<PAGE>
As filed with the Securities and Exchange Commission on March 17, 2000
Registration No. 333-95461
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
INTRABIOTICS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 2834 94-3200380
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
----------------
1255 Terra Bella Avenue
Mountain View, CA 94043
(650) 526-6800
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------
Kenneth J. Kelley
President and Chief Executive Officer
IntraBiotics Pharmaceuticals, Inc.
1255 Terra Bella Avenue
Mountain View, CA 94043
(650) 526-6800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
Copies to:
<TABLE>
<S> <C>
Robert L. Jones Patrick T. Seaver
Laura A. Berezin Charles K. Ruck
COOLEY GODWARD LLP LATHAM & WATKINS
Five Palo Alto Square 650 Town Center Drive
3000 El Camino Real 20(th) Floor
Palo Alto, CA 94306-2155 Costa Mesa, CA 92626
(650) 843-5000 (714) 540-1235
</TABLE>
----------------
Approximate date of proposed sale to the public:
As soon as practicable after the 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 (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
number for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission becomes effective. This preliminary
prospectus is not an offer to sell these securities nor does it seek offers to
buy these securities in any jurisdiction where the offer or sale is not
permitted.
<PAGE>
Subject to Completion, Dated March 17, 2000
[LOGO]
7,500,000 Shares
Common Stock
This is the initial public offering of IntraBiotics Pharmaceuticals, Inc. and we
are offering 7,500,000 shares of our common stock. We anticipate that the
initial public offering price will be between $13.00 and $15.00 per share. We
have applied to list our common stock on the Nasdaq National Market under the
symbol "IBPI."
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions IntraBiotics
<S> <C> <C> <C>
Per Share $ $ $
Total $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to 1,125,000
additional shares to cover over-allotments.
Deutsche Banc Alex. Brown
Warburg Dillon Read LLC
SG Cowen
Adams, Harkness & Hill, Inc.
The date of this prospectus is , 2000
<PAGE>
[This graphic will include a figure of the human body with arrows pointing to
the body to indicate the areas targeted by our product programs. Below this is a
chart which briefly describes the clinical use, development stage and
territorial rights for each of our development programs.]
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD CAREFULLY READ THE
ENTIRE PROSPECTUS, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS, BEFORE
MAKING AN INVESTMENT DECISION.
OUR BUSINESS
IntraBiotics Pharmaceuticals, Inc. develops and intends to commercialize new
antibacterial and antifungal drugs for the prevention or treatment of serious
infectious diseases. We are about to begin expanded human clinical trials to
test for efficacy and safety, known as phase III trials, for our two lead
product candidates, Ramoplanin Oral and Protegrin IB-367 Rinse. We recently
obtained statistically significant data from human clinical trials that test for
preliminary safety and efficacy, known as phase II trials, that indicate each of
these products was well tolerated and support further efficacy trials. Our new
antibiotics may solve medical problems for patients who currently have few or no
satisfactory alternatives. Since these antibiotics kill bacteria and fungi in
new ways, they may be particularly useful in fighting multi-drug resistant
bacteria that cannot be killed with currently available antibiotics. The
increasing incidence of multi-drug resistant bacterial infections has created a
global health care problem, commonly referred to as the antibiotics crisis.
OUR PRODUCT PORTFOLIO
Ramoplanin is an antibacterial drug that selectively kills certain types of
bacteria, including one of the most problematic, multi-drug resistant types,
called vancomycin resistant enterococci, or VRE. This strain of bacteria is
particularly difficult to treat, as it is resistant to the most commonly
prescribed antibiotics, including one of the most powerful, vancomycin. Because
of this resistance, patients with VRE bloodstream infections are twice as likely
to die as patients with infections caused by the non-resistant strain. In
addition, VRE infections are expensive to treat, generating incremental costs
estimated at $86,000 per case. The incidence of this strain of bacteria is
increasing rapidly in U.S. hospitals, creating a significant and widely
acknowledged public health problem.
We are developing Ramoplanin Oral for the elimination of VRE in the
intestines of hospitalized patients to prevent VRE from crossing over into the
bloodstream and causing bloodstream infections. We recently completed a
phase II trial indicating that the drug was well tolerated and was effective in
reducing VRE in the patients' intestines. We are now preparing to start our
phase III trial that, if successful, would demonstrate Ramoplanin Oral's ability
to prevent VRE bloodstream infections. We hold the exclusive rights to this drug
in the U.S. and Canada through licensed patents and trade secrets.
Protegrin IB-367 is a new antibiotic that rapidly kills many types of
bacteria and fungi. We are developing Protegrin IB-367 Rinse for oral mucositis,
a condition characterized by painful mouth ulcers that often form as a side
effect of cancer therapies. Patients often identify oral mucositis as the single
most troublesome side effect of cancer therapy. In severe cases of oral
mucositis, patients may not be able to eat and may have to discontinue or reduce
cancer treatment because of the pain. Oral mucositis often requires additional
patient care, including extended hospitalization, estimated at between $4,500
and $20,000 per case.
We recently completed a phase II trial indicating the drug was well
tolerated, appeared not to be absorbed into the bloodstream from the mouth and
reduced the severity of oral mucositis. To our knowledge, Protegrin IB-367 Rinse
is the first drug in a phase II trial to successfully reduce the severity of
oral mucositis in chemotherapy patients. We are about to begin phase III trials
of
1
<PAGE>
Protegrin IB-367 Rinse that, if successful, will demonstrate a reduction in
severity of oral mucositis in cancer patients receiving chemotherapy or
radiation therapy. We hold exclusive worldwide rights to this drug.
In addition to Ramoplanin Oral and Protegrin IB-367 Rinse, we are about to
begin early stage human clinical testing, known as phase I trials, with two
other clinical uses and formulations of Protegrin IB-367. We have three other
antibiotic compounds for which we have identified nearly final chemical
structures, known as lead candidates. These compounds are in preclinical
laboratory research. Our current product portfolio is presented below.
[CHART]
We plan to fund our product development and commercialization efforts over
the next several years primarily through the sale of equity although we may also
receive revenues from corporate partnerships. To date, we funded our operations
primarily through private equity sales in which we have raised approximately $80
million, as well as $19.8 million in revenue from a prior collaboration
agreement with Pharmacia and Upjohn from which we will not receive any
additional funding.
OUR BUSINESS STRATEGY
We pursue parallel development of product candidates at various stages to
maximize the probability for successful product commercialization. Our
development programs focus on significant unmet medical needs that we believe
provide substantial commercial opportunity and limited competition. We have
in-licensed five antibiotic compounds or technologies, and we intend to continue
to pursue attractive in-licensing opportunities to add breadth and depth to our
research and development portfolio. We are evaluating new formulations and
clinical uses for our product candidates as well.
We plan to market and sell our products, if they receive FDA approval, in
the U.S. through a direct sales force focused on major hospitals. We believe
that a relatively small sales force will initially be effective, as our first
two products target oncology-related indications treated by roughly the same
physician group. This sales force may also be used to market and sell our future
products. We intend to license our foreign product rights to other
pharmaceutical companies to commercialize our products abroad.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by IntraBiotics......... 7,500,000 shares
Common stock to be outstanding upon
completion of this offering................ 28,581,054 shares
Use of proceeds.............................. Clinical trials, development and scale-up of
manufacturing processes by our contract
manufacturers, research and development
activities, acquisition of new technologies
or products, working capital and other
general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol....... IBPI
</TABLE>
The number of shares of common stock to be outstanding upon completion of
this offering is based on the number of shares outstanding as of December 31,
1999 and excludes:
- 3,746,896 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $1.16 per share;
- 677,000 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $9.50 per share; and
- 123,501 shares of common stock available for issuance under our stock plan
as of December 31, 1999, and 5,500,000 additional shares of common stock
that were approved for issuance under stock plans after December 31, 1999.
IntraBiotics effected a 1-for-2 reverse stock split of our common stock on
February 28, 2000.
------------------------
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES:
- THE CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK INTO COMMON
STOCK UPON THE CLOSING OF THIS OFFERING; AND
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
3
<PAGE>
Summary Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues.................................... $ -- $ -- $ 5,507 $ 6,357 $ 7,863
Operating expenses:
Research and development.................. 2,181 4,049 8,103 21,997 26,102
General and administrative................ 682 949 1,960 2,533 6,082
------- ------- ------- -------- --------
Total operating expenses................ 2,863 4,998 10,063 24,530 32,184
------- ------- ------- -------- --------
Operating loss............................ (2,863) (4,998) (4,556) (18,173) (24,321)
Interest income, net........................ 41 182 481 791 1,206
------- ------- ------- -------- --------
Net loss.................................. $(2,822) $(4,816) $(4,075) $(17,382) $(23,115)
======= ======= ======= ======== ========
Basic and diluted net loss per share........ $(14.25) $(11.92) $ (6.39) $ (20.89) $ (21.62)
======= ======= ======= ======== ========
Shares used in computing basic and diluted
net loss per share........................ 198 404 638 832 1,069
======= ======= ======= ======== ========
Pro forma basic and diluted net loss
per share................................. $ (1.27)
========
Shares used in computing pro forma basic and
diluted net loss per share................ 18,172
========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------------
Actual As Adjusted (1)
-------- ----------------
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments......... $31,429 $128,029
Working capital........................................... 25,743 122,343
Total assets.............................................. 35,958 132,558
Long-term obligations, less current portion............... 1,725 1,725
Deferred stock compensation............................... (12,650) (12,650)
Accumulated deficit....................................... (52,874) (52,874)
Total stockholders' equity................................ 27,914 124,514
</TABLE>
- ------------------------
(1) The as adjusted column reflects the sale of 7,500,000 shares of our common
stock in the public offering at an assumed initial public offering price of
$14.00 per share, after deducting underwriting discounts and commissions and
estimated offering expenses.
We were incorporated in Delaware in 1994. Our executive offices and
laboratories are located at 1255 Terra Bella Avenue, Mountain View, California,
94043. Our telephone number is (650) 526-6800 and our web site is
www.intrabiotics.com. The information on our website is not incorporated into
and is not intended to be a part of this prospectus.
IntraBiotics and the IntraBiotics logo are trademarks of IntraBiotics. All
other trademarks used in this prospectus are the property of their respective
owners.
4
<PAGE>
RISK FACTORS
ANY INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CONSIDER CAREFULLY THE FOLLOWING INFORMATION ABOUT THESE RISKS, TOGETHER
WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE YOU DECIDE
WHETHER TO BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD SUFFER
SIGNIFICANTLY. IN ANY SUCH CASE, THE MARKET PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU MAY LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON
STOCK.
Risks Related to Our Business
We expect to continue to incur future operating losses and may never achieve
profitability.
We have never generated revenue from product sales and have incurred
significant net losses in each year since inception. We incurred net losses of
$4.1 million in 1997, $17.4 million in 1998 and $23.1 million in 1999. As of
December 31, 1999, our accumulated deficit was approximately $52.9 million. We
expect to continue to incur substantial additional losses for the foreseeable
future primarily as a result of increases in clinical trial expense costs, and
we may never become profitable. In addition, we expect increases in preclinical
research to identify new product candidates and manufacturing and development
costs to commercialize Ramoplanin and IB-367 Rinse. To date, we have financed
our operations primarily through the private sale of equity securities, funds
received from a terminated collaboration agreement and the proceeds of equipment
financing arrangements. We will receive product revenues only if we complete
clinical trials with respect to one or more products, receive regulatory
approvals and successfully commercialize such products.
We may be forced to raise capital sooner than currently anticipated and if we
fail to obtain the capital necessary to fund our operations, we will be unable
to develop our drug candidates and may have to cease operations.
We believe that the proceeds from this offering, together with our current
cash balances and cash equivalents of approximately $18.9 million, short-term
investments of approximately $12.6 million will be sufficient to meet our
operating and capital requirements for at least the next 12 months. However, we
have based this estimate on assumptions that may prove to be wrong. For the
years ended December 31, 1999 and 1998, net cash used for operating activities
was $24.7 million and $9.3 million, respectively. Our future liquidity and
capital requirements will depend on many factors, including the timing, cost,
extent and results of clinical trials, payments associated with manufacturing
scale-up, the costs and timing of regulatory approvals, costs associated with
researching drug candidates, securing in-licensing opportunities and conducting
preclinical research. We discuss additional factors in more detail in
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Results of Operations."
Any additional equity financing may be dilutive to stockholders, and debt
financing, if available, may involve restrictive covenants. Collaborative
arrangements may require us to relinquish our rights to certain of our
technologies, drug candidates or marketing territories. We believe that
additional financing may be required in the future to fund our operations. We do
not know whether additional financing will be available when needed or on
acceptable terms, if at all. If we are unable to raise additional financing when
necessary, we may have to delay some or all of our product development efforts
or be forced to cease operations.
We depend on the outcome of our clinical trials and if they are unsuccessful, we
may not be able to commercialize our products and generate product revenue.
Before obtaining regulatory approvals for the commercial sale of any
products, we must demonstrate through preclinical research and clinical trials
that our drug candidates are safe and
5
<PAGE>
effective for use in humans. We currently have two drug candidates which have
completed phase II clinical trials, Ramoplanin Oral and Protegrin IB-367 Rinse.
If either drug candidate fails to establish safety and efficacy in phase III
clinical trials, we would be unable to obtain regulatory approval from the FDA
or to commercialize the drug candidate, and we will be unable to generate
product revenue. Clinical trials are expensive and time-consuming to conduct,
and the outcome of these trials is uncertain. A number of new drugs have shown
promising results in clinical trials, but subsequently failed to establish
sufficient safety and efficacy data to obtain necessary regulatory approvals. A
number of companies have suffered significant setbacks in advanced clinical
trials, even after promising results in earlier trials.
In addition, if we have delays in clinical trials or the FDA approval
process or if we need to perform more or larger clinical trials, our product
development costs will increase and our ability to generate product revenue will
be delayed.
Our commencement and completion of clinical trials may be delayed by many
factors, including:
- slower than expected rate of patient recruitment;
- inability to adequately obtain data about patients after their treatment;
- inability to manufacture sufficient quantities of materials used for
clinical trials;
- unforeseen safety issues; or
- inability to show efficacy with statistical significance during the
clinical trials.
If the delays are substantial, the increase in product development expenses
could cause our losses to increase and diminish the commercial potential for our
drug products.
If our collaborative partners assisting in our clinical trials fail to
appropriately manage our clinical trials, the trials could be delayed or could
fail.
We have limited experience in conducting and managing clinical trials. We
rely on several contract research organizations including, PharmaNet, Inc.,
Amarex Clinical Research and Axio Research Corporation, to assist us in managing
and monitoring our clinical trials. The FDA may inspect some of our clinical
investigational sites, our collaborative partner's records and our facility and
files to determine if the clinical trials were conducted according to good
clinical practices. If the FDA determines that the trials were not in
compliance, we may be required to repeat the clinical trials. If our contract
research organizations fail to perform under our agreements with them, we may
face delays in completing our clinical trials or failure of our clinical
program.
If our single-source third party manufacturers fail to produce clinical or
commercial quantities of our drug candidates, we may not have sufficient
quantities of our drug candidates to meet demand.
We rely on PolyPeptide Laboratories A/S and Biosearch Italia S.p.A. to
manufacture our bulk drug substances on a commercial scale. While we maintain a
limited inventory of our drug candidates, we depend on these single-source
contract manufacturers to produce each of our products for use in our clinical
trials. Our contract manufacturers have no experience in manufacturing Protegrin
IB-367 or Ramoplanin in quantities sufficient for commercialization and may have
difficulty in scaling up production. If our contract manufacturers are unable or
fail to produce the required quantities of our drug candidates for clinical use
or commercial sale on a timely basis, at commercially reasonable prices and with
sufficient purity, we will not have sufficient quantities of our drug candidates
to complete current and future clinical trials, or to meet commercial demand. In
6
<PAGE>
addition, we currently intend to contract with third parties for the manufacture
of the final formulation. We cannot guarantee that we will be able to contract
with a reliable manufacturer on commercially reasonable terms.
We and our third-party manufacturers are required to register manufacturing
facilities with the FDA and foreign regulatory authorities. If these facilities
become unavailable for any reason or if our contract manufacturers fail to
comply with the FDA's current good manufacturing practices or if our contract
manufacturers terminate their agreements with us, we would have to find an
alternative source for manufacturing our drug candidates. There are, on a
worldwide basis, a limited number of contract facilities in which our drug
candidates can be produced under current good manufacturing practice
regulations. In addition, the manufacturing processes for Protegrin IB-367 and
Ramoplanin are extremely complex and proprietary. If we are unable to continue
having Protegrin IB-367 or Ramoplanin manufactured by our current contract
manufacturers, we do not know if we could engage another contract manufacturer
when needed or on acceptable terms, if at all.
If we fail to obtain FDA approvals for our products, we will be unable to
commercialize our drug candidates.
We do not have a drug candidate approved for sale in the U.S. or any foreign
market. We must obtain approval from the FDA in order to sell our drug
candidates in the U.S. and from foreign regulatory authorities in order to sell
our drug candidates in other countries. We must successfully complete our
phase III clinical trials and demonstrate manufacturing capability before we can
file with the FDA for approval to sell our products. The FDA could require us to
repeat clinical trials as part of the regulatory review process. Delays in
obtaining or failure to obtain regulatory approvals may:
- delay or prevent the successful commercialization of any of our drug
candidates;
- diminish our competitive advantage; and
- defer or decrease our receipt of revenues or royalties.
The regulatory review and approval process is lengthy, expensive and
uncertain. Extensive preclinical and clinical data and supporting information
must be submitted to the FDA for each indication to establish safety and
effectiveness in order to secure FDA approval. We have limited experience in
obtaining such approvals, and cannot be certain when we will receive these
regulatory approvals, if ever.
In addition to initial regulatory approval, our drug candidates will be
subject to extensive and rigorous ongoing domestic and foreign government
regulation, as we discuss in more detail in "Business--Government Regulation."
Any approvals, once obtained, may be withdrawn if compliance with regulatory
requirements is not maintained or safety problems are identified. Failure to
comply with these requirements may subject us to stringent penalties.
Development and commercialization of competitive products could reduce or
prevent sales of our products and reduce revenue.
We may be unable to compete successfully if others develop and commercialize
competitive products that are less expensive, more effective, have fewer side
effects or are easier to administer than our drug candidates. If we are unable
to compete successfully with our drug candidates, physicians may not recommend
and patients may not buy our drugs which would cause our product revenue to
decline.
There are several drugs under development that might compete with Ramoplanin
Oral and Protegrin IB-367 Rinse. To the best of our knowledge, there are no
direct competitors approved or
7
<PAGE>
under development for the prevention of VRE bloodstream infections. However,
there is one approved product for the treatment of VRE infections,
Synercid-Registered Trademark-, and another product,
Zyvox-Registered Trademark-, is currently under review by the FDA. For oral
mucositis, there is one approved device, Radiacare-Registered Trademark-, and
several drugs in early stage clinical trials. These include two growth factors,
keratinocyte growth factor and interleukin-11, as well as a chemoprotective
agent, Ethyol-Registered Trademark-. The companies sponsoring these trials have
successfully commercialized products in the past. In addition, there may be
products under development of which we are unaware for the prevention of VRE
bloodstream infections or the treatment of oral mucositis.
Many of our competitors and related private and public research and academic
institutions have substantially greater experience, financial resources and
larger research and development staffs than we do. In addition, many of these
competitors, either alone or together with their collaborative partners, have
significantly greater experience than we do in developing drugs, obtaining
regulatory approvals and manufacturing and marketing products. We also compete
with these organizations and other companies for in-licensing opportunities for
future drug candidates and in attracting scientific and management personnel.
If we are unable to adequately protect our intellectual property, we may be
unable to sell our products or to compete effectively.
We rely on a combination of patents, trade secrets and contractual
provisions to protect our intellectual property. If we fail to adequately
protect our intellectual property, other companies or individuals may prevent us
from selling our products or may develop competing products based on our
technology. Our success depends in part on our ability to:
- obtain patents;
- protect trade secrets;
- operate without infringing upon the proprietary rights of others; and
- prevent others from infringing on our proprietary rights.
We will be able to protect our proprietary rights from unauthorized use by
third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets.
We try to protect our proprietary position by filing U.S. and foreign patent
applications related to our proprietary technology, inventions and improvements
that are important to the development of our business. For example, we own or
have rights to 7 patents and 2 pending patent applications in the U.S. However,
the patent position of biopharmaceutical companies involves complex legal and
factual questions. We cannot predict the enforceability or scope of any issued
patents or those that may issue in the future. Patents, if issued, may be
challenged, invalidated or circumvented. Consequently, if any patents that we
own or license from third parties do not provide sufficient protection, our
competitive position would be weakened. Furthermore, others may independently
develop similar technologies or duplicate any technology that we have developed.
In addition, we may not be issued patents for our pending patent applications,
those we may file in the future, or those we may license from third parties.
In addition to patents, we rely on trade secrets and proprietary know-how.
Our contract manufacturers perform the manufacturing processes covered by these
trade secrets. Accordingly, our contract manufacturers and we must maintain
confidentiality. We have confidentiality and proprietary information agreements
with our contract manufacturers and with our employees. These agreements may not
provide meaningful protection or adequate remedies for our technology in the
event of unauthorized use or disclosure of confidential and proprietary
information.
8
<PAGE>
We may be subject to intellectual property litigation which could be costly and
time-consuming.
The biotechnology and pharmaceutical industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
Although we are not currently party to any lawsuits, third parties may assert
infringement or other intellectual property claims against us. We may have to
pay substantial damages, including treble damages, for past infringement if it
is ultimately determined that our products infringe a third party's proprietary
rights. The defense and prosecution of intellectual property suits, U.S. Patent
and Trademark Office interference proceedings and related legal and
administrative proceedings in the U.S. and internationally are costly and
time-consuming to pursue and their outcome is uncertain. If we become involved
in any of these proceedings, we will incur substantial expense and the efforts
of our technical and management personnel will be significantly diverted. An
adverse determination may result in the invalidation of our patents subject us
to significant liabilities or require us to seek licenses that may not be
available from third parties on satisfactory terms, or at all. Our stock price
could decline based on any public announcements related to litigation or
interference proceedings initiated or threatened against us.
If physicians and patients do not accept our products, we may be unable to
generate significant revenue, if any.
Our drug candidates may not gain market acceptance among physicians,
patients, and the medical community. If any of our drug candidates fail to
achieve market acceptance, we may be unable to successfully market and sell the
product, which would limit our ability to generate revenue. The degree of market
acceptance of any drug candidate depends on a number of factors, including:
- demonstration of clinical efficacy and safety;
- cost-effectiveness;
- convenience and ease of administration;
- potential advantage over alternative treatment methods; and
- marketing and distribution support.
Currently, we have two drug candidates entering phase III clinical trials
and do not have any drug candidate approved by the FDA. Physicians will not
recommend our products until such time as clinical data or other factors
demonstrate the safety and efficacy of our drugs as compared to other
treatments. In practice, competitors may be more effective in marketing their
drugs. Even if the clinical safety and efficacy of our antibiotic products is
established, physicians may elect not to recommend products. For example,
physicians may be reluctant to prescribe widespread use of our products because
of concern about developing bacterial strains which are resistant to our drugs.
If we are unable to establish sales, marketing and distribution capabilities or
enter into agreements with third parties to perform these services, we will be
unable to commercialize our drug products.
We do not currently have marketing, sales or distribution capabilities. For
our initial products, Ramoplanin Oral and IB-367 Rinse, we intend to establish a
direct marketing and sales force in the U.S. and Canada. If we fail to establish
successful marketing and sales capabilities or fail to enter into successful
marketing arrangements with third parties, we would be unable to commercialize
these drug products. We must develop a marketing and sales force with technical
expertise and distribution capabilities to market any of our products directly.
We intend to enter into arrangements
9
<PAGE>
with third parties to market and sell most of our products outside of the U.S.
and Canada. To the extent that we enter into marketing and sales arrangements
with other companies, our revenues will be lower than if we marketed the
products directly.
The failure to recruit and retain key personnel may delay our ability to
complete, develop and commercialize Ramoplanin, IB-367 Rinse and our earlier
stage products.
We are highly dependent on our management and technical staff. Competition
for personnel is intense. If we lose the services of any of our senior
management, we may be delayed in our product development and commercialization
efforts. We do not maintain key person life insurance and do not have employment
agreements with our management and technical staff. In order to pursue product
development, marketing and commercialization plans, we will need to hire
additional qualified scientific personnel to perform research and development.
We will also need to hire personnel with expertise in clinical testing,
government regulation, manufacturing, marketing and finance. We may not be able
to attract and retain personnel on acceptable terms given the competition for
such personnel among biotechnology, pharmaceutical and other companies.
In addition, we rely on consultants to assist us in formulating our research
and clinical development strategy. All of our consultants are employed by other
entities. They may have commitments to, or relationships with, other entities
that may limit their availability to us. The loss of the services of these
personnel may delay our research and development efforts.
Risks Related to This Offering
Directors, executive officers, principal stockholders and affiliated entities
own a significant portion of our capital stock and will have substantial control
over our activities.
Upon completion of this offering, our directors, executive officers,
principal stockholders and affiliated entities will beneficially own, in the
aggregate, approximately 50% of our outstanding common stock. These
stockholders, if acting together, will be able to significantly influence all
matters requiring approval by our stockholders, including the election of
directors and the approval of mergers or other business combination
transactions.
Antitakeover provisions in our charter documents and under Delaware law may make
an acquisition of us more difficult.
Provisions of our certificate of incorporation and bylaws could make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders.
These provisions:
- provide for a classified board of directors of which approximately one
third of the directors will be elected each year;
- allow the authorized number of directors to be changed only by resolution
of the board of directors;
- require that stockholder actions must be effected at a duly called
stockholder meeting and prohibit stockholder action by written consent;
- establish advance notice requirements for nominations to the board of
directors or for proposals that can be acted on at stockholder meetings;
and
- limit who may call stockholder meetings.
In addition, because we are incorporated in Delaware, we are governed by the
provisions of Section 203 of the Delaware General Corporation Law which may
prohibit large stockholders from
10
<PAGE>
consummating a merger with or acquisition of us. These provisions may prevent a
merger or acquisition that would be attractive to stockholders and could limit
the price that investors would be willing to pay in the future for our common
stock.
If our stockholders sell substantial amounts of our common stock after the
offering, the market price of our common stock may decline.
