stockholders' equity at December 31, 1999.
Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income includes all charges in equity during a period from
non-owner sources. During each of the three years ended December 31, 1999 and
for the cumulative period from inception, the Company has not had any
significant transactions that are required to be reported as adjustments to
determine comprehensive income.
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents,
short-term investments, prepaid expenses, accounts payable and accrued
liabilities. The carrying amounts of financial instruments approximate their
fair value due to their short maturities. Additionally, based upon the borrowing
rates available to the Company for debt agreements with similar terms and
average maturities, management believes the carrying amount of capital lease
obligations approximates their fair value.
3. STOCKHOLDERS' EQUITY
Common Stock
In January 1994, the Board of Directors approved an amendment to the
Articles of Incorporation authorizing the Company to issue up to 5,270,000
shares of common stock. In June 1995, March 1996, May 1998, and October 1999,
the Board of Directors approved additional amendments to the Articles of
Incorporation authorizing the Company to issue up to 9,300,000, 12,400,000,
18,600,000 and 31,000,000 shares of common stock, respectively.
At December 31, 1999, 2,022,138 shares of common stock are issued and
outstanding and 8,680 shares of outstanding common stock are subject to vesting
requirements ranging from three to four years.
Convertible Preferred Stock
The Company is authorized to issue 26,660,000 shares of convertible
preferred stock ($0.001 par value) in one or more series. At December 31, 1999,
the designated series and shares issued were as follows:
<TABLE>
<CAPTION>
SHARES ISSUED AND
NUMBER OF OUTSTANDING
SHARES -------------------------
AUTHORIZED NUMBER NET PROCEEDS
---------- ---------- ------------
<S> <C> <C> <C>
Series A........................................ 5,000,000 5,000,000 $ 4,806,181
Series B........................................ 5,050,000 5,032,500 7,997,738
Series C........................................ 16,610,000 15,255,786 27,481,890
---------- ---------- -----------
26,660,000 25,288,286 $40,285,809
========== ========== ===========
</TABLE>
In March 1996, the Articles of Incorporation were amended and restated to:
remove the redemption requirement on the Series A and B preferred stock; change
the annual dividend rate on the Series B from $.14 to $.112 per share; change
the conversion price on the Series B from $2.00 to $1.60 per share; and add the
annual cumulative dividend on the Series A and Series B preferred stock to be
payable upon liquidation, consolidation, merger, reorganization, sale of all or
substantially all of the assets or winding up of the Company.
F-10
<PAGE> 71
ALLOS THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In January and October 1994, the Company issued 700,000 and 1,300,000
shares, respectively, of Series A convertible preferred stock ($0.001 par value)
at $1.00 per share in a private placement offering to accredited investors. In
June 1995, the Company issued an additional 3,000,000 shares of Series A
convertible preferred stock at $1.00 per share.
During 1996, the Company issued 5,032,500 shares of Series B convertible
preferred stock ($0.001 par value) at $1.60 per share in a private placement
offering to accredited investors for $7,997,738, net of transaction costs of
$54,262.
During 1998, the Company issued 9,944,750 shares of Series C convertible
preferred stock ($0.001 par value) at $1.81 per share in three private placement
offerings to accredited investors for proceeds of $17,947,047, net of
transaction costs of $52,950. As part of these transactions, certain amendments
to the Articles of Incorporation were made to Series A and Series B shares.
These amendments include: increasing the authorized preferred shares to
20,250,000, of which 10,200,000 are designated as Series C; changing the
automatic conversion price upon the closing of an initial public offering from
not less than $4.00 per share to not less than $5.43 per share, and increasing
the number of shares reserved for issuance under the 1995 Stock Option Plan to
1,643,000.
During 1999, the Company issued 5,311,036 shares of Series C convertible
preferred stock ($0.001 par value) at $1.81 per share in a private placement
offering to accredited investors for proceeds of $9,534,843, net of transaction
costs of $78,132. As part of this transaction, the Articles of Incorporation
were amended to increase the authorized preferred shares to 26,660,000, of which
16,610,000 are designated as Series C and to increase the number of shares
reserved for issuance under the 1995 Stock Option Plan to 2,263,000. The
issuance resulted in a beneficial conversion feature of $9,612,975, calculated
in accordance with Emerging Issues Task Force No. 98-5, Accounting for
Convertible Securities with Beneficial Conversion Features. The beneficial
conversion feature is reflected as a preferred dividend in the Statement of
Operations for 1999.
Each share of Series A, Series B and Series C preferred stock is
convertible, at the option of the holder at any time after the date of issuance,
into a number of common shares as determined by dividing the initial conversion
price by the conversion price in effect at the time of conversion. The initial
conversion price for each series of convertible preferred stock is: $1.00 per
share for Series A, $1.60 per share for Series B and $1.81 per share for Series
C. Conversion is automatic upon the closing of an initial public offering of the
Company's common stock where the aggregate proceeds are not less than
$15,000,000 and at a price of not less than $5.43 per share.
Series A, Series B and Series C preferred shareholders are entitled to
cumulative cash dividends at the annual rate of $.07, $.112 and $.1267 per
share, respectively, when and as declared by the Board of Directors, quarterly
on January 1, April 1, July 1, and October 1 of each year commencing on the
original issue date. Dividends shall accumulate on each share from the date of
issuance, and shall accumulate whether or not earned or declared for purposes of
increasing the liquidation preference in each share of preferred stock. As of
December 31, 1999, no dividends have been declared or are payable since
undeclared dividends are not payable until conversion, liquidation,
consolidation, merger, reorganization, sale of all or substantially all of the
assets or winding up of the Company. Accumulated dividends amounted to
$4,068,522 and $6,406,241 at December 31, 1998 and 1999, respectively.
The Series A, Series B and Series C convertible preferred stocks have
voting rights equal to the number of shares of common stock into which the
preferred stocks will convert and a liquidation preference to the extent of
$1.00, $1.60 and $1.81 per share, respectively, plus any accumulated but unpaid
dividends. In the event liquidation or dissolution of the assets of the Company
are insufficient to permit payment of the full Series A, B and C preferences,
then the available assets shall be distributed ratably among the holders of all
preferred shares in proportion to their liquidating preferences. After such
payment to the holders of all convertible preferred
F-11
<PAGE> 72
ALLOS THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
stock, any remaining assets of the Company shall be distributed among the common
shareholders on a pro rata basis.
The Company has reserved 3,100,000 shares of common stock for the
conversion of Series A preferred stock, 3,131,000 shares of common stock for the
conversion of the Series B convertible preferred stock and for the exercise of
the Series B convertible preferred stock warrants and 10,298,200 shares of
common stock for the conversion of the Series C convertible preferred stock and
the exercise of the Series C convertible preferred stock warrants.
Warrants
In connection with the issuance of the 700,000 shares of the Company's
Series A convertible preferred stock in January 1994, the Company issued
warrants to purchase 1,300,000 shares of the Company's Series A convertible
preferred stock at an exercise price of $1.00 per share that were exercised in
October 1994. In January 1994, the Company also issued warrants to purchase
700,000 shares of the Company's Series B convertible preferred stock at an
exercise price of $2.00 per share which were canceled during 1996 in connection
with the issuance of 5,032,500 shares of the Company's Series B convertible
preferred stock. Upon the exercise of the warrants to purchase 1,300,000 shares
of the Company's Series A convertible preferred stock, additional warrants to
purchase 1,300,000 shares of the Company's Series B convertible preferred stock
at $2.00 per share were issued and also canceled with the 1996 issuance of the
Series B convertible preferred stock.
In April 1996, the Company issued warrants to purchase 17,500 shares of the
Company's Series B convertible preferred stock in conjunction with an equipment
lease line at an exercise price of $1.60 per share that expire at the later of
April 15, 2006, or five years from the effective date of an initial public
offering.
In December 1997, the Company entered into an agreement with Sosei Co.,
Ltd. ("Sosei"), which became effective February 8, 1998. Under the agreement,
Sosei was to locate a Japanese partner for the Company with respect to the
Company's product RSR13. The agreement was amended in February 1999. Pursuant
thereto, the Company issued a warrant to Sosei to purchase 27,625 shares of the
Company's Series C preferred stock at a price of $1.81 per share that vests and
becomes exercisable upon the Company's acceptance and closing of a transaction
with a Japanese partner. The agreement expired in June 1999. The warrant will
expire pursuant to its terms, prior to vesting and becoming exercisable, upon
the first to occur of certain events, including the day prior to the
consummation of a public offering and June 30, 2000.
In May 1998, the Company issued warrants to purchase 5,524 shares of the
Company's Series C convertible preferred stock in conjunction with an equipment
lease with an exercise price of $1.81 per share that expire at the later of May
5, 2008, or five years from the effective date of an initial public offering.
Stock Options
During 1995, the Board of Directors terminated the 1992 Stock Plan (the
"1992 Plan") and adopted the 1995 Stock Option Plan (the "1995 Plan"). The 1995
Plan was amended and restated in 1997. Termination of the 1992 Plan had no
affect on the options outstanding under that plan, as they were assumed under
the 1995 Plan. Under the 1995 Plan the Company may grant fixed and
performance-based stock options and stock appreciation rights to officers,
employees, consultants and directors. The stock options are intended to qualify
as "incentive stock options" under Section 422 of the Internal Revenue Code,
unless specifically designated as non-qualifying stock options or unless
exceeding the applicable statutory limit.
At December 31, 1999, the Company had reserved an aggregate of 2,263,000
shares of common stock for issuance under the 1995 Plan. As of December 31,
1999, the Company had 255,693 shares of common stock available for grant under
the 1995 Plan. The 1995 Plan provides for appropriate adjustments in the number
of shares reserved and optioned in the event of certain changes to the Company's
outstanding common stock by reason of merger, recapitalization, stock split or
other similar events. Options granted under the Plan may be
F-12
<PAGE> 73
ALLOS THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
exercised for a period of not more than ten years from the date of grant or any
shorter period as determined by the Board of Directors. Options vest as
determined by the Board of Directors, generally over a period of two to four
years, subject to acceleration under certain events. The exercise price of any
incentive stock option shall equal or exceed the fair market value per share on
the date of grant, or 110% of the fair market value per share in the case of a
10% or greater stockholder.
The Company has granted to selected officers and other key employees stock
option awards whose vesting is contingent upon achieving specific criteria. The
options will vest based upon meeting certain clinical milestones, finalizing a
corporate partnership and/or co-licensing of an additional compound for
development, and the earlier of the Company's stock trading at or above a
certain level for a certain number of consecutive trading days prior to June 30,
2001. If such criteria are not met, these options will become fully vested after
7 years from the date of grant. For the options described above, deferred
stock-based compensation was recorded at the date of grant, representing the
difference between the exercise price and the fair value of the Company's common
stock on the date these options were granted, as both the number of shares and
the option price were fixed. Deferred stock-based compensation is amortized over
the predefined vesting period until it becomes probable that the performance
goals will be met; at that time, the amortization of the remaining deferred
stock-based compensation will be accelerated so as to be amortized over the
period to the date the performance goal is expected to be reached.
During the year ended December 31, 1999, in connection with the grant of
certain stock options to employees, the Company recorded deferred stock-based
compensation of $5,996,055, representing the difference between the exercise
price and the deemed fair value of the Company's common stock on the date these
stock options were granted. Deferred compensation is included as a reduction of
stockholders' equity and is being amortized in accordance with the accelerated
method as described in FASB Interpretation No. 28 over the vesting periods of
the related options, which is generally four years. During the year ended
December 31, 1999, the Company recorded amortization of deferred stock
compensation expense of $1,553,761 of which $1,532,881 related to R&D personnel
and $20,880 related to G&A personnel. At December 31, 1999, the Company had
$4,442,294 of deferred compensation remaining to be amortized.
Pro forma net loss and net loss per share information is required by SFAS
No. 123, which also requires that the information be determined as if the
Company had accounted for its employee stock options and rights granted
subsequent to December 31, 1994 under the fair value method. The fair value for
these options and the purchase rights was estimated at the date of grant using
the minimum value method with the following weighted-average assumptions for
1997, 1998, and 1999, respectively: risk free interest rates of between 4.25%
and 10.37%; no dividend yield; and a weighted-average expected life of the
options of 7 years. Based on calculations using a Black-Scholes-type minimum
value option pricing model, the weighted-average fair value of options at grant
date was $0.05, $0.08 and $6.77 for the years ended December 31, 1997, 1998 and
1999, respectively.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net loss attributable to common stockholders:
As reported................................. $(6,512,591) $(8,573,923) $(20,900,715)
=========== =========== ============
Pro forma................................... $(6,521,051) $(8,583,501) $(20,925,607)
=========== =========== ============
Net loss per share:
As reported................................. $ (3.53) $ (4.38) $ (10.48)
=========== =========== ============
Pro forma................................... $ (3.53) $ (4.38) $ (10.49)
=========== =========== ============
</TABLE>
F-13
<PAGE> 74
ALLOS THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock option activity, and related information
follows:
<TABLE>
<CAPTION>
INCENTIVE AND
NON-INCENTIVE STOCK INCENTIVE STOCK OPTIONS
OPTIONS -- FIXED PERFORMANCE-BASED
------------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------------- -------- -------------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
OUTSTANDING AT DECEMBER 31, 1996........ 530 $ .30 93 $.40
Granted............................... 114 .40 -- --
Exercised............................. (176) .40 -- --
Canceled.............................. (5) .37 (12) .40
---- ----- --- ----
OUTSTANDING AT DECEMBER 31, 1997........ 463 .30 81 .40
Granted............................... 76 .56 186 .56
Exercised............................. (13) .25 -- --
Canceled.............................. (78) .40 (6) .40
---- ----- --- ----
OUTSTANDING AT DECEMBER 31, 1998........ 448 .32 261 .51
Granted............................... 417 .56 167 .56
Exercised............................. (10) .37 -- --
Canceled.............................. (33) .33 (25) .48
---- ----- --- ----
OUTSTANDING AT DECEMBER 31, 1999........ 822 .43 403 .53
==== ===== === ====
VESTED OPTIONS AT DECEMBER 31, 1999..... 375 $ .30 217 $.51
==== ===== === ====
</TABLE>
An analysis of options outstanding at December 31, 1999 as follows:
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE
OUTSTANDING AT REMAINING WEIGHTED OPTIONS VESTED AT WEIGHTED
DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, AVERAGE EXERCISE
EXERCISE PRICE 1999 LIFE EXERCISE PRICE 1999 PRICE
- -------------- -------------- ----------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$0.16................ 186,000 5.5 $.16 186,000 $.16
$0.40................ 226,533 6.9 .40 193,740 .40
$0.56................ 812,636 9.4 .56 212,466 .56
--------- -------
1,225,169 7.2 $.46 592,206 $.39
========= === ==== ======= ====
</TABLE>
4. INCOME TAXES
As stated in Note 2, the Company changed its tax status from an
S-Corporation to a C-Corporation as of January 1, 1994. Since that time, no
income tax provision or benefit has been recognized due to the Company incurring
net operating losses and other tax benefits which have been fully offset by a
valuation allowance.
F-14
<PAGE> 75
ALLOS THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes computed using the federal statutory income tax rate differs
from the Company's effective tax primarily due to the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Federal income tax benefit at 34%........................ $(2,214) $(2,915) $(3,838)
State income tax, net of federal benefit................. (261) (343) (452)
Stock-based compensation amortization expense............ -- -- 924
Change in valuation allowance............................ 2,610 3,406 3,645
Other.................................................... (135) (148) (279)
------- ------- -------
Benefit for income taxes....................... $ -- $ -- $ --
======= ======= =======
</TABLE>
The components of the Company's deferred tax assets under SFAS 109 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- ------------
<S> <C> <C>
Deferred tax assets:
Temporary differences................................... $ 49,400 $ 64,100
Research and development credit carryforwards........... 1,353,900 2,120,300
Net operating loss carryforwards........................ 7,395,500 10,259,300
----------- ------------
Total deferred tax assets............. 8,798,800 12,443,700
Valuation allowance..................................... (8,798,800) (12,443,700)
----------- ------------
Net deferred tax assets................................. $ -- $ --
=========== ============
</TABLE>
The Company's deferred tax assets represent unrecognized future tax
benefit. A valuation allowance has been established for the entire tax benefit
as the Company believes that it is more likely than not that such assets will
not be realized.
At December 31, 1999, the Company has approximately $30 million of net
operating loss ("NOL") carryforwards and approximately $2 million of research
and development ("R&D") credit carryforwards. These carryforwards will expire
beginning 2009. The Internal Revenue Code of 1986, as amended, contains
provisions that may limit the NOL and R&D credit carryforwards available for use
in any given year upon the occurrence of certain events, including significant
changes in ownership interest. A greater than 50% change in ownership of a
company within a three-year period results in an annual limitation on the
Company's ability to utilize its NOL and R&D credit carryforwards from tax
periods prior to the ownership change. The Company's NOL and R&D credit
carryforwards as of December 31, 1999 are subject to annual limitation due to
changes in ownership. Future ownership changes could further limit the
utilization of the Company's NOL and R&D credit carryforwards.
5. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution plan covering substantially
all employees under Section 401(k) of the Internal Revenue Code. The Company did
not provide for a match in 1998, but amended the Plan documents on January 1,
1999 to provide a 50% match of employees' contributions up to $2,000 per
employee per year. During 1999, the Company made a contribution of $43,171.
F-15
<PAGE> 76
ALLOS THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS
The Company leases office and research and development facilities as well
as certain office and lab equipment under agreements that expire at various
dates through 2002. Total rent expense in 1997, 1998 and 1999 and the cumulative
period from inception was $89,649, $140,192 and $179,792 and $512,072,
respectively.
The Company entered into an equipment lease line in 1996 which provided for
additional draws through September 30, 1997. The original lease line was
$350,000, and the Company utilized $222,650 of the line before the funding
period expired. In May 1998, the Company entered into another equipment lease
line with a term of 42 months. This lease line provided for draws through
September 30, 1999. The original lease line was $250,000 of which $199,439 had
been utilized before the financing period expired. Under the terms of both
master lease agreements, the Company has the option to purchase the leased
equipment at its fair market value at the end of the lease term.
The aggregate future minimum rental commitments as of December 31, 1999,
for capital and noncancelable operating leases with initial or remaining terms
in excess of one year are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- --------
<S> <C> <C>
Year Ending December 31
2000...................................................... $262,337 $ 87,825
2001...................................................... 212,940 64,745
2002...................................................... 126,782 7,901
2003...................................................... 56,649 --
2004...................................................... 58,349 --
-------- --------
Minimum lease payments...................................... $717,057 160,471
========
Less amount representing interest........................... (12,109)
--------
Present value of future minimum lease payments.............. 148,362
Less portion due within one year............................ (79,042)
--------
$ 69,320
========
</TABLE>
7. ROYALTY AND LICENSE FEE COMMITMENTS
On January 14, 1994, the Company entered into a license agreement with the
Center for Innovative Technology ("CIT"), under which CIT grants to the Company
an exclusive, worldwide license to practice, develop and use its technology and
licensed patent rights to develop and market the Company's products. In exchange
for the license agreement, the Company paid CIT $50,000 in cash and issued
248,000 shares of its common stock valued at $0.16 per share. The license
agreement will remain in effect until the last U.S. patent expires or, if no
U.S. patent is granted, the license will expire on December 31, 2009. Under the
license agreement, the Company will be required to pay a royalty based on
percentages, as defined in the agreement, of either net revenues arising from
sales of products produced in and outside of Virginia. Quarterly royalty
payments are due within 30 days from the end of each calendar quarter. The terms
of the agreement also require the Company to reimburse CIT for all costs related
to obtaining and maintaining patents on the technology. As of December 31, 1999,
no royalty payments have been incurred.
In addition, the CIT license agreement requires the Company to sponsor
research at Virginia Commonwealth University ("VCU"). As of December 31, 1999,
the Company entered into sponsored research agreements with VCU which extend
through June 30, 2000. The Company has an aggregate commitment under the
agreement to pay VCU $390,207.
F-16
<PAGE> 77
ALLOS THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In September 1998, the Company entered into an option and license agreement
with the University of Virginia Patent Foundation whereby Allos has an exclusive
option to receive a worldwide, exclusive license and patent rights to develop
and market products pertaining to trans-sodium crocetinate ("TSC"). TSC is
believed to be a compound which improves the diffusion of oxygen through blood.
The option period is for nine months at which time the Company has the right to
exercise the option. In exchange for the option, Allos paid $15,000. Upon
exercising the option, the Company will be granted a license to TSC in exchange
for milestone payments totaling $205,000 and will be obligated to sponsor
research at the founder's lab at the University of Virginia for $110,000 in the
first year, renewable annually. As of March 1999, the option and license
agreement with the University of Virginia Patent Foundation was canceled. The
option was not exercised and no further monies were paid by the Company.
8. RELATED PARTY TRANSACTIONS
In December 1994, the Company renegotiated a consulting agreement for
scientific advisory services with Dr. Marvin Jaffe, a director of the Company.
Under the agreement, which is renewable annually upon mutual consent, the
Company will pay Dr. Jaffe consulting fees at $2,000 per month. For 1997, 1998
and 1999 and the cumulative period from inception, the Company paid Dr. Jaffe
consulting fees of $24,000, $24,000, $24,000 and $161,017, respectively. Of
these amounts, $2,000 was included in accounts payable at December 31, 1998 and
1999. In addition, the Company granted Dr. Jaffe stock options to purchase a
total of 37,200 shares of the Company's common stock at $.16 to $.40 per share
under its Stock Option Plan in 1994, 1995 and 1997.
In July 1997, the Company entered into a consulting agreement for
scientific advisory services with Dr. Stephen K. Carter, a director of the
Company. Under the three-year agreement, which is renewable annually upon mutual
consent, the Company will pay Dr. Carter consulting fees at $2,000 per month.
For 1998, 1999 and the cumulative period, the Company paid Dr. Carter consulting
fees of $18,000, $24,000 and $50,000, respectively. Of these amounts, $2,000 was
included in accounts payable at December 31, 1998 and 1999. In addition, the
Company granted Dr. Carter stock options to purchase a total of 24,800 shares of
the Company's common stock at $.40 per share under its Stock Option Plan in
1997.
The Company entered into several research and development contracts during
1996. Under these contracts, Donald J. Abraham, Ph.D., director, and Beverly A.
Teicher, Ph.D., former member of the Company's disbanded Scientific Advisory
Board, acted as Principal Investigators for the contracts with VCU and the
Dana-Farber Cancer Institute, Inc., respectively. During 1997 and 1998, services
provided under these contracts totaled $621,076 and $642,705, respectively, of
which $160,923 and $112,923 was included in accounts payable at December 31,
1997 and 1998, respectively. During 1999, services provided under these
contracts totaled $498,335, none of which was included in accounts payable at
December 31, 1999.
In March 1996, the Company obtained recourse notes receivable (the "1996
Notes") from two officers in the amount of $90,000 upon the officers' exercise
of 558,000 stock options. The notes bear interest at 8% annually with interest
and principal originally due March 1998. In December 1997, the Company obtained
additional notes receivable (the "1997 Notes") from these officers in the amount
of $49,687 upon exercise of options to acquire 123,225 shares. These notes bear
interest at 6% annually with interest and principal originally due December
1999. The notes are classified as an offset to stockholders' equity. The
maturity dates for the 1996 and 1997 Notes were extended by two years and, in
connection therewith, the Company subsequently treated the underlying stock
options as variable awards and recorded $815,000 of stock compensation expense
during 1999 based on the difference between the fair market value of the
underlying common stock and option exercise prices.
9. SUBSEQUENT EVENT
During January and February 2000, the Company granted options to purchase
694,771 shares of common stock to employees and directors at an exercise price
of $2.41 per share. In connection with the stock option
F-17
<PAGE> 78
ALLOS THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
grants, the Company will recognize compensation expense over the related vesting
periods for the difference between the exercise price and the fair market value
of $8,837,000.
The Company intends to effect a 0.62-for-one reverse stock split of its
common stock. All references in the financial statements to shares, share
prices, and per share amounts have been adjusted retroactively for all periods
presented to reflect the stock split.
During March 2000, the Company extended the 1996 Notes and, in connection
therewith, expects to record a charge during the first quarter 2000 based on the
difference between the exercise price of the underlying options and the fair
market value of the Company's common stock. Based on the Company's assumed IPO
price, the charge to expense will be approximately $10 million. Going forward,
as long as the 1996 Notes are outstanding, the difference between the exercise
price of the underlying options and the fair market value of the Company's
common stock will be remeasured each quarter and, if different from the fair
value used in determining the expense in a prior quarter, the difference will be
reflected as an additional charge or credit at that time. The Company is
currently negotiating for the extinguishment of the 1996 Notes prior to the end
of the first quarter of 2000. Management does not intend to extend the 1997
Notes a second time.
F-18
<PAGE> 79
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 SHARES
[ALLOS LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
SG COWEN
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
U.S. BANCORP PIPER JAFFRAY
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNTIL , 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant in connection with this offering
areas follows. All amounts are estimates other than the SEC registration fee and
the NASD filing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 28,842
National Association of Securities Dealers, Inc. filing
fee....................................................... 11,425
Nasdaq National Market listing fee.......................... 5,000
Printing fees............................................... 250,000
Legal fees and expenses..................................... 400,000
Accounting fees and expenses................................ 150,000
Blue sky fees and expenses.................................. 2,500
Transfer agent and registrar fees........................... 3,600
Miscellaneous fees.......................................... 148,633
----------
Total............................................. $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities including reimbursement for expenses
incurred arising under the Securities Act of 1933. Article VII of our Amended
and Restated Certificate of Incorporation, which will be effective upon the
closing of this offering, and Article XI of our Bylaws permit indemnification of
our directors, officers, employees and other agents to the maximum extent
permitted by Delaware law. In addition, we have entered into Indemnification
Agreements with our officers and directors. The Underwriting Agreement (Exhibit
1.01) also provides for cross-indemnification among us and the Underwriters with
respect to certain matters, including matters arising under the Securities Act.
At present, there is no pending litigation or proceeding involving any of
our directors or officers as to which indemnification is being sought nor is the
Company aware of any threatened litigation that may result in claims for
indemnification by any director or officer.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, we
have sold and issued the following securities, which have not been adjusted to
reflect our proposed 0.62-for-one reverse stock split to be effected prior to
consummation of the offering contemplated by this registration statement:
1. In January, March and May 1998, we issued 9,944,750 shares of Series
C preferred stock, which are convertible into 9,944,750 shares of common
stock, to 22 investors for a consideration of $1.81 per share, or an
aggregate of $17,999,997.
2. In October 1999, we issued 5,311,036 shares of Series C preferred
stock, which are convertible into 5,311,036 shares of common stock, to 20
investors for a consideration of $1.81 per share, or an aggregate of
$9,612,975.
3. From January 24, 1997 through March 24, 2000, we granted incentive
stock options and nonstatutory stock options to purchase an aggregate of
2,672,877 shares of our common stock at exercise prices ranging from $0.10
to $1.50 per share to employees and directors under our 1995 Stock Option
Plan, and issued an aggregate of 513,771 shares upon the exercise of these
and previously granted options. Of these options granted, options to
purchase 117,658 shares of common stock have been canceled.
II-1
<PAGE> 81
4. In May 1998, we issued a warrant to purchase 5,524 shares of Series C
preferred stock to Comdisco, Inc. at an exercise price of $1.81 per share.
No underwriters were involved in the foregoing sales of securities. The
issuance of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of such Securities Act as
transactions by an issuer not involving any public offering, or, in the case of
options to purchase common stock, Rule 701 of the Securities Act. The recipients
of securities in each such transaction represented their intentions to acquire
the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the share certificates and warrants issued in such transactions. All recipients
had adequate access, through their relationships with us, to information about
us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION
---------- -----------
<C> <S>
1.01++ -- Form of Underwriting Agreement.
1.02+ -- Form of Lock-Up Agreement.
3.01+ -- Certificate of Incorporation, as amended to date.
3.02+ -- Form of Amended and Restated Certificate of Incorporation
to be filed upon the closing of the offering.
3.03+ -- Bylaws, as amended to date.
3.04+ -- Form of Bylaws to be adopted upon the closing of the
offering.
4.01+ -- Form of Common Stock Certificate.
5.01+ -- Form of opinion of Cooley Godward LLP regarding legality
of securities being issued.
10.01+ -- Form of Indemnification Agreement between the Registrant
and each of its directors and officers.
10.02++* -- Hemotech and CIT Amended and Restated Allosteric
Modifiers of Hemoglobin Agreement with Center for
Innovative Technology dated January 12, 1994.
10.03+* -- Amendment to Allos Therapeutics, Inc. and CIT Amended and
Restated Allosteric Modifiers of Hemoglobin Agreement
with Center for Innovative Technology dated January 17,
1995.
10.04+ -- Amendment to Allos Therapeutics, Inc. and CIT Amended and
Restated Allosteric Modifiers of Hemoglobin Agreement
with Center for Innovative Technology dated March 12,
1996.
10.05+* -- Assignment and Assumption Agreement with Amendment with
Center for Innovative Technology and Virginia
Commonwealth University Intellectual Property Foundation
dated July 28, 1997.
10.06+ -- Exercise of Option to Nonheme Protein License Agreement
with VCU-Intellectual Property Foundation dated March 23,
1998.
10.07+ -- Warrant Agreement to purchase shares of Series B
Preferred Stock with Comdisco, Inc. dated April 15, 1996.
10.08+ -- Warrant Agreement to purchase shares of Series C
Preferred Stock with Comdisco, Inc. dated May 5, 1998.
10.09+ -- Allos Therapeutics, Inc. Series C Convertible Preferred
Stock Purchase Agreement dated October 4, 1999.
10.10+ -- Allos Therapeutics, Inc. Fourth Amended and Restated
Stockholder Rights Agreement dated October 4, 1999.
10.11+ -- Allos Therapeutics, Inc. 1995 Stock Option Plan, as
amended to date.
</TABLE>
II-2
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION
---------- -----------
<C> <S>
10.12+ -- Office Lease with Denver Jack Limited Partnership dated
October 30, 1995.
10.13+ -- First Amendment to 7000 Broadway Building Office Lease
with Denver Jack Limited Partnership dated October 30,
1995.
10.14+ -- Second Amendment to 7000 Broadway Building Office Lease
with Denver Jack Limited Partnership dated June 7, 1996.
10.15+ -- Third Amendment to 7000 Broadway Building Office Lease
with Denver Jack Limited Partnership dated March 26,
1998.
10.16+ -- Fourth Amendment to 7000 Broadway Building Office Lease
with Denver Jack Limited Partnership dated June 29, 1998.
10.17+ -- Lease Agreement with Virginia Biotechnology Research Park
Authority dated July 28, 1999.
10.18++* -- Term Sheet for Contract API Supply between Allos and
Hovione dated March 25, 1999.
10.19+ -- Confirmatory letter agreement with Hovione Inter Limited
dated January 13, 2000.
10.20++* -- Development and Investigational Supply Proposal between
Taylor Pharmaceuticals and Allos Therapeutics, Inc. dated
December 30, 1998.
10.21+* -- License Agreement with Virginia Commonwealth University
Intellectual Property Foundation dated June 30, 1997.
10.22+ -- Confirmatory letter agreement with Taylor
Pharmaceuticals, Inc. dated March 17, 2000.
23.01+ -- Consent of PricewaterhouseCoopers LLP.
23.02+ -- Consent of Cooley Godward LLP (included in Exhibit 5.01).
24.01+ -- Powers of Attorney.
27.01+ -- Financial Data Schedule.
</TABLE>
- ---------------
+ Previously filed.
++ Filed herewith.
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended.
(b) Financial Statement Schedules
No financial statement schedules are provided, because the information
called for is not required or is shown either in the financial statements or the
notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, the Underwriting Agreement, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, 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
II-3
<PAGE> 83
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Denver, State of Colorado, on this 27th day of March, 2000.
ALLOS THERAPEUTICS, INC.
By: /s/ STEPHEN J. HOFFMAN
----------------------------------
Stephen J. Hoffman
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ STEPHEN J. HOFFMAN President and Chief Executive March 27, 2000
- ----------------------------------------------------- Officer, Director
Stephen J. Hoffman
PRINCIPAL FINANCIAL AND PRINCIPAL ACCOUNTING OFFICER:
/s/ MICHAEL E. HART Chief Financial Officer and Senior March 27, 2000
- ----------------------------------------------------- Vice President, Operations
Michael E. Hart
ADDITIONAL DIRECTORS:
* Director March 27, 2000
- -----------------------------------------------------
Donald J. Abraham
* Director March 27, 2000
- -----------------------------------------------------
Stephen K. Carter
* Director March 27, 2000
- -----------------------------------------------------
Robert Curry
* Director March 27, 2000
- -----------------------------------------------------
Mark Edwards
* Director March 27, 2000
- -----------------------------------------------------
John Freund
* Director March 27, 2000
- -----------------------------------------------------
Hingge Hsu
</TABLE>
II-5
<PAGE> 85
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Director March 27, 2000
- -----------------------------------------------------
Marvin E. Jaffe
*By: /s/ STEPHEN J. HOFFMAN
------------------------------------------------
Stephen J. Hoffman
Attorney-in-fact
</TABLE>
II-6
<PAGE> 86
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION
---------- -----------
<C> <S>
1.01++ -- Form of Underwriting Agreement.
1.02+ -- Form of Lock-Up Agreement.
3.01+ -- Certificate of Incorporation, as amended to date.
3.02+ -- Form of Amended and Restated Certificate of Incorporation
to be filed upon the closing of the offering.
3.03+ -- Bylaws, as amended to date.
3.04+ -- Form of Bylaws to be adopted upon the closing of the
offering.
4.01+ -- Form of Common Stock Certificate.
5.01+ -- Form of opinion of Cooley Godward LLP regarding legality
of securities being issued.
10.01+ -- Form of Indemnification Agreement between the Registrant
and each of its directors and officers.
10.02++* -- Hemotech and CIT Amended and Restated Allosteric
Modifiers of Hemoglobin Agreement with Center for
Innovative Technology dated January 12, 1994.
10.03+* -- Amendment to Allos Therapeutics, Inc. and CIT Amended and
Restated Allosteric Modifiers of Hemoglobin Agreement
with Center for Innovative Technology dated January 17,
1995.
10.04+ -- Amendment to Allos Therapeutics, Inc. and CIT Amended and
Restated Allosteric Modifiers of Hemoglobin Agreement
with Center for Innovative Technology dated March 12,
1996.
10.05+* -- Assignment and Assumption Agreement with Amendment with
Center for Innovative Technology and Virginia
Commonwealth University Intellectual Property Foundation
dated July 28, 1997.
10.06+ -- Exercise of Option to Nonheme Protein License Agreement
with VCU-Intellectual Property Foundation dated March 23,
1998.
10.07+ -- Warrant Agreement to purchase shares of Series B
Preferred Stock with Comdisco, Inc. dated April 15, 1996.
10.08+ -- Warrant Agreement to purchase shares of Series C
Preferred Stock with Comdisco, Inc. dated May 5, 1998.
10.09+ -- Allos Therapeutics, Inc. Series C Convertible Preferred
Stock Purchase Agreement dated October 4, 1999.
10.10+ -- Allos Therapeutics, Inc. Fourth Amended and Restated
Stockholder Rights Agreement dated October 4, 1999.
10.11+ -- Allos Therapeutics, Inc. 1995 Stock Option Plan, as
amended to date.
10.12+ -- Office Lease with Denver Jack Limited Partnership dated
October 30, 1995.
10.13+ -- First Amendment to 7000 Broadway Building Office Lease
with Denver Jack Limited Partnership dated October 30,
1995.
10.14+ -- Second Amendment to 7000 Broadway Building Office Lease
with Denver Jack Limited Partnership dated June 7, 1996.
10.15+ -- Third Amendment to 7000 Broadway Building Office Lease
with Denver Jack Limited Partnership dated March 26,
1998.
10.16+ -- Fourth Amendment to 7000 Broadway Building Office Lease
with Denver Jack Limited Partnership dated June 29, 1998.
10.17+ -- Lease Agreement with Virginia Biotechnology Research Park
Authority dated July 28, 1999.
10.18++* -- Term Sheet for Contract API Supply between Allos and
Hovione dated March 25, 1999.
10.19+ -- Confirmatory letter agreement with Hovione Inter Limited
dated January 13, 2000.
</TABLE>
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION
---------- -----------
<C> <S>
10.20++* -- Development and Investigational Supply Proposal between
Taylor Pharmaceuticals and Allos Therapeutics, Inc. dated
December 30, 1998.
10.21+* -- License Agreement with Virginia Commonwealth University
Intellectual Property Foundation dated June 30, 1997.
10.22+ -- Confirmatory letter agreement with Taylor
Pharmaceuticals, Inc. dated March 17, 2000.
23.01+ -- Consent of PricewaterhouseCoopers LLP.
23.02+ -- Consent of Cooley Godward LLP (included in Exhibit 5.01).
24.01+ -- Powers of Attorney.
27.01+ -- Financial Data Schedule.
</TABLE>
- ---------------
+ Previously filed.
++ Filed herewith.
* Certain confidential material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended.
<PAGE> 1
EXHIBIT 1.01
-Shares
ALLOS THERAPEUTICS, INC.
Common Stock
UNDERWRITING AGREEMENT
- -, 2000
SG COWEN SECURITIES CORPORATION
PRUDENTIAL SECURITIES INCORPORATED
U.S. BANCORP PIPER JAFFRAY, INC.
As Representatives of the several Underwriters
c/o SG Cowen Securities Corporation
Financial Square
New York,
New York 10005
Dear Sirs:
1. Introductory. Allos Therapeutics, Inc., a Delaware corporation (the
"Company"), proposes to sell, pursuant to the terms of this Agreement,
to the several underwriters named in Schedule A hereto (the
"Underwriters," or, each, an "Underwriter"), an aggregate of - shares
of Common Stock, $0.001 par value (the "Common Stock") of the Company.