The number of shares of common stock available for sale in the public market
is limited by restrictions under federal securities law and under lockup
agreements with our underwriters. These lockup agreements restrict some of our
stockholders from disposing of their shares for 180 days after the date of this
prospectus without the prior written consent of Deutsche Bank Securities Inc.
However, Deutsche Bank Securities Inc. may release all or any portion of the
common stock from the restrictions in the lockup agreements. Any sales of
substantial amounts of common stock after the offering, including shares issued
upon the exercise of outstanding options and warrants, may cause the market
price of our common stock to decline. We discuss in detail in "Shares Eligible
For Future Sale" when shares of Common Stock not sold in this offering will be
eligible for sale in the public market.
Our stock price may be volatile, and the value of your investment may decline.
Prior to this offering there has been no public market for our common stock.
An active public market for our stock may not develop or be sustained after the
offering. The initial public offering price will be determined by negotiations
between us and our underwriters and may not be indicative of future market
prices. The market prices for securities of biotechnology companies in general
have been highly volatile and our stock may be subject to volatility. The
following factors, in addition to the other risk factors described in this
section, may have a significant impact on the market price of our common stock:
- announcements of technological innovations or new commercial products by
our competitors or us;
- developments concerning proprietary rights;
- publicity regarding actual or perceived adverse events in our clinical
trials or relating to products under development by our competitors;
- regulatory developments in the U.S. or foreign countries;
- litigation;
- significant short selling in our common stock;
- economic and other external factors; and
- period-to-period fluctuations in our financial results and changes in
analysts' recommendations.
New investors in our common stock will experience immediate and substantial
dilution.
The initial public offering price is substantially higher than the book
value per share of our common stock. This means that investors purchasing stock
in this offering will pay a price that exceeds the value of our assets after
subtracting our liabilities. Investors in this offering will contribute
approximately 56% of the total consideration paid to IntraBiotics in equity
financings but will own only 26% of the shares outstanding, assuming an initial
public offering price of $14.00 per share. Investors purchasing common stock in
the offering will therefore incur immediate dilution in the net tangible book
value per share of common stock as set forth in more detail in "Dilution." In
addition, the number of shares available for issuance under our stock option and
employee stock purchase plans will automatically increase without stockholder
approval. Investors will incur additional dilution upon the exercise of
outstanding stock options and warrants.
11
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
We make many statements in the prospectus under the captions Summary, Risk
Factors, Management's Discussion and Analysis of Financial Condition and Results
of Operations and Business and elsewhere that are forward-looking and are not
based on historical facts. These statements relate to our future plans,
objectives expectations and intentions. We may identify these statements by the
use of words such as believe, expect, will, anticipate, intend and plan and
similar expressions. These forward looking statements involve a number of risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those we discuss in Risk Factors and elsewhere in this prospectus.
These forward-looking statements speak only as of the date of this prospectus,
and we caution you not to rely on these statements without considering the risks
and uncertainties associated with these statements and our business that are
addressed in this prospectus.
These forward-looking statements are included, for example, in the
discussion about:
- our strategy;
- sufficiency of cash resources;
- product development;
- our research and development and other expenses; and
- operational and legal risks.
Given these uncertainties, you should not place undue reliance on such
forward-looking statements. We are not under any duty to update any of the
forward-looking statement after the date of this prospectus to conform these
statements to actual results except as required by law.
Information regarding market and industry statistics contained in the
Summary and Business sections is included based on information available to us
that we believe is accurate. It is generally based on academic and other
publications that are not produced for purposes of securities offerings or
economic analysis. We have not reviewed or included data from all sources and
cannot assure you of the accuracy of the data we have included.
12
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of 7,500,000 shares of common stock we are
offering are estimated to be $96.6 million ($111.2 million if the underwriters'
over-allotment option is exercised in full) assuming an initial public offering
price of $14.00 per share and after deducting the underwriting discounts and
commissions and our estimated offering expenses. We intend to use the net
proceeds of the offering primarily for funding clinical trials and the
development and scale up of manufacturing processes by our contract
manufacturers. The balance of the proceeds, as well as existing cash, will be
used to fund other research and development activities including identification,
testing and acquisition of additional potential in-licensing candidates, further
development of our other programs currently in process, expansion of research
and development capabilities, working capital and other general corporate
purposes. We may also use a portion of the proceeds for the acquisition of, or
investment in, companies, technologies or assets that complement our business.
However, we have no present understandings, commitments or agreements to enter
into any potential acquisitions and investments.
The amount and timing of our actual expenditures will depend on many factors
including the timing, extent, cost and progress of clinical trials, the costs
and success of manufacturing drug substances, and opportunities for in-licensing
technologies and compounds. Until the funds are used as described above, we
intend to invest the net proceeds of the offering in short-term, interest-
bearing, investment grade securities.
DIVIDEND POLICY
The payment of dividends is within the discretion of our board of directors.
Our ability to pay any future dividends will depend on our earnings, operating
and financial condition, projected capital requirements and restrictions under
our credit facilities. In this regard, our term loan and security agreement with
Silicon Valley Bank prohibits the payment of dividends without the consent of
the lender. We have never declared or paid any cash dividends on shares of our
capital stock and do not intend to do so at any time in the foreseeable future.
13
<PAGE>
CAPITALIZATION
The following table sets forth the following information:
- our actual capitalization as of December 31, 1999;
- our pro forma capitalization as of that date after giving effect to the
conversion of all outstanding shares of preferred stock into 19,741,900
shares of common stock upon completion of this offering; and
- our pro forma capitalization as adjusted to reflect the receipt of net
proceeds from our sale of 7,500,000 shares of common stock at an assumed
initial public offering price of $14.00 per share in this offering, less
the underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands except share
and per share data)
<S> <C> <C> <C> <C>
Long-term obligations, less current portion.................. $ 1,725 $ 1,725 $ 1,725
-------- -------- --------
Stockholders' equity:
Preferred stock, $0.001 par value; 40,937,873
shares authorized, actual and pro forma,
5,000,000 shares authorized, pro forma as
adjusted: 39,483,873 shares issued and
outstanding, actual; none issued and outstanding
pro forma and pro forma as
adjusted................................................... 79,609 -- --
Common stock, $0.001 par value; 67,500,000 shares
authorized; actual and pro forma; 50,000,000
shares authorized pro forma as adjusted;
1,339,154 shares issued and outstanding, actual;
21,081,054 shares issued and outstanding, pro
forma; and 28,581,054 shares issued and
outstanding, pro forma as
adjusted................................................... 1 21 29
Additional paid-in capital................................... 13,828 93,417 190,009
Deferred stock compensation.................................. (12,650) (12,650) (12,650)
Accumulated deficit.......................................... (52,874) (52,874) (52,874)
-------- -------- --------
Total stockholders' equity................................... 27,914 27,914 124,514
-------- -------- --------
Total capitalization......................................... $ 29,639 $ 29,639 $126,239
======== ======== ========
</TABLE>
The number of shares of common stock referenced above excludes as of
December 31, 1999:
- 3,746,896 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $1.16 per share.
- 677,000 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $9.50.
- 123,501 shares of common stock available for issuance under our stock plan
as of December 31, 1999, and 5,500,000 additional shares of common stock
that were approved for issuance under stock plans after December 31, 1999.
14
<PAGE>
DILUTION
Our pro forma net tangible book value of the common stock as of
December 31, 1999 was approximately $27.9 million, or approximately $1.32 per
share of common stock assuming conversion of all outstanding preferred stock
into an aggregate of 19,741,900 shares of common stock upon the closing of the
offering. After giving effect to the sale of 7,500,000 shares of common stock in
this offering at an assumed price of $14.00 per share and after deduction of the
underwriting discount and estimated offering expenses, our pro forma net
tangible book value after the offering would have been approximately
$124.5 million, or $4.36 per share.
Pro forma net tangible book value per share before the offering has been
determined by dividing pro forma net tangible book value (total tangible assets
less total liabilities) by the pro forma number of shares of common stock
outstanding at December 31, 1999. The offering will result in an increase in pro
forma as adjusted net tangible book value of $3.04 per share to existing
investors and an immediate dilution of $9.64 per share to new investors, or
approximately 69% of the assumed offering price of $14.00 per share. Dilution is
determined by subtracting pro forma net tangible book value per share after the
offering from the assumed initial public offering price. The following table
illustrates this calculation of per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Pro forma net tangible book value per share as of
December 31, 1999...................................... $1.32
Increase per share attributable to new investors........ 3.04
-----
Pro forma net tangible book value per share after this
offering.................................................. 4.36
------
Dilution per share to new investors......................... $ 9.64
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, the differences between the number of shares of common stock issued by
IntraBiotics, the total consideration paid and the average price per share paid
by the existing stockholders and by new investors, before deducting underwriting
discounts and commissions and estimated offering expenses, at an assumed initial
public offering price of $14.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
---------------------- ----------------------- Price Per
Number Percent Amount Percent Share
----------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 21,081,054 74% $81,394,000 44% $ 3.86
New investors........................... 7,500,000 26 105,000,000 56 14.00
---------- --- ----------- ---
Total................................... 28,581,054 100% 186,394,000 100%
========== === =========== ===
</TABLE>
These tables do not assume exercise of stock options and warrants
outstanding at December 31, 1999. At December 31, 1999, there were 3,746,896
shares of common stock issuable upon exercise of outstanding stock options at a
weighted average exercise price of $1.16 per share and 677,000 shares of common
stock issuable upon exercise of outstanding warrants at a weighted average
exercise price of $9.50 per share. The pro forma net tangible book value per
share would be $1.54, the dilution per share to new investors would be $9.63
after giving effect to the exercise of the options and warrants outstanding and
exercisable as of December 31, 1999.
15
<PAGE>
SELECTED FINANCIAL DATA
This section presents our historical financial data. You should read
carefully the financial statements included in this prospectus, including the
notes to the financial statements, and Management's Discussion and Analysis of
Financial Condition and Results of Operations. 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 have been derived from our financial statements
that have been audited by Ernst & Young LLP, independent auditors, and are
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 have been derived from financial statements
that have been audited by Ernst & Young LLP, and are not included elsewhere in
this prospectus. Historical results are not necessarily indicative of future
results. See notes to the financial statements for an explanation of the method
used to determine the number of shares used in computing pro forma basic and
diluted net loss per share.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Contract revenue................................... $ -- $ -- $ 3,507 $ 5,357 $ 7,863
License fee and milestone revenue.................. -- -- 2,000 1,000 --
------- ------- ------- -------- --------
Total revenue.................................... -- -- 5,507 6,357 7,863
Operating expenses:
Research and development........................... 2,181 4,049 8,103 21,997 26,102
General and administrative......................... 682 949 1,960 2,533 6,082
------- ------- ------- -------- --------
Total operating expenses......................... 2,863 4,998 10,063 24,530 32,184
------- ------- ------- -------- --------
Operating loss....................................... (2,863) (4,998) (4,556) (18,173) (24,321)
Interest income...................................... 121 243 575 963 1,372
Interest expense..................................... (80) (61) (94) (172) (166)
------- ------- ------- -------- --------
Net loss....................................... $(2,822) $(4,816) $(4,075) $(17,382) $(23,115)
======= ======= ======= ======== ========
Basic and diluted net loss per share................. $(14.25) $(11.92) $ (6.39) $ (20.89) $ (21.62)
======= ======= ======= ======== ========
Shares used in computing basic and diluted net loss
per share.......................................... 198 404 638 832 1,069
======= ======= ======= ======== ========
Pro forma basic and diluted net loss per share....... $ (1.27)
========
Shares used in computing pro forma basic and diluted
net loss per share................................. 18,172
========
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data(1):
Cash, cash equivalents and short-term investments... $ 1,280 $ 4,713 $ 20,779 $ 29,869 $ 31,429
Working capital..................................... 815 4,252 18,851 21,279 25,743
Total assets........................................ 1,712 5,312 24,987 32,099 35,958
Long-term obligations, less current portion......... 302 407 1,036 867 1,725
Deferred stock compensation......................... -- -- -- (1,145) (12,650)
Accumulated deficit................................. (3,487) (8,302) (12,377) (29,759) (52,874)
Total stockholders' equity.......................... 923 4,410 19,765 22,498 27,914
</TABLE>
- --------------------------
(1) The balance sheet data presented above reflect the effects of net proceeds
from the issuance of convertible preferred stock of $19.4 million,
$20.0 million and $27.5 million in the years ended December 31, 1997, 1998
and 1999, respectively.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ TOGETHER WITH "SELECTED FINANCIAL DATA" AND OUR
FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS.
THIS DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS, UNCERTAINTIES AND ASSUMPTIONS. THE ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY
FACTORS, INCLUDING BUT NOT LIMITED TO THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
Overview
We are engaged in the development of novel antibiotic drugs for the
prevention or treatment of serious infectious diseases. Since our inception in
January 1994, we have devoted substantially all of our resources to the
acquisition, preclinical research and clinical development of antibiotic
compounds. We currently have two antibiotic drug candidates, Ramoplanin Oral and
Protegrin IB-367 Rinse in late stage clinical development.
Our sole source of revenue has been a development and commercialization
collaboration agreement entered into in October 1997 with Pharmacia & Upjohn
S.p.A for Protegrin IB-367 Rinse. This agreement was terminated by mutual
agreement of the parties in July 1999 with funding continuing through the end of
1999. We will not receive any additional research funding or revenue under this
agreement. The termination of this agreement eliminated a source of cash for the
funding of these development efforts and eliminated the related future contract
revenues. As a result, our net loss is expected to increase for the next several
years as we develop this drug candidate. We do not believe the termination of
this agreement will have a material impact on our ability to continue to fund
our research and development programs from our available resources.
Since our inception, we have been unprofitable and, as of December 31, 1999,
we had an accumulated deficit of approximately $52.9 million. The process of
developing our drugs will require significant additional research and
development, preclinical studies and clinical trials, as well as regulatory
approval and manufacturing and commercialization activities. These activities,
together with our general and administrative expenses, are expected to result in
significant additional operating losses for the foreseeable future. We will
receive revenue from product sales only if we complete clinical trials, obtain
regulatory approvals and successfully commercialize at least one of our drug
candidates.
Results of Operations
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
REVENUE. Revenue increased to $7.9 million for the year ended December 31,
1999, from $6.4 million for the year ended December 31, 1998, and $5.5 million
for the year ended December 31, 1997. To date, all of our revenue has been
generated under the prior agreement with Pharmacia & Upjohn. The increases from
1998 to 1999 and 1997 to 1998 were primarily the result of increased contract
revenue under the terms of this agreement, partially offset by the timing of
license fees and milestone revenue recognized under this agreement. We
recognized a nonrefundable, noncreditable license fee of $2.0 million in 1997
upon execution of the license with Pharmacia & Upjohn. There were no future
performance obligations in connection with the grant of the license. We also
recognized revenue based upon reimbursement of expenses and the number of
full-time equivalent employees working on the Protegrin IB-367 Rinse program. In
1998, we recognized a nonrefundable payment of $1.0 million upon completion of a
development milestone. The contract was terminated in July 1998, and we will not
recognize any additional revenue under this agreement. We do not anticipate any
product revenue in the near future.
17
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$26.1 million for the year ended December 31, 1999, from $22.0 million for the
year ended December 31, 1998, and $8.1 million for the year ended December 31,
1997. The increase in 1999 was primarily due to the phase II clinical trials for
Protegrin IB-367 Rinse and Ramoplanin Oral totaling approximately $700,000, an
increase in research and development personnel of approximately $2.0 million and
expenses related to a new facility of approximately $800,000. The research and
development expenses in 1999 also included amortization of $648,000 of deferred
stock compensation in connection with the grant of stock options to officers and
employees.
The increase from 1997 to 1998 was primarily the result of increases in
clinical costs associated with expanding from one to four clinical programs. In
1998, $5.1 million in license fees and milestones were expensed. Of the
$5.1 million in license fees and milestones, $4.0 million is related to
Ramoplanin Oral including $2.0 million for the purchase of license rights to
develop and commercialize the chemical entity in oral dosage forms for
anti-microbial use in the U.S. and Canada. Although the proof of concept for
this chemical entity had been demonstrated in early-stage phase I clinical
trials, significant further work was necessary to develop our product,
Ramoplanin Oral. We were able to start phase II clinical trials shortly after
signing the agreement, triggering a two (2) million dollar milestone payment,
because preliminary safety and efficacy had been demonstrated in the earlier
clinical trials. This product candidate is now entering phase III clinical
trials. The timing of completion of the clinical trials and the
commercialization of the product candidate is uncertain and depends on the rate
of patient enrollment in the trial and the ability to obtain patient data, the
availability of sufficient quantities of the drug to complete the trial, any
development of safety issues during the trial, the ability to demonstrate
efficacy, our ability to fund the trial and the outcome of any FDA review. We
discuss these factors in more detail in "Risk Factors--We depend on the outcome
of our clinical trials and if they are unsuccessful, we may not be able to
commercialize our products and generate product revenue." Additional milestone
payments will be required when phase III trials are initiated and we expect to
make this payment in 2000, also milestone payments will be required when the new
drug application is filed.
We expect that research and development expenses will increase significantly
in the future as new and existing product candidates advance into later stages
of clinical development, in particular phase III clinical trials for Protegrin
IB-367 Rinse and Ramoplanin Oral.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $6.1 million for the year ended December 31, 1999, from $2.5 million for the
year ended December 31, 1998, and $2.0 million for the year ended December 31,
1997. The increase in 1999 was primarily due to increases in finance and
administrative personnel of approximately $600,000, market research expenses
associated with clinical trials for Protegrin IB-367 Rinse and Ramoplanin Oral
of approximately $1.0 million, and expenses related to the new facility of
approximately $400,000. General and administrative expenses in 1999 also
included amortization of $333,000 of deferred stock compensation in connection
with the grant of stock options to officers and employees. We expect that
general and administrative expenses will continue to increase as we build
infrastructure to support our product development efforts, establish our sales
and marketing capabilities and to operate as a public company.
INTEREST INCOME. Interest income increased to $1.4 million for the year
ended December 31, 1999, from $963,000 for the year ended December 31, 1998, and
$575,000 for the year ended December 31, 1997. The increase from 1998 to 1999
was primarily due to increased cash balances resulting from the sale of
preferred stock. The increase from 1997 to 1998 was primarily due to increased
cash balances resulting from the sale of preferred stock, license fee and
milestone payments and contract revenue from the Pharmacia & Upjohn agreement.
18
<PAGE>
INTEREST EXPENSE. Interest expense was $166,000 for the year ended
December 31, 1999, compared to $172,000 for the year ended December 31, 1998,
and $94,000 for the year ended December 31, 1997. Interest expense consists of
interest paid on equipment financing arrangements.
Income Taxes
Since inception, we have incurred operating losses and accordingly have not
recorded a provision for income taxes for any of the periods presented. As of
December 31, 1999, our net operating loss carryforwards for federal and state
income tax purposes were approximately $46.0 million and $23.0 million,
respectively. We also had federal research and development tax credit
carryforwards of approximately $1.0 million. If not utilized, the net operating
loss and credit carryforwards will expire at various dates beginning in 2002
through 2019. Utilization of net operating losses and credits may be subject to
a substantial annual limitation due to ownership change limitations provided by
the Internal Revenue Code of 1986. The annual limitation may result in the
expiration of our net operating loss and credit carryforwards before they can be
used. Please read note 8 of the notes to financial statements for further
information.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
placements of preferred stock and warrants, funds received from our prior
collaboration with Pharmacia & Upjohn and from the proceeds of equipment
financing arrangements. As of December 31, 1999, we had raised aggregate net
proceeds from the sale of preferred stock and warrants of $79.6 million. Prior
to termination of the Pharmacia & Upjohn agreement, we received an aggregate of
$21.4 million in cash payments under this agreement, of which $1.7 million of
unused development funding will be returned to Pharmacia & Upjohn.
Cash, cash equivalents and short-term investments were $31.4 million at
December 31, 1999, compared to $29.9 million at December 31, 1998. Net cash used
for operating activities was $24.7 million and $9.3 million for the years ended
December 31, 1999 and 1998, respectively. The increase from 1998 to 1999
consisted primarily of operating expenses related to conducting clinical trials
and other research, development and administrative activities, and the timing of
cash payments related to these activities. Net cash used for investing
activities was $15.1 million and $597,000 for the years ended December 31, 1999
and 1998, respectively. The increase from 1998 to 1999 was primarily related to
$12.6 million in purchases, net of maturities, of short-term investments and a
$1.9 million increase in capital expenditures in 1999. Net cash provided by
financing activities was $28.8 million and $19.0 million for the years ended
December 31, 1999 and 1998, respectively. This increase was primarily related to
the sale of preferred stock and additional equipment financing received in 1999.
In March 1999, we entered into an equipment financing agreement with GE
Capital, to finance up to $3.0 million of equipment. The term of the loan is
42 months. The interest rate varies according to U.S. Treasury rates. As of
December 31, 1999, we had drawn down a total of approximately $2.0 million at an
average interest rate of 10.0%. We currently have $967,000 available under this
arrangement which can be drawn down on or before February 29, 2000. We
anticipate we will utilize substantially all of this balance.
In addition, we have two prior equipment financing arrangements with
GE Capital with an outstanding balance of $900,000 as of December 31, 1999. We
are currently repaying this amount at an annual average interest rate of 11.0%.
In connection with these equipment financings, we issued a warrant to purchase
54,000 shares of, Series B Preferred Stock, which converts into a warrant to
purchase 27,000 shares of common stock at an exercise price of $2.00 per share
upon
19
<PAGE>
the closing of the offering. This warrant expires in July 2001. We also issued a
warrant to purchase 50,000 shares of Series D Preferred Stock at an exercise
price of $2.50 per share which expires upon this offering.
In August 1999, we entered into a term loan agreement with Silicon Valley
Bank for $5.0 million. As of December 31, 1999, we had not drawn down funds on
the loan arrangement. The loan may be drawn down prior to August 2000 and will
bear interest at the bank's prime rate of interest plus 1.25%. We anticipate
using this loan by August 2000 to fund our in-licensing programs, and ongoing
general corporate needs. This term loan will require us to comply with various
financial covenants, including minimum tangible net worth of $10.0 million and
minimum liquidity of two times the amount outstanding on the loan.
We expect to continue to incur substantial operating losses. We believe that
existing capital resources together with the net proceeds of this offering and
interest income will be sufficient to fund our operations for at least the next
12 months. This forecast is a forward-looking statement that involves risks and
uncertainties, and actual results could vary. Our future capital requirements
will depend on many factors, including:
- the timing, cost, extent and results of clinical trials;
- payments to third parties for manufacturing scale up;
- the costs and timing of regulatory approvals;
- the costs of establishing sales, marketing and distribution capabilities;
- the progress of our research and development activities;
- availability of technology in-licensing opportunities; and
- future opportunities for raising capital.
Until we can generate sufficient cash from our operations, which we do not
expect for the foreseeable future, we expect to finance future cash needs
through private and public financings, including equity financings. We cannot be
certain that additional funding will be available when needed or on favorable
terms. If funding is not available, we may need to delay or curtail our
development and commercialization activities to a significant extent.
Stock Compensation
In connection with the grant of stock options to employees, we recorded
deferred compensation totaling $12.5 million for the year ended December 31,
1999 and $1.2 million for the year ended December 31, 1998, representing the
difference between the exercise price and the deemed fair value of our common
stock for financial reporting purposes on the date those options were granted.
This amount is initially recorded as a component of stockholders' equity and is
being amortized over the vesting period of the individual options. We amortized
deferred stock compensation expense of $981,000 for the year ended December 31,
1999 and $48,000 for the year ended December 31, 1998. At December 31, 1999, we
had a total of $12.7 million remaining to be amortized over the vesting periods
of the stock options.
We expect to amortize deferred stock compensation for options granted as of
December 31, 1999 as follows:
<TABLE>
<CAPTION>
Year Amount
- ---- ------------
<S> <C>
2000............................................. $2.8 million
2001............................................. 2.8 million
2002............................................. 2.7 million
2003............................................. 2.2 million
2004............................................. 1.7 million
2005............................................. 0.5 million
</TABLE>
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In addition, we expect to record additional deferred compensation of
approximately $2.1 million for options granted in January 2000, which will also
be amortized over the vesting periods of these options. Please read note 6 of
the notes to financial statements for more information.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" which provides a comprehensive mechanism
and consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133, as deferred by SFAS 137, is effective for our
fiscal year ended December 31, 2001. SFAS 133 is not anticipated to have an
impact on our results of operations or financial condition when adopted as we do
not currently hold any derivative financial instruments and do not engage in
hedging activities.
Quantitative and Qualitative Disclosure Regarding Market Risk
The primary objective of our investment activities is to preserve our
capital until it is required to fund operations while at the same time
maximizing the income we receive from our investments without significantly
increasing risk. We own financial instruments that are sensitive to market risks
as part of our investment portfolio. To minimize this risk, we maintain a
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 our investments in
1999 was less than one year. Due to the short term nature of these investments,
a 10% movement in market interest rates would not have a material impact on the
total fair value of our portfolio as of December 31, 1999.
Year 2000 Compliance
We are not aware of any significant adverse effects of the year 2000 issue
on any of our systems and those of our vendors.
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BUSINESS
IntraBiotics develops and intends to commercialize novel antibacterial and
antifungal drugs for the prevention or treatment of serious infectious diseases.
Our clinical and development programs focus on solving medical problems for
patients who currently have few or no satisfactory alternatives. Because our
drug candidates use novel mechanisms of action to kill bacteria or fungi, we
expect them to be particularly useful in fighting microorganisms that are
resistant to currently available antibiotics. The incidence of multi-drug
resistant bacterial infections is increasing throughout the world, a problem
referred to as the antibiotics crisis. As a result, there is a critical need for
new and effective antibiotic drug therapies.
Our current product portfolio includes two drug candidates, Ramoplanin Oral
and Protegrin IB-367 Rinse, that are about to begin phase III clinical trials.
Ramoplanin Oral is being developed to prevent bloodstream infections caused by
vancomycin resistant enterococci, or VRE. VRE infections are a particular
problem in hospitalized patients, and in many cases, prove fatal. Protegrin
IB-367 Rinse is being developed to treat oral mucositis. Oral mucositis is a
common debilitating side effect of cancer therapy and is characterized by severe
mouth ulcers that often become infected. We recently completed the phase II
clinical trials for both Ramoplanin Oral and Protegrin IB-367 Rinse in which
both drugs were well tolerated and achieved statistically significant clinical
results. In December 1999, we reviewed data and discussed our proposed phase III
protocols with the FDA. We expect to begin the phase III trials for both
products in the first half of 2000.