The aggregate of - shares so proposed to be sold is hereinafter
referred to as the "Firm Stock". The Company also proposes to sell to
the Underwriters, upon the terms and conditions set forth in Section 3
hereof, up to an additional - shares of Common Stock (the "Optional
Stock"). The Firm Stock and the Optional Stock are hereinafter
collectively referred to as the "Stock". SG Cowen Securities
Corporation ("SG Cowen"), Prudential Securities Incorporated and U.S.
Bancorp Piper Jaffray, Inc. are acting as representatives of the
several Underwriters and in such capacity are hereinafter referred to
as the "Representatives".
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-95439)
in the form in which it became or becomes effective and also
in such form as it may be when any post-effective amendment
thereto shall become effective with respect to the Stock,
including any preeffective prospectuses included as part of
the registration statement as originally filed or as part of
any amendment or supplement thereto, or filed pursuant to Rule
424 under the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder, copies of which have heretofore
been delivered to you, has been prepared by the Company in
conformity with the requirements of the Securities Act and has
been filed with the Commission under the Securities Act; one
or more amendments to such registration statement, including
in each case an amended preeffective prospectus, copies of
which amendments have heretofore been delivered to you, have
been so prepared and filed. If it is contemplated, at the time
this Agreement is executed, that a post-effective amendment to
the registration statement will be filed and must be declared
effective before the offering of the Stock may commence,
<PAGE> 2
the term "Registration Statement" as used in this Agreement
means the registration statement as amended by said
post-effective amendment. The term "Registration Statement" as
used in this Agreement shall also include any registration
statement relating to the Stock that is filed and declared
effective pursuant to Rule 462(b) under the Securities Act.
The term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement,
or, (A) if the prospectus included in the Registration
Statement omits information in reliance on Rule 430A under the
Securities Act and such information is included in a
prospectus filed with the Commission pursuant to Rule 424(b)
under the Securities Act, the term "Prospectus" as used in
this Agreement means the prospectus in the form included in
the Registration Statement as supplemented by the addition of
the Rule 430A information contained in the prospectus filed
with the Commission pursuant to Rule 424(b) and (B) if
prospectuses that meet the requirements of Section 10(a) of
the Securities Act are delivered pursuant to Rule 434 under
the Securities Act, then (i) the term "Prospectus" as used in
this Agreement means the "prospectus subject to completion"
(as such term is defined in Rule 434(g) under the Securities
Act) as supplemented by (a) the addition of Rule 430A
information or other information contained in the form of
prospectus delivered pursuant to Rule 434(b)(2) under the
Securities Act or (b) the information contained in the term
sheets described in Rule 434(b)(3) under the Securities Act,
and (ii) the date of such prospectuses shall be deemed to be
the date of the term sheets. The term "Preeffective
Prospectus" as used in this Agreement means the prospectus
subject to completion in the form included in the Registration
Statement at the time of the initial filing of the
Registration Statement with the Commission, and as such
prospectus shall have been amended from time to time prior to
the date of the Prospectus.
(b) The Commission has not issued or threatened to issue any
order preventing or suspending the use of any Preeffective
Prospectus, and, at its date of issue, each Preeffective
Prospectus conformed in all material respects with the
requirements of the Securities Act and did not include any
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading; and, when the
Registration Statement becomes effective and at all times
subsequent thereto up to and including each of the Closing
Dates (as hereinafter defined), the Registration Statement and
the Prospectus and any amendments or supplements thereto
contained and will contain all material statements and
information required to be included therein by the Securities
Act and conformed and will conform in all material respects to
the requirements of the Securities Act and neither the
Registration Statement nor the Prospectus, nor any amendment
or supplement thereto, included or will include any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the
foregoing representations, warranties and agreements shall not
apply to information contained in or omitted from any
Preeffective Prospectus or the Registration Statement or the
Prospectus or any such amendment or supplement thereto in
reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter,
directly or through you, specifically for use in the
preparation thereof; there is no franchise, lease, contract,
agreement or document required to be described in the
Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which is not described
or filed therein as required; and all descriptions of any such
franchises, leases, contracts, agreements or documents
contained in the Registration Statement are accurate and
complete descriptions of such documents in all material
respects.
2
<PAGE> 3
(c) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and
except as set forth or contemplated in the Prospectus, the
Company has not incurred any liabilities or obligations,
direct or contingent, nor entered into any transactions not in
the ordinary course of business, and there has not been any
material adverse change in the condition (financial or
otherwise), properties, business, management, prospects, net
worth or results of operations of the Company or any change in
the capital stock, short-term or long-term debt of the
Company.
(d) The financial statements, together with the related notes,
set forth in the Prospectus fairly present, on the basis
stated in the Registration Statement, the financial position
and the results of operations and changes in financial
position of the Company at the respective dates or for the
respective periods therein specified. Such statements and
related notes have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis
except as may be set forth in the Prospectus. The selected
financial and statistical data set forth in the Prospectus
fairly present, on the basis stated in Registration Statement,
the information set forth therein.
(e) PricewaterhouseCoopers LLP, who have expressed their
opinions on the audited financial statements included in the
Registration Statement and the Prospectus are independent
public accountants as required by the Securities Act and the
Rules and Regulations.
(f) The Company has been duly organized and is validly
existing and in good standing as a corporation under the laws
of its jurisdiction of organization, with corporate power and
authority to own or lease its properties and to conduct its
business as described in the Prospectus; the Company is in
possession of and operating in compliance with all franchises,
grants, authorizations, licenses, permits, easements,
consents, certificates and orders required for the conduct of
its business, all of which are valid and in full force and
effect, except to the extent that the failure to be in such
possession would not have a material adverse effect on the
operations of the Company; and the Company is duly qualified
to do business and in good standing as a foreign corporation
in all other jurisdictions where its ownership or leasing of
properties or the conduct of its business requires such
qualification, except to the extent that the failure to so
qualify would not have a material adverse effect on the
operations of the Company. The Company has all requisite power
and authority, and all necessary consents, approvals,
authorizations, orders, registrations, qualifications,
licenses and permits of and from all public regulatory or
governmental agencies and bodies to own, lease and operate its
properties and conduct its business as now being conducted and
as described in the Registration Statement and the Prospectus,
and no such consent, approval, authorization, order,
registration, qualification, license or permit contains a
materially burdensome restriction not adequately disclosed in
the Registration Statement and the Prospectus.
(g) The Company's authorized and outstanding capital stock
will be on the Closing Dates, as set forth under the heading
"Capitalization" in the Prospectus; the outstanding shares of
common stock of the Company conform to the description thereof
in the Prospectus and have been duly authorized and validly
issued and are fully paid and nonassessable and have been
issued in compliance with all federal and state securities
laws and were not issued in violation of or subject to any
preemptive rights or similar rights to subscribe for or
purchase securities and conform to the description thereof
contained in the Prospectus. Except as disclosed in and or
contemplated by the Prospectus and the financial statements of
the Company and related notes thereto included in the
Prospectus, the Company does not have outstanding any options
or warrants to purchase, or any preemptive rights or other
rights to subscribe for or to
3
<PAGE> 4
purchase any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its
capital stock or any such options, rights, convertible
securities or obligations, except for options granted
subsequent to the date of information provided in the
Prospectus pursuant to the Company's employee and stock option
plans as disclosed in the Prospectus. The description of the
Company's stock option and other stock plans or arrangements,
and the options or other rights granted or exercised
thereunder, as set forth in the Prospectus, accurately and
fairly presents the information required to be shown with
respect to such plans, arrangements, options and rights.
(h) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized
and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued, fully paid
and nonassessable and free of any preemptive or similar rights
and will conform to the description thereof in the Prospectus.
(i) Except as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company is a
party or of which any property of the Company is subject,
which, if determined adversely to the Company, might
individually or in the aggregate (i) prevent or adversely
affect the transactions contemplated by this Agreement, (ii)
suspend the effectiveness of the Registration Statement, (iii)
prevent or suspend the use of the Preeffective Prospectus in
any jurisdiction or (iv) result in a material adverse change
in the condition (financial or otherwise), properties,
business, management, prospects, net worth or results of
operations of the Company and there is no valid basis for any
such legal or governmental proceeding; and to the best of the
Company's knowledge no such proceedings are threatened or
contemplated against the Company by governmental authorities
or others. The Company is not a party nor subject to the
provisions of any material injunction, judgment, decree or
order of any court, regulatory body or other governmental
agency or body. The description of the Company's litigation
under the heading "Legal Proceedings" in the Prospectus is
true and correct and complies with the Rules and Regulations.
(j) The execution, delivery and performance of this Agreement
and the consummation of the transactions herein contemplated
(A) will not result in any violation of the provisions of the
certificate of incorporation, by-laws or other organizational
documents of the Company, or any law, order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its properties or
assets, (B) will not conflict with or result in a breach or
violation of any of the terms or provisions of or constitute a
default under any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the
Company is a party or by which it or any of its properties is
or may be bound, the Certificate of Incorporation, By-laws or
other organizational documents of the Company, or any law,
order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company or any of its
properties or will result in the creation of a lien.
(k) No consent, approval, authorization or order of any court
or governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company and
the consummation of the transactions contemplated hereby,
except such as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or under the Securities
Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or the securities or "Blue Sky" laws of any
jurisdiction in connection with the purchase and distribution
of the Stock by the Underwriters.
(l) The Company has the full corporate power and authority to
enter into this Agreement and to perform its obligations
hereunder (including to issue, sell and deliver
4
<PAGE> 5
the Stock), and this Agreement has been duly and validly
authorized, executed and delivered by the Company and is a
valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except to
the extent that rights to indemnity and contribution hereunder
may be limited by federal or state securities laws or the
public policy underlying such laws.
(m) The Company is in compliance with, and conducts its
business in conformity with, all applicable federal, state,
local and foreign laws, rules and regulations or any court or
governmental agency or body, except to the extent that the
failure to so comply would not have a material adverse effect
on the operations of the Company; to the knowledge of the
Company, otherwise than as set forth in the Registration
Statement and the Prospectus, no prospective change in any of
such federal or state laws, rules or regulations has been
adopted which, when made effective, would have a material
adverse effect on the operations of the Company.
(n) The Company has filed all necessary federal, state, local
and foreign income, payroll, franchise and other tax returns
and has paid all taxes shown as due thereon or with respect to
any of its properties, and there is no tax deficiency that has
been, or to the knowledge of the Company is likely to be,
asserted against the Company or any of its properties or
assets that would adversely affect the financial position,
business or operations of the Company.
(o) No person or entity has the right to require registration
of shares of Common Stock or other securities of the Company
in the offering contemplated by the Prospectus because of the
filing or effectiveness of the Registration Statement or
otherwise, except for persons and entities who have expressly
waived such right or who have been given proper notice and
have failed to exercise such right within the time or times
required under the terms and conditions of such right.
(p) Neither the Company nor any of its officers, directors or
affiliates has taken or will take, directly or indirectly, any
action designed or intended to stabilize or manipulate the
price of any security of the Company, or which caused or
resulted in, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation
of the price of any security of the Company.
(q) The Company has provided the Representatives with all
financial statements since -, 199- to the date hereof that are
available to the officers of the Company, including financial
statements for the months of - and - of 199-.
(r) The Company owns or possesses the right to use all
patents, trademarks, trademark registrations, service marks,
service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights described in the
Prospectus as being owned or licensed by it or necessary for
the conduct of its business, and the Company is not aware of
any claim to the contrary or any challenge by any other person
to the rights of the Company with respect to the foregoing.
The Company's business as now conducted and as proposed to be
conducted does not and will not infringe or conflict with in
any material respect patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses or other
intellectual property or franchise right of any person. Except
as described in the Prospectus, no claim has been made against
the Company alleging the infringement by the Company of any
patent, trademark, service mark, trade name, copyright, trade
secret, license in or other intellectual property right or
franchise right of any person.
5
<PAGE> 6
(s) The Company has performed all material obligations
required to be performed by it under all contracts required by
Item 601(b)(10) of Regulation S-K under the Securities Act to
be filed as exhibits to the Registration Statement, and
neither the Company nor any other party to such contract is in
default under or in breach of any such obligations. The
Company has not received any notice of such default or breach.
(t) The Company is not involved in any labor dispute nor is
any such dispute threatened. The Company is not aware that (A)
any executive, key employee or significant group of employees
of the Company plans to terminate employment with the Company
or (B) any such executive or key employee is subject to any
noncompete, nondisclosure, confidentiality, employment,
consulting or similar agreement that would be violated by the
present or proposed business activities of the Company. The
Company does not have or expect to have any liability for any
prohibited transaction or funding deficiency or any complete
or partial withdrawal liability with respect to any pension,
profit sharing or other plan which is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"),
to which the Company makes or ever has made a contribution and
in which any employee of the Company is or has ever been a
participant. With respect to such plans, the Company is in
compliance in all material respects with all applicable
provisions of ERISA.
(u) The Company has obtained the written agreement described
in Section 8(l) of this Agreement from each of its officers,
directors and holders of Common Stock listed on Schedule C
hereto.
(v) The Company has, and as of the Closing Dates will have,
good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned
or proposed to be owned by it which is material to the
business of the Company, in each case free and clear of all
liens, encumbrances and defects except such as are described
the Prospectus or such as would not have a material adverse
effect on the Company; and any real property and buildings
held under lease by the Company or proposed to be held after
giving effect to the transactions described in the Prospectus
are, or will be as of each of the Closing Dates, held by it
under valid, subsisting and enforceable leases with such
exceptions as would not have a material adverse effect on the
Company, in each case except as described in or contemplated
by the Prospectus.
(w) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such
amounts as are customary for companies at the Company's stage
of development engaged in the business in which it is engaged
or proposes to engage after giving effect to the transactions
described in the Prospectus; and the Company does not have 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 condition, financial or
otherwise, or the earnings, business or operations of the
Company, except as described in or contemplated by the
Prospectus.
(x) Other than as contemplated by this Agreement, there is no
broker, finder or other party that is entitled to receive from
the Company any brokerage or finder's fee or other fee or
commission as a result of any of the transactions contemplated
by this Agreement.
(y) The Company has no subsidiaries.
(z) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with
6
<PAGE> 7
management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(aa) To the Company's knowledge, neither the Company nor any
employee or agent of the Company has made any payment of funds
of the Company or received or retained any funds in violation
of any law, rule or regulation, which payment, receipt or
retention of funds is of a character required to be disclosed
in the Prospectus.
(bb) The Company is not and, after application of the net
proceeds of this offering as described under the caption "Use
of Proceeds" in the Prospectus, will not become an "investment
company" or an entity "controlled" by an "investment company"
as such terms are defined in the Investment Company Act of
1940, as amended.
(cc) The Company has not distributed and, prior to the later
of (i) the Closing Date and (ii) the completion of the
distribution of the Securities, will not distribute any
offering material in connection with the offering and sale of
the Securities other than the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or other
materials, if any permitted by the Act.
Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company as to the
matters covered thereby.
3. Purchase by, and Sale and Delivery to, Underwriters--Closing Dates. The
Company agrees to sell to the Underwriters the Firm Stock, and on the
basis of the representations, warranties, covenants and agreements
herein contained, but subject to the terms and conditions herein set
forth, the Underwriters agree, severally and not jointly, to purchase
the Firm Stock from the Company, the number of shares of Firm Stock to
be purchased by each Underwriter being set opposite its name in
Schedule A, subject to adjustment in accordance with Section 12 hereof,
at U.S.$ _per share (the "Purchase Price").
The Company will deliver the Firm Stock to the Representatives for the
respective accounts of the several Underwriters (in the form of
definitive certificates, issued in such names and in such denominations
as the Representatives may direct by notice in writing to the Company
given at or prior to 12:00 Noon, New York Time, on the second full
business day preceding the First Closing Date (as defined below) or, if
no such direction is received, in the names of the respective
Underwriters or in such other names as SG Cowen may designate (solely
for the purpose of administrative convenience) and in such
denominations as SG Cowen may determine, against payment of the
aggregate Purchase Price therefor by certified or official bank check
or checks in immediately available funds (same day funds), payable to
the order of the Company, all at the offices of Brown & Wood LLP, One
World Trade Center, New York, New York 10048. The time and date of the
delivery and closing shall be at 10:00 A.M., New York Time, on March ,
2000, in accordance with Rule 15c6-1 of the Exchange Act. The time and
date of such payment and delivery are herein referred to as the "First
Closing Date". The First Closing Date and the location of delivery of,
and the form of payment for, the Firm Stock may be varied by agreement
between the Company and SG Cowen. The First Closing Date may be
postponed pursuant to the provisions of Section 12.
7
<PAGE> 8
The Company shall make the certificates for the Stock available to the
Representatives for examination on behalf of the Underwriters not later
than 10:00 A.M., New York Time, on the business day preceding the First
Closing Date at the offices of SG Cowen Securities Corporation,
Financial Square, New York, New York 10005.
It is understood that SG Cowen, individually and not as a
Representative of the several Underwriters, may (but shall not be
obligated to) make payment to the Company on behalf of any Underwriter
or Underwriters, for the Stock to be purchased by such Underwriter or
Underwriters. Any such payment by SG Cowen shall not relieve such
Underwriter or Underwriters from any of its or their other obligations
hereunder.
The several Underwriters agree to make an initial public offering of
the Firm Stock at the initial public offering price as soon after the
effectiveness of the Registration Statement as in their judgment is
advisable. The Representatives shall promptly advise the Company of the
making of the initial public offering. The Company is advised by you
that the Firm Stock is to be offered to the public initially at U.S.
$________ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess
of U.S. $_________ a share under the Public Offering Price, and that
any Underwriter may allow, and such dealers may reallow, a concession,
not in excess of U.S. $__________ a share, to any Underwriter or to
certain other dealers.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the
Prospectus, the Company hereby grants to the Underwriters an option to
purchase, severally and not jointly, up to the aggregate number of
shares of Optional Stock set forth opposite the Company's name on
Schedule B hereto, for an aggregate of up to - shares. The price per
share to be paid for the Optional Stock shall be the Purchase Price.
The option granted hereby may be exercised as to all or any part of the
Optional Stock at any time, and from time to time, not more than thirty
(30) days subsequent to the effective date of this Agreement. No
Optional Stock shall be sold and delivered unless the Firm Stock
previously has been, or simultaneously is, sold and delivered. The
right to purchase the Optional Stock or any portion thereof may be
surrendered and terminated at any time upon notice by the Underwriters
to the Company.
The option granted hereby may be exercised by the Underwriters by
giving written notice from SG Cowen to the Company setting forth the
number of shares of the Optional Stock to be purchased by them and the
date and time for delivery of and payment for the Optional Stock. Each
date and time for delivery of and payment for the Optional Stock (which
may be the First Closing Date, but not earlier) is herein called the
"Option Closing Date" and shall in no event be earlier than two (2)
business days nor later than ten (10) business days after written
notice is given. (The Option Closing Date and the First Closing Date
are herein called the "Closing Dates".) All purchases of Optional Stock
from the Company shall be made on a pro rata basis. Optional Stock
shall be purchased for the account of each Underwriter in the same
proportion as the number of shares of Firm Stock set forth opposite
such Underwriter's name in Schedule B hereto bears to the total number
of shares of Firm Stock (subject to adjustment by the Underwriters to
eliminate odd lots). Upon exercise of the option by the Underwriters,
the Company agrees to sell to the Underwriters the number of shares of
Optional Stock set forth in the written notice of exercise and the
Underwriters agree, severally and not jointly and subject to the terms
and conditions herein set forth, to purchase the number of such shares
determined as aforesaid.