Antibiotics Overview
Since the discovery of penicillin more than 50 years ago, many types of
antibiotics have been developed to fight microorganisms. Every antibiotic kills
or inhibits bacteria in a specific way. For example, penicillins, cephalosporins
and vancomycin interfere with the bacterial cell's ability to manufacture cell
walls. Erythromycin and tetracyclines stop the production of proteins within the
cell that are needed for the bacteria to grow. Ciprofloxacin interferes with the
cell's replication of DNA necessary for survival of the bacteria.
Until recently, these traditional antibiotics have successfully treated
infectious disease. Over time, bacteria and fungi have grown resistant to
traditional antibiotics, a worldwide phenomenon commonly referred to as the
antibiotics crisis. Bacterial and fungal resistance developed because of the
prolonged exposure of the bacteria and fungi to sub-lethal doses of antibiotics,
allowing them to evolve until the antibiotics are no longer effective.
Microorganisms have developed resistance to antibiotics by:
- blocking the entry of the drug into the cell;
- changing the part of the cell that was the drug's original target;
- creating new ways to metabolize the drug; and
- developing ways to pump the drug out of the bacteria or fungi.
The incidence of antibiotic-resistant bacterial infections is increasing.
For example, one type of bacteria that has demonstrated increased resistance is
enterococcus, a type of bacteria commonly found in the intestines. In 1997, the
Centers for Disease Control and Prevention reported that 23% of all enterococcal
samples from patients in intensive care units were resistant to the antibiotic
vancomycin. This is an alarming increase from 0.4% in 1989. Vancomycin
resistance presents a serious challenge since the enterococci are frequently
also resistant to most other currently available antibiotics. Researchers at The
Johns Hopkins University reported that in 1999, 31% of patients with VRE
bloodstream infections died as a result of their infections.
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There is also an increasing population of patients with impaired immune
systems who are at increased risk of infection. These include the millions of
patients undergoing chemotherapy or radiotherapy to treat cancer, patients
undergoing major surgical or organ transplant procedures, and patients affected
by HIV or other diseases that impair or destroy the patients' immune systems.
These patients often spend significant time in the hospital, where multi-drug
resistant bacteria and fungi are usually found.
The antibiotics crisis was not widely recognized as a significant medical
problem until the 1990s. As a result, until recently, many pharmaceutical
companies believed there was little need for new antibiotics and diverted
research funds to other diseases. The number of antibiotics at all stages of
development decreased in the 1980s with a corresponding decrease in antibiotic
drug approvals. Consequently, at the same time that new, resistant strains of
bacteria began to emerge, development of antibiotics began to decrease.
Our Business Strategy
IntraBiotics is responding to the challenge raised by the antibiotics
crisis. We intend to develop and commercialize antibiotics specifically targeted
for multi-drug resistant microorganisms as well as other organisms that cause
serious diseases.
ACQUIRE PROMISING NEW ANTIBIOTIC CANDIDATES. We believe that in-licensing
is the most cost-effective way to build a diverse portfolio of drug candidates
at various stages of development. This allows us to capitalize on research
conducted and funded by others, including academic research laboratories and
pharmaceutical and biotechnology companies. We believe that our approach saves
substantial time and money and increases the probability of successfully
developing a new antibiotic. We evaluate new in-licensing opportunities by
rigorously screening each product candidate against a diverse set of criteria
that are designed to allow us to assess the economic return against the cost and
probability of success of each development program. Using this evaluation
process, we have identified and in-licensed Ramoplanin and Protegrin technology.
We intend to continue to evaluate and acquire new compounds that have shown
potential for use as antibiotics.
TARGET DRUG CANDIDATES THAT ADDRESS SIGNIFICANT UNMET MEDICAL NEEDS. We
have deliberately chosen to target diseases where the medical need is high and
the current therapy options are limited or non-existent. This increases the
likelihood that successful drug candidates will initially have limited
competition. The lack of existing therapies also allows us to test our drug
candidates against placebos, which permits us to use smaller, less costly and
less time consuming clinical trials compared to non-placebo trials. In addition,
there is great interest in the medical community to participate in the clinical
testing of new drugs for unsolved medical problems. We believe this increased
interest will facilitate enrollment in the clinical trials of our drug
candidates.
UTILIZE THIRD PARTY MANUFACTURERS. We intend to use contract manufacturers
to prepare our drugs instead of developing an internal manufacturing capability.
We have contracted for supply of bulk drug substance for our two lead
candidates. We have not yet selected contract manufacturers for final
formulation of commercial products. By using third party manufacturers, we can
leverage their expertise and capital investment.
DEVELOP MULTIPLE PRODUCT CANDIDATES IN PARALLEL TO OPTIMIZE THE CHANCE OF
SUCCESS DURING THE DRUG DEVELOPMENT PROCESS. We intend to have multiple drug
candidates at various stages of clinical development to improve the chance of
successful development. Historically, we have conducted our two lead programs
roughly in parallel from phase II trials to the beginning of phase III trials.
In
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addition, we have two drug programs which we are pursuing in parallel which are
beginning phase I clinical trials and three programs in preclinical research. We
are constantly evaluating new in-licensing opportunities to add depth and
breadth to our portfolio.
DEVELOP NEW PRODUCTS BASED ON A SINGLE SUCCESSFUL ANTIBIOTIC. Once we have
sufficient indication of clinical safety and efficacy for a drug candidate, we
intend to develop new drug products using different formulations of the same
antibiotic for other clinical uses. We expect this to allow us to leverage our
prior development effort and expense. For example, Protegrin IB-367 Gel is in
development for ventilator-associated pneumonia based on the experience and data
gained from the Protegrin IB-367 Rinse program. The preclinical research, and
clinical development and manufacturing scale-up conducted for Protegrin IB-367
Rinse may allow us to develop the drug for ventilator-associated pneumonia more
quickly and with lower costs.
MARKET AND SELL OUR OWN PRODUCTS IN THE U.S. If we gain approval on our
lead product candidates, we plan to market and sell our products through a
direct sales force in the U.S. and Canada. We believe that a relatively small
sales force of fewer than 100 sales representatives will initially be effective,
as our first two products target oncology-related indications treated by roughly
the same group of physicians. This sales force may also be used to market and
sell our future products. Initially, our plan is to focus our product sales
efforts primarily in hospital settings. In the future, we may target sales in
outpatient settings, as well. We plan to partner with other pharmaceutical
companies to commercialize our products abroad. This will allow us to utilize
their expertise in foreign regulations and existing relationships and avoid the
cost of establishing a foreign sales force.
Our Development Programs
Since our inception six years ago, we have in-licensed five antibiotic
technologies. These include Protegrins from the University of California,
Ramoplanin from Biosearch Italia, antibacterial compounds, the IB-880 series,
and antifungal compounds, IB-863 series, from BioSource Pharm, Inc., and an
antifungal compound, the IB-974 series, from NAEJA Pharmaceuticals, Inc. From
these technologies, we have advanced four product candidates into clinical
trials, including two programs that are entering phase III clinical trials and
two programs entering phase I clinical trials.
[Chart showing the intended clinical uses and territorial rights for the
Company's product portfolio.]
Preclinical research includes laboratory evaluation of product chemistry,
toxicity and formulation, as well as animal studies. Phase I trials usually
involve the initial introduction of an investigational new drug into a limited
number of healthy volunteers to evaluate its safety and dose. Phase II usually
involves trials in a limited patient population to evaluate dose, identify
possible adverse side effects and safety risks and evaluate preliminarily the
efficacy of the drug for specific indications. Phase III trials further assess
clinical efficacy of a drug and further test for safety by using a drug in its
final form in an expanded patient population.
Ramoplanin Oral for Prevention of VRE Infections
DISEASE CHARACTERIZATION
Enterococci are bacteria that typically are found in the intestinal tract of
healthy humans. Under various circumstances, they may cause infections at sites
outside the intestine, including in the bloodstream, urinary tract and surgical
wounds. This species of bacteria is receiving increased medical attention
because many strains of the species have become highly resistant to almost all
antibiotic drugs. Infections caused by VRE are a serious threat to patients
because these infections often cannot be successfully treated with vancomycin or
any other currently available antibiotics.
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Some patients are at greater risk for VRE infection than others. While many
people may carry VRE in their intestines, it is harmless either until the
patient's immune system is weakened or the patient's intestinal tract is
damaged, enabling VRE to cross over into the patient's bloodstream. For example,
patients undergoing cancer treatments, patients who have had solid organ
transplants, patients with AIDS, patients on hemodialysis, and patients in
intensive care units are at an increased risk of developing VRE infections.
In many cases, VRE bloodstream infections prove fatal. According to a study
conducted by the CDC, 36% of patients with VRE bloodstream infections died as a
result of their infection as compared to 16% of those with bloodstream
infections that could be treated with vancomycin.
MARKET OPPORTUNITY FOR RAMOPLANIN ORAL
Since the identification of VRE in 1989, a rapid increase in the incidence
of this strain has occurred in the U.S. The CDC tracks the occurrence of VRE
infections as part of its national surveillance efforts. In 1997, it found that
23% of all enterococcal samples from patients in intensive care units were
vancomycin-resistant, which is an increase from 0.4% in 1989. Some hospitals
have reported rates of vancomycin resistance among specific enterococcal strains
as high as 60%.
There are an estimated 3 million patients hospitalized each year in
intensive care. Based on a 1999 surveillance program, approximately 26% of these
patients are expected to carry VRE bacteria in their intestines. In addition,
based on the medical literature, 14% to 20% of patients with low white blood
cell counts and VRE bacteria in their intestines are expected to develop a VRE
bloodstream infection. Researchers from The Johns Hopkins University have
reported that each treated case of VRE bloodstream infection generates an
average of $86,000 in incremental health care costs. In addition, VRE
bloodstream infections are often fatal. Because of the high economic burden on
our health care system and the severity of the disease, there is substantial
economic and public health interest in the prevention of these infections.
PRODUCT DESCRIPTION
Ramoplanin is a naturally occurring peptide produced by fermentation of a
microorganism. Many microorganisms produce antibiotic compounds to attack other
microorganisms competing for resources in their environment. In the laboratory,
microorganisms can be fermented in carefully controlled conditions to produce
large amounts of these antibiotic compounds such as Ramoplanin.
Ramoplanin kills many types of bacteria by blocking the action of one of the
enzymes needed to make the cell wall. Although many antibiotics block cell wall
production, Ramoplanin is novel because it interferes with a different bacterial
enzyme than other currently available antibiotics. To date, more than
800 bacterial samples have been tested, showing Ramoplanin's uniform ability to
kill bacteria.
In laboratory studies, bacterial resistance to Ramoplanin was not detected
under conditions that might be expected to foster resistance. We believe that
this is due to the different mechanism of action of Ramoplanin on bacterial cell
wall production. We cannot guarantee that certain species of bacteria may not
develop resistance in the future to Ramoplanin.
We are developing Ramoplanin Oral to prevent VRE bloodstream infections in
hospitalized patients. Initially we will focus on patients undergoing
chemotherapy or bone marrow transplants. Ramoplanin is administered as an oral
solution to patients known to have VRE bacteria in their intestinal tracts. By
killing the intestinal VRE bacteria while the patient undergoes chemotherapy or
other procedures that leave the patient at high risk for infection, Ramoplanin
Oral may reduce the overall number of VRE bloodstream infections. In addition to
being very active against VRE,
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Ramoplanin Oral does not appear to be absorbed from the intestines into the
bloodstream. As a result, Ramoplanin Oral will not be developed to treat VRE
bloodstream infections. However, we believe that this lack of absorption makes
it a good candidate for development against other disease-causing bacteria in
the intestines and makes it less likely to have side effects in other parts of
the body.
CLINICAL STUDY RESULTS
Our clinical trials have demonstrated that Ramoplanin Oral can reduce
intestinal levels of VRE by at least 99.9% to undetectable levels. In a recently
completed randomized, double-blind, placebo-controlled phase II clinical trial,
18 of the 20 (90%) patients treated with Ramoplanin Oral had no detectable VRE
bacteria in their intestines after seven days of treatment. All of the patients
treated with placebo had detectable levels of VRE in their intestines after
seven days of treatment. The difference between placebo and Ramoplanin Oral was
highly statistically significant, with a p-value of less than 0.01. This means
that, applying widely-used statistical methods, the chance that these results
occurred by accident is less than 1 in 100. Ramoplanin Oral was well tolerated
by the subjects, and no serious adverse effects related to Ramoplanin Oral were
reported.
In December 1999, we reviewed these data and discussed our proposed phase
III protocol with the FDA. We intend to initiate in the first half of 2000 a
randomized, double-blind, placebo-controlled phase III trial to evaluate
Ramoplanin Oral's ability to prevent VRE infections in cancer patients
undergoing chemotherapy or bone marrow transplantation. In this study, our goal
will be to demonstrate a reduction in VRE bloodstream infections in patients
treated with Ramoplanin Oral, in contrast to the phase II clinical trial which
demonstrated a reduction in VRE levels in the intestines. If our phase III trial
is successful, we will submit the results to the FDA to support regulatory
approval of the product. However, we cannot be certain that Ramoplanin Oral will
prove to be safe or effective in preventing VRE infections, will receive
regulatory approvals, or will be successfully commercialized. The FDA has
granted fast track designation for Ramoplanin Oral. The FDA issues fast track
designation for some drugs under development with the potential to address unmet
medical needs for serious, life-threatening conditions. See "Government
Regulation" for a discussion of the benefits associated with fast track
designation.
Protegrin IB-367 Rinse for Reduction in Severity of Oral Mucositis
DISEASE CHARACTERIZATION
Oral mucositis, a common side effect of chemotherapy and radiation therapy
in cancer patients, is characterized by sores and painful ulcers in the mouth.
Chemotherapy and radiation therapy damage the cells that line the mouth,
allowing the bacteria and fungi normally found inside the mouth to invade tissue
and cause infection. Oral mucositis is often identified by cancer patients as
the single worst side effect of chemotherapy and radiation therapy, causing pain
so severe as to prevent eating and sleeping. Often, patients receive intravenous
nourishment and narcotic painkillers to treat the condition, and in some cases
are forced to interrupt cancer treatment. Oral mucositis also creates a
significant risk of infection elsewhere in the body.
MARKET OPPORTUNITY FOR PROTEGRIN IB-367 RINSE
According to a recent report by the Transplant Registries, there are over
30,000 bone marrow transplants performed annually in the U.S. and Europe
combined. The treatment for certain leukemias and some solid cancers involves
administration of near lethal doses of chemotherapy to maximize eradication of
the cancer. Academic studies report that these very aggressive cancer and bone
marrow transplant treatments cause oral mucositis in approximately 75% of the
patients. Two recent studies by researchers from the International Bone Marrow
Transplant Registry and the
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Department of Oral Medicine at Harvard University have estimated the duration of
hospitalization is increased by two to 11 days for bone marrow transplant
patients who experience oral mucositis. They incur on average an increase of
approximately $20,000 in hospital charges.
In addition, as reported in the National Cancer Data Base, more than 80,000
head and neck cancer patients in the U.S. and Europe are treated with radiation
therapy. Oral mucositis is reported as a side effect in approximately 80% of
these patients. As reported by the International Society for Pharmacoeconomic
Outcomes, management of severe oral mucositis in these patients costs
approximately $4,500 in additional costs per patient. The treatment of oral
mucositis places a high economic burden on our health care system, resulting in
substantial interest for a new treatment option.
PRODUCT DESCRIPTION
Protegrin IB-367 is a synthetic analog of the Protegrin family of antibiotic
peptides found in mammals. Antibiotic peptides with differing structures can be
found in all living creatures, where they form part of the first line of defense
against invading bacteria and fungi. In mammals, antibiotic peptides cover moist
surfaces, such as those in the mouth and in the airways of the lungs, and are
present in the types of white blood cells that engulf and kill invading
microorganisms.
Protegrin IB-367 destroys the cell membranes of bacteria and fungi, thus
damaging the structural integrity of the microorganism. Protegrin's chemical
structure and its mechanism of action are different from traditional
antibiotics. Protegrin IB-367 kills an unusually wide variety of microorganisms,
including bacteria and certain fungi, and is effective against many of the
serious drug resistant, disease causing bacteria. In addition, Protegrin IB-367
kills microorganisms extremely rapidly. We have demonstrated that Protegrin
IB-367 can reduce the number of bacteria in a test tube by at least 100,000-fold
in less than five minutes. In contrast, with traditional antibiotics a treatment
time of between four and 24 hours is needed to obtain a similar reduction in the
number of bacteria.
In preclinical studies we have conducted, bacteria have not become highly
resistant to Protegrin IB-367 under laboratory conditions that cause significant
resistance to traditional antibiotics. We believe that this difference results
from the fact that Protegrin IB-367 targets the cell membrane, a structure that
bacteria cannot readily change, and because Protegrin IB-367 kills
microorganisms extremely rapidly. By comparison, traditional antibiotics target
single enzymes or structures that the bacteria can change more easily.
Traditional antibiotics are also slower to kill or inhibit growth of the
bacteria, allowing the bacteria time to develop resistance mechanisms. We cannot
guarantee that some species of bacteria may not develop resistance in the future
to Protegrin IB-367.
We are developing Protegrin IB-367 Rinse for the reduction in severity of
oral mucositis. Cancer patients who are undergoing aggressive chemotherapy or
radiation treatment will swish Protegrin IB-367 Rinse in their mouths several
times per day while undergoing cancer therapy in an attempt to eliminate the
bacteria and lessen the severity of the ulcers. We believe Protegrin IB-367 is
well suited for the treatment of oral mucositis because it quickly kills the
bacteria and fungi found in the mouth.
CLINICAL STUDY RESULTS
In clinical trials, Protegrin IB-367 Rinse has been well tolerated and does
not appear to be absorbed into the bloodstream. In a recently completed
randomized, double-blind, placebo-controlled phase II clinical trial, Protegrin
IB-367 Rinse reduced the severity of oral mucositis in patients undergoing
chemotherapy. A total of 180 patients were randomized to receive either
Protegrin IB-367 Rinse or a placebo six times a day. Protegrin IB-367 Rinse was
found to reduce the severity of oral mucositis by 22% in the 134 evaluable
patients, a clinically meaningful reduction. These
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results were statistically significant with a p-value of less than 0.05. This
means that, applying widely-used statistical methods, the chance that these
results occurred by accident is less than 1 in 20.
Approximately one half of the patients in this trial started treatment with
Protegrin IB-367 Rinse within three days of the start of their chemotherapy. In
the group of 76 patients who started treatment early with Protegrin IB-367
Rinse, there was a 40% reduction (p = 0.047) in the severity of oral mucositis,
which represents a statistically significant improvement over the patients who
were treated with a placebo. In our phase II trial, there were a large number of
patients who discontinued the trial early while they still had oral mucositis.
They included both patients who were given a placebo as well as those who were
given Protegrin IB-367 Rinse. This prevented us from determining the duration of
their disease and whether Protegrin IB-367 Rinse was able to reduce the length
of time the patients had severe ulcers. In our management of the phase III
trial, we intend to implement several changes that are designed to improve
compliance.
In December 1999, we reviewed this data and discussed our proposed phase III
protocol with the FDA. We intend to initiate two randomized, double-blind,
placebo-controlled phase III trials to further assess its safety and efficacy in
the reduction in severity of oral mucositis in cancer patients receiving either
chemotherapy or radiotherapy.
If our phase III trials are successful, we intend to submit the results to
the FDA to support regulatory approval of the product. However, we cannot be
certain after further study that Protegrin IB-367 will prove to be safe or
effective in reducing the severity of oral mucositis in cancer patients
receiving either chemotherapy or radiotherapy, will receive regulatory
approvals, or will be successfully commercialized.
Protegrin IB-367 Gel for Prevention of Ventilator-Associated Pneumonia
Patients who need mechanical breathing assistance are at risk of developing
pneumonia. Because these patients have ventilator tubes in their mouths and
throats, microorganisms in their saliva can get into their lungs and cause
pneumonia. By killing these bacteria, we believe that we may be able to reduce
the incidence of ventilator-associated pneumonia. There are presently no
therapies approved for the prevention of ventilator-associated pneumonia.
In the U.S., there are approximately 740,000 patients placed on ventilators
each year. The risk of acquiring ventilator-associated pneumonia varies widely
and is based on each patient's condition and length of time on mechanical
ventilation. It is estimated that between 25% and 40% of patients who undergo
mechanical ventilation for more than 48 hours will develop ventilator-associated
pneumonia. Academic sources report that 10% to 15% of patients who have
contracted ventilator-associated pneumonia will die from their pneumonia.
Patients contracting ventilator-associated pneumonia require significant
hospital resources, including prolongation of their hospital stay by an average
of four to 13 days.
Published clinical trials of other antibiotics applied in the mouth have
demonstrated a reduction in the number of patients who develop
ventilator-associated pneumonia. The use of these antibiotics for this
indication is not widespread because of the need to combine several antibiotic
products to achieve the desired effect. Physicians are reluctant to prescribe
these antibiotics to prevent ventilator-associated pneumonia because of the risk
of developing resistant strains of the microorganisms. Protegrin IB-367 kills
most types of bacteria and yeast that are typically found in the mouth very
quickly. To date, there has been little evidence of bacterial resistance
developing to Protegrin IB-367.
A gel form of Protegrin IB-367 is being developed to kill bacteria that
might reside in the mouth. In a phase I clinical trial of Protegrin IB-367 Gel
conducted in healthy volunteers, the number
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of bacteria and fungi found in the mouth one hour after treatment was reduced by
99.9%. An additional phase I trial of Protegrin IB-367 Gel in ventilated
patients evaluating safety and antimicrobial activity is planned for the first
half of 2000. However, we cannot be certain that Protegrin IB-367 Gel will prove
to be safe or effective in the prevention of ventilator-associated pneumonia or
that Protegrin IB-367 Gel will receive regulatory approvals, or will be
successfully commercialized.
Protegrin IB-367 Aerosol for Treatment of Respiratory Infections
Currently available antibiotics have not been effective in treating many of
the most severe forms of respiratory infection, including those associated with
cystic fibrosis. According to the Cystic Fibrosis Registry, cystic fibrosis
afflicts an estimated 23,000 people annually in the U.S. More than 95% of these
patients develop chronic respiratory infections, many of which are fatal. Over
the course of repeated treatments, bacteria colonize in patients' airways and
slowly become resistant to antibiotics. As the airway infection persists, the
patients develop progressive, destructive lung disease. The median survival age
for these patients is 31 years.
We believe Protegrin IB-367 Aerosol, when inhaled into the lung, may be
effective in treating respiratory infections. The initial goal of our clinical
development program is to determine whether Protegrin IB-367 Aerosol can safely
reduce the levels of bacteria in the lungs of patients with cystic fibrosis. We
are currently conducting a phase I trial to evaluate the safety of a single dose
of Protegrin IB-367 Aerosol in cystic fibrosis patients with chronic respiratory
infections. To date, this study has demonstrated that single inhaled doses of
Protegrin IB-367 Aerosol are well tolerated. We cannot be certain that Protegrin
IB-367 Aerosol will prove to be safe or effective in treating respiratory
infections, will receive regulatory approvals, or will be successfully
commercialized.
Our Research Programs
Our research focuses on discovering and developing compounds with novel
chemical structures and mechanisms of antimicrobial activity against bacteria or
fungi. We are also modifying the structure of some existing antibiotics to
improve their toxicity and efficacy profiles. We intend to file patent
applications on these compounds when appropriate. We currently have three
compounds in the preclinical research stage.
IB-880 SERIES
We are conducting a research program focused on a particular class of
antibiotics produced by microbial fermentation. This program is conducted in
collaboration with BioSource Pharm, Inc. We produced synthetic derivatives of
the natural products that have demonstrated efficacy against infections in
animals. We are in the process of further testing to identify a candidate drug
for clinical testing.
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IB-863 SERIES
We are also collaborating with BioSource Pharm, Inc. to identify appropriate
candidates for a new antifungal drug. To date, we have produced proprietary new
drug candidates with improved efficacy and reduced toxicity in animals compared
to other existing antifungals. A patent application has been filed on these new
compounds and further work is ongoing to select the best candidate compound for
preclinical evaluation.
IB-974 SERIES
We are collaborating with NAEJA Pharmaceuticals, Inc. on the development of
novel antifungal compounds that, in laboratory tests, kill a wide variety of
yeasts and other fungi. This new type of compound is chemically distinct from
the two main types of antifungal drugs currently on the market. We are in the
process of identifying appropriate candidates for preclinical testing.
Strategic Relationships
BIOSEARCH ITALIA S.P.A., GERENZANO, ITALY
In May 1998, we entered into a license agreement with Biosearch, under which
we have exclusive rights in the U.S. and Canada to develop and commercialize
products containing certain formulations of Ramoplanin for the treatment or
prevention of human disease. In addition to a licensing fee, we will make
payments to Biosearch upon the occurrence of specific development milestones.
These milestone and licensing fees would total approximately $12 million if all
research and development goals are achieved. We will share clinical data with
Biosearch to assist in registration of products containing Ramoplanin elsewhere
in the world. Biosearch is also responsible for the manufacture of Ramoplanin
and will receive royalties and a manufacturing margin on our sales of products
containing Ramoplanin within the U.S. and Canada. We have rights to manufacture
Ramoplanin or to transfer manufacturing to third parties in the event that
Biosearch ceases or is unable to supply Ramoplanin or if Biosearch's supply
price for Ramoplanin rises above agreed levels. We may terminate the agreement
at will with respect to the U.S. or Canada at any time prior to governmental
approval.
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
In April 1994, we entered a license agreement with The Regents of the
University of California, under which we have exclusive rights, to develop and
commercialize Protegrin-based products. In addition to a licensing fee, we are
obligated to make payments to the Regents upon the occurrence of specific
development milestones. These milestone payments are anticipated to total
$200,000 if all research and development goals are achieved. We will also make
royalty payments to the Regents based on sales of Protegrin-based products.
We may terminate the agreement upon written notice. The Regents may
terminate the agreement if any of the following occur: we fail to use diligent
efforts to develop and commercialize Protegrin-based products, we are unable to
meet certain targets for raising capital or expending resources for development
and commercialization of Protegrin-based products, or we cannot achieve the
commercialization milestones stated in a development plan that we present to the
Regents.