The Company will deliver the Optional Stock to the Underwriters (in the
form of definitive certificates, issued in such names and in such
denominations as the Representatives may direct by notice in writing to
the Company given at or prior to 12:00 Noon, New York Time, on the
second full business day preceding the Option Closing Date or, if no
such direction is received, in the names of the respective Underwriters
or in such other names as SG Cowen may designate (solely
8
<PAGE> 9
for the purpose of administrative convenience) and in such
denominations as SG Cowen may determine, against payment of
the aggregate Purchase Price therefor by certified or official
bank check or checks in Clearing House funds (next day funds),
payable to the order of the Company all at the offices of
Brown & Wood LLP, One World Trade Center, New York, New York
10048. The Company shall make the certificates for the
Optional Stock available to the Underwriters for examination
not later than 10:00 A.M., New York Time, on the business day
preceding the Option Closing Date at the offices of SG Cowen
Securities Corporation, Financial Square, New York, New York
10005. The Option Closing Date and the location of delivery
of, and the form of payment for, the Option Stock may be
varied by agreement between the Company and SG Cowen. The
Option Closing Date may be postponed pursuant to the
provisions of Section 12.
4. Covenants and Agreements of the Company. The Company covenants and
agrees with the several Underwriters that:
(a) The Company will (i) if the Company and the
Representatives have determined not to proceed pursuant to
Rule 430A of the of the Rules and Regulations, use its best
efforts to cause the Registration Statement to become
effective, (ii) if the Company and the Representatives have
determined to proceed pursuant to Rule 430A of the Rules and
Regulations, use its best efforts to comply with the
provisions of and make all requisite filings with the
Commission pursuant to Rule 430A and Rule 424 of the Rules and
Regulations and (iii) if the Company and the Representatives
have determined to deliver Prospectuses pursuant to Rule 434
of the Rules and Regulations, to use its best efforts to
comply with all the applicable provisions thereof. The Company
will advise the Representatives promptly as to the time at
which the Registration Statement becomes effective, will
advise the Representatives promptly of the issuance by the
Commission of any stop order suspending the effectiveness of
the Registration Statement or of the institution of any
proceedings for that purpose, and will use its best efforts to
prevent the issuance of any such stop order and to obtain as
soon as possible the lifting thereof, if issued. The Company
will advise the Representatives promptly of the receipt of any
comments of the Commission or any request by the Commission
for any amendment of or supplement to the Registration
Statement or the Prospectus or for additional information and
will not at any time file any amendment to the Registration
Statement or supplement to the Prospectus which shall not
previously have been submitted to the Representatives a
reasonable time prior to the proposed filing thereof or to
which the Representatives shall reasonably object in writing
or which is not in compliance with the Securities Act and the
Rules and Regulations.
(b) The Company will prepare and file with the Commission,
promptly upon the request of the Representatives, any
amendments or supplements to the Registration Statement or the
Prospectus which in the opinion of the Representatives may be
necessary to enable the several Underwriters to continue the
distribution of the Stock and will use its best efforts to
cause the same to become effective as promptly as possible.
(c) If at any time after the effective date of the
Registration Statement when a prospectus relating to the Stock
is required to be delivered under the Securities Act any event
relating to or affecting the Company occurs as a result of
which the Prospectus or any other prospectus 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, in light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Securities Act, the
Company will promptly notify the Representatives thereof and
will prepare an amended or supplemented prospectus which will
correct such statement or omission; and in case any
Underwriter is required to deliver a prospectus relating to
the Stock nine (9) months or
9
<PAGE> 10
more after the effective date of the Registration Statement,
the Company upon the request of the Representatives and at the
expense of such Underwriter will prepare promptly such
prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the
Securities Act.
(d) The Company will deliver to the Representatives, at or
before the Closing Dates, signed copies of the Registration
Statement, as originally filed with the Commission, and all
amendments thereto including all financial statements and
exhibits thereto, and will deliver to the Representatives such
number of copies of the Registration Statement, including such
financial statements but without exhibits, and all amendments
thereto, as the Representatives may reasonably request. The
Company will deliver or mail to or upon the order of the
Representatives, from time to time until the effective date of
the Registration Statement, as many copies of the Preeffective
Prospectus as the Representatives may reasonably request. The
Company will deliver or mail to or upon the order of the
Representatives on the date of the initial public offering,
and thereafter from time to time during the period when
delivery of a prospectus relating to the Stock is required
under the Securities Act, as many copies of the Prospectus, in
final form or as thereafter amended or supplemented as the
Representatives may reasonably request; provided, however,
that the expense of the preparation and delivery of any
prospectus required for use nine (9) months or more after the
effective date of the Registration Statement shall be borne by
the Underwriters required to deliver such prospectus.
(e) The Company will make generally available to its
shareholders as soon as practicable, but not later than
fifteen (15) months after the effective date of the
Registration Statement, an earning statement which will be in
reasonable detail (but which need not be audited) and which
will comply with Section 11(a) of the Securities Act, covering
a period of at least twelve (12) months beginning after the
"effective date" (as defined in Rule 158 under the Securities
Act) of the Registration Statement.
(f) The Company will cooperate with the Representatives to
enable the Stock to be registered or qualified for offering
and sale by the Underwriters and by dealers under the
securities laws of such jurisdictions as the Representatives
may designate and at the request of the Representatives will
make such applications and furnish such consents to service of
process or other documents as may be required of it as the
issuer of the Stock for that purpose; provided, however, that
the Company shall not be required to qualify to do business or
to file a general consent (other than that arising out of the
offering or sale of the Stock) to service of process in any
such jurisdiction where it is not now so subject. The Company
will, from time to time, prepare and file such statements and
reports as are or may be required of it as the issuer of the
Stock to continue such qualifications in effect for so long a
period as the Representatives may reasonably request for the
distribution of the Stock. The Company will advise the
Representatives promptly after the Company becomes aware of
the suspension of the qualifications or registration of (or
any such exception relating to) the Common Stock of the
Company for offering, sale or trading in any jurisdiction or
of any initiation or threat of any proceeding for any such
purpose, and in the event of the issuance of any orders
suspending such qualifications, registration or exception, the
Company will, with the cooperation of the Representatives use
its best efforts to obtain the withdrawal thereof.
(g) The Company will furnish to its shareholders as soon as
practicable after the end of each fiscal year an annual report
containing financial statements certified by independent
public accountants, will furnish to its shareholders as soon
as practicable after the end of each of the first three
quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the Registration
Statement) summary financial information of the Company for
such quarter in reasonable detail. During the
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<PAGE> 11
period of five (5) years from the date hereof, the Company
will deliver to the Representatives and, upon request of the
Representatives, to each of the other Underwriters, as soon as
they are available after the end of the fiscal year, copies of
each annual report of the Company containing the balance sheet
of the Company as of the close of such fiscal year and
statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's
independent public accountants, (i) as soon as they are
available, copies of any other reports (financial or other)
which the Company shall publish or otherwise make available to
any of its shareholders as such; (ii) as soon as practicable
after the filing thereof, copies of each proxy statement,
Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Report on Form 8-K or other report filed by the Company with
the Commission, or the NASD or any securities exchange; (iii)
as soon as available, copies of any report or communication of
the Company mailed generally to holders of its Common Stock;
and (iv) from time to time such other information concerning
the Company as you may request.
(h) The Company will use its best efforts to list the Stock,
subject to official notice of issuance, on the Nasdaq National
Market concurrently with the effectiveness of the Registration
Statement.
(i) The Company will maintain a transfer agent and registrar
for its Common Stock.
(j) Prior to filing its quarterly statements on Form 10-Q, the
Company will have its independent auditors perform a limited
quarterly review of its quarterly numbers.
(k) The Company will not, for a period of 180 days following
the date of the Prospectus filed by the Company with the
Securities and Exchange Commission in connection with such
public offering without the prior written consent of SG Cowen,
on behalf of the several Underwriters, (1) directly or
indirectly, offer, sell, assign, transfer, encumber, pledge,
contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise dispose of,
other than by operation of law, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable
for Common Stock (including, without limitation, Common Stock
which may be deemed to be beneficially owned by the
undersigned in accordance with the rules and regulations
promulgated under the Securities Act) or (2) enter into any
swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of
Common Stock whether any such transaction described in clause
(1) or (2) above is to be settled by delivery of Common Stock
or such other securities, in cash or otherwise, other than the
Company's sale of Common Stock hereunder, the Company's
issuance of stock options under the Company's 1995 Stock
Option Plan and the Company's 2000 Stock Incentive
Compensation Plan, and the Company's issuance of Common Stock
upon the exercise of warrants and stock options which are
presently outstanding and described in the Prospectus.
(l) Prior to filing with the Commission any reports on Form SR
pursuant to Rule 463 of Rules and Regulations, the Company
will furnish a copy thereof to the counsel for the
Underwriters and receive and consider its comments thereon,
and will deliver promptly to the Representatives a signed copy
of each report on Form SR filed by it with the Commission.
(m) The Company will apply the net proceeds from the sale of
the Stock as set forth in the description under "Use of
Proceeds" in the Prospectus, which description complies in all
material respects with the requirements of Item 504 of
Regulation S-K.
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<PAGE> 12
(n) The Company will supply the Representatives with copies of
all correspondence to and from, and all documents issued to
and by, the Commission in connection with the registration of
the Stock under the Securities Act.
(o) Prior to each of the Closing Dates the Company will
furnish to the Representatives, as soon as they have been
prepared, copies of any unaudited interim financial statements
of the Company for any periods subsequent to the periods
covered by the financial statements appearing in the
Registration Statement and the Prospectus.
(p) Prior to each of the Closing Dates the Company will issue
no press release or other communications directly or
indirectly and hold no press conference with respect to the
Company, the financial condition, results of operations,
business, prospects, assets or liabilities of the Company, or
the offering of the Stock, without the Representatives' prior
written consent. For a period of twelve (12) months following
the first Closing Date, the Company will use commercially
reasonable efforts to provide to the Representatives copies of
each press release or other public communications with respect
to the financial condition, results of operations, business,
prospects, assets or liabilities of the Company at least
twenty-four (24) hours prior to the public issuance thereof or
such longer advance period as may reasonably be practicable.
5. Payment of Expenses. (a) The Company will pay (directly or by
reimbursement) all costs, fees and expenses incurred in connection with
expenses incident to the performance of its obligations under this
Agreement and in connection with the transactions contemplated hereby,
including but not limited to (i) all expenses and taxes incident to the
issuance and delivery of the Stock to the Representatives; (ii) all
expenses incident to the registration of the Stock under the Securities
Act; (iii) the costs of preparing stock certificates (including
printing and engraving costs); (iv) all fees and expenses of the
registrar and transfer agent of the Stock; (v) all necessary issue,
transfer and other stamp taxes in connection with the issuance and sale
of the Stock to the Underwriters; (vi) fees and expenses of the
Company's counsel and the Company's independent accountants; (vii) all
costs and expenses incurred in connection with the preparation,
printing filing, shipping and distribution of the Registration
Statement, each Preeffective Prospectus and the Prospectus (including
all exhibits and financial statements) and all amendments and
supplements provided for herein, the "Agreement Among Underwriters"
between the Representatives and the Underwriters, the Master Selected
Dealers' Agreement, the Underwriters' Questionnaire and the Blue Sky
memoranda (including related fees and expenses of counsel to the
Underwriters) and this Agreement; (viii) all filing fees, attorneys'
fees and expenses incurred by the Company or the Underwriters in
connection with exemptions from the qualifying or registering (or
obtaining qualification or registration of) all or any part of the
Stock for offer and sale under the Blue Sky or other securities laws of
such jurisdictions as the Representatives may designate; (ix) fees and
expenses of counsel to the Underwriters; (x) all fees and expenses paid
or incurred in connection with filings made with the NASD; and (xi) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this
Section.
(b) In addition to its other obligations under Section 6(a) hereof, the
Company agrees that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding arising out
of or based upon (i) any statement or omission or any alleged statement
or omission, (ii) any act or failure to act or any alleged act or
failure to act or (iii) any breach or inaccuracy in its representations
and warranties, it will reimburse each Underwriter on a quarterly basis
for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation,
inquiry or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the Company's
obligation to reimburse each Underwriter for such expenses and the
possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the
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<PAGE> 13
extent that any such interim reimbursement payment is so held to have
been improper, each Underwriter shall promptly return it to the Company
together with interest, compounded daily, determined on the basis of
the prime rate (or other commercial lending rate for borrowers of the
highest credit standing) announced from time to timed by - , New York,
New York (the "Prime Rate"). The request for reimbursement will be sent
to the Company. Any such interim reimbursement payments which are not
made to an Underwriter within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the due date
for such reimbursement. This expense reimbursement agreement will be in
addition to any other liability which the Company may otherwise have.
(c) In addition to its other obligations under Section 6(b) hereof,
each Underwriter severally agrees that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or
any alleged statement or omission, described in Section 6(b) hereof
which relates to information furnished to the Company pursuant to
Section 6(b) hereof, it will reimburse the Company (and, to the extent
applicable, each officer, director or controlling person) on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of
the Underwriters' obligation to reimburse the Company (and, to the
extent applicable, each officer, director or controlling person) for
such expenses and the possibility that such payments might later be
held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have
been improper, the Company (and, to the extent applicable, each
officer, director or controlling person) shall promptly return it to
the Underwriters together with interest, compounded daily, determined
on the basis of the Prime Rate. Any such interim reimbursement payments
which are not made to the Company within thirty (30) days of a request
for reimbursement shall bear interest at the Prime Rate from the date
of such request. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(d) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in paragraph (b) or
(c) of this Section 5, including the amounts of any requested
reimbursement payments and the method of determining such amounts,
shall be settled by arbitration conducted under the provisions of the
Constitution and Rules of the Board of Governors of the New York Stock
Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the
NASD. Any such arbitration must be commenced by service of a written
demand for arbitration or written notice of intention to arbitrate,
therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said
demand or notice is authorized to do so. Such an arbitration would be
limited to the operation of the interim reimbursement provisions
contained in paragraph (b) or (c) of this Section 5 and would not
resolve the ultimate propriety or enforceability of the obligation to
reimburse expenses which is created by the provisions of Section 6.
6. Indemnification and Contribution. (a) The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who
controls such Underwriter within the meaning of the Securities Act and
the respective officers, directors, partners, employees,
representatives and agents of each of such Underwriter (collectively,
the "Underwriter Indemnified Parties" and, each, an "Underwriter
Indemnified Party"), against any losses, claims, damages, liabilities
or expenses (including the reasonable cost of investigating and
defending against any claims therefor and counsel fees incurred in
connection therewith), joint or several, which may be based upon the
Securities Act, or any other statute or at common law, (i) on the
ground or alleged ground that any Preeffective Prospectus, the
Registration Statement or the Prospectus (or any Preeffective
Prospectus, the Registration Statement or the Prospectus as from time
to time amended or supplemented) includes or allegedly includes an
untrue statement of a material fact or
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<PAGE> 14
omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, unless such
statement or omission was made in reliance upon, and in conformity
with, written information furnished to the Company by any Underwriter,
directly or through the Representatives, specifically for use in the
preparation thereof or (ii) for any materially untrue statement or
allegedly materially untrue statement made by the Company in Section 2
of this Agreement. If the Underwriter Indemnified Party fails to notify
the Company of any claims made or actions brought against any
Underwriter Indemnified Party and such failure to notify the Company of
such claims or actions materially prejudices the Company, the Company
shall not be liable with respect to such claims, but failure to notify
the Company of such claim shall not relieve the Company from any
liability which the Company may have to any Underwriter Indemnified
Party otherwise than on account of its indemnity as contained in this
paragraph. Any notification by the Underwriter Indemnified Party of any
claims against the Underwriter Indemnified Party shall be in writing
and occur within a reasonable time after the summons or other first
legal process giving information of the nature of such claim shall have
been served; provided, however, that any delay in giving such notice
shall not relieve the Company of any liability hereunder except to the
extent the Company is actually prejudiced thereby. The Company will be
entitled to participate at its own expense in the defense or, if it so
elects, to assume the defense of any suit brought to enforce any such
liability, but if the Company elects to assume the defense, such
defense shall be conducted by counsel chosen by it and reasonably
acceptable to the Underwriters. In the event the Company elects to
assume the defense of any such suit and retain such counsel, any
Underwriter Indemnified Parties, defendant or defendants in the suit,
may retain additional counsel but shall bear the fees and expenses of
such counsel unless (i) the Company shall have specifically authorized
the retaining of such counsel or (ii) the parties to such suit include
any such Underwriter Indemnified Parties, and the Company and such
Underwriter Indemnified Parties at law or in equity have been advised
by counsel to the Underwriters that one or more legal defenses may be
available to it or them which may not be available to the Company, in
which case the Company shall not be entitled to assume the defense of
such suit notwithstanding its obligation to bear the fees and expenses
of such counsel. This indemnity agreement is not exclusive and will be
in addition to any liability which the Company might otherwise have and
shall not limit any rights or remedies which may otherwise be available
at law or in equity to each Underwriter Indemnified Party.
(b) Each Underwriter severally and not jointly agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers
who have signed the Registration Statement and each person, if any, who
controls the Company within the meaning of the Securities Act
(collectively, the "Company Indemnified Parties") against any losses,
claims, damages, liabilities or expenses (including, unless the
Underwriter or Underwriters elect to assume the defense, the reasonable
cost of investigating and defending against any claims therefor and
counsel fees incurred in connection therewith), joint or several, which
arise out of or are based in whole or in part upon the Securities Act,
the Exchange Act or any other federal, state, local or foreign statute
or regulation, or at common law, on the ground or alleged ground that
any Preeffective Prospectus, the Registration Statement or the
Prospectus (or any Preeffective Prospectus, the Registration Statement
or the Prospectus, as from time to time amended and supplemented)
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances in which
they were made, not misleading, but only insofar as any such statement
or omission was made in reliance upon, and in conformity with, written
information furnished to the Company by such Underwriter, directly or
through the Representatives or their counsel, specifically for use in
the preparation thereof. If the Company fails to notify any Underwriter
Indemnified Party of any claims made or actions brought against the
Company and such failure to notify any Underwriter Indemnified Party of
such
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<PAGE> 15
claims or actions materially prejudices any Underwriter Indemnified
Party, any Underwriter Indemnified Party shall not be liable with
respect to such claims, but failure to notify any Underwriter
Indemnified Party of such claim shall not relieve any Underwriter
Indemnified Party from any liability which any Underwriter Indemnified
Party may have to the Company otherwise than on account of its
indemnity as contained in this paragraph. Any notification by the
Company of any claims against the Company shall be in writing and occur
within a reasonable time after the summons or other first legal process
giving information of the nature of such claim shall have been served;
provided, however, that any delay in giving such notice shall not
relieve any Underwriter Indemnified Party of any liability hereunder
except to the extent any Underwriter Indemnified Party is actually
prejudiced thereby. Such Underwriter shall be entitled to participate
at its own expense in the defense, or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but, if such
Underwriter elects to assume the defense, such defense shall be
conducted by counsel chosen by it and reasonably acceptable to the
Company. In the event that any Underwriter elects to assume the defense
of any such suit and retains such counsel, the Company Indemnified
Parties and any other Underwriter or Underwriters or controlling person
or persons, defendant or defendants in the suit, may retain additional
counsel but shall bear the fees and expenses of any additional counsel
retained by them, respectively unless (i) the Underwriter shall have
specifically authorized the retaining of such counsel or (ii) the
parties to such suit include the Company and/or any other Underwriter
or Underwriters and the Underwriter at law or in equity has been
advised by counsel to the Company and/or any other Underwriter or
Underwriters that one or more legal defenses may be available to them
which may not be available to the Underwriter, in which case the
Underwriter shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of such
counsel. The Underwriter against whom indemnity may be sought shall not
be liable to indemnify any person for any settlement of any such claim
effected without such Underwriter's consent. This indemnity agreement
is not exclusive and will be in addition to any liability which such
Underwriter might otherwise have and shall not limit any rights or
remedies which may otherwise be available at law or in equity to any
Company Indemnified Party.
(c) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to
herein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses (or actions in respect
thereof) 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 Stock. 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, liabilities
or expenses (or actions 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 be in the same proportion as the total net proceeds from the
offering (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
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<PAGE> 16
Company or the Underwriters 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 contribution 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. The amount paid or payable by an indemnified party as a result
of the losses, claims, damages, liabilities or expenses (or actions in
respect thereof) referred to above shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in
connection with investigating, defending, settling or compromising any
such claim. Notwithstanding the provisions of this subsection (c), no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the shares of the Stock
underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. The Underwriters'
obligations to contribute are several in proportion to their respective
underwriting obligations and not joint. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
7. Survival of Indemnities, Representations, Warranties, etc. The
respective indemnities, covenants, agreements, representations,
warranties and other statements of the Company and the several
Underwriters, as set forth in this Agreement or made by them
respectively, pursuant to this Agreement, shall remain in full force
and effect, regardless of any investigation made by or on behalf of any
Underwriter, the Company or any of its officers or directors or any
controlling person, and shall survive delivery of and payment for the
Stock.
8. Conditions of Underwriters' Obligations. The respective obligations of
the several Underwriters hereunder shall be subject to the accuracy, at
and (except as otherwise stated herein) as of the date hereof and at
and as of each of the Closing Dates, of the representations and
warranties made herein by the Company, to compliance at and as of each
of the Closing Dates by the Company with its covenants and agreements
herein contained and other provisions hereof to be satisfied at or
prior to each of the Closing Dates, and to the following additional
conditions:
(a) The Registration Statement shall have become effective 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 the Representatives, shall be threatened by
the Commission, and any request for additional information on the part
of the Commission (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the
reasonable satisfaction of the Representatives. Any filings of the
Prospectus, or any supplement thereto, required pursuant to Rule 424(b)
or Rule 434 of the Rules and Regulations, shall have been made in the
manner and within the time period required by Rule 424(b) and Rule 434
of the Rules and Regulations, as the case may be.
(b) The Representatives shall have been satisfied that there shall not
have occurred any change prior to each of the Closing Dates in the
condition (financial or otherwise), properties, business, management,
prospects, net worth or results of operations of the Company, or any
change in the capital stock, short-term or long-term debt of the
Company, such that (i) the Registration Statement or the Prospectus, or
any amendment or supplement thereto, contains an untrue statement of
fact which, in the opinion of the Representatives, is material, or
omits to state a fact which, in the opinion of the Representatives, is
required to be stated therein or is necessary to make the statements
therein not misleading, or (ii) it is unpracticable in the reasonable
judgment of the Representatives to proceed with the public offering or
purchase the Stock as contemplated hereby.
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<PAGE> 17
(c) The Representatives shall be satisfied that no legal or
governmental action, suit or proceeding affecting the Company which is
material and adverse to the Company or which affects or may affect the
Company's ability to perform its obligations under this Agreement shall
have been instituted or threatened and there shall have occurred no
material adverse development in any existing such action, suit or
proceeding.
(d) At the time of execution of this Agreement, the Representatives
shall have received from PricewaterhouseCoopers LLP, independent
certified public accountants, a letter, dated the date hereof, in form
and substance satisfactory to the Underwriters.
(e) The Representatives shall have received from PricewaterhouseCoopers
LLP, independent certified public accountants, letters, dated each of
the Closing Dates, to the effect that such accountants reaffirm, as of
each of the Closing Dates, and as though made on each of the Closing
Dates, the statements made in the letter furnished by such accountants
pursuant to paragraph (d) of this Section 8.
(f) The Representatives shall have received from Cooley Godward LLP,
counsel for the Company, opinions, dated each of the Closing Dates in
form and substance satisfactory to the Representatives.
(g) The Representatives shall have received from Whitham, Curtis,
Whitham & McGinn, special patent counsel of the Company, an opinion
dated each of the Closing Dates in form and substance satisfactory to
the Representatives.
(h) The Representatives shall have received from Brown & Wood LLP,
counsel for the Underwriters, their opinions dated each of the Closing
Dates with respect to the incorporation of the Company, the validity of
the Stock, the Registration Statement and the Prospectus and such other
related matters as it may reasonably request, and the Company shall
have furnished to such counsel such documents as they may request for
the purpose of enabling them to pass upon such matters.
(i) The Representatives shall have received a certificates, dated each
of the Closing Dates, of the chief executive officer or the president
and the chief financial or accounting officer of the Company to the
effect that:
(i) No stop order suspending the effectiveness
of the Registration Statement has been
issued, and, to the best of the knowledge of
the signers, no proceedings for that purpose
have been instituted or are pending or
contemplated under the Securities Act;
(ii) Neither any Preeffective Prospectus, as of
its date, nor the Registration Statement nor
the Prospectus, nor any amendment or
supplement thereto, as of the time when the
Registration Statement became effective and
at all times subsequent thereto up to the
delivery of such certificate, included any
untrue statement of a material fact or
omitted to state any material fact required
to be stated therein or necessary to make
the statements therein, in light of the
circumstances under which they were made,
not misleading;
(iii) Subsequent to the respective dates as of
which information is given in the
Registration Statement and the Prospectus,
and except as set forth or contemplated in
the Prospectus, the Company has not incurred
any material liabilities or obligations,
direct or contingent, nor entered into any
material transactions not in the ordinary
course of business and there
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<PAGE> 18
has not been any material adverse change in
the condition (financial or otherwise),
properties, business, management, prospects,
net worth or results of operations of the
Company, or any change in the capital stock,
short-term or long-term debt of the Company;
(iv) The representations and warranties of the
Company in this Agreement are true and
correct at and as of each of the Closing
Dates, and the Company has complied with all
the agreements and performed or satisfied
all the conditions on its part to be
performed or satisfied at or prior to the
Closing Dates; and
(v) Since the respective dates as of which
information is given in the Registration
Statement and the Prospectus, and except as
disclosed in or contemplated by the
Prospectus, (i) there has not been any
material adverse change or a development
involving a material adverse change in the
condition (financial or otherwise),
properties, business, management, prospects,
net worth or results of operations of the
Company; (ii) the business and operations
conducted by the Company have not sustained
a loss by strike, fire, flood, accident or
other calamity (whether or not insured) of
such a character as to interfere materially
with the conduct of the business and
operations of the Company; (iii) no legal or
governmental action, suit or proceeding is
pending or threatened against the Company
which is material to the Company, whether or
not arising from transactions in the
ordinary course of business, or which may
materially and adversely affect the
transactions contemplated by this Agreement;
(iv) since such dates and except as so
disclosed, the Company has not incurred any
material liability or obligation, direct,
contingent or indirect, made any change in
its capital stock (except pursuant to its
stock plans), made any material change in
its short-term or funded debt or repurchased
or otherwise acquired any of the Company's
capital stock; and (v) the Company has not
declared or paid any dividend, or made any
other distribution, upon its outstanding
capital stock payable to stockholders of
record on a date prior to the Closing Date.
(j) The Company shall have furnished to the Representatives such
additional certificates as the Representatives may have reasonably
requested as to the accuracy, at and as of each of the Closing Dates,
of the representations and warranties made herein by it and as to
compliance at and as of each of the Closing Dates by it with its
covenants and agreements herein contained and other provisions hereof
to be satisfied at or prior to each of the Closing Dates, and as to
satisfaction of the other conditions to the obligations of the
Underwriters hereunder.
(k) SG Cowen shall have received the written agreements, substantially
in the form of Exhibit I hereto, of the officers, directors and holders
of Common Stock listed in Schedule C that each will not offer, sell,
assign, transfer, encumber, contract to sell, grant an option to
purchase or otherwise dispose of, any shares of Common Stock
(including, without limitation, Common Stock which may be deemed to be
beneficially owned by such officer, director or holder in accordance
with the Rules and Regulations) during the 180 days following the date
of the final Prospectus.
(l) The Nasdaq National Market shall have approved the stock for
listing, subject only to official notice of issuance.
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All opinions, certificates, letters and other documents will
be in compliance with the provisions hereunder only if they are
satisfactory in form and substance to the Representatives acting
reasonably. The Company will furnish to the Representatives conformed
copies of such opinions, certificates, letters and other documents as
the Representatives shall reasonably request. If any of the conditions
hereinabove provided for in this Section shall not have been satisfied
when and as required by this Agreement, this Agreement may be
terminated by the Representatives by notifying the Company of such
termination in writing or by telegram at or prior to each of the
Closing Dates, but SG Cowen, on behalf of the Representatives, shall be
entitled to waive any of such conditions.
9. Effective Date. This Agreement shall become effective immediately as to
Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to all other
provisions, at 11:00 a.m. New York City time on the first full business
day following the effectiveness of the Registration Statement or at
such earlier time after the Registration Statement becomes effective as
the Representatives may determine on and by notice to the Company or by
release of any of the Stock for sale to the public. For the purposes of
this Section 9, the Stock shall be deemed to have been so released upon
the release for publication of any newspaper advertisement relating to
the Stock or upon the release by you of telegrams (i) advising
Underwriters that the shares of Stock are released for public offering
or (ii) offering the Stock for sale to securities dealers, whichever
may occur first.
10. Termination. This Agreement (except for the provisions of Section 5)
may be terminated by the Company at any time before it becomes
effective in accordance with Section 9 by notice to the Representatives
and may be terminated by the Representatives at any time before it
becomes effective in accordance with Section 9 by notice to the
Company. In the event of any termination of this Agreement under this
or any other provision of this Agreement, there shall be no liability
of any party to this Agreement to any other party, other than as
provided in Sections 5, 6 and 11 and other than as provided in Section
12 as to the liability of defaulting Underwriters.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the
First Closing Date trading in securities on any of the New York Stock
Exchange, American Stock Exchange or Nasdaq National Market System
shall have been suspended or minimum or maximum prices shall have been
established on any such exchange or market, or a banking moratorium
shall have been declared by New York or United States authorities; (ii)
trading of any securities of the Company shall have been suspended on
any exchange or in any over-the-counter market; (iii) if at or prior to
the First Closing Date there shall have been (A) an outbreak or
escalation of hostilities between the United States and any foreign
power or of any other insurrection or armed conflict involving the
United States or (B) any change in financial markets or any calamity or
crisis which, in the judgment of the Representatives, makes it
impractical or inadvisable to offer or sell the Stock on the terms
contemplated by the Prospectus; (iv) if there shall have been any
development or prospective development involving particularly the
business or properties or securities of the Company or the transactions
contemplated by this Agreement, which, in the judgment of the
Representatives makes it impracticable or inadvisable to offer or
deliver the Stock on the terms contemplated by the Prospectus; (v) if
there shall be any litigation or proceeding, pending or threatened,
which, in the judgment of the Representatives, makes it impracticable
or inadvisable to offer or deliver the Stock on the terms contemplated
by the Prospectus; or (vi) if there shall have occurred any of the
events specified in the immediately preceding clauses (i) - (v)
together with any other such event that makes it, in the judgment of
the Representatives, impractical or inadvisable to offer or deliver the
Stock on the terms contemplated by the Prospectus.
11. Reimbursement of Underwriters. Notwithstanding any other provisions
hereof, if this Agreement shall not become effective by reason of any
election of the Company pursuant to the first paragraph of Section 10
or shall be terminated by the Representatives under Section 8 or
Section 10, the Company will bear and pay the expenses specified in
Section 5 hereof and, in addition to
19
<PAGE> 20
its obligations pursuant to Section 6 hereof, the Company will
reimburse the reasonable out-of-pocket expenses of the several
Underwriters (including reasonable fees and disbursements of counsel
for the Underwriters) incurred in connection with this Agreement and
the proposed purchase of the Stock, and promptly upon demand the
Company will pay such amounts to the Representatives.
12. Substitution of Underwriters. If any Underwriter or Underwriters shall
default in its or their obligations to purchase shares of Stock
hereunder and the aggregate number of shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase does not
exceed ten percent (10%) of the total number of shares underwritten,
the other Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the shares which
such defaulting Underwriter or Underwriters agreed but failed to
purchase. If any Underwriter or Underwriters shall so default and the
aggregate number of shares with respect to which such default or
defaults occur is more than ten percent (10%) of the total number of
shares underwritten and arrangements satisfactory to the
Representatives and the Company for the purchase of such shares by
other persons are not made within forty-eight (48) hours after such
default, this Agreement shall terminate.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a
defaulting Underwriter or Underwriters as provided in this Section 12,
(i) the Company shall have the right to postpone the Closing Dates for
a period of not more than five (5) full business days in order that the
Company may effect whatever changes may thereby be made necessary in
the Registration Statement or the Prospectus, or in any other documents
or arrangements, and the Company agrees promptly to file any amendments
to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective numbers of
shares to be purchased by the remaining Underwriters or substituted
Underwriters shall be taken as the basis of their underwriting
obligation for all purposes of this Agreement. Nothing herein contained
shall relieve any defaulting Underwriter of its liability to the
Company or the other Underwriters for damages occasioned by its default
hereunder. Any termination of this Agreement pursuant to this Section
12 shall be without liability on the part of any non-defaulting
Underwriter or the Company, except for expenses to be paid or
reimbursed pursuant to Section 5 and except for the provisions of
Section 6.
13. Notices. All communications hereunder shall be in writing and, if sent
to the Underwriters shall be mailed, delivered or telegraphed and
confirmed to you, as their Representatives c/o SG Cowen Securities
Corporation at Financial Square, New York, New York 10005 except that
notices given to an Underwriter pursuant to Section 6 hereof shall be
sent to such Underwriter at the address furnished by the
Representatives or, if sent to the Company, shall be mailed, delivered
or telegraphed and confirmed c/o Allos Therapeutics, Inc., 7000 North
Broadway, Suite 400, Denver, Colorado 80221.
14. Successors. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters, the Company and their respective
successors and legal representatives. Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any person
other than the persons mentioned in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement,
or any provisions herein contained, this Agreement and all conditions
and provisions hereof being intended to be and being for the sole and
exclusive benefit of such persons and for the benefit of no other
person; except that the representations, warranties, covenants,
agreements and indemnities of the Company contained in this Agreement
shall also be for the benefit of the person or persons, if any, who
control any Underwriter or Underwriters within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, and the
indemnities of the several Underwriters shall also be for the benefit
of each director of the Company, each of its officers who has signed
the Registration Statement and
20
<PAGE> 21
the person or persons, if any, who control the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act.
15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
16. Authority of the Representatives. In connection with this Agreement,
you will act for and on behalf of the several Underwriters, and any
action taken under this Agreement by SG Cowen, Prudential Securities
Incorporated and U.S. Bancorp Piper Jaffray, Inc. as Representatives,
will be binding on all the Underwriters.
17. Partial Unenforceability. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision
hereof. If any Section, paragraph or provision of this Agreement is for
any reason determined to be invalid or unenforceable, there shall be
deemed to be made such minor changes (and only such minor changes) as
are necessary to make it valid and enforceable.
18. General. This Agreement constitutes the entire agreement of the parties
to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in
this Agreement are for the convenience of the parties only and will not
affect the construction or interpretation of this Agreement. This
Agreement may be amended or modified, and the observance of any term of
this Agreement may be waived, only by a writing signed by the Company
and the Representatives.
19. Counterparts. This Agreement may be signed in two (2) or more
counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
21
<PAGE> 22
If the foregoing correctly sets forth our understanding, please indicate your
acceptance thereof in the space provided below for that purpose, whereupon this
letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
ALLOS THERAPEUTICS, INC.
By:
---------------------------------------
Name:
Title:
Accepted and delivered in
New York as of the date
first above written.
SG COWEN SECURITIES CORPORATION
PRUDENTIAL SECURITIES INCORPORATED
U.S. BANCORP PIPER JAFFRAY, INC.
Acting on their own behalf
and as Representatives of several
Underwriters referred to in the
foregoing Agreement.
By: SG COWEN SECURITIES CORPORATION
By:
-----------------------------------
John P. Dunphy
Managing Director - Syndicate
22
<PAGE> 23
SCHEDULE A
<TABLE>
<CAPTION>
=========================================================================================
Number Number of
of Firm Optional
Shares Shares
to be to be
Name Purchased Purchased
=========================================================================================
SG Cowen Securities Corporation
Prudential Securities Incorporated
U.S. Bancorp Piper Jaffray, Inc.
=========================================================================================
<S> <C> <C>
----------- -----------
Total
=========== ===========
=========================================================================================
</TABLE>
23
<PAGE> 24
SCHEDULE B
<TABLE>
<CAPTION>
Number of Number of
Firm Optional
Shares to Shares to
be Sold be Sold
<S> <C> <C>
Allos Therapeutics, Inc.
------------------------ -----------------------
Total
---------- ----------
</TABLE>
24
<PAGE> 25
SCHEDULE C
[Persons subject to Lock-up Agreement]
25
<PAGE> 26
EXHIBIT I
[Form of Lock-Up Agreement]
, 2000
- ------------
SG Cowen Securities Corporation
Financial Square, 27th Floor
New York, NY 10005
As representative of the
several Underwriters
Re: Allos Therapeutics, Inc.
Dear Sirs:
In order to induce SG Cowen Securities Corporation ("SG Cowen"),
Prudential Securities Incorporated and U.S. Bancorp Piper Jaffray Inc. as
representatives of the several underwriters (collectively, the "Underwriters")
to enter into a certain underwriting agreement with Allos Therapeutics, Inc., a
Delaware corporation (the "Company") with respect to the public offering of
shares of the Company's Common Stock, par value $0.001 per share ("Common
Stock"), the undersigned hereby agrees that for a period of 180 days following
the date of the final prospectus filed by the Company with the Securities and
Exchange Commission in connection with such public offering, the undersigned
will not, without the prior written consent of SG Cowen, on behalf of the
several Underwriters, (1) directly or indirectly, offer, sell, assign, transfer,
encumber, pledge, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise dispose of, other than by operation of law, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock (including, without limitation, Common Stock which
may be deemed to be beneficially owned by the undersigned in accordance with the
rules and regulations promulgated under the Securities Act of 1933, as the same
may be amended or supplemented from time to time (such shares, the "Beneficially
Owned Shares")) or (2) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of Common Stock whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise.