PolyPeptide Laboratories A/S, Hiller /, Denmark
In January 1997, we entered into both a Development Supply Agreement and a
Purchase Supply Agreement with PolyPeptide for the development of manufacturing
processes for Protegrin IB-367 and for the clinical and commercial manufacture
and supply of Protegrin IB-367, as a bulk
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drug substance. Under the Development Supply Agreement, we make payments to
PolyPeptide upon achievement of certain development milestones and upon receipt
of clinical materials. As of December 31, 1999 these payments totalled $2.7
million. Under the Purchase Supply Agreement, we will pay PolyPeptide for set
volumes and at set prices.
The Development Supply Agreement will terminate after certain files relating
to Protegrin IB-367 are ready for submission to the FDA in connection with a new
drug application. PolyPeptide is manufacturing Protegrin IB-367 exclusively for
us. However, we can transfer the manufacturing process to a third party if we
choose.
Manufacturing
We intend to use contract manufacturers to prepare our drugs instead of
developing this capability internally. We have contracted for supply of bulk
drug substance for our two lead candidates. We have not yet selected contract
manufacturers for final formulation for commercialization. By using third party
manufacturers we can leverage their expertise and capital investment.
We have contracted with Biosearch for the manufacture of Ramoplanin.
Biosearch uses proprietary fermentation and purification processes to
manufacture Ramoplanin. Biosearch has improved the fermentation process, and
full-scale fermentation and purification at the proposed commercial
manufacturing site is currently ongoing. See "Strategic Relationships."
We have contracted with PolyPeptide for the manufacture of Protegrin IB-367.
PolyPeptide has manufactured the peptide on a pilot scale to our specifications.
The manufacturing process is now being scaled up at the proposed commercial
facility in advance of the commencement of our phase III clinical trial.
PolyPeptide is an established world leader in peptide manufacturing.
PolyPeptide and Biosearch are our single source suppliers of bulk drug
substance Ramoplanin and Protegrin, respectively. We have long-term supply
agreements in place and we expect to have sufficient capacity to enable
commercialization. If our contract manufacturers are unable or fail to produce
the required quantities of our drug candidates for clinical use on a timely
basis, at commercially reasonable prices, our current and future clinical trials
and our product development efforts will be delayed. If these facilities become
unavailable for any reason, if our contract manufacturers fail to comply with
the FDA's current good manufacturing practices, or if our contract manufacturers
terminate their agreements with us, we would have to find an alternative source
for manufacturing our drug candidates. Contract manufacturers often encounter
difficulties in scaling up production, including problems involving production
yields, quality control and quality assurance and shortage of qualified
personnel. If our contract manufacturers are unable to scale up production to
meet our commercial needs, our revenue may be adversely affected.
Intellectual Property
Pursuant to the agreement relating to Biosearch's manufacture of Ramoplanin,
we have licensed from Biosearch intellectual property providing U.S. and
Canadian development and marketing rights. This intellectual property consists
of trade secret protection of the fermentation and purification process used to
make Ramoplanin and a U.S. patent expiring in 2007 that covers certain aspects
of the fermentation process.
We own two U.S. patents directed to Protegrin IB-367. Together, these
patents contain claims to composition of matter, pharmaceutical compositions and
methods of use, including the treatment or prevention of oral mucositis. These
patents expire in 2015. In addition, we are either the assignee, or the
exclusive licensee, from the University of California of four other U.S. patents
that
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cover related Protegrins. International patent applications and an additional
U.S. patent application covering Protegrin IB-367 and the related Protegrins and
specific methods of use are pending. In addition, we have filed a U.S. patent
application for the IB-863 Series of antifungal compounds.
We cannot guarantee that patents will be issued as a result of any patent
application or that patents that have issued will be sufficient to protect our
technology or products. We cannot predict the enforceability or scope of any
issued patent or those that may issue in the future. Moreover, others may
independently develop similar technologies or duplicate the technology we have
developed. We also rely on trade secrets and proprietary know-how for protection
of certain of our intellectual property. We cannot guarantee that our
confidentiality agreements provide adequate protection or remedies in the event
of unauthorized use or disclosure of our intellectual property. Third parties
may assert infringement or other claims against us. Even if these claims are
without merit, defending a lawsuit takes significant time, may be expensive and
may divert management attention from other business concerns and if
unsuccessful, we may be forced to license the intellectual property or
discontinue sales.
Marketing and Sales
We intend to market and sell our two initial products through a direct sales
force in the U.S. and Canada. We believe that a relatively small sales force of
fewer than 100 sales representatives can be used for these products because
prescribing decisions will be made by roughly the same group of physicians,
primarily oncologists. We plan to begin hiring this sales force upon successful
completion of phase III trials. This sales force will initially target the
largest 200 hospitals and cancer centers in the U.S. We cannot guarantee that we
will develop a sales force with the necessary technical expertise and
distribution capabilities.
We are evaluating opportunities to partner with other pharmaceutical
companies to develop and commercialize our products for which we have rights
abroad. We cannot guarantee that we will successfully develop or commercialize
our product candidates, achieve significant market penetration, or generate any
revenues from our products.
Competition
There are no products currently approved for the prevention of VRE
bloodstream infections. However there are products in development and on the
market for the treatment of VRE blood-stream infections. Currently, there is no
FDA approved drug for oral mucositis. Ice chips, local painkillers and narcotics
are often used to reduce the patient's pain. Doctors routinely prescribe
mouthwashes containing traditional antibacterial and antifungal drugs for the
treatment of oral mucositis, although most clinical trials have shown that they
have suboptimal efficacy.
There are two additional means of addressing oral mucositis currently under
development in the pharmaceutical industry: chemoprotection and growth
modulation. Chemoprotection is a strategy to protect the rapidly dividing cells
that line the inside of the mouth from the side effects of the chemotherapy so
that this protective barrier is not destroyed, and microorganisms do not invade
the tissue. The growth modulation strategy seeks to reestablish the protective
barrier in the mouth to keep microorganisms out of the tissue by encouraging the
growth of new cells. These two approaches are currently under development and
can be used together with our antibiotic approach. We believe that these
therapies may be used in combination.
Our competitors include fully integrated pharmaceutical companies and
biotechnology companies. We are aware that several of these companies are
actively engaged in research and development in the areas related to cancer
therapy and antibiotic development, including some companies that address the
same disease indications as we address. Many of these companies have
substantially greater experience, financial and other resources than we do. In
addition, they
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may have greater experience in developing drugs, obtaining regulatory approvals
and manufacturing and marketing products. We cannot guarantee that we can
effectively compete with these other pharmaceutical and biotechnology companies.
We believe the principal bases for competition for our drug candidates are
effectiveness, price and reimbursement status, ease of administration and side
effect profile.
Government Regulation
Governmental authorities in the U.S. and other countries extensively
regulate, among other things, the research, development, testing, manufacture,
labeling, promotion, advertising, distribution, and marketing, of our products.
The FDA regulates drugs, including antibiotics, under the Federal Food, Drug,
and Cosmetic Act and its implementing regulations. Failure to comply with the
applicable U.S. requirements may subject us to administrative or judicial
sanctions, such as FDA refusal to approve pending new drug applications, warning
letters, product recalls, product seizures, total or partial suspension of
production or distribution, injunctions, and/or criminal prosecution.
The steps required before a drug may be marketed in the U.S. include:
- preclinical laboratory tests, animal studies, and formulation studies;
- submission to the FDA of an investigational new drug exemption for human
clinical testing, which must become effective before human clinical trials
may commence;
- adequate and well-controlled clinical trials to establish the safety and
efficacy of the drug for each indication;
- submission to the FDA of a new drug application;
- satisfactory completion of an FDA inspection of the manufacturing facility
or facilities at which the drug is produced to assess compliance with
current good manufacturing practices; and
- FDA review and approval of the new drug application.
Preclinical tests include laboratory evaluation of product chemistry,
toxicity, and formulation, as well as animal studies. The results of the
preclinical tests, together with manufacturing information and analytical data,
are submitted to the FDA as part of an investigational new drug exemption, which
must become effective before human clinical trials may be commenced. An
investigational new drug exemption will automatically become effective 30 days
after receipt by the FDA, unless before that time the FDA raises concerns or
questions about issues such as the conduct of the trials as outlined in the
investigational new drug exemption. In such a case, the investigational new drug
exemption sponsor and the FDA must resolve any outstanding FDA concerns or
questions before clinical trials can proceed. We cannot be sure that submission
of an investigational new drug exemption will result in the FDA allowing
clinical trials to commence.
Clinical trials involve the administration of the investigational drug to
human subjects under the supervision of qualified investigators. Clinical trials
are conducted under protocols detailing the objectives of the study, the
parameters to be used in monitoring safety, and the effectiveness criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the
investigational new drug exemption.
Clinical trials typically are conducted in three sequential phases, but the
phases may overlap or be combined. Each trial must be reviewed and approved by
an independent Institutional Review
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Board before it can begin. Phase I usually involves the initial introduction of
the investigational drug into people to evaluate its safety, dosage tolerance,
pharmacodynamics, and, if possible, to gain an early indication of its
effectiveness. Phase II usually involves trials in a limited patient population
to:
- evaluate dosage tolerance and appropriate dosage;
- identify possible adverse effects and safety risks; and
- evaluate preliminarily the efficacy of the drug for specific indications.
Phase III trials usually further evaluate clinical efficacy and test further
for safety by using the drug in its final form in an expanded patient
population. We cannot guarantee that phase I, phase II, or phase III testing
will be completed successfully within any specified period of time, if at all.
Furthermore, we or the FDA 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.
Assuming successful completion of the required clinical testing, the results
of the preclinical studies and of the clinical studies, together with other
detailed information, including information on the manufacture and composition
of the drug, are submitted to the FDA in the form of a new drug application
requesting approval to market the product for one or more indications. Before
approving a new drug application, the FDA usually will inspect the facility or
the facilities at which the drug is manufactured, and will not approve the
product unless current good manufacturing practices compliance is satisfactory.
If the FDA determines the new drug application and the manufacturing facilities
are acceptable, the FDA will issue an approval letter. If the FDA determines the
new drug application submission or manufacturing facilities are not acceptable,
the FDA will outline the deficiencies in the submission and often will request
additional testing or information. Notwithstanding the submission of any
requested additional information, the FDA ultimately may decide that the new
drug application does not satisfy the regulatory criteria for approval. The
testing and approval process requires substantial time, effort, and financial
resources, and we cannot be sure that any approval will be granted on a timely
basis, if at all. After approval, certain changes to the approved product, such
as adding new indications, manufacturing changes, or additional labeling claims
are subject to further FDA review and approval.
If regulatory approval is obtained, we will be required to comply with a
number of post-approval requirements. For example, as a condition of approval of
the new drug application, the FDA may require postmarketing testing and
surveillance to monitor the drug's safety or efficacy. In addition, holders of
an approved new drug application are required to report certain adverse
reactions, if any, to the FDA, and to comply with certain requirements
concerning advertising and promotional labeling for their products. Also,
quality control and manufacturing procedures must continue to conform to current
good manufacturing practices after approval, and the FDA periodically inspects
manufacturing facilities to assess compliance with current good manufacturing
practices. Accordingly, manufacturers must continue to expend time, money, and
effort in the area of production and quality control to maintain compliance with
current good manufacturing practices.
We use and will continue to use third-party manufacturers to produce our
products in clinical and commercial quantities, and we cannot be sure that
future FDA inspections will not identify compliance issues at our facilities or
at the facilities of our contract manufacturers that may disrupt production or
distribution, or require substantial resources to correct. In addition,
discovery of problems with a product may result in restrictions on a product,
manufacturer, or holder of an approved new drug application, including
withdrawal of the product from the market. Also, new government requirements may
be established that could delay or prevent regulatory approval of our products
under development.
The FDA's fast track program is intended to facilitate the development and
expedite the review of drugs intended for the treatment of serious or
life-threatening diseases and that demonstrate the
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potential to address unmet medical needs for such conditions. Under this
program, the FDA can, for example, review portions of a new drug application for
a fast track product before the entire application is complete, thus potentially
beginning the review process at an earlier time. We have been granted fast track
status for Ramoplanin and we may seek to have some of our other drug candidates
designated as fast track products, with the goal of reducing the development and
review time. We cannot guarantee that the FDA will grant any of our requests for
fast track designation, that any fast track designation would affect the time of
review, or that the FDA will approve the new drug application submitted for any
of our drug candidates, whether or not fast track designation is granted.
Additionally, the FDA approval of a fast track product can include restrictions
on the product's use or distribution (such as permitting use only for specified
medical procedures or limiting distribution to physicians or facilities with
special training or experience). Approval of fast track products can be
conditional with a requirement for additional clinical studies after approval.
FDA procedures also provide priority review of new drug applications
submitted for drugs that, compared to currently marketed products, offer a
significant improvement in the treatment, diagnosis, or prevention of a disease.
The FDA is supposed to review new drug applications that are granted priority
status more quickly than new drug applications given standard status. FDA's
current goal is to act on 90% of priority new drug applications within six
months of receipt. Although the FDA historically has not met such goals, the
agency has made significant improvements in the timeliness of the review
process. We anticipate seeking priority review of Ramoplanin, and may do so with
regard to some of our other drug candidates. We cannot guarantee that the FDA
will grant priority review status in any instance, that priority review status
would affect the review time, or that the FDA will approve the new drug
application submitted for any of our drug candidates, whether or not priority
review status is granted.
Under certain circumstances, the FDA provides periods of marketing
exclusivity for new drugs that are the subject of an approved new drug
application. Ramoplanin and Protegrin IB-367, if approved, may qualify for
marketing exclusivity, which would prevent any competitors from seeking approval
of a generic version until five years (four years, in some cases) after approval
of our product. We cannot be sure, however, that Ramoplanin, Protegrin IB-367 or
any of our other products will qualify for marketing exclusivity. Among other
reasons, until recently, antibiotics were not able to obtain such exclusivity,
and the new law making antibiotics eligible for exclusivity includes a
transition provision that could lead the FDA to conclude that certain of our
antibiotic products are not eligible for marketing exclusivity. Additionally,
even if a product is approved and granted exclusivity, that does not prevent the
approval and marketing of competing products.
Outside the U.S., our ability to market our products will also be contingent
upon receiving marketing authorizations from the appropriate regulatory
authorities. The foreign regulatory approval process includes all the risks
associated with FDA approval described above. The requirements governing conduct
of clinical trials and marketing authorization vary widely from country to
country.
Under a new regulatory system in the European Union, marketing
authorizations may be submitted either under a centralized or decentralized
procedure. The centralized procedure provides for the grant of a single
marketing authorization that is valid for all European Union member states. The
decentralized procedure provides for mutual recognition of national approval
decisions. Under this procedure, the holder of a national marketing
authorization may submit an application to the remaining member states. Within
90 days of receiving the applications and assessment report, each member state
must decide whether to recognize approval.
We plan to choose the appropriate route of European regulatory filing in an
attempt to accomplish the most rapid regulatory approvals. However, the chosen
regulatory strategy may not secure regulatory approvals or approvals of the
chosen product indications. In addition, these
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approvals, if obtained, may take longer than anticipated. We cannot guarantee
that any of our products will prove to be safe or effective, will receive
regulatory approvals, or will be successfully commercialized.
Employees
As of February 25, 2000, we had 94 full-time employees, 72 of whom were
engaged in product development and research activities and 22 of whom were
engaged in general and administrative activities. Many of our current employees
hold post-graduate degrees, including 6 M.D.s and 22 Ph.D.s. Our employees are
not represented by a collective bargaining agreement. We believe our relations
with our employees are good.
Facilities
We are currently leasing three adjacent facilities in Mountain View,
California. These facilities provide approximately 16,000 square feet, 18,000
square feet and 7,000 square feet respectively. The leases on the two larger
facilities, containing laboratory and office space, expire in July 2004. The
lease for the smaller facility expires at the end of 2001. We have signed an
agreement to add two additional facilities in Mountain View, California. These
facilities provide approximately 58,000 and 66,000 square feet. This lease will
expire in 2011. These facilities are adequate for our current requirements.
Legal Proceedings
We are not a party to any material legal proceedings.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding our executive officers
and directors as of February 25, 2000.
<TABLE>
<CAPTION>
Name Age Position
- ---- -------- --------
<S> <C> <C>
Kenneth J. Kelley............................ 40 President, Chief Executive Officer, and Director
Karen S. Campbell............................ 45 Vice President, Marketing
John C. Fiddes, Ph.D......................... 48 Vice President, Research and Development
Henry J. Fuchs, M.D.......................... 42 Vice President, Clinical Affairs
Chee-liang Leo Gu, Ph.D...................... 49 Vice President, Pharmaceutical Development
Natalie McClure, Ph.D........................ 47 Vice President, Regulatory Affairs
Sandra J. Wrobel............................. 40 Vice President, Corporate Strategy and Finance
Jane E. Shaw, Ph.D........................... 61 Director, Chairman of the Board
Michael F. Bigham............................ 42 Director
Fritz Buhler, Prof. Dr. med.................. 59 Director
Kathleen D. LaPorte.......................... 38 Director
Gary A. Lyons................................ 48 Director
John M. Padfield, Ph.D....................... 53 Director
Liza Page Nelson............................. 40 Director
Jack S. Remington, M.D....................... 69 Director
</TABLE>
- ------------------------
KENNETH J. KELLEY founded IntraBiotics in 1994 and has served as President,
Chief Executive Officer and Director since our inception. Prior to founding
IntraBiotics, Mr. Kelley co-founded Calydon, a biotechnology company focused on
prostate cancer and has served as a director since its founding in 1994. From
1988 to 1993, Mr. Kelley was a Senior Associate at Institutional Venture
Partners, a venture capital firm. From 1991 to 1992, Mr. Kelley served as Chief
Operating Officer for CV Therapeutics, a cardiovascular biotechnology company.
Mr. Kelley has also held positions at McKinsey & Company, an international
consulting firm, and at Integrated Genetics (now Genzyme, Inc.). Mr. Kelley
holds an M.B.A. degree from Stanford Graduate School of Business and a B.A.
degree in biochemical sciences from Harvard University.
KAREN S. CAMPBELL has served as our Vice President, Marketing since
July 1998. From 1995 to 1998, Ms. Campbell was the Director of Marketing for
Roche Laboratories, a global pharmaceutical company and focused primarily on
building the U.S. Transplant and Autoimmune Diseases business. From 1983 to
1994, Ms. Campbell held various marketing, sales and new product development
positions at Syntex Laboratories Inc., a pharmaceutical company. Ms. Campbell
holds an M.A. degree in Public Administration and a B.A. degree in Political
Science from the University of Delaware.
JOHN C. FIDDES, PH.D., has served as our Vice President, Research and
Development since June 1994. From 1991 to 1994, Dr. Fiddes was Vice President of
Discovery Research at ImmuLogic Pharmaceutical Corporation, a biotechnology
company. Dr. Fiddes conducted postdoctoral research in molecular biology at the
Department of Biochemistry and Biophysics at the University of California, San
Francisco and received a Ph.D. in molecular biology from King's College,
Cambridge University, where he conducted research at the MRC Laboratory for
Molecular Biology. Dr. Fiddes also holds a B.Sc. degree in molecular biology
from the University of Edinburgh in the United Kingdom.
HENRY J. FUCHS, M.D., has served as our Vice President, Clinical Affairs
since October 1996. From 1987 to 1996, Dr. Fuchs held various positions at
Genentech, a biotechnology company,
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where among other things, he had responsibility for the clinical program that
led to the approval for Genentech's Pulmozyme-Registered Trademark-. Dr. Fuchs
was also responsible for the phase III development program that led to the
approval of Herceptin-Registered Trademark- to treat metastatic breast cancer.
Dr. Fuchs received an M.D. degree from George Washington University and a B.A.
degree in biochemical sciences from Harvard University.
CHEE-LIANG LEO GU, PH.D., has served as our Vice President, Pharmaceutical
Development since October 1999. From 1995 to 1999, Dr. Gu served as our Senior
Director of Pharmaceutical Development. Prior to joining IntraBiotics, Dr. Gu
held a series of senior scientific and management positions in pharmaceutical
development and formulation for Syntex Corporation (now Roche Bioscience), a
pharmaceutical company, and served as director in charge of manufacturing and
controls for CellCept-Registered Trademark-. Dr. Gu received his Ph.D. degree in
physical organic chemistry from the University of California, Los Angeles and
his B.S. degree in chemistry from National Taiwan University.
NATALIE L. MCCLURE, PH.D., has served as our Vice President, Regulatory
Affairs since October 1999. Dr. McClure has over 20 years experience in
regulatory affairs. From 1993 to 1999, Dr. McClure held various regulatory
affairs positions including Vice President, Regulatory Affairs and Quality
Assurance for Matrix Pharmaceutical, Inc., a pharmaceutical company.
Dr. McClure has seven chemical publications and patents. Dr. McClure received
her Ph.D. in organic chemistry from Stanford University and her B.S. in
chemistry from the University of Michigan.
SANDRA J. WROBEL has served as our Vice President, Corporate Strategy and
Finance since October 1999. From 1987 to 1999, Ms. Wrobel held various positions
with Strategic Decisions Group (currently Navigant Consulting, Inc.), a
management consulting firm, where most recently she was Senior Managing Director
of its Pharmaceuticals and Life Sciences Strategy Consulting Practice. Prior to
this position, Ms. Wrobel was Managing Director of Strategic Decisions Group's
180-person headquarters office in Menlo Park, CA. While at Strategic Decisions
Group, Ms. Wrobel specialized in corporate strategy development, Research and
Development portfolio management, decision process transformation and
organizational change. Ms. Wrobel received her M.B.A. from the Stanford
University Graduate School of Business and her B.S. in Chemical and Petroleum
Refining Engineering from the Colorado School of Mines.
JANE E. SHAW, PH.D., has served as our Chairman of the Board since August
1996 and a director of the company since May 1996. Dr. Shaw is Chairman and
Chief Executive Officer of AeroGen, Inc., a privately held drug delivery
company. From 1987 to 1994 Dr. Shaw was President and Chief Operating Officer of
ALZA Corporation, a pharmaceutical company, where she held various other senior
management positions after starting her career at ALZA as a research scientist
in 1970. Dr. Shaw is a member of the Board of Directors of Intel Corporation,
McKesson Corporation, Boise Cascade Corporation, and Aviron. She received her
D.Sc. from Worcester Polytechnic Institute in Worcester, Massachusetts, and her
Ph.D. and B.Sc. degrees in Physiology from Birmingham University in the United
Kingdom.
MICHAEL F. BIGHAM has served as a director since October 1996. Mr. Bigham is
currently President and Chief Executive Officer of Coulter
Pharmaceutical, Inc., a publicly-traded biotechnology company focused on
oncology therapeutics. From 1988 to 1996, Mr. Bigham was Executive Vice
President and Chief Financial Officer of Gilead Sciences, Inc., a biotechnology
company. From 1984 to 1988, Mr. Bigham was the co-head of Healthcare Investment
Banking at Hambrecht & Quist, LLC. Mr. Bigham currently serves on the boards of
Datron Systems, Inc. and LJL BioSystems, Inc. Mr. Bigham is a CPA and received
his M.B.A. from Stanford Graduate School of Business and his B.S. degree in
Commerce from the University of Virginia.
FRITZ R. BUHLER, PROF. DR. MED., has served as a director since
December 1998. Prof. Dr. Buhler is currently Vice Chairman of the Board of
International Biomedicine Management Partners Inc. and
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Director of the European Center for Pharmaceutical Medicine at the University
Hospital of Basel in Switzerland. From 1991 to 1995, Prof. Dr. Buhler was
responsible for worldwide clinical research and development at F. Hoffmann-La
Roche Ltd., a pharmaceutical company. From 1987 to 1990, Prof. Dr. Buhler was
head of the Department of Research at the University Hospital of Basel in
Switzerland and did clinical work as a cardiologist at the University Hospitals,
as well as at Columbia University in New York and Harvard University in Boston.
Prof. Dr. Buhler received his M.D. from University of Basel, Switzerland.
KATHLEEN D. LAPORTE has served as a director since January 1994. From
January 1993 to the present, Ms. LaPorte has been affiliated with the Sprout
Group, the venture capital affiliate of Donaldson, Lufkin & Jenrette, and has
served as a general partner since December 1993. From August 1987 to
January 1993 Ms. LaPorte was a principal at Asset Management Company, a venture
capital firm focused on early stage biotechnology investments. Ms. LaPorte
currently serves on the boards of other companies including Lynx Therapeutics
and four privately held companies. She holds a B.S. in Biology from Yale
University and an M.B.A. from Stanford Graduate School of Business.
GARY A. LYONS has served as a director since December 1999. From 1993 to the
present, Mr. Lyons has been President and Chief Executive Officer of Neurocrine
Biosciences, Inc, a biopharmaceutical company. From 1983 to 1993, Mr. Lyons was
affiliated with Genentech and served as Vice President of Business Development
and Vice President of Sales. Mr. Lyons is a member of the Board of Directors of
Vical Inc., a gene delivery biopharmaceutical company. Mr. Lyons holds a B.S. in
Marine Biology from the University of New Hampshire and an M.B.A. from
Northwestern University's J.L. Kellogg Graduate School of Management.
JOHN M. PADFIELD, PH.D., has served as a director since June 1998. From 1999
to the present Dr. Padfield has been the Chief Executive Officer of Nycomed
Amersham Imaging, a diagnostic imaging and biotechnology supply company based in
Buckinghamshire, England and a member of the Board of Directors of Nycomed
Amersham plc, a health care company. From 1994 to the present Dr. Padfield was
Chief Executive Officer of Chiroscience Group plc, an emerging pharmaceutical
company based in Cambridge, England. His is also the past Chairman of the Board
of Directors of the BioIndustry Association in the United Kingdom. From 1979 to
1994 Dr. Padfield was affiliated with Glaxo Holdings plc, where he held board
positions in several subsidiary companies, most recently as Managing Director of
Glaxo Manufacturing Services Ltd. Dr. Padfield has a B.S. and Ph.D. in Pharmacy
from the University of Nottingham, England.
LIZA PAGE NELSON has served as a director since December 1999. From 1998 to
the present Ms. Nelson has been a Managing Director at Investor Growth, Inc., a
private equity investment group that advises Investor AB and its affiliates
(including Investor Guernsey Ltd.) on investments in healthcare and information
technology. Investor AB is an industrial holding company publicly traded in
Stockholm and London. From 1988 to 1998 Ms. Nelson was affiliated with
Pfizer Inc., a pharmaceutical company, where she held a variety of business
development and strategic planning positions including, Senior Director-Business
Development for Pfizer US Pharmaceuticals and Pfizer Health Solutions, Inc.
Ms. Nelson holds a B.A. in Economics from Wesleyan University and an M.B.A. from
Yale University's School of Management.