Anything contained herein to the contrary notwithstanding, any person
to whom shares of Common Stock or Beneficially Owned Shares are transferred from
the undersigned shall be bound by the terms of this Agreement.
In addition, the undersigned hereby waives, from the date hereof until
the expiration of the 180 day period following the date of the Company's final
Prospectus, any and all rights, if any, to request or demand registration
pursuant to the Securities Act of any shares of Common Stock that are registered
in the name of the undersigned or that are Beneficially Owned Shares.
In order to enable the aforesaid covenants to be enforced, the
undersigned hereby consents to the placing of legends and/or stop-transfer
orders with the transfer agent of the Common Stock with respect to any shares of
Common Stock or Beneficially Owned Shares.
Whether or not the public offering actually occurs depends on a number
of factors, including market conditions. Any public offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
-------------------------------------
(Name)
-------------------------------------
(Address)
26
<PAGE> 1
EXHIBIT 10.02
CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this
document have been omitted and are marked with the
notation, "*Confidential Treatment Requested." A complete
copy has been filed with the Securities and Exchange Commission.
HEMOTECH AND CIT
AMENDED AND RESTATED ALLOSTERIC MODIFIERS
OF
HEMOGLOBIN AGREEMENT
This Amended and Restated Agreement is made between HemoTech Sciences Inc.
(Hemotech), a corporation organized under the laws of Virginia, and the Center
for Innovative Technology (CIT), a corporation organized under the laws of the
Commonwealth of Virginia.
1. INTRODUCTION
1.1 CIT possesses a disclosure of technology developed by Donald J.
Abraham et al. and related to allosteric modifiers of hemoglobin (CIT Case Nos.
116, 169, 214A, and 214B). This technology is described more fully in U.S.
Patent 5,049,695, U.S. Patent 5,122,539, U.S. Patent 5,248,785, U.S. Patent
5,250,701 and U.S. Patent Application Nos. 08/101,501; 08/006,246; 07/623346;
and 07/722,382. Hereafter, this technology, together with any technology
developed pursuant to the research described in Sections 3 and 10.3 hereof, is
referred to as the "Technology". Hereafter, "Licensed Patent Rights" shall mean
the foregoing patents and patent applications, any other patent applications
relating to the Technology, all applications filed outside of the United States
and all issued patents resulting therefrom or relating thereto as well as all
substitutions, extensions, reissues, renewals, re-examinations, continuations
and continuations-in-part and their foreign counterparts. The inventors of the
Technology have assigned their interests in the Technology to the Virginia
Commonwealth University (VCU), which has assigned its interest to CIT. CIT has
applied for, or plans to apply for, patent protections on all or a portion of
the Technology.
1.2 CIT and VCU desire that the Technology be used in the public interest
and made available to the public quickly and efficiently.
1.3 HemoTech is able to develop and bring to market the Technology. It
desires to obtain license rights set forth in this agreement.
2. LICENSE
2.1 CIT grants to HemoTech an exclusive, worldwide license to practice,
develop and use the Technology and the Licensed Patent Rights and to make, have
made, use and sell products which incorporate the Technology and/or the
Licensed Patent Rights. Hereafter, the term "Licensed Products" means products
which (a) incorporate the Technology and/or the Licensed Patent Rights and (b)
would infringe a Valid Claim (as such term is hereinafter defined) of Licensed
Patent Rights in any country in which such products are made or sold if not for
the license contained herein. Hereafter, the term "Valid Claim" means, in a
particular country,
<PAGE> 2
-2-
a claim of CIT in an issued, unexpired patent within the Licensed Patent
Rights, which has not been held within such country to be unenforceable,
unpatentable or invalid by a final decision of a court or other governmental
body of competent jurisdiction, which is unappealable or unappealed within the
time allowed for appeal, which has not been rendered unenforceable through
disclaimer or otherwise, and which has not been lost within such country
through an interference proceeding.
2.2 In return for the license to Technology granted by CIT HemoTech shall
pay to CIT [ * ] by January 15, 1994, and [ * ] by September 30, 1994.
2.3 In return for the license granted by CIT HemoTech shall pay to CIT a
running royalty of 1% of its (worldwide) net revenues arising from sales of
Licensed Products produced in Virginia and 1.25% of its (worldwide) net revenues
from Licensed Products which are not produced in Virginia. The term "produced in
Virginia" has the meaning set forth in Section 8. "Net Revenues" means
HemoTech's gross revenues from sales of Licensed Products less the sum of the
following: A) sales, tariff duties and/or use taxes directly imposed and with
reference to particular sales; B) outbound transportation and insurance; C)
amounts representing uncollectible billings; and D) amounts allowed or credited
on returns. Revenues shall be determined on an accrual basis in accordance with
generally accepted accounting principles.
2.4 When a Licensed Product is disposed of other than by sale, e.g.
leased, net revenues shall include the selling price at which products of
similar kind and quality, sold in similar quantities, are currently being
offered for sale by HemoTech (or other manufacturers if HemoTech is not
currently offering such Licensed Products of similar kind and quality for sale).
2.5 In the event HemoTech provides any service using a Licensed Product,
rather than selling such Licensed Product, HemoTech shall include in net
revenues an amount equal to the selling price at which such Licensed Products
would be sold to a third party by HemoTech in an arms-length transaction. In
the event HemoTech makes use of a method which is part of the Technology
HemoTech shall include in net revenues an amount equal to the selling price of
the Licensed Products used to implement the method.
2.6 Within 30 days of execution of this agreement HemoTech shall issue to
CIT 400,000 shares of common stock, which shall represent twenty percent (20%)
of the aggregate of (a) shares of HemoTech's capital stock then outstanding,
(b) shares of HemoTech's capital stock then subject to securities exercisable
for or exchangeable for capital stock (other than securities issued in
*CONFIDENTIAL TREATMENT
REQUESTED
<PAGE> 3
- 3 -
connection with the financing contemplated by Section 2.8 of this agreement)
and (c) shares of HemoTech's capital stock then subject to issuance pursuant to
written agreement (other than agreements entered into in connection with the
financing contemplated by Section 2.8 of this Agreement); provided, however,
that HemoTech shall not be obligated to issue such shares if CIT terminates
this agreement pursuant to section 2.8. Notwithstanding anything to the
contrary contained in this Section 2.6, (a) upon issuance of such common stock
and the consummation of the financing contemplated by Section 2.8 of this
agreement, CIT shall have no preemptive or preferential right to purchase or
subscribe for any shares of any class of capital stock of the Company whether
now or hereafter authorized; any warrants, rights, or options to purchase any
such shares; any securities or obligations convertible into such shares or into
warrants, rights or options to purchase any such shares; or any other securities
which are exercisable for or exchangeable for such shares (collectively, the
"Securities"); and (b) CIT's ownership interest in HemoTech will be diluted by
(i) the issuance of capital stock in connection with such financing; and (ii)
all issuances of capital stock occurring on or after the date of such financing.
2.7 HemoTech shall deliver to CIT a business plan within ten (10) days of
the execution of this agreement.
2.8 HemoTech shall by January 15, 1994, arrange financing for its
operation such that HemoTech has received at least $700,000 by that date for
conduct of its activities pursuant to a transaction in the form described in
the Terms and Conditions of Proposed Equity Investment by the Partners of
MedVest, Inc. dated November 1, 1993. Breach of this provision shall be
considered material breach of this agreement and entitle CIT to terminate this
license.
2.9 HemoTech shall, within thirty (30) days from the end of each
calendar quarter, deliver to CIT a report giving such particulars of the
business conducted by HemoTech during the preceding three month period under
this license as are pertinent to royalty accounting under this agreement.
Simultaneously with the delivery of each calendar quarterly report, HemoTech
shall pay to CIT royalties due and payable for the period covered by such
report under this agreement. If no royalties are due, it shall be so reported.
3. FUNDING OF RESEARCH
HemoTech shall sponsor research at VCU relating to the Technology. The
research shall be sponsored under one or more renewable agreements providing
for the payment by HemoTech of [ * ] by December 31, 1995. The terms of such
research agreement(s) shall be those contained in the standard research
agreement used by VCU,
*CONFIDENTIAL TREATMENT
REQUESTED
<PAGE> 4
-4-
except that the research agreement shall provide that inventions made in the
course of the research which are included in any claim of a U.S. patent licensed
to HemoTech under this agreement will be licensed to HemoTech as part of the
Technology licensed under this agreement. If VCU declines to enter into
agreement(s) containing such terms, HemoTech shall not be obligated by this
agreement to sponsor such research.
4. SUBLICENSES
HemoTech shall have the right to grant sublicenses, all of which shall be
subordinate to this agreement. HemoTech shall pay to CIT royalties on products
produced by sublicensees as if HemoTech had produced the products itself.
HemoTech shall also provide to CIT reports on the activities of each sublicensee
which reports shall contain the name of the sublicensee and the same information
as is required of HemoTech under this agreement.
5. PATENT PROSECUTION
5.1 CIT shall file, prosecute, and maintain during the term of this
agreement intellectual property protection for the Technology in the United
States, Japan, Canada, and the countries of the European Community. The filing,
prosecution, and maintenance of intellectual property protection shall be the
primary responsibility of CIT. However, HemoTech shall have reasonable
opportunities to advise CIT and shall cooperate with CIT in such filing,
prosecution, and maintenance. Prior to taking any action for which the cost is
estimated to be in excess of $1,000, CIT shall seek the approval of HemoTech. If
HemoTech approves then it shall be liable for the costs incurred, whether such
costs are greater than or less than the estimate. If HemoTech does not approve
of the action then CIT may pursue the action at its own expense or may decide to
not pursue the action.
5.2 HemoTech shall reimburse CIT for all costs incurred by CIT after July
1, 1993 related to obtaining and maintaining intellectual property protection
for the Technology. Such costs include legal fees, fees of experts, such as
consulting engineers, travel costs, drafting and printing costs, and other
directly related costs. Such costs do not include any amounts for time devoted
by CIT employees or CIT's supervision of the patenting process. CIT shall
invoice HemoTech for costs incurred. HemoTech shall reimburse CIT for such costs
within thirty (30) days of receipt of the invoice.
6. SECURITY INTEREST
HemoTech grants to CIT a security interest in this agreement, in every
sublicense granted by HemoTech, and in all payments due under
<PAGE> 5
-5-
any such sublicense. This security interest secures HemoTech's performance of
its obligations under this agreement. HemoTech shall cooperate with CIT in
perfecting this security interest, including the execution of any necessary
financing statements.
7. TERMINATION
7.1 This license shall expire on the date upon which the last U.S. patent
on the Technology expires. If no U.S. patent is granted then this license shall
expire on December 31, 2009.
7.2 CIT, at its option, may terminate this license upon notice to HemoTech
for material breach of this agreement. Such termination shall not be CIT's
exclusive remedy for breach and HemoTech shall remain liable for damages
arising from its breach after such termination. Material breach includes, but
is not limited to, failure to pay royalties when due and failure of HemoTech to
diligently pursue introduction of the Technology into the market and sales of
Licensed Products. It is envisaged by the parties that a failure to diligently
pursue introduction of the Technology and sales may occur if HemoTech is
involved in a proceeding for the reorganization of HemoTech and, consequently,
is unable to devote sufficient resources to the work.
8. OPERATIONS TO BE IN VIRGINIA
HemoTech shall locate its headquarters in Virginia. All Licensed Products which
are sold in the United States shall be produced in Virginia. "Produced in
Virginia" means that at least 50% of the cost of physically making each
saleable unit of product shall arise from work performed in Virginia, except
that if 50% of the cost of physically making the products cannot occur in
Virginia due to the excessive cost of Virginia operations, then only those
operations which can be economically performed in Virginia shall be performed
in Virginia. A manufacturing operation shall be considered able to be
economically performed in Virginia if the cost of performing operation in
Virginia is no more than 120% of the cost of performing the operation elsewhere.
9. CONFIDENTIALITY
9.1 Except to the extent expressly authorized by this agreement, the
parties agree that, for the term of this agreement and for five years
thereafter, the receiving party shall keep completely confidential and shall
not, without the prior written consent of the disclosing party, publish or
otherwise disclose (other than to officers, directors or employees, agents or
consultants on a need-to-know basis and subject to an obligation of
confidentiality substantially similar to the obligation contained
herein) or use for any purpose except as provided in this
<PAGE> 6
-6-
agreement any information furnished to it by the other party pursuant to this
agreement (the "Confidential Information"), except to the extent that it can be
established by the receiving party by competent proof that such confidential
information:
(a) was already known to the receiving party, other than under an
obligation of confidentiality, at the time of disclosure by the
other party, as evidenced by written records;
(b) was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving
party;
(c) became generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act
or omission of the receiving party in breach of this agreement;
(d) was subsequently lawfully disclosed to the receiving party by a
third party without to the receiving party; or
(e) was subsequently independently developed by the receiving party,
as evidenced by written records (provided that the Technology
shall not be deemed to fall within this exception).
9.2 Each party may disclose Confidential Information to the extent such
disclosure is reasonably necessary in prosecuting or defending litigation,
filing patent applications, complying with applicable governmental regulations,
conducting clinical trials or for any other purpose under this agreement;
provided that, if a party proposes to make any such disclosure it will give
reasonable advance notice to the other party of such disclosure and, save to
the extent inappropriate in the case of patent applications, will use all
reasonable efforts to secure confidential treatment of such information
required to be disclosed.
9.3 The parties acknowledge and agree that any breach by a party of the
covenants set forth herein, including without limitation those in Section 9.1,
will likely result in irreparable harm to the non-breaching party for which
monetary damages will be inadequate compensation. The parties therefore agree
that in the event of a breach or threatened breach of any provision of this
agreement, the non-breaching party shall be entitled to appropriate injunctive
relief, including without limitation temporary or permanent injunctions or
restraining orders. The foregoing remedies shall be in addition to and not to
the exclusion of any
<PAGE> 7
- 7 -
other remedies which the non-breaching party may have at law or in equity.
10. MISCELLANEOUS PROVISIONS
10.1 HemoTech shall keep records containing all particulars which may be
necessary for the purpose of showing the royalty payable to CIT. These
records shall be open at all reasonable times for three (3) years following the
end of the calendar year to which they pertain to the inspection of an
independent certified public accounting firm retained by CIT at its sole
expense for the purpose of verifying HemoTech's royalty reports.
10.2 This agreement shall be construed, governed, interpreted and applied
in accordance with the internal laws of the Commonwealth of Virginia, U.S.A.
except that questions affecting the validity, construction and effect of any
patent shall be determined by the laws of the country in which the patent was
granted.
10.3 Subject to Section 1.1 hereof, CIT and VCU retain the right to make
use of the Technology for the purpose of research and not for commercial
development.
10.4 HemoTech agrees to mark Licensed Products employing the Technology
with appropriate patent notices.
10.5 In the event that either party hereto learns of any alleged
infringement of the Technology and/or the Licensed Patent Rights, such party
shall promptly notify the other in writing of such alleged infringement and of
any available evidence thereof. HemoTech shall have the right, but not the
obligation, to prosecute any and all infringements of any Technology and/or
Licensed Patent Rights to which HemoTech obtains rights hereunder, and to defend
all charges of infringement arising as a result of said Technology and/or
Licensed Patent Rights and to enter all settlements, judgements or other
arrangements respecting the same all at its own expense. CIT shall permit any
action to be brought in its name, but only if required by law. HemoTech shall
hold CIT harmless from any cost, expense or liability respecting all charges of
infringement involving the Technology and/or Licensed Patent Rights brought by
HemoTech against third parties. Any damages or other recovery from such
infringement actions shall be retained by HemoTech and HemoTech shall have no
obligation to make any payments to CIT except as expressly provided herein.
HemoTech shall determine whether or not it will prosecute any such infringement
action within 90 days of learning of the infringement. In the event HemoTech
determines not to prosecute any such infringement, HemoTech shall so notify CIT
within such 90-day period and thereafter CIT shall have the right to prosecute
such infringement
<PAGE> 8
-8-
on its own behalf and its own expense and retain any damages or other recovery.
10.6 If the Technology was developed with funds provided by the United
States, this agreement is subject to all applicable laws, regulations, and the
terms of any agreement under which funds were provided. This includes any
rights of the United States to use the Technology for governmental purposes,
any limits on the place of manufacture of products using the Technology, and
any obligations to make products based on the Technology available within a
reasonable time. These government rights are set forth at 35 USC Section 203 and
Section 204 and other locations. These provisions are incorporated in this
agreement by reference and the exercise of these rights by the United States
shall not constitute breach of this agreement.
10.7 All payments shall be made in United States dollars. Any currency
conversion required shall be made at the exchange rate published in The Wall
Street Journal on the last day of the calendar quarter for which the payment is
made.
10.8 Any unpaid amounts due hereunder shall bear interest at 2.5% over the
prime rate as published in The Wall Street Journal, compounded daily until
paid. This provision does not excuse any failure to pay and does not limit any
remedies for breach. In the event of breach of this agreement the breaching
party shall pay to the non-breaching party all costs, including attorney's
fees, of enforcing this agreement.
10.9 Neither CIT, nor the investors, nor any Virginia university or other
agency of the Commonwealth of Virginia make any representations as to
patentability or protectability, validity, enforceability, freedom of the
Technology from infringement of the rights of others, likelihood of successfully
converting the Technology into commercial products or whether or not the
Technology is satisfactory for the purposes intended. CIT has no knowledge of
(a) any adversely held patent of any other person relating to the Technology or
(b) any basis for any such charge or claim. CIT has all right, title and
interest in the Licensed Patent Rights and the Technology. The inventors of the
Technology have assigned their interests in the Technology to VCU, which has
assigned its interest to CIT. Attached hereto as Exhibit A are copies of all
documents evidencing and relating to the assignment to VCU and CIT of the
Technology and/or the Licensed Patent Rights.
10.10 HemoTech warrants that every individual with a personal interest in
HemoTech, as that term is defined in the Virginia Conflict of Interest Act, has
complied with the terms of that act and that no violation of that act will
result from this agreement.
<PAGE> 9
-9-
10.11 For purposes of CIT's agreements with the university which has
assigned the Technology to CIT, the amounts received by CIT pursuant to this
agreement are designated as reimbursement for expenses of filing, prosecuting,
and maintaining the patent applications and patents related to the Technology.
10.12 The parties hereto acknowledge that this instrument sets forth the
entire agreement of the parties as to the subject matter hereof and shall not be
modified except by the execution a written instrument signed by the parties.
<PAGE> 10
-10-
ACCEPTED AND AGREED TO:
CENTER FOR INNOVATIVE TECHNOLOGY
By: /s/ LINWOOD HOLTON 1/12/94
------------------------------ -----------------------------
Name: LINWOOD HOLTON Date
Title: PRESIDENT
HEMOTECH SCIENCES INC.