JACK S. REMINGTON, M.D., has served as a director since October 1996.
Dr. Remington is a nationally recognized authority in the field of infectious
disease medicine, and received the 1996 Bristol Award of the Infectious Disease
Society of America (IDSA). Dr. Remington currently serves as Chairman,
Department of Immunology and Infectious Diseases at the Research Institute of
the Palo Alto Medical Foundation and Professor, Department of Medicine, Division
of Infectious Diseases and Geographic Medicine, Stanford University School of
Medicine. In addition, Dr. Remington consults to leading pharmaceutical
companies with regard to antibiotic research and
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development and serves on numerous editorial boards of medical journals. In the
past, he has served as the President of the Infectious Disease Society of
America. Dr. Remington served his internship and residency at the University of
California, San Francisco, and received his M.D. and B.S. degrees from the
University of Illinois.
Committees of the Board of Directors
Our compensation committee consists of Dr. Shaw, Mr. Bigham and
Dr. Padfield. The compensation committee makes recommendations regarding our
various incentive compensation and benefit plans and determines salaries for our
executive officers and incentive compensation for our employees and consultants.
Our audit committee consists of Dr. Shaw, Ms. LaPorte and Ms. Nelson. The
audit committee makes recommendations to the board of directors regarding the
selection of our independent auditors, reviews the results and scope of the
audit and other services provided by our independent auditors and reviews and
evaluates our internal controls.
Board Composition
We currently have nine directors. Upon the closing of this offering the
terms of office of the board of directors will be divided into three classes. As
a result, a portion of our board of directors will be elected each year.
- The class I directors will be Ms. Nelson, Mr. Remington and Mr. Bigham and
their term will expire at the annual meeting of stockholders to be held in
2001.
- The class II directors will be Ms. LaPorte, Mr. Lyons and Dr. Shaw and
their term will expire at the annual meeting of stockholders to be held in
2002.
- The class III directors will be Mr. Kelley, Dr. Padfield and Dr. Buhler
and their term will expire at the annual meetings of stockholders to be
held in 2003.
At each annual meeting of stockholders after the initial classification, the
successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, the authorized number of directors may be
changed only by resolution of the board of directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of IntraBiotics.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee was, at any time since our
formation, an officer or employee of IntraBiotics. 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 executive officers serving as a member of our
board of directors or compensation committee.
Director Compensation
Our directors receive no cash compensation for their services as directors
but are reimbursed for their reasonable expenses in attending board meetings.
All directors are eligible to participate in the 1995 Stock Option Plan and the
2000 Equity Incentive Plan. Employee directors will be eligible to participate
in our 2000 Employee Stock Purchase Plan. See "Employee Benefit Plans" for
additional information relating to these plans.
40
<PAGE>
Executive Compensation
The following table sets forth information concerning the compensation that
we paid during 1999 to our Chief Executive Officer and each of the four other
most highly compensated executive officers that earned more than $100,000 during
1999. These people are referred to as the named executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Securities
-------------------- Underlying
Name and Principal Position Salary Bonus Options
- --------------------------- --------- -------- ------------
<S> <C> <C> <C>
Kenneth J. Kelley......................................... $277,083 $50,000 75,000
President, Chief Executive Officer
and Director
Henry J. Fuchs, M.D....................................... 221,667 -- 34,791
Vice President, Clinical Affairs
John C. Fiddes, Ph.D...................................... 205,423 -- 21,875
Vice President, Research
and Development
Karen S. Campbell......................................... 195,417 -- 35,416
Vice President, Marketing
Chee-liang Leo Gu, Ph.D................................... 158,333 -- 57,500
Vice President, Pharmaceutical
Development
</TABLE>
In accordance with the rules of the Commission, the compensation described
in this table does not include medical, group life insurance or other benefits
received by the named executive officers that are available generally to all our
salaried employees and certain perquisites and other personal benefits received
by the named executive officers, which do not exceed the lesser of $50,000 or
10% of any such officer's salary and bonus disclosed in this table.
Option Grants in 1999
The following table sets forth each grant of stock options granted during
1999 to each of the named executive officers.
<TABLE>
<CAPTION>
Potential Realizable
Number of Percent of Value of Assumed
Securities Options Annual Rates of Stock
Total Granted to Price Appreciation for
Underlying Employees Exercise Option Term
Options in Fiscal Price (per Expiration -------------------------
Name Granted Year share) Date 5% 10%
- ---- ----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth J. Kelley.................. 75,000 3.6% $1.50 6/10/09 $1,597,839 $2,610,930
Henry J. Fuchs, M.D................ 34,791 1.7% 1.50 6/10/09 741,206 1,211,158
John C. Fiddes, Ph.D............... 21,875 1.0% 1.50 6/10/09 466,036 761,521
Karen S. Campbell.................. 35,416 1.7% 1.50 6/10/09 754,521 1,232,916
Chee-liang Leo Gu, Ph.D............ 57,500 2.7% 1.50 9/16/09 1,255,010 2,001,713
</TABLE>
The information regarding stock options granted to named executive officers
as a percentage of total options granted to employees in the fiscal year, as
disclosed in the table is based upon options to purchase an aggregate of
2,098,782 shares of common stock that were granted to all employees as a group,
including the named executive officers, in the fiscal year ended December 31,
1999.
41
<PAGE>
The exercise price per share of each option granted was equal to the fair
market value of the common stock as determined by the board of directors on the
date of the grant.
Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by an assumed initial offering
price of $14.00 per share, (b) assuming that the aggregate stock value derived
from that calculation compounds at the annual 5% or 10% rate shown in the table
for the entire ten-year term of the option and (c) subtracting from that result
the aggregate option exercise price. The 5% and 10% assumed annual rates of the
stock price appreciation are mandated by the rules of the Commission and do not
represent our estimate or projection of future common stock prices.
Aggregate Option Exercises in 1999 and Year-end Values at December 31, 1999
The following table sets forth, as to the named executive officers,
information concerning stock options granted during the fiscal year ended
December 31, 1999.
The information regarding the value realized reflects the fair market value
of our common stock underlying the option of date of exercise minus the
aggregate exercise price of the option.
The information regarding the value of unexercised in-the-money options is
based on a value of $14.00 per share, the initial public offering price, minus
the per share exercise price, multiplied by the number of shares underlying the
option.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 1999 December 31, 1999
Acquired on Value -------------------------- ----------------------------
Name Exercise Realized Vested Unvested Exercisable Unexercisable
- ---- ------------ -------- -------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth J. Kelley............... 75,520 $55,624 73,439 376,041 $ 957,832 $4,882,284
Henry J. Fuchs, M.D............. -- -- 92,707 152,084 1,275,294 1,982,093
John C. Fiddes, Ph.D............ -- -- 77,604 134,271 1,067,914 1,750,523
Karen S. Campbell............... -- -- 35,416 100,000 460,408 1,282,292
Chee-liang Leo Gu, Ph.D......... 48,000 63,900 28,092 71,408 379,337 903,513
</TABLE>
Employee Benefit Plans
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
GENERAL. Our board of directors adopted our Amended and Restated 1995 Stock
Option Plan in February 1995, and our stockholders approved it in April 1995.
The stock option plan will terminate as of the effective date of this initial
public offering. The termination of the stock option plan will have no effect on
the options that have been granted thereunder. However, following the
termination of the stock option plan, no new stock options may be granted under
it.
CORPORATE TRANSACTIONS. If we dissolve or liquidate, then stock options
outstanding under the stock option plan will terminate immediately prior to such
event. However, we treat outstanding stock options differently in the following
situations:
- a merger or consolidation in which we are not the surviving corporation;
or
- a sale of substantially all of our property.
In these situations, the surviving corporation may either assume all outstanding
stock options under the stock option plan or substitute other options for the
outstanding options. In addition, in these situations, all outstanding options
held by employees will become immediately vested and exercisable as to one-half
of the then unvested shares subject to such options. Options held by employees
who are officers will become fully vested and exercisable in the event that such
officers
42
<PAGE>
are involuntarily terminated without cause or voluntarily resign for good
reason, in either case within thirteen months following the transaction
described above. If the surviving corporation does not assume or substitute,
then, the options will terminate immediately prior to the occurrence of the
event described above.
STOCK OPTIONS GRANTED. As of December 31, 1999, we had issued 653,157
shares upon the exercise of options under the stock option plan and options to
purchase 3,746,896 shares at a weighted average exercise price of $1.16 were
outstanding.
2000 EQUITY INCENTIVE PLAN
GENERAL. Our board of directors adopted our 2000 Equity Incentive Plan in
January 2000, and our stockholders approved it in February 2000. The 2000 Equity
Incentive Plan is intended to replace and supersede our 1995 Stock Option Plan.
SHARE RESERVE. We have reserved a total of 5,000,000 shares of our common
stock for issuance under the incentive plan. On December 31 of each year
starting with December 31, 2000 and continuing through and including
December 31, 2008, the share reserve will automatically be increased by a number
of shares equal to the LEAST of:
- 5% of our then outstanding shares of common stock on a fully-diluted
basis;
- 2,000,000 shares; or
- a lesser number of shares determined by our board of directors prior to
each anniversary date.
If the recipient of a stock award does not purchase the shares subject to
such stock award before the stock award expires or otherwise terminates, the
shares that are not purchased will again become available for issuance under the
incentive plan.
ADMINISTRATION. The board administers the incentive plan unless it
delegates administration to a committee. The board has the authority to
construe, interpret and amend the incentive plan as well as to determine the
recipients of awards under the incentive plan and the terms of such awards
including the number of shares subject to the awards, the vesting and/or
exercisability of the awards and the exercise price of the awards.
ELIGIBILITY. The board may grant incentive stock options qualified under
Section 422 of the Internal Revenue Code to our employees and to the employees
of our affiliates. The board also may grant nonstatutory stock options, stock
bonuses and restricted stock purchase awards to our employees, directors and
consultants as well as to the employees, directors and consultants of our
affiliates.
OPTION TERMS. The board may grant incentive stock options with an exercise
price of 100% or more of the fair market value of a share of our common stock on
the grant date and nonstatutory stock options with an exercise price as low as
85% of the fair market value of a share on the grant date.
Incentive stock options granted to persons who, at the time of the grant,
own or are deemed to own stock possessing more than 10% of our total combined
voting power or the total combined voting power of one of our affiliates must
have an exercise price of at least 110% of the fair market value of the stock on
the grant date and a term of five or fewer years. For other options, the maximum
term is 10 years.
No employee may receive incentive stock options that exceed the $100,000 per
year fair market value limitation set forth in Section 422(d) of the Internal
Revenue Code. To determine
43
<PAGE>
whether the $100,000 per year limitation has been exceeded, we calculate the
fair market value of the aggregate number of shares under all incentive stock
options granted to an employee that will become exercisable for the first time
during a calendar year. Under the incentive plan, options covering stock in
excess of the $100,000 limitation are automatically converted into nonstatutory
stock options.
The board may provide for exercise periods of any length following an
optionholder's termination of service in individual options. Generally, options
will provide that they terminate three months after the optionholder's service
to us and our affiliates terminates. In the case of an optionholder's disability
or death, the exercise period generally is extended to 12 months or 18 months,
respectively.
The board may provide for the transferability of nonstatutory stock options
but not incentive stock options. However, the optionholder may designate as
beneficiary to exercise either type of option following the optionholder's
death. If the optionholder does not designate a beneficiary, the optionholder's
option rights will pass to his or her heirs by will or the laws of descent and
distribution.
Section 162(m) of the Internal Revenue Code denies a deduction to publicly
held corporations for compensation paid to the corporation's chief executive
officer and its four highest compensated officers in a taxable year to the
extent that the compensation for each such officer exceeds $1,000,000. In order
to qualify options granted under the incentive plan for an exemption for
performance based compensation provided under Section 162(m), no employee may be
granted options under the incentive plan covering an aggregate of more than
1,500,000 shares in any calendar year.
TERMS OF OTHER STOCK AWARDS. The board determines the purchase price of
other stock awards, which may not be less than 85% of the fair market value of
our common stock on the grant date. However, the board may award stock bonuses
in consideration of past services without a cash purchase price. Shares that we
sell or award under the incentive plan may, but need not be, restricted and
subject to a repurchase option in our favor in accordance with a vesting
schedule that the board determines. The board, however, may accelerate the
vesting of such awards.
OTHER PROVISIONS. In the event of certain corporate transactions not
involving our receipt of consideration, such as a merger, consolidation,
reorganization, stock dividend, or stock split, the board will appropriately
adjust the incentive plan and outstanding awards as to the class and the maximum
number of shares subject to the incentive plan and to the Section 162(m) limit.
If we dissolve or liquidate, then outstanding stock awards will terminate
immediately prior to such event. Upon certain change in control transactions,
the surviving corporation may assume all outstanding awards under the incentive
plan or substitute other awards for the outstanding awards. If the surviving
corporation does not assume or substitute, then the awards will accelerate and
will terminate immediately prior to the occurrence of the change in control. In
addition, upon certain change in control transactions, all outstanding awards
held by employees will become immediately vested and exercisable as to one-half
of the then unvested shares subject to such awards. Awards held by employees who
are officers will become fully vested and exercisable in the event that such
officers are involuntarily terminated without cause or voluntarily resign for
good reason, in either case within thirteen months following the change in
control.
STOCK AWARDS GRANTED. No stock awards have been issued under the incentive
plan.
PLAN TERMINATION. The incentive plan will terminate in 2010 unless the
board terminates it sooner.
44
<PAGE>
2000 EMPLOYEE STOCK PURCHASE PLAN
GENERAL. Our board adopted the 2000 Employee Stock Purchase Plan in January
2000, and our stockholders approved it in February 2000.
SHARE RESERVE. We have authorized the issuance of 500,000 shares of our
common stock pursuant to purchase rights granted to eligible employees under the
purchase plan. On December 31 of each year, starting with December 31, 2000, and
continuing through and including December 31, 2008, the share reserve will
automatically be increased by a number of shares equal to the LEAST of:
- 1% of our then outstanding shares of common stock on a fully diluted
basis;
- 500,000 shares; or
- a number of shares to be determined by the Board of Directors.
ELIGIBILITY. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which eligible employees may purchase our
common stock through payroll deductions. We implement the purchase plan by
offerings of purchase rights to eligible employees. Generally, all of our
full-time employees and full-time employees of our affiliates incorporated in
the United States may participate in offerings under the purchase plan. However,
no employee may participate in the purchase plan if, immediately after we grant
the employee a purchase right, the employee has voting power over 5% or more of
our outstanding capital stock. As of the date hereof, no shares of common stock
had been purchased under the purchase plan.
ADMINISTRATION. Under the purchase plan, the board may specify offerings of
up to 27 months. Unless the board otherwise determines, common stock will be
purchased for accounts of participating employees at a price per share equal to
the lower of:
- 85% of the fair market value of a share on the first day of the offering;
or
- 85% of the fair market value of a share on the purchase date.
For the first offering, which will begin on the effective date of this
initial public offering, we will offer shares registered on a Form S-8
registration statement. The fair market value of the shares on the first date of
this offering will be the price per share at which our shares are first sold to
the public as specified in the final prospectus with respect to our initial
public offering. Otherwise, fair market value generally means the closing sales
price (rounded up where necessary to the nearest whole cent) for such shares (or
the closing bid, if no sales were reported) as quoted on the Nasdaq National
Market on the trading day prior to the relevant determination date, as reported
in THE WALL STREET JOURNAL.
The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:
- 85% of the fair market value of a share on the day they began
participating in the purchase plan; or
- 85% of the fair market value of a share on the purchase date.
If authorized by the board, participating employees may authorize payroll
deductions of up to 15% of their base compensation for the purchase of stock
under the purchase plan. Generally
45
<PAGE>
employees may end their participation in the offering at any time up to 10 days
before a purchase period ends. Their participation ends automatically on
termination of their employment or loss of full-time status.
OTHER PROVISIONS. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights, together with any other
purchase rights granted under other employee stock purchase plans established by
us or by our affiliates, if any, do not permit the employee's rights to purchase
our stock to accrue at a rate which exceeds $25,000 of fair market value of our
stock for each calendar year in which the purchase rights are outstanding.
Upon a change in control, a surviving corporation may assume outstanding
purchase rights or substitute other purchase rights therefor. If the surviving
corporation does not assume or substitute the purchase rights, the offering
period will be shortened and our stock will be purchased for the participants
immediately before the change in control.
401(K) PLAN
We maintain a retirement and deferred savings plan for our U.S. employees.
The retirement and deferred savings plan is intended to qualify as a
tax-qualified plan under Section 401 of the Internal Revenue Code. The
retirement and deferred savings plan provides that each participant may
contribute up to 25% of his or her pre-tax compensation (up to a statutory
limit, which is $10,500 in calendar year 2000). Under the plan, each employee is
fully vested in his or her deferred salary contributions. Employee contributions
are held and invested by the plan's trustee. The retirement and deferred savings
plan also permits us to make discretionary contributions, subject to established
limits and a vesting schedule. To date, we have not made any discretionary
contributions to the retirement and deferred savings plan on behalf of
participating employees.
Limitations on Liability and Indemnification Matters
Our amended and restated certificate of incorporation includes a provision
that eliminates the personal liability of our directors for monetary damages to
the fullest extent permitted by law. Current Delaware law does not permit the
elimination of monetary damages:
- for any breach of the director's duty of loyalty to the corporation or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; and
- for any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by applicable law, subject to very limited exceptions;
- we may indemnify our other employees and other agents to the same extent
that we indemnify our directors and officers, unless such indemnification
is prohibited by law; and
- we may 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 would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, indemnify our
46
<PAGE>
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, including any action by us arising out of such person's
services as our director or executive officer, any of our subsidiaries 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.
Currently, there is no pending litigation or proceeding involving any of our
directors, executive officers or employees for which indemnification is sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification.
We plan to obtain directors' and officers' liability insurance prior to the
effectiveness of this offering.
47
<PAGE>
CERTAIN TRANSACTIONS
PREFERRED STOCK SALES
In April 1997, we issued and sold an aggregate of 5,714,286 shares of
Series D preferred stock at a price per share of $1.75. These shares currently
convert into common stock at the rate of one share of common stock for each two
shares of Series D preferred stock.
In October 1997, we issued and sold an aggregate of 2,725,000 shares of
Series E preferred stock at a price per share of $2.75. These shares currently
convert into common stock at the rate of one share of common stock for each two
shares of Series E preferred stock.
In October 1997 and May 1998, we issued and sold an aggregate of 750,000
shares of Series F preferred stock at a price per share of $4.00 of which
250,000 shares were issued in exchange for a technology license. These shares
currently convert into common stock at the rate of one share of common stock for
each two shares of Series F preferred stock.
From November 1998 to January 1999, we issued and sold an aggregate of
7,656,981 shares of Series G preferred stock at a price per share of $3.00.
These shares currently convert into common stock at the rate of one share of
common stock for each two shares of Series G preferred stock.
In October 1999 we issued and sold an aggregate of 6,250,000 shares of
Series H preferred stock at a price per share of $4.00. In addition, we issued
warrants to purchase an aggregate of 1,250,000 shares of Series H preferred
stock, 1,100,000 of which were issued to Investor (Guernsey) Ltd., at an
exercise price of $5.00 per share. These shares currently convert into common
stock at the rate of one share of common stock for each two shares of Series H
preferred stock.
48
<PAGE>
The following 5% stockholders and stockholders associated with certain of
our officers and directors purchased shares in the financings. Upon the closing
of this offering, the following shares of preferred stock convert into common
stock at the rate of one share of common stock for each two shares of preferred
stock.
<TABLE>
<CAPTION>
Shares of Shares of Shares of Shares of Shares of
Series D Series E Series F Series G Series H
Preferred Preferred Preferred Preferred Preferred Total Aggregate
Purchaser Stock Stock Stock Stock Stock Shares Consideration
- --------- --------- --------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ENTITIES AFFILIATED WITH THE
SPROUT GROUP
Sprout Capital VI, L.P.... 281,803 -- -- -- -- 281,803 $ 493,155
Sprout Capital VII,
L.P...................... 427,791 -- -- -- -- 427,791 $ 748,634
DLJ Capital Corporation... 44,719 -- -- -- -- 44,719 $ 78,258
Sprout CEO Fund, L.P...... 4,969 -- -- -- -- 4,969 $ 8,695
ENTITIES AFFILIATED WITH
SPINNAKER TECHNOLOGIES
Spinnaker Technology Fund,
L.P...................... 2,571,429 459,836 -- -- -- 3,031,265 $ 5,764,550
Spinnaker Technology
Offshore Fund, Ltd....... -- 425,389 -- -- -- 425,389 $ 1,169,820
Spinnaker Founders Fund... -- 1,454,600 -- -- -- 1,454,600 $ 4,000,150
Spinnaker Clipper Fund,
L.P...................... -- 35,175 -- -- -- 35,175 $ 96,731
Lawrence Bowman........... 285,714 -- -- -- -- 285,714 $ 500,000
ENTITIES AFFILIATED WITH
ST. PAUL VENTURE CAPITAL
St. Paul Fire and Marine
Insurance Company........ -- -- -- -- -- -- --
St. Paul Venture Capital
IV LLC................... 114,286 -- -- -- -- 114,286 $ 200,000
New York Life Insurance
Company................... 685,715 -- -- -- -- 685,715 $ 1,200,001
International BM Biomedicine
Holdings Inc.............. -- -- -- 1,833,334 -- 1,833,334 $ 5,500,002
Investor (Guernsey)
Ltd.(1)................... -- -- -- -- 5,500,000 5,500,000 $22,000,000
Beatrice G. Fuchs........... -- -- -- 120,000 -- 120,000 $ 360,000
Darlene & David Bossen...... -- -- -- 33,334 -- 33,334 $ 100,002
</TABLE>
- --------------------------
(1) In connection with this purchase, Investor (Guernsey) Ltd, was issued a
warrant to purchase 1,100,000 shares at an exercise price of $5.00 per
share.
In connection with the above transactions, we entered into agreements with
the investors providing for registration rights with respect to these shares.
The most recent such agreement is an Amended and Restated Investor Rights
Agreement dated October 15, 1999, which restates and incorporates the
registration rights of all investors. For more information regarding this
agreement, see "Description of Capital Stock--Registration Rights."
Ms. LaPorte, our director, is a general partner of Sprout Capital VI, L.P.
and Sprout Capital VII, L.P., funds managed by The Sprout Group, the venture
capital affiliate of Donaldson, Lufkin & Jenrette. Dr. Buhler, our director, is
Vice Chairman of the Board of International Biomedicine
49
<PAGE>
Management Partners Inc. the management company of International BM Biomedicine
Holdings Inc. Ms. Nelson, our director, is a managing director at Investor
Growth Capital, Inc. and advises Investor (Guernsey) Ltd. on investments in
health care and information technology.
Dr. Fuchs, our Vice President, Clinical Affairs, is the son of Beatrice
Fuchs and the son-in-law of Darlene and David Bossen.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with our officers and
directors containing provisions which may require us, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as officers or directors. See "Management--Limitations of
Liability and Indemnification Matters" for more information regarding
indemnification of our officers and directors.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides summary information regarding the beneficial
ownership of our outstanding common stock as of February 25, 2000:
- each person or group who beneficially owns more than 5% of our common
stock;
- each of our directors;
- each of the executive officers named in the Summary Compensation Table;
and
- all of our executive officers and directors as a group.
Beneficial ownership of shares is determined under the rules of the
Securities and Exchange Commission and generally includes any shares over which
a person exercises sole or shared voting or investment power. Except as
indicated by footnote, and subject to applicable community property laws, each
person identified in the table possesses sole voting and investment power with
respect to all shares of common stock held by them. Shares of common stock
subject to options currently exercisable or exercisable within 60 days of
February 25, 2000 and not subject to repurchase as of that date are deemed
outstanding for calculating the percentage of outstanding shares of the person
holding these options, but are not deemed outstanding for calculating the
percentage of any other person. Applicable percentage ownership in the following
table is based on 21,473,480 shares of common stock outstanding as of
February 25, 2000, after giving effect to the conversion of all outstanding
shares of preferred stock into common stock upon the closing of the offerings,
and 28,973,480 shares of common stock outstanding immediately following the
completion of this offering.
Unless otherwise indicated, the address of each of the named individuals is
c/o IntraBiotics Pharmaceuticals, Inc., 1255 Terra Bella Ave., Mountain View,
California 94043.
<TABLE>
<CAPTION>
Percentage of Shares
Outstanding
--------------------------------
Name and Address Shares Before Offering After Offering
- ---------------- --------- --------------- --------------
<S> <C> <C> <C>
Entities affiliated with The Sprout Group (1)........ 3,652,140 17.0% 12.6%
3000 Sand Hill Road, Suite 4-270
Menlo Park, CA 94025
Investor (Guernsey) Ltd. (2)......................... 3,300,000 15.0 11.2
P.O. Box 626
National Westminster House
Le Truchot St. Peter Port
Guernsey Channel Island
GY1 4PW
Entities affiliated with Spinnaker Technology (3).... 2,751,595 12.8 9.5
1875 South Grant Street, Suite 600
San Mateo, CA 94402
Entities affiliated with St. Paul Venture Capital
Inc. (4)........................................... 1,943,971 9.1 6.7
10400 Viking Dr., Suite 550
Eden Prairie, MN 55344
New York Life Insurance Company...................... 1,225,209 5.7 4.2
51 Madison Avenue, Suite 207
New York, NY 10010
Michael F. Bigham (5)................................ 52,101 * *
Fritz Buhler, Prof. Dr. med. (6)..................... 916,667 4.3 3.2
Kenneth J. Kelley (7)................................ 750,792 3.5 2.6
Gary A. Lyons (8).................................... 1,250 * *
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Percentage of Shares
Outstanding
--------------------------------
Name and Address Shares Before Offering After Offering
- ---------------- --------- --------------- --------------
<S> <C> <C> <C>
Kathleen D. LaPorte (1).............................. 3,652,140 17.0 12.6
Liza Page Nelson (2)................................. 3,300,000 15.0 11.2
John M. Padfield, Ph.D. (9).......................... 3,750 * *
Jack S. Remington, M.D. (10)......................... 9,791 * *
Jane E. Shaw, Ph.D. (11)............................. 39,619 * *
Karen S. Campbell (12)............................... 43,750 * *
John C. Fiddes, Ph.D (13)............................ 235,937 1.1 *
Henry J. Fuchs (14).................................. 103,125 * *
Chee-Liang Leo Gu, Ph.D. (15)........................ 97,342 * *
All executive officers and directors as a group
(15 people) (16)................................... 9,207,514 41.1 30.8
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes of 2,052,933 shares held by Sprout Capital VII, L.P., 1,352,727
shares held by Sprout Capital VI, L.P., 214,093 shares held by DLJ Capital
Corporation and 23,846 shares held by Sprout CEO Fund, L.P. Also includes
8,541 shares that DLJ Capital Corporation has the right to acquire pursuant
to options exercisable within 60 days of February 25, 2000. DLJ Capital
Corporation is the managing general partner of the Sprout funds.
Ms. LaPorte, a director of IntraBiotics, is a general partner of Sprout
Capital VI, L.P. and Sprout Capital VII, L.P., funds managed by The Sprout
Group. In such capacity, Ms. LaPorte may be deemed to have an indirect
pecuniary interest in an indeterminate portion of the shares beneficially
owned by the Sprout funds and DLJ Capital Corporation. Ms. LaPorte disclaims
beneficial ownership of the shares held by the Sprout funds and DLJ Capital
Corporation within the meaning of Rule 13d-3 under the Securities Act of
1934.
(2) Includes 550,000 shares Investor (Guernsey) Ltd. has the right to acquire
pursuant to an outstanding warrant exercisable within 60 days of
February 25, 2000. The sole stockholder of Investor (Guernsey) Ltd. is
Expibel B.V. Marc Hollander, Guje Holmberg and Claes VonPost are the
managing directors of Expibel B.V. and have voting and dispositive power
over the shares held by Investor (Guernsey) Ltd. Messrs. Hollander and
VonPost and Ms. Holmberg each disclaim beneficial ownership of the shares
held by Investor (Guernsey) Ltd. except to the extent of their pecuniary
interest. Ms. Nelson disclaims beneficial ownership of these shares within
the meaning of Rule 13d-3 under the Securities Act of 1934.
(3) Includes of 1,029,953 shares held by Spinnaker Technology Fund, L.P.,
885,871 shares held by Spinnaker Technology Offshore Fund, Ltd., 675,327
shares held by Spinnaker Founders Fund, 17,587 shares held by Spinnaker
Clipper Fund, L.P. and 142,857 shares held by Lawrence Bowman, president of
Bowman Capital Management. Bowman Capital Management is the fund manager for
the various Spinnaker funds.
(4) Includes of 1,886,828 shares held by St. Paul Fire and Marine Insurance
Company and 57,143 shares held by St. Paul Venture Capital IV LLC. St. Paul
Venture Capital Inc. exercises sole investment and dispositive power of the
shares held by St. Paul Fire and Marine Insurance Company and St. Paul
Venture Capital IV LLC. There is no one single person at St. Paul Venture
Capital Inc. that exercises voting or dispositive power over these shares.
Voting of these shares is conducted by an internal mechanism at St. Paul
Venture Capital Inc., which requires unanimous approval by an investment
committee consisting of at least three of eight executive officers of St.
Paul Venture Inc., one of which is the deal sponsor. The deal sponsor for
IntraBiotics is Ms. Nancey Olsen.
52
<PAGE>
(5) Includes 9,791 shares issuable upon exercise of options exercisable within
60 days of February 25, 2000.
(6) All of these shares are held by International BM Biomedicine Holdings Inc.
Dr. Buhler, a director of IntraBiotics, is Vice Chairman of the Board of
International Biomedicine Management Partners Inc. In such capacity,
Dr. Buhler be deemed to have an indirect interest in an indeterminate
portion of the shares beneficially owned by International BM Biomedicine
Holdings Inc, Dr. Buhler disclaims beneficial ownership of the shares held
by International BM Biomedicine Holdings Inc. within the meaning of
Rule 13d-3 under the Securities Act of 1934.
(7) Includes 94,272 shares issuable upon exercise of options exercisable within
60 days of February 25, 2000. Also includes 10,000 shares held in
irrevocable trusts with an independent trustee for Mr. Kelley's children.
Mr. Kelley disclaims beneficial ownership of the shares held by his
children.
(8) Includes 1,250 shares issuable upon the exercise of options exercisable
within 60 days of February 25, 2000.
(9) Includes 3,750 shares issuable upon exercise of options exercisable within
60 days of February 25, 2000.
(10) Includes 9,791 shares issuable upon exercise of options exercisable within
60 days of February 25, 2000.
(11) Includes 25,333 shares issuable upon exercise of options exercisable within
60 days of February 25, 2000.
(12) Includes 43,750 shares issuable upon exercise of options exercisable within
60 days of February 25, 2000.
(13) Includes 85,937 shares issuable upon exercise of options exercisable within
60 days of February 25, 2000.
(14) Includes 103,125 shares issuable upon exercise of options exercisable
within 60 days of February 25, 2000.
(15) Includes 2,292 shares issuable upon exercise of options exercisable within
60 days of February 25, 2000 and 10,000 shares held in the name of Dr. Gu's
minor children.
(16) See footnotes 1,2 and 5 through 15 above, as applicable.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Authorized and Outstanding Capital Stock
Our authorized capital stock as of December 31, 1999 consisted of 67,500,000
shares of common stock, and 40,937,873 shares of preferred stock. As of
December 31, 1999 our outstanding stock was held of record by a total of 163
stockholders.
Upon the closing of this offering:
- our certificate of incorporation will be amended and restated to provide
for a total of authorized capital consisting of 50,000,000 shares of
common stock and 5,000,000 shares of preferred stock; and
- all shares of preferred stock will convert into common stock, and a total
of 28,581,054 shares of common stock and no shares of preferred stock will
be outstanding, based on the number of shares outstanding as of
December 31, 1999 and assuming no exercise of the underwriters'
over-allotment option, after giving effect to the sale of the common stock
we are offering.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of our stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Subject to preferences that may be applicable to any
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive ratably any dividends out of assets legally
available therefor as our board of directors may from time to time determine.
Upon liquidation, dissolution or winding up of IntraBiotics, holders of our
common stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preference of any then outstanding shares of
preferred stock. Holders of common stock have no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable.
PREFERRED STOCK
According to our amended and restated certificate of incorporation, our
board of directors will have the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of preferred stock, in one or more
series. Our board shall determine the rights, preferences, privileges and
restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of any series. The issuance of preferred stock could diminish voting power of
holders of common stock, and the likelihood that holders of preferred stock will
receive dividend payments and payments upon liquidation may have the effect of
delaying, deferring or preventing a change in control of IntraBiotics, which
could depress the market price of our common stock. We have no present plan to
issue any shares of preferred stock.
Warrants
As of December 31, 1999, we had the following warrants outstanding:
- a warrant to purchase 54,000 shares of Series B preferred stock was
outstanding at an exercise price of $1.00 per share, which expires in
July 2001. Upon the closing of this
54
<PAGE>
offering, the warrant to purchase Series B preferred stock will become
exercisable for common stock at a rate of one share of common stock for
each two shares of Series B preferred stock at an exercise price of $2.00
per share.
- a warrant to purchase 50,000 shares of Series D preferred stock was
outstanding at an exercise price of $2.50 per share, which expires upon
the closing of this offering. Upon the closing of this offering, the
warrant to purchase Series D preferred stock will become exercisable for
common stock at a rate of one share of common stock for each two shares of
Series D preferred stock.
- warrants to purchase an aggregate of 1,250,000 shares of Series H
preferred stock were outstanding at an exercise price of $5.00 per share,
which expire in December 2001. Upon the closing of this offering, the
warrants to purchase Series H preferred stock will become exercisable for
common stock at a rate of one share of common stock for each two shares of
Series H Preferred Stock.
Each of the warrants contain provisions for the adjustment of the exercise
price and the aggregate number of shares issuable upon the exercise of the
warrants in the event of stock dividends, stock splits, reorganizations and
reclassifications and consolidations.
Registration Rights
Upon completion of this offering, holders of an aggregate of 19,603,479
shares of common stock (and warrants to purchase an aggregate of 625,000 shares
of common stock) will be entitled to rights to register these shares under the
Securities Act. These rights are provided under the Amended and Restated
Investor Rights Agreement, dated October 15, 1999. If we propose to register any
of our securities under the Securities Act after this offering, either for our
own account or for the account of others, the holders of these shares are
entitled to notice of the registration and are entitled to include, at our
expense, their shares of common stock in the registration and any related
underwriting, provided, among other conditions, that the underwriters may limit
the number of shares to be included in the registration. In addition, the
holders of these shares may require us, at our expense and on not more than two
occasions at any time beginning six months from the date of the closing of the
offering, to file a registration statement under the Securities Act with respect
to their shares of common stock, and we will be required to use our best efforts
to effect the registration. Further, the holders may require us at our expense
to register their shares on Form S-3 when this form becomes available.
Anti-Takeover Provisions of Delaware Law and Charter Provisions
We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly-held Delaware corporation from
engaging in any business combination with any interested stockholder for
a period of three years following the date that the stockholder became an
interested stockholder unless:
- prior to that date, our board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
- upon consummation of the transaction that 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 those shares owned by persons who are
directors and also officers, and by employee stock plans in which shares
held subject to the plan will be tendered in a tender or exchange offer;
or
55
<PAGE>
- on or subsequent to that date, the business combination is approved by our
board of directors and is authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock not owned by the
interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; and
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
Our amended and restated certificate of incorporation requires that upon
completion of this offering, any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by a consent in writing. Additionally, our
certificate of incorporation:
- substantially limits the use of cumulative voting in the election of
directors;
- provides that the authorized number of directors may be changed only by
resolution of our board of directors; and
- authorizes our board of directors to issue blank check preferred stock to
increase the amount of outstanding shares without stockholder approval.
Our amended and restated bylaws provide that candidates for director may be
nominated only by our board of directors or by a stockholder who gives written
notice to us no later than 90 days prior nor earlier than 120 days prior to the
first anniversary of the last annual meeting of stockholders. Our amended and
restated certificate of incorporation and bylaws provide for a classified board
of directors, in which approximately one third of the directors will be elected
each year. Our board of directors may appoint new directors to fill vacancies or
newly created directorships. Our bylaws also limit who may call a special
meeting of stockholders.
Delaware law and these charter provisions may have the effect of deterring
hostile takeovers or delaying changes in control of our management, which could
depress the market price of our common stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is American Securities
Transfer & Trust, Inc.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 28,973,480 shares of common
stock outstanding. Of these shares, the 7,500,000 shares sold in this offering
will be freely tradable without restriction under the Securities Act, unless
purchased by our "affiliates," as that term is defined in Rule 144 under the
Securities Act. A significant number of shares of our stock outstanding prior to
this offering is subject to 180-day lock-up agreements, and may not be sold in
the public market prior the expiration of the lock-up agreements. Deutsche Bank
Securities Inc. may release the shares subject to the lock-up agreements in
whole or in part at any time without prior public notice. However, Deutsche Bank
Securities Inc. has no current plans to effect such a release. Upon the
expiration of the lock-up agreements, approximately 17,243,972 additional shares
will be available for sale in the public market, subject in some cases to
compliance with the volume and other limitations of Rule 144.
<TABLE>
<CAPTION>
Days after Date Shares
of this Prospectus Eligible for Sale Comment
- ------------------ ----------------- -------
<S> <C> <C>
Upon effectiveness........................ 222,476 Freely tradable shares eligible for sale
under Rule 144(k) and not locked-up
90 days................................... 882,032 Shares not locked-up and saleable under
Rules 144 and 701
180 days.................................. 17,243,972 Lock-up released; shares saleable under
Rules 144 and 701
Various dates thereafter.................. 3,125,000 Restricted securities held for one year
or less as of 180 days following
effectiveness
</TABLE>
Rule 144
In general, under Rule 144 a person (or persons whose shares are aggregated)
who has beneficially owned shares for at least one year is entitled to sell
within any three-month period commencing 90 days after the date of this
prospectus a number of shares that does not exceed the greater of
- 1% of the then outstanding shares of our common stock (approximately
289,734 shares immediately after this offering) or
- the average weekly trading volume during the four calendar weeks preceding
such sale, subject to the filing of a Form 144 with respect to the sale.
A person (or persons whose shares are aggregated) who is not deemed to have
been our affiliate at any time during the 90 days immediately preceding the sale
who has beneficially owned his or her shares for at least two years is entitled
to sell these shares pursuant to Rule 144(k) without regard to the limitations
described above. Affiliates must always sell pursuant to Rule 144, even after
the applicable holding periods have been satisfied.
We cannot estimate the number of shares that will be sold under Rule 144, as
this will depend on the market price for our common stock, the personal
circumstances of the sellers and other factors. Prior to this offering, there
has been no public market for our common stock, and there can be no assurance
that a significant public market for our common stock will develop or be
sustained after this offering. Any future sale of substantial amounts of our
common stock in the open market may adversely affect the market price of our
common stock.
57
<PAGE>
Lock-Up Agreements
We and our directors, executive officers and certain of our stockholders
have agreed pursuant to the underwriting agreement and other agreements not to
sell any of our common stock without the prior consent of Deutsche Bank
Securities Inc. until 180 days from the date of this prospectus. Transfers or
dispositions can be made sooner only with the prior written consent of Deutsche
Bank Securities Inc.
Stock Options
We intend to file a registration statement on Form S-8 under the Securities
Act to register shares of our common stock that are subject to outstanding
options or reserved for issuance under our 1995 Stock Option Plan, our 2000
Equity Incentive Plan and our 2000 Employee Stock Purchase Plan 90 days
following the effectiveness of this registration statement, which permits the
resale of these shares by nonaffiliates in the public market without restriction
under the Securities Act.
Rule 701
Any of our employees or consultants who purchased his or her shares pursuant
to a written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitations or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144
holding period restrictions, in each case commencing 90 days after the date of
this prospectus.
Registration Rights
After this offering the holders of 19,603,479 shares of our common stock
will be entitled to certain rights with respect to registration of such shares
under the Securities Act. Registration of these shares under the Securities Act
would result in these shares becoming freely tradable without restriction under
the Securities Act except for shares purchased by affiliates. See "Description
of Capital Stock--Registration Rights."
58
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank
Securities Inc., Warburg Dillon Read LLC, SG Cowen Securities Corporation and
Adams, Harkness & Hill, Inc. have severally agreed to purchase from IntraBiotics
the following respective number of shares of common stock at a public offering
price less the underwriting discounts and commissions set forth on the cover
page of this prospectus:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
- ----------- ---------
<S> <C>
Deutsche Bank Securities Inc................................
Warburg Dillon Read LLC.....................................
SG Cowen Securities Corporation.............................
Adams, Harkness & Hill, Inc.................................
---------
Total................................................... 7,500,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions precedent and that the underwriters will purchase all
shares of the common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per
share under the public offering price. The underwriters may allow, and these
dealers may re-allow, a concession of not more than $ per share to other
dealers. After the initial public offering, representatives of the underwriters
may change the offering price and other selling terms.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to 1,125,000
additional shares of common stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. The underwriters may exercise this option only to cover
over-allotments made in connection with the sale of the common stock offered
hereby. To the extent that the underwriters exercise this option, each of the
underwriters will become obligated, subject to conditions, to purchase
approximately the same percentage of additional shares of common stock as the
number of shares of common stock to be purchased by it in the above tables bears
to the total number of shares of common stock offered hereby. We will be
obligated, pursuant to the option, to sell these additional shares of common
stock to the underwriters to the extent the option is exercised. If any
additional shares of common stock are purchased, the underwriters will offer the
additional shares on the same terms as those on which the 7,500,000 shares are
being offered.
The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting fee is
59
<PAGE>
currently expected to be approximately 7% of the initial public offering price.
We have agreed to pay the underwriters the following fees, assuming either no
exercise or full exercise by the underwriters of the underwriters'
over-allotment option:
<TABLE>
<CAPTION>
Total Fees
---------------------------------------------
With Full Exercise of
Without Exercise of Over-Allotment
Fee Per Share Over-Allotment Option Option
------------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by IntraBiotics................ $ $ $
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $ .
We have agreed to indemnify the underwriters against some specified types of
liabilities, including liabilities under the Securities Act, and to contribute
to payments the underwriters may be required to make in respect of any of these
liabilities.
Each of our officers and directors, and certain holders of our stock, have
agreed not to offer, sell, contract to sell or otherwise dispose of, or enter
into any transaction that is designed to, or could be expected to, result in the
disposition of any shares of our common stock or other securities convertible
into or exchangeable or exercisable for shares of our common stock or
derivatives of our common stock owned by these persons prior to this offering or
common stock issuable upon exercise of options or warrants held by these persons
for a period of 180 days after the effective date of the registration statement
of which this prospectus is a part without the prior written consent of Deutsche
Bank Securities Inc. This consent may be given at any time without public
notice. We have entered into a similar agreement with the representatives of the
underwriters, except that we may grant options and issue shares under our 1995
Stock Option Plan, and 2000 Equity Incentive Plan and sell shares under our 2000
Employee Stock Purchase Plan. In addition, we can sell up to an aggregate of
1,000,000 shares to strategic and corporate partners and equipment lessors
without such consent. There are no agreements between the representatives and
any of our stockholders or affiliates releasing them from these lock-up
agreements prior to the expiration of the 180-day period.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these
over-allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 375,000 shares for our vendors, employees, family
members of employees, customers and other third parties. The number of shares of
our common stock available for sale to the general public will
60
<PAGE>
be reduced to the extent these reserved shares are purchased. Any reserved
shares that are not purchased by these persons will be offered by the
underwriters to the general public on the same basis as the other shares in this
offering.
Pricing of This Offering
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock has
been determined by negotiation among us and the representatives of the
underwriters. Among the primary factors considered in determining the public
offering price were:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalization and stage of development of other companies that
we and the representatives of the underwriters believe to be comparable to
our business; and
- estimates of our business potential.
The estimated initial public offering price range set forth on the cover of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.
61
<PAGE>
LEGAL MATTERS
Cooley Godward LLP, Palo Alto, California, will provide us with an opinion
as to the validity of the common stock offered under this prospectus. Latham &
Watkins, Costa Mesa, California, will pass upon certain legal matters related to
the offering for the underwriters.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements as of December 31, 1998 and 1999 and for each of the three years in
the period ended December 31, 1999. We have included our financial statements in
this prospectus and elsewhere in the registration statement in reliance on
Ernst & Young LLP's report, given upon their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered under this prospectus. This prospectus does not contain all
of the information in the registration statement and the exhibits and schedule
to the registration statement. For further information with respect to us and
our common stock, we refer you to the registration statement and to the exhibits
and schedule to registration statement. Statements contained in this prospectus
as to the contents of any contract or any other document referred to are not
necessarily complete, and in each instance, we refer you to the copy of the
contract or other document filed as an exhibit to the registration statement.
Each of these statements is qualified in all respects by this reference. You may
inspect a copy of the registration statement without charge at the SEC's
principal office in Washington, D.C., and copies of all or any part of the
registration statement may be obtained from the Public Reference Section of the
SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of fees
prescribed by the SEC. The SEC maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the Web site
is HTTP://WWW.SEC.GOV. The SEC's toll free investor information service can be
reached at 1-800-SEC-0330. Information contained on our website does not
constitute part of this prospectus.
Upon completion of the offering, we will be subject to the information
reporting requirements of the Securities Exchange Act of 1934, as amended, and
we will file reports, proxy statements and other information with the SEC.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent public accountants and quarterly
reports for the first three fiscal quarters of each fiscal year containing
unaudited interim financial information. Our telephone number is
(650) 526-6800.
62
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statement of Stockholders' Equity........................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
IntraBiotics Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of IntraBiotics
Pharmaceuticals, Inc. as of December 31, 1998 and 1999, and the related
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of IntraBiotics
Pharmaceuticals, Inc. at December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ ERNST & YOUNG LLP
Palo Alto, California
January 14, 2000,
except for the second paragraph of Note 1,
as to which the date is
February 28, 2000
F-2
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro forma
stockholders'
December 31, equity to
------------------- December 31,
1998 1999 1999 (Note 1)
-------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including restricted deposits
of $350.................................................. $ 29,869 $ 18,862
Short-term investments.................................... -- 12,567
Other current assets...................................... 144 633
-------- --------
Total current assets.................................... 30,013 32,062
Property and equipment, net................................. 2,045 3,828
Other assets................................................ 41 68
-------- --------
Total assets............................................ $ 32,099 $ 35,958
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,773 $ 2,295
Accrued clinical costs.................................... 1,310 916
Other accrued liabilities, principally related to
development milestones in 1998........................... 3,408 535
Amount payable to contract partner........................ -- 1,677
Deferred revenue.......................................... 738 --
Current portion of equipment financing obligations........ 505 896
-------- --------
Total current liabilities............................... 8,734 6,319
Long-term equipment financing obligations................... 867 1,725
Commitments
STOCKHOLDERS' EQUITY:
Preferred stock, at amounts paid in, $0.001 par value:
35,205,892 and 40,937,873 convertible shares authorized at
December 31, 1998 and 1999, 5,000,000 shares of preferred
stock authorized pro forma; 32,388,207 and 39,483,873
shares issued and outstanding at December 31, 1998 and
1999, respectively (aggregate liquidation preference of
$81,245), no shares of preferred stock issued and
outstanding pro forma..................................... 52,152 79,609 $ --
Common stock, $0.001 par value: 60,000,000 and 67,500,000
shares authorized at December 31, 1998 and 1999,
50,000,000 shares authorized pro forma; 1,001,030 and
1,339,154 shares issued and outstanding at December 31,
1998 and 1999, respectively, 21,081,054 shares issued and
outstanding pro forma..................................... 1 1 21
Additional paid-in capital.................................. 1,249 13,828 93,417
Deferred stock compensation................................. (1,145) (12,650) (12,650)
Accumulated deficit......................................... (29,759) (52,874) (52,874)
-------- -------- --------
Total stockholders' equity.............................. 22,498 27,914 $ 27,914
-------- -------- ========
Total liabilities and stockholders' equity................ $ 32,099 $ 35,958
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Contract revenue.......................................... $ 3,507 $ 5,357 $ 7,863
License fee and milestone revenue......................... 2,000 1,000 --
------- -------- --------
Total revenues.............................................. 5,507 6,357 7,863
------- -------- --------
Operating expenses:
Research and development.................................. 8,103 21,997 26,102
General and administrative................................ 1,960 2,533 6,082
------- -------- --------
Total operating expenses.................................... 10,063 24,530 32,184
------- -------- --------
Operating loss.............................................. (4,556) (18,173) (24,321)
Interest income............................................. 575 963 1,372
Interest expense............................................ (94) (172) (166)
------- -------- --------
Net loss.................................................... $(4,075) $(17,382) $(23,115)
======= ======== ========
Basic and diluted net loss per share........................ $ (6.39) $ (20.89) $ (21.62)
======= ======== ========
Shares used to compute basic and diluted net loss per
share..................................................... 638 832 1,069
======= ======== ========
Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (1.27)
========
Shares used to compute pro forma basic and diluted net loss
per share (unaudited)..................................... 18,172
========
</TABLE>
See accompanying notes.
F-4
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Convertible Additional Deferred Total
Preferred Common Paid-In Stock Accumulated Stockholders'
Stock Stock Capital Compensation Deficit Equity
----------- --------- ---------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996......... $12,697 $1 $ 14 $ -- $ (8,302) $ 4,410
Issuance of 17 shares of common stock
upon exercise of options for cash... -- -- 3 -- -- 3
Issuance of 5,714 shares of Series D
convertible preferred stock for cash
(net of issuance costs of $50)...... 9,950 -- -- -- -- 9,950
Issuance of 2,725 shares of Series E
convertible preferred stock for cash
(net of issuance costs of $17)...... 7,477 -- -- -- -- 7,477
Issuance of 500 shares of Series F
convertible preferred stock for
cash................................ 2,000 -- -- -- -- 2,000
Net loss and comprehensive loss....... -- -- -- -- (4,075) (4,075)
------- -- ------- -------- -------- --------
Balances at December 31, 1997......... 32,124 1 17 -- (12,377) 19,765
Issuance of 205 shares of common stock
upon exercise of options for cash... -- -- 39 -- -- 39
Issuance of 250 shares of Series F
convertible preferred stock for
technology license.................. 1,000 -- -- -- -- 1,000
Issuance of 6,811 shares of Series G
convertible preferred stock for cash
(net of issuance costs of $1,406)... 19,028 -- -- -- -- 19,028
Deferred stock compensation........... -- -- 1,193 (1,193) -- --
Amortization of deferred stock
compensation........................ -- -- -- 48 -- 48
Net loss and comprehensive loss....... -- -- -- -- (17,382) (17,382)
------- -- ------- -------- -------- --------
Balances at December 31, 1998......... 52,152 1 1,249 (1,145) (29,759) 22,498
Issuance of 338 shares of common stock
upon exercise of options for cash... -- -- 93 -- -- 93
Issuance of 846 shares of Series G
convertible preferred stock for
cash................................ 2,580 -- -- -- -- 2,580
Issuance of 6,250 shares of Series H
convertible preferred stock and
warrants to purchase 1,250 shares of
Series H convertible preferred stock
for cash (net of issuance costs of
$123)............................... 24,877 -- -- -- -- 24,877
Deferred stock compensation........... -- -- 12,486 (12,486) -- --
Amortization of deferred stock
compensation........................ -- -- -- 981 -- 981
Net loss and comprehensive loss....... -- -- -- -- (23,115) (23,115)
------- -- ------- -------- -------- --------
Balances at December 31, 1999......... $79,609 $1 $13,828 $(12,650) $(52,874) $ 27,914
======= == ======= ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net loss.................................................. $(4,075) $(17,382) $(23,115)
Adjustments to reconcile net loss to net cash used in
operating activities:
Preferred stock issued in exchange for technology
license expense........................................ -- 1,000 --
Depreciation and amortization........................... 204 489 740
Amortization of deferred stock compensation............. -- 48 981
Changes in assets and liabilities:
Accounts receivable................................... (2,225) 2,225 --
Other current assets.................................. 1 (111) (489)
Other assets.......................................... -- (28) (27)
Accounts payable...................................... 237 2,316 (478)
Accrued clinical costs................................ 632 678 (394)
Other accrued liabilities............................. 861 2,440 (2,873)
Amount payable to contract partner.................... -- -- 1,677
Deferred revenue...................................... 1,705 (967) (738)
------- -------- --------
Net cash used in operating activities............... (2,660) (9,292) (24,716)
Investing activities
Capital expenditures...................................... (1,589) (597) (2,523)
Purchases of short-term investments....................... -- -- (14,862)
Maturities of short-term investments...................... -- -- 2,295
------- -------- --------
Net cash used in investing activities..................... (1,589) (597) (15,090)
Financing activities
Proceeds from issuance of preferred stock, net of issuance
costs.................................................... 19,427 19,028 27,457
Proceeds from issuance of common stock.................... 3 39 93
Proceeds from equipment financing......................... 1,131 397 2,033
Payments on equipment financing........................... (246) (485) (784)
------- -------- --------
Net cash provided by financing activities............... 20,315 18,979 28,799
------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 16,066 9,090 (11,007)
Cash and cash equivalents at beginning of period............ 4,713 20,779 29,869
------- -------- --------
Cash and cash equivalents at end of period.................. $20,779 $ 29,869 $ 18,862
======= ======== ========
Supplemental disclosure of cash flow information
Interest paid............................................... $ 94 $ 172 $ 166
</TABLE>
See accompanying notes.