By: /s/ DONALD J. ABRAHAM January 10, 1994
------------------------------ -----------------------------
Name: Donald J. Abraham Date
Title: President, HemoTech Sciences Inc.
<PAGE> 1
CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this
document have been omitted and are marked with the
notation, "*Confidential Treatment Requested." A complete
copy has been filed with the Securities and Exchange Commission.
EXHIBIT 10.18
TERM SHEET FOR CONTRACT API SUPPLY
BETWEEN ALLOS AND HOVIONE
This Term Sheet sets forth the principal terms for a supply agreement (the
"Agreement") for the purified bulk RSR13 sodium salt drug substance (the "API")
for clinical and commercial use between Allos Therapeutics, Inc., the customer
and developer of the API, a Delaware Corporation, with its principal place of
business in Denver, CO, USA, ("Allos") and The Hovione Group ("Hovione"), herein
represented by Hovione Inter Limited a Swiss corporation, with its principal
place of business in Luzern, Switzerland, the API manufacturer. The parties
shall negotiate in good faith the full and complete terms of the Agreement,
which shall be consistent with those terms set forth in this Term Sheet, but
until such Agreement is fully executed by both parties neither party shall be
obligated to enter into any agreements.
PARTIES: The parties to the Agreement shall be Allos and Hovione and
their successors and permitted assigns.
During the Agreement's Term, Hovione shall be Allos' primary
API manufacturer and Allos and its affiliates and licensees
shall purchase no less than the percentages set forth in this
Term Sheet of its RSR13 sodium salt requirements from
Hovione, subject to their supply capacity and conformance
with the Agreement.
AGREEMENT Pre-commercial Supply Phase--includes all activities and API
PHASES lots manufactured after the effective date of this Agreement
and before Allos submits an NDA to FDA for the finished
product manufactured from the API.
Commercial Supply Phase--includes all activities and API lots
manufactured after Allos submits an NDA to FDA for the
finished product manufactured from the API.
PROJECT Each Party shall designate an official contact with full
MANAGEMENT: authority to represent company on technical and project
matters ("Project Managers"), Hovione and Allos (with
participation of Hovione's agent) shall hold periodic project
management and status meetings. Hovione shall provide Allos
with a monthly, written production status report, describing
progress on completion of outstanding obligations (e.g.,
process development, validation, stability data, production
runs, pending corrective actions).
The Project Managers shall approve and authorize updates of
all Master Batch Records, Validation Protocols & Reports,
Corrective Action Plans and Implementation Reports, and
Changes to the foregoing.
PROJECT SCHEDULE: Hovione will be kept advised in writing of
Allos' intentions and time-lines concerning the NDA filing.
Allos shall provide Hovione with written notice of
significant time-line changes; shall milestones within the
time-line be moved by more than 3 months Hovione must be
given at least 6 months written notice where reasonably
possible; should Allos be unable to provide such notice
Hovione will only be obliged to make a best effect attempt at
meeting the new time-line. [*] batches will be scheduled
with at least 9 months written notice.
Confidential Term Sheet: Ver.02 Page 1 March 25, 1999
*CONFIDENTIAL TREATMENT
REQUESTED
<PAGE> 2
HOVIONE Hovione shall perform the following, as more fully
OBLIGATIONS: described in Attachment A.
1. Hovione shall manufacture and deliver such quantities of
the API as ordered by Allos in accordance with the
forecasting and purchase procedures.
2. Prior to the Allos NDA submission date, Hovione shall
complete the following in time to permit completion and
submission of such NDA:
o Process scale-up and validation (including, but not
limited to, all vendors, equipment, processes,
cleaning, facilities, and methods), and revalidation,
and be prepared for an FDA and EU PAI;
o Successful manufacture and delivery of at least three
fully independent validation batches suitable for
preparing data for submission to FDA and which shall
demonstrate that the process has been successfully
validated. Hovione shall provide data to demonstrate
no less than 24 months real time bulk stability (at
least six months of data shall be available 60 days
prior to NDA submission).
o Successful characterization and delivery of samples of
final API reference standard( amount to be determined).
3. Hovione shall be responsible, at its expense, for all
ongoing validation and to ensure compliance of its
manufacturing facility.
4. All regulatory filings on the API will be made and owned
by Allos. Hovione, in consultation with Allos, shall
prepare at its expense the description of the API
manufacturing operations and related information (e.g.,
methods validation package, stability, representative data
and batch records) as required for inclusion in the filing
to FDA and other regulatory authorities (e.g., EU), which
will contain all of the manufacturing information. Hovione
will assist Allos in the preparation of annual updates and
in promptly responding to any questions from regulatory
agencies. Hovione shall provide qualified technical
representatives to attend meetings and/or teleconferences
with FDA and other regulatory authorities as needed.
5. [*]
6. Hovione accepts responsibility for that documentation
which is filed at the health authority for which it has
prepared the information (this shall be referred to as
"Hovione's filing at FDA"). Allos will provide Hovione with
a certified true copy of every submission and update that
directly addresses the information in Hovione's filing at
FDA at least 10 days before its filing at the health
authority, for joint approval prior to filing.
Confidential Term Sheet: Ver.02 Page 2 March 25, 1999
* CONFIDENTIAL TREATMENT
REQUESTED
<PAGE> 3
FORECASTING & FORECASTING: During the Commercial Supply phase of the term
PURCHASE ORDERS of this contract, [*].
Purchase Orders: During the Pre-Commercial Supply phase
Allos may place purchase orders with Hovione as per Davos'
offer dated 6th May 1998.
During the Term of this Agreement, Allos shall place
purchase orders for, and Hovione shall not refuse to
supply, at least the following percent of Allos' annual
requirements for RSR13:
<TABLE>
<S> <C>
(i) 80% of Allos Requirements if less than 5 metric tonnes; and
(ii) 75% of Allos Requirements if between 5 and 15 metric tonnes; and
(i) 70% of Allos Requirements if between 15 and 30 metric tonnes; and
(i) 65% of Allos Requirements if greater than 30 metric tonnes; and
</TABLE>
During the Commercial Supply Phase purchase orders for
specific quantities of RSR13 shall be submitted for
quarterly quantities 90 days prior to the start of each
calendar quarter. Each such purchase order shall be formally
accepted by Hovione within 30 days, and shall not be
rejected so long as Allos has not materially breached the
Agreement and failed to cure such breach following written
notice from Hovione. Purchase orders shall be based on the
API batch size. Aggregate purchase order quantities for a
quarter shall not be less than one half nor more than twice
-- of the forecast for the quarter covered by the most
recently delivered rolling forecast for that quarter,
without Hovione's consent which shall be withheld only for
reasonable cause; provided, that Hovione shall use its best
efforts to timely supply purchase orders in excess of 200%
of the applicable forecast. Deliveries shall be made on the
dates specified in the purchase orders and agreed to in the
form of an order acknowledgement by Hovione or its agent.
COST: All the work to be carried out under this Agreement prior to
NDA Submission, during the [*].
After NDA submission, that is during the Commercial Supply
Phase, the charge
Confidential Term Sheet: Ver.02 Page 3 March 25, 1999
*CONFIDENTIAL TREATMENT
REQUESTED
<PAGE> 4
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
Hovione shall notify Allos of any process improvements or of
any possible patent applications. Hovione shall not seek or
assist others in seeking, prosecuting, defending or
enforcing any patents related to RSR13 (including any
composition of matter containing RSR13), including any
method of its manufacture or use without the approval of
Allos.
Prices and costs are set out based on current experience and
do not take into account items that are unforeseeable (such
as unexpected issues in the API development, material
changes in the regulations, FDA's views, toxicity of the
compound or the process, or legislation (e.g. health, safety
or environment). Parties have the right to negotiate prices
should such dramatic changes as set out above occur and
cause substantial hardship to either party.
DELIVERY & All API lots shall be delivered to CIF Allos' designated
ACCEPTANCE drug product manufacturer location, and accompanied by
certificates of analysis and compliance with manufacturing
requirements. Upon Allos' request, in-process and finished
API test samples shall be sent to Allos' designated test lab
for testing prior to shipment of sampled lots. Any costs
incurred with special packing requirements or courier
services shall be for Allos' account.
API lots shall be considered accepted upon successful
completion of acceptance testing (which shall be initiated
upon delivery), subject to revocation upon determination of
any latent defects (e.g., subsequent inspections or audits,
stability data, failure investigations). However if the
communication of defect or complaint which would be detected
by such acceptance testing is received more than 90 days
after the airwaybill date, Hovione will be under no
obligation to replace the lot. Notwithstanding the
foregoing, Allos shall be entitled to rely on the accuracy
and validity of Hovione certificates of analysis provided
with each delivered lot.
At the request of either party, unresolved disputes over
conformance of a lot to its specifications will be referred
to mutually acceptable referee lab. Such referee lab will
rule based on Hovione's filings at the FDA, such ruling will
be final. Costs will be for the account of the party at
fault. Hovione shall be responsible for no more than the
prompt replacement of each rejected non-conforming lot, or
at Allos' election
Confidential Term Sheet: Ver.02 Page 4 March 25, 1999
*CONFIDENTIAL TREATMENT
REQUESTED
<PAGE> 5
refunding the amounts paid or incurred by Allos on account
of such rejected batch.
Each party is obligated to immediately inform the other of
any information that indicates or suggests that delivered
lots do not conform to applicable requirements under the
Agreement or should not be used.
PAYMENTS & 1. All invoices shall be settled by wire transfer in US
SCHEDULE dollars within 90 days of the date of the air way
bill during the Commercial Phase; and at 90 days of
invoice date prior to that. Payment for all undisputed
amounts shall be made, and considered received, once funds
become available to Hovione or Hovione's agent at their bank
account in a USA bank, which except for the fault of Allos
shall be deemed to occur no later than 24 hours of Allos
delivery of payment.
2. In case the amount of one invoice is in dispute, its
payment shall not affect settlement of other outstanding and
due invoices. Repeated delay in settlement of invoices will
entitle Hovione to only ship against confirmed letter of
credit terms.
3. Hovione or Hovione's agent shall ensure all API lots are
delivered free of any liens. Hovione has the option to
arrange the invoicing by any company of the Hovione group or
by its agent, provided Allos is notified and is in
agreement, such agreement not being unreasonably withheld.
Any such person seeking payment from Allos shall be subject
to all defenses, claims and rights that Allos might have
against Hovione. Hovione shall have no set-off rights or
remedy against Allos in the event that its agent fails to
remit payments received from Allos.
SUPPLY 1. All API manufacture shall occur at Hovione's Loures,
ASSURANCE Portugal establishment. Hovione shall maintain the ability
to deliver at least [ * ] kg/year during the Commercial
Supply Phase, and shall provide assurances of secure primary
and contingent supplies of raw materials and components.
2. Subject to Allos' approval, Hovione may establish
alternate API manufacturing operations at its Macau facility
under mutually acceptable conditions to be agreed to (e.g.,
time and product volume).
3. Except where not possible, or not desired by the parties
(e.g., cGMP corrective actions), Hovione shall make no
change in the API manufacture (as defined in Hovione's
filings at FDA, and the applicable Master Batch Records,
SOPs, compendia standards) and shall remain in compliance
with FDA and EU laws, regulations and guidance documents.
Allos may require production of additional safety stock,
pending completion of change validation and/or FDA approval.
All such changes shall be made in conformance to Allos'
change control policy and applicable requirements. The
implementation of changes shall be subordinated to Allos
authorization in the light of regulatory implications,
however Allos (and Allos licensees or other users of RSR13)
recognize that change is necessary to enable Hovione to
remain efficient and cost-effective and thus shall be fully
supportive of the implementation of such changes.
4. During the Commercial Phase, Hovione shall, upon Allos'
request, maintain a six-
Confidential Term Sheet: Ver.02 Page 5 March 25, 1999
*CONFIDENTIAL TREATMENT
REQUESTED
<PAGE> 6
month Safety Stock inventory of all critical raw materials
or, if requested by Allos during Commercial Phase, finished
API based upon the rolling forecast. In case Hovione if
forced to keep in its inventories one or more batches of
approved API for a period greater than 180 days beyond what
was stated as firm delivery shipping dates in the annual
rolling forecast for that quantity of API, Hovione is free
to invoice such unshipped batches. Such batches shall be
kept in trust for Allos until such time as Allos requests
their shipment.
5. Should Hovione fail to supply in excess of 5% of the
amount of API specified in a purchase order for any reason,
including Force Majeure, or conditions occur in which
Hovione cannot give satisfactory assurance of supply (e.g.,
insolvency, adverse FDA actions, loss of supply). In the
event of such a failure to supply, Allos shall (among other
remedies, including termination and/or reduction of its
purchase obligations) have the right to require technology
transfer to Allos or any Allos designated manufacturer, and
Hovione shall fully assist with such transfer, and no
royalties or any obligation shall be due for such transfer
or products manufactured by the contingent supplier.
6. The parties agree to cure all material breaches within
90 days. If no agreement can be reached within 90 days of
notification of a breach, the parties agree to the use of an
independent and binding arbitrator. The arbitrator's ruling
will be binding on all parties. Allos also shall have the
right to cancel this agreement in the event the breach
cannot be cured as per the above in addition to such
arbitration.
PERFORMANCE All API lots, and the manufacture and import of such lots,
CRITERIA: shall fully conform with all of the following (as such
requirements are in effect at the time of the Manufacture of
the applicable lots):
1. Applicable specifications, Master Batch Record
procedures, and any description in Hovione's filing at the
FDA.
2. US applicable laws and regulations, specifically
including 21 CFR Parts 11, 207, 210,& 211 and the then
current version of the FDA guidance documents pertaining to
the manufacture of an Active Pharmaceutical Ingredient) and
the then current USP/NF requirements.
3. Applicable requirements established for the manufacture
and supply of the API for the European Union and Japan,
including those under statute, regulation and pharmacopoeia.
4. All other laws and regulations applicable to the
operations of Hovione.
5. Hovione shall successfully pass FDA PAI and all other
regulatory inspections carried out by FDA and other
regulatory authorities, and Allos audits, without material
objection. Except as specifically permitted in Hovione's
filing at FDA, Hovione shall not carryout any reworking,
in-process or batch blending (including recrystallization or
recycling of mother liquors or solvents) or reprocessing
without
Confidential Term Sheet: Ver.02 Page 6 March 25, 1999
<PAGE> 7
prior written authorization from Allos, and shall promptly
inform Allos of all OOS events, and provide it with the
applicable investigation report and corrective action plans
prior to release of the in-process or finished lots that are
subject to the OOS event (including related lots).
INSPECTIONS & Hovione will permit and cooperate with inspections of all
AUDITS: relevant Hovione facilities, equipment, materials,
personnel, operations, records relating to the services
performed under the Agreement by representatives of Allos,
FDA, and other US and foreign authorities. Allos full-time
employees and appointed experts may be present during any or
all parts of manufacturing activities. Hovione will provide
Allos with immediate notice of any inspections by FDA or
other authorities as the inspection pertains to Hovione's
manufacture of, or its ability to manufacture, the API.
Where possible, Allos full-time employees or a consultant to
the Allos Manufacturing or Quality Control Units will have
the right to be present for such inspections, and will in
all cases be provided a copy of any inspection reports or
communications from such inspectors or regulatory
authorities, and to review and comment on any planned
response by Hovione.
During the Commercial Phase Allos may have up to two
representatives of its Manufacturing or Quality Control
Unit, and its appointed experts, present for and observe any
manufacturing operations related to the API, and may conduct
two complete quality assurance audits each year during the
performance of manufacturing operations, upon 60 days prior
notice, and additional audits (with no fewer than 5 days
notice) upon the occurrences of any product problems, or
changes in manufacturing equipment, facilities or
operations. Allos will provide a clear identification of the
individuals it wishes to have present at Hovione facilities;
Hovione may reasonably refuse entry to individuals, other
than the Allos Directors of Manufacturing, Operations or
Quality Assurance, that it reasonably believes are present
for reasons other than a quality function.
Allos will have access to DUNE for review of analytical and
batch data in real-time. Allos shall be provided with copies
of all documentation related to process deviations and
out-of-specification or out-of trend results, and their
investigation and corrective actions proposed by Hovione.
During audits to Hovione's facilities Allos is entitled to
review all documentation that is usually made available to
an FDA inspector, in at least an equivalent manner.
There shall be no charge for any inspections or audits, and
Hovione shall cooperate with both providing of reasonable
space for review of documents and assistance of key
personnel. Allos representatives, when present at a Hovione
site, shall at all times comply with Hovione's internal
policies.
INTELLECTUAL Allos shall exclusively own and have the full right to use,
PROPERTY RIGHTS: assign and sublicense inventions, process improvements and
analytical methods developed under this Agreement that
relate to the use, manufacture or testing of RSR13, whether
patentable or not; provided, that during the term of this
Agreement Hovione shall be entitled to receive good
consideration for the use by others of its Know-how as set
forth below. Such consideration shall only be due if Hovione
is not in breach of this
Confidential Term Sheet: Ver. 02 Page 7 March 25, 1999
<PAGE> 8
Agreement, and Allos shall not authorize more than three
parties at any one time (other than Allos) to use such
improvements. Allos, with the consultation of Hovione, shall
control decisions on patent prosecution, defense and
enforcement, and Hovione at Allos' expense, shall reasonably
assist Allos in such prosecution, defense and enforcement.
Hovione shall have the right to use (but not sublicense or
disclose) generically applicable process improvements and
analytical methods; provided that such process improvements
or analytical methods shall not be used to manufacture or
test RSR13 or chemically related compounds covered by US
patents (or patent applications) owned by or exclusively
licensed to Allos (collectively the "RSR13 Compounds") for
any person other than Allos until the end of all of the
following three periods (the "Exclusivity Period"):
(i) The life of the U.S. and EU patents for the RSR13
Compounds (including any term extensions and non-patent
market exclusivity periods); and
(ii) Five years from the approval of the FDA NDA of
RSR13; and
(iii) The number of years during which Hovione supplied
Allos with at least 65% of any of its annual
Pre-Commercial or Commercial Supply requirements, plus
24 months.
Except as directed by Allos, neither Hovione, nor any of its
affiliates shall manufacture RSR13, or any other RSR13
Compounds, during the term of the Agreement and the
Exclusivity Period.
CONSIDERATION In order to provide Hovione with an incentive to explore
FOR HOVIONE patent opportunities and process improvements; and in order
KNOW-HOW to assure that Hovione acts in the best interests of Allos
and its other manufacturers Hovione will be entitled, for as
long as it is not in breach of contract, to good
consideration as follows:
o [ * ].
[ * ].
CONFIDENTIALITY: Each party shall agree to be bound by obligations of
confidentiality, non-use and non-disclosure of the
confidential and proprietary information of the other
parties, subject to rights under the Agreement. The terms of
the confidentiality agreement dated 7th July 1998 shall be
deemed to be included in the Agreement. The period during
which the obligations of confidentiality shall continue shall
be extended to endure for ten years from the return of the
other party's confidential information that is in its
possession, so long as such information remains confidential
Confidential Term Sheet: Ver. 02 Page 8 March 25, 1999
*CONFIDENTIAL TREATMENT
REQUESTED
<PAGE> 9
information.