F-6
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
IntraBiotics Pharmaceuticals, Inc. ("IntraBiotics" or the "Company"), was
incorporated in the state of Delaware on January 19, 1994. IntraBiotics develops
and intends to commercialize novel antibacterial and antifungal drugs for the
prevention or treatment of serious infectious diseases. The Company has devoted
substantially all of its efforts and resources since incorporation to research
and development related to its antimicrobial products.
REVERSE STOCK SPLIT
On February 28, the Company effected a one-for-two reverse split of its
common stock. All common share and per share amounts have been retroactively
restated to reflect the split in the accompanying financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 amounts reported in the financial statements and
accompanying notes, including amounts accrued for clinical trial costs. Actual
results could differ from those estimates.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Cash equivalents and
short-term investments include money market funds, commercial paper, and
government and commercial debt securities. All cash equivalents and short-term
investments are classified as available-for-sale and mature within one year.
Available-for-sale securities are carried at amortized cost, which approximated
fair value at December 31, 1998 and 1999. Material unrealized gains and losses,
if any, are reported in stockholders' equity and included in other comprehensive
loss. Fair value is estimated based on available market information. The cost of
securities sold is based on the specific identification method. For the years
ended December 31, 1998 and 1999, gross realized gains and losses on
available-for-sale securities were immaterial.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments, including cash and cash
equivalents, short-term investments, and equipment financing approximate their
carrying value. The fair value of the equipment financing is estimated using
discounted cash flow analyses, based on the Company's current incremental
borrowing rate for similar types of borrowing arrangements.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation,
which is provided using the straight-line method over the estimated useful lives
of the respective assets, generally three to five years. Leasehold improvements
are depreciated over the terms of the building leases of up to seven years.
F-7
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REVENUE RECOGNITION
Contract revenue from collaboration research and development reimbursement
funding is recognized as earned, according to the terms of the collaboration
agreement, and is based on contract expenses incurred during the period and the
number of full-time equivalent employees working on the contract. These funds
are generally received in advance and are recorded as deferred revenue until
earned. Revenue related to license fees with noncancelable, nonrefundable terms
and no future performance obligations are recognized upon execution of the
collaboration agreement when collection is assured. Such revenues are deferred
and recognized over the performance period if future performance obligations
exist. Revenue associated with milestones are recognized as earned, based on
completion of development milestones, either upon receipt, or when collection is
assured.
In December 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101 "Revenue Recognition." The Company is evaluating
the impact of SAB 101 on its financial statements and its future revenue
recognition policy, but does not believe the application of SAB 101 to its
financial statements will result in a material change upon adoption in the first
quarter of 2000.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as incurred.
Research and development expenses, including direct and allocated expenses,
consist of independent research and development costs, costs associated with
collaborative research and development arrangements, and, in 1998, license fees
related to the acquisition of in-process research and development with no
alternative future use.
STOCK-BASED COMPENSATION
The Company has elected to account for employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"), using an intrinsic value approach to
measure compensation expense, if any. Deferred stock compensation calculated
according to APB 25 is amortized over the vesting period of the options, ranging
from four to six years, on a straight-line basis. Appropriate pro forma net loss
disclosures using a fair value-based method, as provided by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), are also reflected in Note 6. Options issued to
nonemployees are accounted for in accordance with SFAS 123 and EITF Consensus
96 -18 using a fair value approach, and the compensation cost of such options is
subject to remeasurement over their vesting terms, as the options are earned.
COMPREHENSIVE LOSS
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). The
Company's comprehensive loss was not materially different from the net loss for
the years ended December 31, 1997, 1998, and 1999.
F-8
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NET LOSS PER SHARE
Net loss per share has been computed according to Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share" ("SFAS 128"), which
requires disclosure of basic and diluted earnings per share. Basic and diluted
earnings per share is calculated using the weighted-average number of shares of
common stock outstanding during the period, less shares subject to repurchase.
Diluted earnings per share includes the impact of potentially dilutive
securities. As the Company's potentially dilutive securities (convertible
preferred stock, stock options, and warrants) were antidilutive for all periods,
they were not included in the computation of weighted-average shares used in
computing diluted net loss per share. Pro forma basic and diluted net loss per
common share, as presented in the statements of operations, has been computed
for the year ended December 31, 1999 as described above, and also gives effect
to the conversion of the convertible preferred stock which will automatically
convert to common stock immediately prior to the completion of the Company's
initial public offering (using the if-converted method) from the original date
of issuance.
Following the guidance given by the Securities and Exchange Commission Staff
Accounting Bulletin No. 98, common stock and convertible preferred stock that
has been issued or granted for nominal consideration prior to the anticipated
effective date of the initial public offering must be included in the
calculation of basic and diluted net loss per common share as if these shares
had been outstanding for all periods presented. To date, the Company has not
issued or granted shares for nominal consideration.
The following is a reconciliation of the numerator and denominator of basic
and diluted net loss per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Basic and diluted:
Net loss.................................................. $(4,075) $(17,382) $(23,115)
======= ======== ========
Weighted-average shares of common stock outstanding....... 783 856 1,069
Less: weighted-average shares subject to repurchase....... (145) (24) --
------- -------- --------
Weighted-average shares used in computing basic and
diluted net loss per share............................... 638 832 1,069
======= ======== ========
Basic and diluted net loss per share........................ $ (6.39) $ (20.89) $ (21.62)
======= ======== ========
Pro forma basic and diluted:
Shares used above......................................... 1,069
Pro forma adjustment to reflect weighted-average effect of
assumed conversion of preferred stock from the date of
issuance................................................. 17,103
--------
Total weighted-average shares of common stock outstanding
pro forma................................................. 18,172
========
Basic and diluted pro forma loss per share.................. $ (1.27)
========
</TABLE>
F-9
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The total number of shares excluded from the calculations of diluted net
loss per share, prior to application of the treasury stock method for options,
warrants and convertible preferred stock was 14,147,012, 18,462,550, and
24,165,796 for the years ended December 31, 1997, 1998, and 1999, respectively.
Such securities, had they been dilutive, would have been included in the
computations of diluted net loss per share (see Note 6 for further information
on these securities).
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities" ("SFAS 133"), which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as "derivatives") and for hedging
activities. SFAS 133 (as deferred by SFAS 137) is effective for the Company's
year ending December 31, 2001. As the Company does not currently hold
derivatives or engage in hedging transactions, there would be no current impact
to the Company's results of operations, financial position, or cash flows upon
the adoption of SFAS 133.
3. COLLABORATION AGREEMENT WITH PHARMACIA & UPJOHN S.p.A.
In October 1997, the Company entered into a collaboration agreement with
Pharmacia & Upjohn S.p.A. ("Pharmacia"), to develop and commercialize the
Company's Protegrin IB-367, on a worldwide basis. The Company was to receive up
to $35,000,000 in research and milestone payments, if specified research and
development goals were achieved, an equity investment, and license fees. A
nonrefundable license fee of $2,000,000 associated with the transfer of
development and commercialization rights to Pharmacia was received and
recognized as revenue in 1997. A nonrefundable development milestone of
$1,000,000 was received and recognized as revenue in 1998.
Pharmacia shared equally with the Company the costs of developing Protegrin
IB-367 for the United States market. Both parties had the right to codevelop,
copromote, and share defined profits and losses in the United States, should
IB-367 result in a marketable drug. Pharmacia had the right to develop and
promote Protegrin IB-367 outside the United States and would pay the Company
royalties on defined profits, if any. The Company recognized research contract
revenues of $3,507,000, $5,357,000, and $7,863,000 in 1997, 1998, and 1999,
respectively, relating to the reimbursement of shared development costs.
In connection with the collaboration, the Company sold to Pharmacia 500,000
shares of Series F preferred stock at $4.00 per share for an aggregate purchase
price of $2,000,000 in 1997.
The Company mutually agreed with Pharmacia in July 1999 to terminate the
agreement with funding through December 31, 1999. As a result of the
termination, the Company has retained global rights to Protegrin IB-367.
Pharmacia has no further obligations to pay future milestones or development
expenses, or to purchase additional shares of common stock subsequent to the
termination. Approximately $1.7 million of unused development funding will be
returned to Pharmacia.
F-10
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Machinery and equipment........................... $1,802 $ 2,753
Furniture and fixtures............................ 116 320
Construction in progress.......................... 34 --
Leasehold improvements............................ 970 2,372
------ -------
2,922 5,445
Less accumulated depreciation and amortization.... (877) (1,617)
------ -------
Property and equipment, net....................... $2,045 $ 3,828
====== =======
</TABLE>
5. LEASE COMMITMENTS AND EQUIPMENT FINANCING ARRANGEMENTS
The Company leases its facilities under operating lease agreements which
expire in December 2001 and July 2004. At December 31, 1999, the Company has
made available letters of credit for $350,000 in connection with these leases.
Total rent expense for the years ended December 31, 1997, 1998, and 1999 was
approximately $342,000, $502,000, and $786,000, respectively.
The Company has financed an aggregate of $2,251,000 and $4,284,000 at
December 31, 1998 and 1999, respectively, of property and equipment purchases
with borrowings under equipment financing agreements. The loans are secured by
the related assets. The total availability under the equipment financing
agreements was $5,500,000, of which $967,000 remains available through
February 29, 2000 and $249,000 expired unused. The interest rates applicable to
the obligations range from 9.9% to 13.7% at December 31, 1999, and the weighted
average interest rate during 1998 was 10.9% and in 1999 was 10.4%. The carrying
value of the obligations approximates fair value based on a discounted cash flow
analysis using the Company's incremental borrowing rate for similar obligations.
At December 31, 1999, future minimum lease payments under operating leases
and principal payments under the equipment financing arrangements are as follows
(in thousands):
<TABLE>
<CAPTION>
Operating Financing
Leases Arrangements
--------- ------------
<S> <C> <C>
2000................................................ $1,050 $ 896
2001................................................ 838 822
2002................................................ 860 764
2003................................................ 873 139
2004................................................ 462 --
------ ------
Total minimum payments required..................... $4,083 2,621
======
Less current portion................................ (896)
------
Long-term portion................................... $1,725
======
</TABLE>
F-11
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
5. LEASE COMMITMENTS AND EQUIPMENT FINANCING ARRANGEMENTS (Continued)
In August 1999, the Company entered into a term loan agreement with Silicon
Valley Bank for $5,000,000. The loan agreement has a revolving draw period
expiring in August 2000, and bears interest at prime plus 1.25%. Interest-only
payments are due until August 2000, and thereafter principal and interest is
payable thereafter over four years. The term loan also includes various
financial covenents and a restriction on paying dividends. No amounts had been
drawn under this arrangement at December 31, 1999.
6. STOCKHOLDERS' EQUITY
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
Shares of common stock of the Company reserved for future issuance at
December 31, 1999 were as follows:
<TABLE>
<S> <C>
Conversion of convertible preferred stock................... 19,741,900
Stock option plan........................................... 3,870,397
Warrants.................................................... 677,000
----------
24,289,297
==========
</TABLE>
CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue 40,937,873 shares of convertible
preferred stock at December 31, 1999. Each share of convertible preferred stock
has voting rights equal to shares of common stock on an "if-converted" basis.
The convertible preferred stock authorized, issued and outstanding at
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Shares Issued Aggregate
Shares and Liquidation
Authorized Outstanding Preference
----------- ------------- -----------
(In
thousands)
<S> <C> <C> <C>
Series A.............................. 821,429 821,429 $ 411
Series B.............................. 5,803,996 5,749,996 4,025
Series C.............................. 9,816,181 9,816,181 8,344
Series D.............................. 5,764,286 5,714,286 10,000
Series E.............................. 2,725,000 2,725,000 7,494
Series F.............................. 750,000 750,000 3,000
Series G.............................. 7,656,981 7,656,981 22,971
Series H.............................. 7,600,000 6,250,000 25,000
---------- ---------- -------
40,937,873 39,483,873 $81,245
========== ========== =======
</TABLE>
Series A, B, C, D, E, F, G, and H stockholders are entitled to noncumulative
quarterly dividends, when and as declared by the board of directors, at the rate
of $0.04, $0.06, $0.07, $0.15, $0.23, $0.35, $0.25, and $0.35 per share,
respectively (as adjusted for any stock dividends, combinations, or splits with
respect to such shares). No dividends have been declared or paid by the Company.
F-12
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. STOCKHOLDERS' EQUITY (Continued)
In the event of a liquidation or winding up of the Company, holders of
Series A, B, C, D, E, F, G, and H stockholders are entitled to a liquidation
preference of $0.50, $0.70, $0.85, $1.75, $2.75, $4.00, $3.00, and $4.00 per
share, respectively, plus all declared but unpaid dividends. After payment has
been made to the preferred stockholders, the remaining assets of the Company
legally available for distribution, if any, shall be distributed ratably to the
holders of the common stock and preferred stock on an if-converted basis.
Each two shares of preferred stock are convertible at any time at the option
of the holder into one share of common stock adjusted, if applicable, for unpaid
dividends, stock splits, combinations, and certain other events. Conversion of
the preferred stock into common stock is automatic at the earlier of an initial
public offering in excess of $25,000,000 at an offering price of not less than
$12.00 per share (subsequently reduced to $10.00 per share in January 2000), or
the election by more than 66 2/3% of the shares held by the preferred
stockholders, voting together as a class.
At the election of the holders of at least 50% of the outstanding preferred
stock, the Company shall file a registration statement with an aggregate
offering price to the public in excess of $3,000,000.
Prior to an initial public offering, certain preferred stockholders have the
right of first refusal with respect to certain future issuances of preferred or
common stock.
WARRANTS
In July 1995 and October 1997, the Company issued warrants to purchase
54,000 and 50,000 shares of the Company's Series B and D preferred stock at
exercise prices of $1.00 and $2.50 per share, respectively. These warrants were
issued in connection with an equipment financing agreement. The 1995 warrants
expire on the earlier of July 2001 or the sale of substantially all of the
Company's assets. The 1997 warrants expire on the earlier of October 2003 or the
closing of the Company's initial public offering, the merger of the Company with
or into another corporation and the sale of substantially all of the Company's
assets. The value assigned to these warrants was not material.
In October 1999, the Company issued warrants to purchase 1,250,000 shares of
the Company's Series H preferred stock at an exercise price of $5.00 per share.
These warrants were issued in connection with the Series H preferred stock
financing, and expire on December 31, 2001. The value of these warrants is
included with the Series H preferred stock issued on that date.
Through December 31, 1999, no warrants have been exercised.
1995 INCENTIVE STOCK PLAN
The 1995 Incentive Stock Plan (the "Plan") was amended and restated in 1999
and allows the granting of options for up to 4,523,554 shares of common stock to
employees, consultants, and directors.
Stock options granted under the Plan may be either incentive stock options
or nonstatutory stock options. Incentive stock options may be granted to
employees with exercise prices of no less than the fair value and nonstatutory
options not less than 85% of the fair value of the common stock on the date of
grant, as determined by the board of directors. All options are to have a term
F-13
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. STOCKHOLDERS' EQUITY (Continued)
not greater than 10 years from the date of grant. The board of directors shall
determine the time or times during the term when the options may be exercised
and the number of shares for which an option may be granted. Options generally
vest ratably over a period ranging from four to six years.
A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------
Weighted-
Number of Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Balance at December 31, 1996....................... 935,575 $0.17
Granted.......................................... 527,650 $0.45
Exercised........................................ (17,446) $0.19
Canceled......................................... (14,194) $0.27
---------
Balance at December 31, 1997....................... 1,431,585 $0.27
Granted.......................................... 1,128,800 $0.99
Exercised........................................ (205,253) $0.19
Canceled......................................... (138,650) $0.53
---------
Balance at December 31, 1998....................... 2,216,482 $0.63
Granted.......................................... 2,160,782 $1.54
Exercised........................................ (338,124) $0.27
Canceled......................................... (292,244) $0.92
---------
Balance at December 31, 1999....................... 3,746,896 $1.16
=========
</TABLE>
At December 31, 1997, 1998, and 1999, options to purchase 520,298, 690,253,
and 818,569 shares, respectively, of common stock were exercisable. The
following tables summarize information about options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------- -------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Number of Remaining Average Exercise Number of Average Exercise
Exercise Price Shares Contractual Life Price Shares Price
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(Years)
<S> <C> <C> <C> <C> <C>
$0.10-$0.90 765,207 6.4 $0.31 570,900 $0.28
$1.00-$1.00 1,210,907 8.5 $1.00 194,590 $1.00
$1.50-$1.50 1,276,182 9.6 $1.50 51,258 $1.50
$2.00-$2.00 494,600 10.0 $2.00 1,821 $2.00
----------------- -----------------
3,746,896 8.6 $1.16 818,569 $0.53
================= =================
</TABLE>
The weighted-average fair value of options granted during 1997, 1998, and
1999 was $0.05, $0.09, and $5.50, respectively.
F-14
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. STOCKHOLDERS' EQUITY (Continued)
Pro forma information regarding net income (loss) is required by SFAS 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that statement. The fair value for these
options was estimated at the date of grant using the minimum value method with
the following weighted-average assumptions:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Risk-free interest rates....................... 6.5% 5.0% 5.5%
Dividend yield................................. -- -- --
Expected life of option........................ 4 years 4 years 4.5 years
</TABLE>
Pro forma net loss information applying the minimum value method to the
Company's stock options granted in 1997, 1998, and 1999 is as follows. Future
pro forma net income (loss) results may be materially different from actual
amounts reported.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss--as reported......................... $(4,075) $(17,382) $(23,115)
Net loss--pro forma........................... $(4,096) $(17,429) $(25,172)
Basic and diluted net loss per share--as
reported.................................... $ (6.39) $ (20.89) $ (21.62)
Basic and diluted net loss per share--pro
forma....................................... $ (6.42) $ (20.95) $ (23.55)
</TABLE>
During the years ended December 31, 1998 and 1999, in connection with the
grant of certain stock options to employees and officers, the Company recorded
deferred stock compensation of $1,193,000 and $12,486,000, respectively,
representing the difference between the exercise price and the deemed fair value
of the Company's common stock for financial reporting purposes on the date such
stock options were granted. The deemed fair value of the common stock was
determined based on an analysis of key events and milestones in our research and
development programs, including progress with clinical studies and FDA
regulatory matters, and the closing of preferred stock financings. The weighted
average deemed fair value of the common stock associated with stock options
granted during the years ended December 31, 1998 and 1999 and for January 2000
was $2.11, $7.66 and $10.40 (unaudited) per share, respectively. Deferred
compensation is included as a component of stockholders' equity and is being
amortized to expense on a straight-line basis over the vesting period of the
options, ranging from four to six years. During the years ended December 31,
1998 and 1999, the Company recorded amortization of deferred stock compensation
expense of approximately $48,000 and $981,000, respectively. Additional deferred
compensation of approximately $2,100,000 (unaudited) is expected to be recorded
based on the deemed fair value of common stock options granted to employees
during January 2000.
7. LICENSING, RESEARCH, AND TECHNOLOGY CONTRACTS
The Company has entered into agreements with academic institutions under
which it obtained certain licenses to technology under development. In exchange
for the licenses, the Company made certain payments, and agreed to pay the
institutions additional amounts and specified royalties upon the occurrence of
certain events. The academic institutions may terminate the agreements upon the
occurrence of certain events.
F-15
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
7. LICENSING, RESEARCH, AND TECHNOLOGY CONTRACTS (Continued)
From 1994 to 1997, the Company entered into a series of agreements with The
Regents of the University of California under which it obtained certain licenses
to its protegrin technology under development. In consideration for the license,
the Company has made certain payments totaling $75,000, and agreed to pay The
Regents of the University of California additional amounts and specified
royalties upon occurrence of certain events related to the development of the
technology. These events include commencement of clinical trials, drug
approvals, and product sales.
In January 1997, the Company entered into an agreement with PolyPeptide
Laboratories A/S to develop a manufacturing process for its drug substance
Protegrin IB-367 and was obligated to pay up to $2,895,000 based upon
achievement of certain development milestones. The Company also entered into a
related purchase and supply agreement with PolyPeptide. For the years ended
December 31, 1997, 1998, and 1999, the Company has incurred milestone payments
of approximately $910,000, $1,025,000 and $760,000, respectively, under the
agreement, which were charged to research and development expense.
During 1998, the Company recorded $2,000,000 in license fee expense in
connection with the purchase of rights from Biosearch Italia S.P.A to develop
and commercialize Ramoplanin, which was a phase I clinical-stage product
candidate. At the date of the agreement, the full scientific feasibility of the
product candidate had not been established. The Company is responsible for the
development of the licensed product. Biosearch Italia has agreed to manufacture
all Company bulk product requirements for development and commercialization at
an agreed to transfer price and royalty percentage, although the Company has the
ability to elect to manufacture the product. The purchase price, which was
expensed as in-process research and development as the rights had no alternative
future use, consisted of the issuance of 250,000 shares of Series F preferred
stock at $4.00 per share and $1,000,000 in cash. In 1998, the Company incurred a
milestone of $2,000,000 for the commencement of the phase II clinical trial. The
Company may pay up to an additional $12,000,000 in license fees and milestone
payments, if specified research and development goals are reached. The goals
that will result in additional payments include commencement of clinical trials,
drug approvals, and product sales. The Company expects to expense any of such
future payments made prior to receipt of FDA marketing approval as research and
development expense, and payments made upon or after FDA approval are expected
to be capitalized and amortized over the applicable benefit period.
8. INCOME TAXES
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $46,000,000 and $23,000,000, respectively.
The Company also had federal research and development tax credit carryforwards
of approximately $1,000,000. The net operating loss and credit carryforwards
will expire at various dates beginning on 2002 through 2019, if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
F-16
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. INCOME TAXES (Continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets for financial reporting and the amount
used for income tax purposes. Significant components of the Company's deferred
tax assets for federal and state income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
----------- --------
<S> <C> <C>
Net operating loss carryforwards..................... $ 11,000 $ 17,300
Research credits..................................... 1,100 1,300
Capitalized research and development................. 500 1,200
Intangible assets.................................... -- 1,500
Other................................................ -- (200)
-------- --------
Total deferred tax assets............................ 12,600 21,100
Valuation allowance.................................. (12,600) (21,100)
-------- --------
Net deferred tax assets.............................. $ -- $ --
======== ========
</TABLE>
Because of the Company's lack of earnings history, the deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by $2,000,000, $7,400,000 and $8,500,000 during the years ended
December 31, 1997, 1998 and 1999, respectively.
9. EVENTS SUBSEQUENT TO THE DATE OF INDEPENDENT AUDITORS' REPORT
PUBLIC OFFERING
In January 2000, the board of directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
8,625,000 shares of its common stock in connection with a proposed initial
public offering. If the offering is consummated under the terms currently
anticipated, the convertible preferred stock outstanding as of the closing date
will be converted into shares of the Company's common stock. The pro forma
stockholders' equity in the accompanying balance sheet as of December 31, 1999
reflects conversion of the outstanding preferred stock into 19,741,900 shares of
common stock.
2000 EQUITY INCENTIVE PLAN
In January 2000, the board adopted the 2000 Equity Incentive Plan (the
"equity incentive plan") which was approved by stockholders in February 2000.
The aggregate number of shares that may be issued pursuant to stock awards
granted under the equity incentive plan is 5,000,000 shares. On December 31 of
each year, beginning on December 31, 2000, through December 31, 2008, the
authorized shares will automatically be increased by a number of shares equal to
the lesser of:
- 5% of the then outstanding shares of common stock on a fully-diluted
basis;
- 2,000,000 shares; or
- a lesser number of shares determined by the board of directors prior to
each anniversary date.
F-17
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
9. EVENTS SUBSEQUENT TO THE DATE OF INDEPENDENT AUDITORS' REPORT (Continued)
2000 EMPLOYEE STOCK PURCHASE PLAN
In January 2000, the board adopted the 2000 Employee Stock Purchase Plan
(the "purchase plan"), which was approved by stockholders in February 2000,
authorizing the issuance of 500,000 shares of common stock pursuant to purchase
rights granted to employees.
On December 31 of each year, starting with December 31, 2000 through
December 31, 2008, the share reserve will automatically be increased by a number
of shares equal to the lesser of:
- 1% of the then outstanding shares of common stock on a fully diluted
basis;
- 500,000 shares; or
- a lesser number of shares to be determined by the board of directors.
The purchase plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended. As of the date hereof, no shares of common stock have been purchased
under the purchase plan.
The purchase plan permits eligible employees to purchase common stock at a
discount, but only through payroll deductions, during defined offering periods.
The price at which stock is purchased under the purchase plan is equal to 85% of
the fair market value of the common stock on the first or last day of the
offering period, whichever is lower. The initial offering period will commence
on the effective date of the offering.
FACILITIES LEASE AGREEMENT
In February 2000, the Company entered into a lease agreement for two
additional facilities. This lease expires in 2011, and the Company has the right
to extend the term for an additional period of 5 years. Future minimum payments
under the lease are $1,047,000 in 2000 and $3,366,000 in 2001. Payments in
future years range from $4,620,000 per year in 2002 to $5,952,000 per year in
2011.
F-18
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. We are offering to sell, and seeking offers to buy, shares of
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.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Summary................................... 1
Risk Factors.............................. 5
Special Note Regarding Forward-Looking
Statements and Industry Data............ 12
Use of Proceeds........................... 13
Dividend Policy........................... 13
Capitalization............................ 14
Dilution.................................. 15
Selected Financial Data................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 17
Business.................................. 22
Management................................ 37
Certain Transactions...................... 48
Principal Stockholders.................... 51
Description of Capital Stock.............. 54
Shares Eligible for Future Sale........... 57
Underwriting.............................. 59
Legal Matters............................. 62
Experts................................... 62
Where You Can Find Additional
Information............................. 62
Index to Financial Statements............. F-1
</TABLE>
Until , 2000 (25 days after the date of this prospectus), all dealers
that buy, sell or trade in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. Dealers are also
obligated to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
[LOGO]
7,500,000 Shares
Common Stock
Deutsche Banc Alex. Brown
Warburg Dillon Read LLC
SG Cowen
Adams, Harkness & Hill, Inc.