UNINTERRUPTED During the validity of this agreement Hovione is obligated
SUPPLY AND FIRST to assure that Allos has an uninterrupted supply of API:
REFUSAL RIGHT
o To this end Allos assures that it will offer to Hovione a
right of first refusal for its requirements beyond the 30
tonnes/year amount. This right of first refusal shall
only apply to the 65% of the annual demand which exceeds
30 tonnes. Hovione may exercise this right in its
entirety or in part, and must do so at a competitive
price as evidenced by written bids obtained by Allos from
equivalent third-parties
o To this end, and in the event that Hovione does not
exercise the option as set out above, Hovione is
obligated to find alternative sources of API. Hovione
must also assure that up-to-date technology is
transferred to the alternative supplier(s) as efficiently
as possible and that the regulatory process is handled
successfully.
o To this end, and in the event that Hovione cannot find
alternative sources of API which are acceptable to Allos,
Hovione at its expense shall invest in additional
capacity to meet all Allos requirements and shall remain
the primary supplier of 65% of the API needs for a
further 5 years' period at prices to be negotiated in
good faith.
TERMINATION: This Agreement shall remain valid from the effective date
until the 5th anniversary of the launch in the USA of a drug
product containing RSR13. The Agreement shall have automatic
two-year extensions unless a party provides written notice
of non-renewal at least twenty-four months prior to
expiration of term.
The Agreement may be terminated upon 90 days notice by
either party to the other for material breach by the other
party that is not substantially cured or curable by the end
of the notice period.
It may be terminated immediately by Allos if the product
will not be marketed, or further developed or if the supply
or use of the AFI would reasonably result in liability for
patent infringement; however, all valid purchase orders
issued during the commercial phase shall independently
remain valid contracts, provided that agreement shall
provide for reasonable terms for purchase orders buy-out by
Allos. Such purchase orders will be fulfilled totally by
Hovione, and paid for by Allos, unless otherwise negotiated
and agreed to in writing. Allos may also terminate as
provided under the Supply Assurance section.
It may be terminated on three months written notice by
Hovione if the NDA is not submitted to with FDA by 30th June
2002, or if Allos does not buy AFI from Hovione worth at
least $2 million during 2003 and $5 million during 2004 and
in every year thereafter. However, Allos shall have the
right to obtain three nine month extensions to the above
dates (i.e., each extension defers the all three dates by
nine months) upon payment of $50,000 for the first
extension, and $100,000 and $150,000 for the second and
third extension respectively.
Confidential Term Sheet: Ver.02 Page 9 March 25, 1999
*CONFIDENTIAL TREATMENT
REQUESTED
<PAGE> 10
In the event of the Agreement's termination by Allos because
of reasons other than Hovione material breach (but not its
expiration), Allos, at its election, will either: (i)
purchase, at Hovione's documented purchase cost, its raw and
in-process materials reasonably purchased for production of
RSR13 and that cannot be returned for credit or used for the
manufacture products for other customers (subject to the
generic competition restriction), plus shipping costs; or
(ii) pay for such reasonable raw and in-process materials to
be manufactured into API in accordance with the Agreement.
Hovione shall inform Allos of the quantities of raw and
in-process that Hovione is maintaining in its inventory on a
periodic basis (but no less than quarterly). In no event
shall Allos be responsible for raw or in-process materials
that exceed the amounts that would be required to meet more
than API forecasts for six months following the date of
termination.
Indemnification, intellectual property and other applicable
obligations shall survive termination and expiration of the
Agreement.
INSURANCE: Hovione is not required to carry any product liability
insurance, but shall carry such other standard insurance as
mutually acceptable to the parties.
INDEMNIFICATION: Allos will indemnify, defend and hold Hovione (and their
employees, officers and directors) harmless from (i) product
liability claims arising from the testing, sale or use of
the API or the product manufactured with it, and (ii)
infringement claims arising from breach of Allos warranty.
Allos obligations shall not include such claims to the
extent that they arise from the (i) breach by any Hovione
indemnitee of its obligations under the Agreement, or (ii)
any negligent or otherwise wrongful act or omission of any
Hovione indemnitee.
Hovione will indemnify, defend and hold Allos (and its
employees, officer and directors) harmless from (i) product
liability claims arising from the manufacture of the API to
the extent caused by Hovione's breach of any obligation
under the Agreement, and (ii) infringement claims arising
from breach of Hovione warranty. Hovione obligations shall
not include such claims to the extent that they arise from
the (i) breach by any Allos indemnitee of its obligations
under the Agreement, or (ii) any negligent or otherwise
wrongful act or omission of any Allos indemnitee.
In the event that it is ruled by arbitration or in a court
of law that Hovione was negligent in observing cGMP's or
that it manufactured product in a manner that conflicts with
that described in Hovione's filings at FDA or the terms of
the Agreement, it shall contribute to the costs associated
with a recall or with similar damages. However, in no case
shall Hovione's total aggregate liability under the
Agreement for any recall ever cause it to pay recall costs
and similar damages in a total which exceeds the amount of
receipts due from Allos in the 12 months periods immediately
before the first notification of the issue that led to the
liability/recall and the delivery of the batches involved in
such recall.
Confidential Term Sheet: Ver.02 Page 10 March 25, 1999
<PAGE> 11
WARRANTIES: Standard legal, financial, corporate, capability and
conflict, Force Majeure, intellectual property and other
warranties, including regulatory (including Generic Drug
Enforcement Act) and legal compliance, as mutually
acceptable to the parties.
Allos and Hovione shall each warrant that to the best of its
knowledge and belief the manufacture, import, and sale of
RSR13 will not infringe any third party patents or other
proprietary rights.
Hovione shall warrant that it is not using in the
manufacture of RSR13 any process or materials covered by any
patent owned or licensed to it without Allos' consent.
ASSIGNMENT: Assignment of the Agreement is permitted subject to a
written agreement by the other party.
MISCELLANEOUS: Standard legal and other provisions as mutually acceptable
to the parties. The Agreement and all disputes relating to
it shall be interpreted under New York law and enforceable
against all of the parties in the courts of New York. The UN
Convention on the Sale of Goods shall not apply. Parties
shall submit any disputes, not resolved by meeting between
senior management, to binding arbitration held in New York
or other any location acceptable to the parties.
ACKNOWLEDGED AND AGREED
ALLOS THERAPEUTICS, INC. HOVIONE INTER LIMITED
By: /s/ STEPHEN J. HOFFMAN By: /s/ GUY VILLAX
------------------------------------ ----------------------------
Stephen J. Hoffman, Ph.D., MD Guy Villax
President & Chief Executive Officer Chief Executive Officer
Date: 3/25/99 Date: 3/25/99
Confidential Term Sheet: Ver. 02 Page 11 March 25, 1999
<PAGE> 1
CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this
document have been omitted and are marked with the
notation, "*Confidential Treatment Requested." A complete
copy has been filed with the Securities and Exchange Commission.
EXHIBIT 10.20
[TAYLOR PHARMACEUTICALS LOGO]
DEVELOPMENT & INVESTIGATIONAL SUPPLY PROPOSAL
RSR13 (NEW FORMULATION) IN 500ML VIALS
FOR ALLOS THERAPEUTICS, INC.
PROJECT SCOPE:
Pursuant to a Request for Proposal from Allos Therapeutics, Inc., Taylor
Pharmaceuticals has defined the Scope of Work as follows:
The RSR13 is a clinical product that is currently being manufactured by Taylor
Pharmaceuticals for Allos Therapeutics. The current formulation does not contain
Phosphate and is filled into a 100mL bottle. The new formulation contains
Phosphate in order to make the formulation more robust. The fill volume has also
been adjusted to 500mL from the original size of 100mL.
FINALIZE FORMULATION DEVELOPMENT
Based on information provided from Allos Therapeutics, the new formulation
will likely be:
1. [*]
2. [*]
3. [*]
4. [*]
Taylor will begin with the existing formulation and determine the
appropriate buffer concentration and pH target. Taylor will also perform
the following:
1. [*]
2. [*]
3. [*]
4. [*]
5. [*]
ANALYTICAL METHODS DEVELOPMENT
Stability indicating (as required) methods will optimized and validated
(per current ICH guidelines), in the presence of Phosphate for:
1. [*]
2. [*]
3. [*]
4. [*]
<PAGE> 2
Development & Investigational Supply Proposal
Allos Therapeutics, Inc. - RSR13 (New Formulation)
28 December 1998
Page 2 of 6
LABORATORY SCALE STABILITY PROGRAM
[*].
CLINICAL BATCH MANUFACTURING
Taylor will manufacture the clinical batches and placebo using production
equipment under cGMP controls. All components and ingredients will be released
by Quality Assurance and tested by the QC or Product Development laboratories.
All Products will be filled under aseptic conditions. Terminal sterilization, as
appropriate, will be done by autoclave. Taylor will supply clinical labeling and
packaging support as needed.
NDA STABILITY EXHIBIT BATCH MANUFACTURING
Note: Typically clients will manufacture clinical and registration batches as a
single activity in order to minimize manufacturing charges.
Taylor will manufacture stability batches using Production equipment under cGMP
controls. All components and ingredients will be released by Quality Assurance
and tested by the QC or Product Development laboratories. Production controls
shall be the same as the clinical batches. Pilot scale to full size production
size batches can be produced.
STABILITY STUDIES
Taylor Product Development will support full release and stability testing
including chemical and microbiological testing. [*]. All stability reports are
reviewed by Taylor Quality Assurance. Interim reports will be published to Allos
Therapeutics, Inc. upon the completion of each test station.
PROCESS VALIDATION
Taylor process validation includes, but is not limited to:
o [*]
o [*]
o [*]
o [*]
o [*]
o [*]
* CONFIDENTIAL TREATMENT
REQUESTED
<PAGE> 3
DEVELOPMENT & INVESTIGATIONAL SUPPLY PROPOSAL
ALLOS THERAPEUTICS, INC. - RSR13 (New Formulation)
28 DECEMBER 1998
PAGE 3 OF 6
PRODUCT DEVELOPMENT REPORT AND REGULATORY SUPPORT
Taylor will provide a Product Development Report in support of a typical
CMC section for regulatory filing.
To better define our quotation, we have outlined the Allos Therapeutics, Inc.'s
responsibilities.
ALLOS THERAPEUTICS, INC. WILL BE RESPONSIBLE FOR THE FOLLOWING:
1. Reviewing and, if acceptable, approving all Master Formula Batch
Records.
2. Providing on-site presence during the manufacture of
clinical/registration batch manufacture (preferred but can be waived at
Allos Therapeutics, Inc.'s request).
3. Providing release specifications for active drug substance and
excipients.
4. Furnishing released and certified active substance for development and
manufacture of at least 1 pilot formulation and the required exhibit
batches).
5. Providing a current MSDS for the active drug substance and product.
6. Providing camera-ready artwork for labeling.
7. Providing shipping instructions, addresses, preferred carrier and
carrier account number.
8. Provide new D valve for RSR13 with Phosphate.
9. Preparing any applicable product import/export registrations.
10. Preparing and filing applicable regulatory submissions.
ITEMS NOT INCLUDED AS PART OF THE PROPOSAL:
1. Third Party Laboratory charges which are necessary for Taylor to
execute this agreement.
2. Analytical columns and standards that are not commonly available.
3. Capital equipment or change parts except those that are explicitly
stated herein.
4. Import/export duties.
5. FDA User Fees, establishment fees or other expenses necessary to
register the product with the appropriate regulatory agency.
6. Preparing product submissions.
7. Shipping and shipping insurance for product/placebo, samples,
documentation, etc.
8. Travel and travel related expenses, including labor. Required only if
travel to another site is requested by Allos Therapeutics, Inc.
CONFIDENTIAL
REF: ALLOS1098C
<PAGE> 4
DEVELOPMENT & INVESTIGATIONAL SUPPLY PROPOSAL
ALLOS THERAPEUTICS, INC.- RSR13 (New Formulation)
28 DECEMBER 1998
PAGE 4 OF 6
QUOTATION:
The following is our current price quotation for manufacture of RSR13 (New
Formulation) in 500mL vials for Investigational and Stability Batch Protocols:
DEVELOPMENT ACTIVITIES:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
ACTIVITY BATCH SIZE PRICE
- ---------------------------------------------------------------------------------------------
PHASE I
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Finalize Formulation N/A [ * ]
Total
- ---------------------------------------------------------------------------------------------
Perform stopper compatibility N/A [ * ]
study Total
- ---------------------------------------------------------------------------------------------
Perform photostability study per N/A [ * ]
ICH guidelines Total
- ---------------------------------------------------------------------------------------------
Analytical Method Optimization N/A [ * ]
and validation Total
(Active Drug Substance)
- ---------------------------------------------------------------------------------------------
Analytical Method Development N/A [ * ]
(B/F and LAL) Total
- ---------------------------------------------------------------------------------------------
PHASE II
- ---------------------------------------------------------------------------------------------
Batch Manufacture - 500mL vials 2,500 units or less [ * ]
(clinical/registration lots) (split batch)(1) per lot
- -product- ----------------------------------------------------------
2,500 units or less [ * ]
(single batch) per lot
-----------------------------------------------------------
2,501 to 4,000 units [ * ]
(single batch) per lot
-----------------------------------------------------------
4,001 to 6,500 units [ * ]
(single batch) per lot
- ---------------------------------------------------------------------------------------------
Stability Studies N/A [ * ]
(including container closure for split lot with two sublots
integrity throughout study) -----------------------------------------------------------
N/A [ * ]
per lot
- ---------------------------------------------------------------------------------------------
PHASE III AND MISCELLANEOUS
- ---------------------------------------------------------------------------------------------
Process Validation N/A [ * ]
(excluding media fills) Per product and dosage form
- ---------------------------------------------------------------------------------------------
Distribution of product to clinical N/A [ * ] per shipment
sites (up to 500 units, excludes
transportation charges)
- ---------------------------------------------------------------------------------------------
Preparing CMC data Package N/A [ * ]/hour
Not to exceed [ * ] total
- ---------------------------------------------------------------------------------------------
</TABLE>
*CONFIDENTIAL TREATMENT
REQUESTED
<PAGE> 5
DEVELOPMENT & INVESTIGATIONAL SUPPLY PROPOSAL
ALLOS THERAPEUTICS, INC. - RSR13 (NEW FORMULATION)
28 DECEMBER 1998
PAGE 5 OF 6
(1)Split batch = Batch will be evenly split in two sublots. One sublot will use
4432 stoppers. The other group will use Fluorotech stoppers. Both lots will
be placed on stability. The batch price includes line purge between stopper
type, additional batch record generation and all materials.
ESTIMATE FOR COMMERCIAL MANUFACTURING:
(NOTE: Commercial estimates are based on information exchanged as of the
above date and may need to be revised upon the completion of development
activities)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
ACTIVITY PRICE ESTIMATE
- ---------------------------------------------------------------------------------------------------
<S> <C>
Price per unit RSR13 (NEW FORMULATION) in [ * ]
500 mL vials) [ * ]
Commercial Batch Size: [ * ] [ * ]
[ * ]
[ * ]
[ * ]
Routine shelf life surveillance program per [ * ]
ICH guidelines
(one commercial lot, per strength, per
dosage form, per year)
Regulatory Assistance, as necessary [ * ]
- ---------------------------------------------------------------------------------------------------
</TABLE>
PAYMENT SCHEDULE [*]
o [*]
o [*]
o [*]
CANCELLATION CHARGES AND LATE PAYMENT CHARGES. [*].
CHANGES TO SCOPE OF WORK. With any development program, changes from the
original scope or work will be deemed necessary from time to time. It is
essential, for both parties, that these periodic and potentially critical
changes be properly documented. Before Taylor Pharmaceuticals will initiate
and work outside of this proposal a Project Change Authorization will be
generated and submitted to Allos Therapeutics, Inc. for approval. This document
ensures that both parties agree to the work to be performed, the timing of the
work and any additional charges incurred by the deviation from the original
scope of work.
* CONFIDENTIAL TREATMENT
REQUESTED
<PAGE> 6
DEVELOPMENT & INVESTIGATIONAL SUPPLY PROPOSAL
ALLOS THERAPEUTICS, INC.- RSR13 (NEW FORMULATION)
28 DECEMBER 1998
PAGE 6 OF 6
LIMIT OF LIABILITY. Taylor will not be responsible for Active Drug Substance
that is lost or damaged prior to receipt at Taylor. Taylor will not be
responsible for batch rejections that are not the result of gross negligence. If
any lot of product fails to achieve analytical or microbiological limits that
have been agreed to by both companies, Taylor will maintain a limit of liability
of $25,000 per process lot or the cost of customer supplied materials, whichever
is less.
FORCE MAJEURE. The period for which performance (other than the payment of
money) is required by a party shall be extended by the period during which such
party is unable to perform due to strikes, acts of God, war shortages or
unavailability of supplies, or other causes beyond the party's reasonable
control.
TERM. This proposal remains valid for a period of 90 calendar days from the date
that appears in the upper right hand side of this document. The final approved
agreement will remain effective until such time that the project is terminated,
in writing, by Allos Therapeutics, Inc., or the development phase of the program
is completed and the product is approved for commercial sale by the FDA or other
similar international agency.
Please submit purchase orders and shipping documentation to:
Thomas Handel
Executive Director - Business Development
Taylor Pharmaceuticals
150 S. Wyckles Rd.
Decatur, IL 62522
If this proposal is acceptable, please complete both forms in Attachment I. Keep
one form for your file and return the second approved form to the attention of
Thomas Handel at the above address.
Taylor Pharmaceuticals thanks you for your interest in our Contract
Pharmaceutical Services and the opportunity to provide Allos Therapeutics, Inc.
with this proposal. I hope that we have adequately responded to your request and
look forward to working with Allos Therapeutics, Inc.
CONFIDENTIAL
REF: allos1098c
<PAGE> 7
ATTACHMENT I
PROPOSAL ACCEPTANCE SHEET FOR TAYLOR PHARMACEUTICALS, INC.
- -------------------------------------------------------------------------------
This is to confirm the acceptance of Taylor Pharmaceuticals, Inc., Development
Proposal number allos1098c, to Allos Therapeutics, Inc., dated 28 December
1998, for RSR13 (New Formulation) in vials.
All invoicing for this contract is to be referenced against Allos Therapeutics,
Inc. Purchase Number: ALLOS-12
All invoicing is to be sent directly to:
[X] Accounts Payable
[ ] Other (please specify)
-------------------------------------------------------
-------------------------------------------------------
Accepted By:
/s/ S. J. HOFFMAN 30-DEC-98
- -------------------------------
Signature Date
STEPHEN HOFFMAN
- -------------------------------
Name (Type or Print)
President
- -------------------------------
Title
of
Allos Therapeutics, Inc.
Please sign both acceptance sheets; returning one signed original to:
Thomas Handel
Executive Director-Business Development
Taylor Pharmaceuticals
150 S. Wyckles Road
Decatur, IL 62522