Prospectus
, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts payable by us, in connection with the sale of common
stock being registered. All amounts are estimates except the SEC registration
fee, the NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee........................................ $ 34,155
NASD filing fee............................................. 13,438
Nasdaq National Market listing fee.......................... 95,000
Blue Sky Fees and expenses.................................. 5,000
Transfer Agent and Registrar fees........................... 10,000
Accounting fees and expenses................................ 250,000
Legal fees and expenses..................................... 450,000
Printing and engraving costs................................ 165,000
Miscellaneous expenses...................................... 27,407
----------
Total..................................................... $1,050,000
==========
</TABLE>
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
- for any breach of duty of loyalty to us or to our stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- for unlawful payment of dividends or unlawful stock repurchases or
redemptions under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and officers and may indemnify our employees and
agents to the fullest extent permitted by Delaware law. We believe that
indemnification under our amended and restated certificate of incorporation
covers negligence and gross negligence on the part of indemnified parties.
We have entered into indemnification agreements with each of our directors
and officers. These agreements, among other things, require us to indemnify each
director and officer for certain expenses including attorneys' fees, judgments,
fines and settlement amounts incurred by any such person in any action or
proceeding, including any action by or in the right of IntraBiotics
Pharmaceuticals, Inc., arising out of the person's services as our director or
officer, any subsidiary of ours or any other company or enterprise to which the
person provides services at our request.
The underwriting agreement (Exhibit 1.1) will provide for indemnification by
the underwriters of IntraBiotics Pharmaceuticals, Inc., our directors, our
officers who sign the registration statement, and our controlling persons for
some liabilities, including liabilities arising under the Securities Act.
II-1
<PAGE>
Item 15. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth information regarding all securities sold by
the Registrant since January 1, 1997:
1. In April 1997, we issued and sold 5,714,286 shares of Series D preferred
stock, each two of which will convert into one share of common stock upon
completion of this offering, at $1.75 per share to 17 accredited investors,
787,854 of which were sold to two of our executive officers and/or directors
(and related entities).
2. In October 1997, we issued a warrant to purchase 50,000 shares of Series D
preferred stock, which will convert into a warrant to purchase shares of
common stock upon the completion of this offering, to one accredited
investor, at an exercise price of $2.50 per share.
3. In October 1997, we issued and sold 2,725,000 shares of Series E preferred
stock, each two of which will convert into one share of common stock upon
completion of this offering, at $2.75 per share to five accredited
investors.
4. In October 1997 and May 1998, we issued and sold 500,000 and 250,000 shares
of Series F preferred stock, respectively, each two of which will convert
into one share of common stock upon completion of this offering, at $4.00
per share to two accredited investors.
5. In November 1998, December 1998 and January 1999, we issued and sold
6,197,315, 614,000 and 845,666 shares of Series G preferred stock,
respectively, each two of which will convert into one share of common stock
upon completion of this offering, at $3.00 per share to 62 accredited
investors, 1,833,334 of which were sold to one of our executive officers
and/or directors (and related entities).
6. In October 1999, we issued and sold 6,250,000 shares of Series H preferred
stock, each two of which will convert into one share of common stock upon
completion of this offering, at $4.00 per share to four accredited
investors, 5,500,000 of which were sold to one of our executive officers
and/or directors (and related entities).
7. In October 1999, we issued warrants to purchase an aggregate of 1,250,000
shares of Series H preferred stock, which will convert into warrants to
purchase shares of common stock upon the completion of this offering, to
four accredited investors, at an exercise price of $5.00 per share. One
warrant to purchase 1,100,000 shares was issued to one of our executive
officers/directors (and related entities).
8. Between January 1, 1997 and February 25, 2000, we granted options to
purchase an aggregate of 4,152,982 shares of common stock at exercise prices
ranging from $0.20 to $4.00 per share with a weighted exercise price of
$1.45 per share.
The sales and issuances of common stock made pursuant to the exercise of
stock options granted under the 1995 Incentive Stock Plan to our officers,
directors, employees and consultants as described in paragraph (8) above were
made in reliance on Rule 701 promulgated under the Securities Act.
The sales and issuances of securities in the transactions described in
paragraphs (1) through (7) above were made in reliance of Rule 506 of
Regulation D promulgated under the Securities Act. These sales were made without
general solicitation or advertising. Each purchaser was a sophisticated investor
with access to all relevant information necessary to evaluate the investment and
represented to the Registrant that the shares were being acquired for
investment.
II-2
<PAGE>
Item 16. (A) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Exhibit
Number Description
- ----------------------- ------------------------------------------------------------
1.1 Form of Underwriting Agreement.
3.1+ Amended and Restated Certificate of Incorporation, as
currently in effect.
3.2+ Form of Certificate of Amendment of Certificate of
Incorporation.
3.3+ Form of Amended and Restated Certificate of Incorporation,
to be filed prior to the closing of this offering.
3.4+ Form of Amended and Restated Certificate of Incorporation,
to be filed upon the closing of this offering.
3.5+ Bylaws, as currently in effect.
3.6+ Form of Bylaws to be effective upon the closing of this
offering.
4.1+ Specimen Common Stock Certificate.
4.2+ Amended and Restated Investor Rights Agreement, dated
October 15, 1999.
5.1 Opinion of Cooley Godward LLP.
10.1+ Form of Indemnity Agreement.
10.2+ Amended and Restated 1995 Stock Option Plan and related
documents.
10.3+ 2000 Equity Incentive Plan and related documents.
10.4++ Purchase Supply Agreement by and between IntraBiotics and
Polypeptide dated January 3, 1997.
10.5++ Development Supply Agreement by and between IntraBiotics and
Polypeptide dated January 3, 1997 and Amendment dated
July 1, 1997.
10.6++ Second Amendment to the License Agreement by and
IntraBiotics and The Regents of the University of California
dated June 12, 1996.
10.7++ Third Amendment to the License Agreement by and between
IntraBiotics and The Regents of the University of California
dated September 16, 1997.
10.8++ License and Supply Agreement by and between IntraBiotics and
Biosearch Italia S.p.A. dated May 8, 1998.
10.9+ 2000 Employee Stock Purchase Plan and related documents.
10.10+ Lease by and between IntraBiotics and 1245 Terra Bella
Partners dated April 30, 1997.
10.11+ Standard Industrial/Commercial Single Tenant Lease by and
between IntraBiotics and Clint S. Carter and Esther Carter
Family Trust dated July 31, 1998 and First Amendment to
Standard Industrial/Commercial Single Tenant Lease by and
between IntraBiotics and Clint S. Carter and Esther Carter
Family Trust dated August 12, 1998.
10.12+ Financing Agreement by and between IntraBiotics and G.E.
Capital Equipment dated March 15, 1999.
10.13+ Loan and Security Agreement by and between IntraBiotics and
Silicon Valley Bank dated August 25, 1999.
10.14+ Warrant to Purchase Series H Preferred Stock dated October
15, 1999 to Investor (Guernsey) Ltd.
10.15+ Warrant to Purchase Series H Preferred Stock dated
October 15, 1999 to Vulcan Ventures, Inc.
10.16+ Warrant to Purchase Series H Preferred Stock dated
October 15, 1999 to New England Partners Capital, Inc.
10.17+ Warrant to Purchase Series H Preferred Stock dated
October 15, 1999 to Jonathan Reingold.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.18+ Warrant to Purchase Series D Preferred Stock dated
October 10, 1997 to Lease Management Services, Inc.
10.19+ Warrant to Purchase Series B Preferred Stock dated July 20,
1995 to Lease Management, Inc.
10.20+ Lease Agreement by and between IntraBiotics and
EOP-Shoreline Technology Park, LLC dated February 7, 2000
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1+ Power of Attorney (contained on signature page).
27.1+ Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
++ Confidential treatment requested with respect to certain portions of this
exhibit. Omitted portions have been filed separately with the Securities and
Exchange Commission.
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
Item 17. UNDERTAKINGS
The 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 by the registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement 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
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 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, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, as amended, the
Registrant has caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Mountain View, State
of California on the 17(th) day of March, 2000.
<TABLE>
<S> <C> <C>
INTRABIOTICS PHARMACEUTICALS INC.
By: /s/ KENNETH J. KELLEY
-----------------------------------------
Kenneth J. Kelley
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ KENNETH J. KELLEY President, Chief Executive Officer
-------------------------------------- and Director (Principal March 17, 2000
Kenneth J. Kelley Executive Officer)
/s/ RUSSELL L. HUGHES
-------------------------------------- Controller (Principal Financial March 17, 2000
Russell L. Hughes and Accounting Officer)
*
-------------------------------------- Director March 17, 2000
Jane E. Shaw
*
-------------------------------------- Director March 17, 2000
Michael F. Bigham
*
-------------------------------------- Director March 17, 2000
Fritz Buhler
*
-------------------------------------- Director March 17, 2000
Gary A. Lyons
*
-------------------------------------- Director March 17, 2000
Kathleen D. LaPorte
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
*
-------------------------------------- Director March 17, 2000
Liza Page Nelson
*
-------------------------------------- Director March 17, 2000
John M. Padfield
*
-------------------------------------- Director March 17, 2000
Jack S. Remington
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ KENNETH J. KELLEY
--------------------------------------
Attorney-in-fact
</TABLE>
II-6
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------------------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1+ Amended and Restated Certificate of Incorporation, as
currently in effect.
3.2+ Form of Certificate of Amendment of Certificate of
Incorporation.
3.3+ Form of Amended and Restated Certificate of Incorporation,
to be filed prior to the closing of this offering.
3.4+ Form of Amended and Restated Certificate of Incorporation,
to be filed upon the closing of this offering.
3.5+ Bylaws, as currently in effect.
3.6+ Form of Bylaws to be effective upon the closing of this
offering.
4.1+ Specimen Common Stock Certificate.
4.2+ Amended and Restated Investor Rights Agreement, dated
October 15, 1999.
5.1 Opinion of Cooley Godward LLP.
10.1+ Form of Indemnity Agreement.
10.2+ Amended and Restated 1995 Stock Option Plan and related
documents.
10.3+ 2000 Equity Incentive Plan and related documents.
10.4++ Purchase Supply Agreement by and between IntraBiotics and
Polypeptide dated January 3, 1997.
10.5++ Development Supply Agreement by and between IntraBiotics and
Polypeptide dated January 3, 1997 and Amendment dated
July 1, 1997.
10.6++ Second Amendment to the License Agreement by and
IntraBiotics and The Regents of the University of California
dated June 12, 1996.
10.7++ Third Amendment to the License Agreement by and between
IntraBiotics and The Regents of the University of California
dated September 16, 1997.
10.8++ License and Supply Agreement by and between IntraBiotics and
Biosearch Italia S.p.A. dated May 8, 1998.
10.9+ 2000 Employee Stock Purchase Plan and related documents.
10.10+ Lease by and between IntraBiotics and 1245 Terra Bella
Partners dated April 30, 1997.
10.11+ Standard Industrial/Commercial Single Tenant Lease by and
between IntraBiotics and Clint S. Carter and Esther Carter
Family Trust dated July 31, 1998 and First Amendment to
Standard Industrial/Commercial Single Tenant Lease by and
between IntraBiotics and Clint S. Carter and Esther Carter
Family Trust dated August 12, 1998.
10.12+ Financing Agreement by and between IntraBiotics and G.E.
Capital Equipment dated March 15, 1999.
10.13+ Loan and Security Agreement by and between IntraBiotics and
Silicon Valley Bank dated August 25, 1999.
10.14+ Warrant to Purchase Series H Preferred Stock dated October
15, 1999 to Investor (Guernsey) Ltd.
10.15+ Warrant to Purchase Series H Preferred Stock dated
October 15, 1999 to Vulcan Ventures, Inc.
10.16+ Warrant to Purchase Series H Preferred Stock dated
October 15, 1999 to New England Partners Capital, Inc.
10.17+ Warrant to Purchase Series H Preferred Stock dated
October 15, 1999 to Jonathan Reingold.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.18+ Warrant to Purchase Series D Preferred Stock dated
October 10, 1997 to Lease Management Services, Inc.
10.19+ Warrant to Purchase Series B Preferred Stock dated July 20,
1995 to Lease Management, Inc.
10.20+ Lease Agreement by and between IntraBiotics and
EOP-Shoreline Technology Park, LLC dated February 7, 2000
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1+ Power of Attorney (contained on signature page).
27.1+ Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
++ Confidential treatment requested with respect to certain portions of this
exhibit. Omitted portions have been filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT 1.1
7,500,000 Shares
INTRABIOTICS PHARMACEUTICALS, INC.
Common Stock
($0.001 Par Value)
EQUITY UNDERWRITING AGREEMENT
March ___, 2000
Deutsche Bank Securities Inc.
Warburg Dillon Read LLC
SG Cowen Securities Corporation
Adams Harkness & Hill, Inc.
As Representatives of the
Several Underwriters
c/o Deutsche Bank Securities Inc.
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
IntraBiotics Pharmaceuticals, Inc., a Delaware corporation
(the "Company"), proposes to sell to the several underwriters (the
"Underwriters") named in Schedule I hereto for whom you are acting as
representatives (the "Representatives") an aggregate of 7,500,000 shares of the
Company's Common Stock, $0.001 par value (the "Firm Shares"). The respective
amounts of the Firm Shares to be so purchased by the several Underwriters are
set forth opposite their names in Schedule I hereto. The Company also proposes
to sell at the Underwriters' option an aggregate of up to 1,125,000 additional
shares of the Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that
you are authorized to enter into this Agreement on behalf of the several
Underwriters, and (b) that the several Underwriters are willing, acting
severally and not jointly, to purchase the numbers of Firm Shares set forth
opposite their respective names in Schedule I, plus their pro rata portion of
the Option Shares if you elect to exercise the over-allotment option in whole or
in part for the accounts of the several Underwriters. The Firm Shares and the
Option Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."
Deutsche Bank Securities Inc. ("DBSI") has agreed to reserve
up to 375,000 of the Shares to be purchased by it under this Agreement for sale
to the Company's directors,
<PAGE>
officers, employees and business associates and other parties related to the
Company (collectively, "Participants"), as set forth in the Prospectus under the
heading "Underwriters" (the "Directed Share Program"). The Shares to be sold by
DBSI and its affiliates pursuant to the Directed Share Program are referred to
hereinafter as the "Directed Shares." Any Directed Shares not orally confirmed
for purchase by any Participants by the end of the business day on which this
Agreement is executed will be offered to the public by the Underwriters as set
forth in the Prospectus.
In consideration of the mutual agreements contained herein and
of the interests of the parties in the transactions contemplated hereby, the
parties hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the
Underwriters as follows:
(a) A registration statement on Form S-1 (File No. 333-95461)
with respect to the Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462 (b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means the form of prospectus first filed
with the Commission pursuant to Rule 424(b). Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus."
(b) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement. The Company has
no subsidiaries. The Company is duly qualified to transact business in all
jurisdictions in which the conduct of its business requires such qualification.
(c) The outstanding shares of Common Stock of the Company have
been duly authorized and validly issued and are fully paid and non-assessable;
the Shares to be issued and sold by the Company have been duly authorized and
when issued and paid for as contemplated herein will be validly issued, fully
paid and non-assessable; and no preemptive rights of stockholders exist with
respect to any of the Shares or the issue and sale thereof. Neither the filing
of the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the registration of any shares
of Common Stock.
2
<PAGE>
(d) The authorized and outstanding stock is as set forth under
the caption "Capitalization" in the Prospectus. All of the Shares conform to the
description thereof contained in the Registration Statement. The form of
certificates for the Shares conforms to the corporate law of the jurisdiction of
the Company's incorporation.
(e) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Shares nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and will
conform, to the requirements of the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representatives, specifically for use
in the preparation thereof.
(f) The financial statements of the Company, together with
related notes and schedules as set forth in the Registration Statement, present
fairly the financial position and the results of operations and cash flows of
the Company, at the indicated dates and for the indicated periods. Such
financial statements and related schedules have been prepared in accordance with
generally accepted accounting principles, consistently applied throughout the
periods involved, except as disclosed therein, and all adjustments necessary for
a fair presentation of results for such periods have been made. The summary
financial and statistical data included in the Registration Statement presents
fairly the information shown therein and such data has been compiled on a basis
consistent with the financial statements presented therein and the books and
records of the company.
(g) Ernst & Young LLP who have audited certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent auditors as required by the Act and the Rules and
Regulations.
(h) There is no action, suit, claim or proceeding pending or,
to the knowledge of the Company, threatened against the Company before any
court or administrative agency or otherwise which if determined adversely to
the Company might result in any material adverse change in the earnings,
business, management, operations, condition (financial or otherwise) or
prospects or material properties, assets, or rights of the Company or to
prevent the consummation of the transactions contemplated hereby, except as
set forth in the Registration Statement.
3
<PAGE>
(i) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements (or as described
in the Registration Statement) hereinabove described, subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except those reflected in
such financial statements (or as described in the Registration Statement) or
which would not have a material adverse effect. The Company occupies its
leased properties under valid and binding leases conforming in all material
respects to the description thereof set forth in the Registration Statement.
(j) The Company has filed all federal, state, local and
foreign tax returns which have been required to be filed and has paid all taxes
indicated by said returns and all assessments received by it to the extent that
such taxes have become due and are not being contested in good faith and for
which an adequate reserve for accrual has been established in accordance with
generally accepted accounting principles. All tax liabilities have been
adequately provided for in the financial statements of the Company, and the
Company does not know of any actual or proposed additional material tax
assessments.
(k) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented,
there has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, operations, condition (financial or otherwise), or prospects or
material properties, assets, or rights of the Company, whether or not
occurring in the ordinary course of business, and there has not been any
material transaction entered into or any material transaction that is
probable of being entered into by the Company, other than transactions in the
ordinary course of business and changes and transactions described in the
Registration Statement, as it may be amended or supplemented. The Company has
no material contingent obligations which are not disclosed in the Company's
financial statements which are included in the Registration Statement.
(l) The Company is not or with the giving of notice or lapse
of time or both, will not be, in violation of or in default under its Charter
or By-Laws or under any agreement, lease, contract, indenture or other
instrument or obligation to which it is a party or by which it, or any of its
properties, is bound and which default is of material significance in respect
of the condition, financial or otherwise of the Company or the business,
management, operations, condition (financial or otherwise) or prospects or
material properties, assets, or rights of the Company. The execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated and the fulfillment of the terms hereof will not conflict with
or result in a breach of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company is a party, or of the Charter or By-Laws of
the Company or any order, rule or regulation applicable to the Company of any
court or of any regulatory body or administrative agency or other
governmental body having jurisdiction.
(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be
4
<PAGE>
required by the Commission, the National Association of Securities Dealers, Inc.
(the "NASD") or such additional steps as may be necessary to qualify the Shares
for public offering by the Underwriters under state securities or Blue Sky laws)
has been obtained or made and is in full force and effect.
(n) The Company holds all material licenses, certificates and
permits from governmental authorities which are necessary to the conduct of its
business; and the Company has not infringed any patents, patent rights, trade
names, trademarks or copyrights, which infringement is material to the business
of the Company. The Company knows of no material infringement by others of
patents, patent rights, trade names, trademarks or copyrights owned by or
licensed to the Company.
(o) The Company owns or possesses adequate rights to use all
patents, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names, copyrights or other information (collectively, "Intellectual
Property") which are necessary to conduct its businesses as now or as proposed
to be conducted by it as described in the Registration Statement and Prospectus;
the expiration of any patents, patent rights, trade secrets, trademarks, service
marks, trade names or copyrights would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company except as disclosed in the Registration Statement; the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others with
respect to any Intellectual Property; and the Company has not received any
notice of, and has no knowledge of, any infringement of or conflict with
asserted rights of others with respect to any Intellectual Property which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
to the knowledge of the Company. To the Company's knowledge, none of the patent
rights owned or licensed by the Company are unenforceable or invalid.
(p) The Company possesses such permits, licenses, approvals,
consents and other authorizations (collectively, "Governmental Licenses") issued
by the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by it as described in the
Prospectus; the Company is in compliance with the terms and conditions of all
such Governmental Licenses, except where the failure so to comply would not,
singly or in the aggregate, have a material adverse effect; all of the
Governmental Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such Governmental
Licenses to be in full force and effect would not have a material adverse
effect; and the Company has not received any notice of proceedings relating to
the revocation or modification of any such Governmental Licenses.
(q) Neither the Company, nor to the Company's knowledge, any
of its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares. The Company acknowledges that the Underwriters may engage in passive
market
5
<PAGE>
making transactions in the Shares on The Nasdaq Stock Market in accordance with
Regulation M under the Exchange Act.
(r) The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940, (as amended, the
"1940 Act") and the Rules and Regulations of the Commission thereunder.
(s) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with 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.
(t) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of its business
and the value of its properties and as is customary for companies engaged in
similar industries.
(u) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(v) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's officers,
directors or 5% or greater securityholders, except as set forth in the
Registration Statement.
(w) To the Company's knowledge, each of the licenses, supply
agreements, and research, development and collaboration agreements referred
to in the Registration Statement is legally binding, valid and enforceable
and has not been terminated. The Company is not currently in material default
or violation of any of the above referenced agreements. The Company has no
knowledge of facts or circumstances that could give rise to any material
default, violation or termination of these agreements.
6
<PAGE>
(x) Neither the Company, the Company's products or the
Company's marketing of its products is in violation of any material
regulatory requirements of the United States Food and Drug Administration.
(y) No consent, approval, authorization or order of, or
qualification with, any governmental body or agency, other than those obtained,
is required in connection with the offering of the Directed Shares in any
jurisdiction where the Directed Shares are being offered except for any required
qualification under NASD regulations and state securities or Blue Sky laws.
(z) The Company has not offered, or caused DBSI or its
affiliates to offer, Shares to any person pursuant to the Directed Share Program
with the specific intent to unlawfully influence (i) a customer or supplier of
the Company to alter the customer's or supplier's level or type of business with
the Company, or (ii) a trade journalist or publication to write or publish
favorable information about the Company or its products.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set forth, the
Company agrees to sell to the Underwriters and each Underwriter agrees,
severally and not jointly, to purchase, at a price of $_____ per share, the
number of Firm Shares set forth opposite the name of each Underwriter in
Schedule I hereof, subject to adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be
made in federal (same day) funds against delivery of certificates therefor to
the Representatives for the several accounts of the Underwriters. Such
payment and delivery are to be made through the facilities of the Depository
Trust Company, New York, New York at 10:00 a.m., New York time, on the third
business day after the date of this Agreement or at such other time and date
not later than five business days thereafter as you and the Company shall
agree upon, such time and date being herein referred to as the "Closing
Date." (As used herein, "business day" means a day on which the New York
Stock Exchange is open for trading and on which banks in New York are open
for business and are not permitted by law or executive order to be closed.)
The certificates for the Firm Shares will be delivered in such denominations
and in such registrations as the Representatives requests in writing not
later than the second full business day prior to the Closing Date, and will
be made available for inspection by the Representatives at least one business
day prior to the Closing Date.
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The option granted hereby may be exercised in whole
or in part by giving written notice (i) at any time before the Closing Date and
(ii) only once thereafter within 30 days after the date of this Agreement, by
you, as Representatives of the several Underwriters, to the Company setting
forth the number of Option Shares as to which the several Underwriters are
exercising the option, the names and denominations in which the Option
7
<PAGE>
Shares are to be registered and the time and date at which such certificates are
to be delivered. The time and date at which certificates for Option Shares are
to be delivered shall be determined by the Representatives but shall not be
earlier than three nor later than 10 full business days after the exercise of
such option, nor in any event prior to the Closing Date (such time and date
being herein referred to as the "Option Closing Date"). If the date of exercise
of the option is three or more business days before the Closing Date, the notice
of exercise shall set the Closing Date as the Option Closing Date. The number of
Option Shares to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being purchased as the number of
Firm Shares being purchased by such Underwriter bears to the total number of
Firm Shares, adjusted by you in such manner as to avoid fractional shares. The
option with respect to the Option Shares granted hereunder may be exercised only
to cover over-allotments in the sale of the Firm Shares by the Underwriters.
You, as Representatives of the several Underwriters, may cancel such option at
any time prior to its expiration by giving written notice of such cancellation
to the Company. To the extent, if any, that the option is exercised, payment for
the Option Shares shall be made on the Option Closing Date in Federal (same day)
funds through the facilities of the Depository Trust Company in New York, New
York drawn to the order of the Company.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the public at
the initial public offering price set forth in the Prospectus. The
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option Shares
are purchased pursuant to Section 2 hereof, the Underwriters will offer them to
the public on the foregoing terms.
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the Shares in
accordance with a Master Agreement Among Underwriters entered into by you and
the several other Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters
that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
8
<PAGE>
(b) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto shall
have become effective, (B) of receipt of any comments from the Commission, (C)
of any request of the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, and (D) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the use of the Prospectus or of the institution of
any proceedings for that purpose. The Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending the use of
the Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the
9
<PAGE>
circumstances when it is so delivered, be misleading, or so that the Prospectus
will comply with the law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and,
unless filed as part of the Company's Annual Report on Form 10-K or its
Quarterly Report on Form 10-Q, will advise you in writing when such statement
has been so made available.
(g) Prior to the Closing Date, the Company will furnish to the
Underwriters, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim financial statements of the Company for
any period subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus.
(h) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of 180 days after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of DBSI.
(i) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on The Nasdaq Stock Market.
(j) The Company has caused each officer and director and
specific shareholders of the Company to furnish to you, on or prior to the date
of this agreement, a letter or letters, in form and substance satisfactory to
the Underwriters, pursuant to which each such person shall agree not to offer,
sell, sell short or otherwise dispose of any shares of Common Stock of the
Company or other capital stock of the Company, or any other securities
convertible, exchangeable or exercisable for Common Shares or derivative of
Common Shares owned by such person or request the registration for the offer or
sale of any of the foregoing (or as to which such person has the right to direct
the disposition of) for a period of 180 days after the date that the
Registration Statement is declared effective by the Commission, directly or
indirectly, except with the prior written consent of DBSI ("Lockup Agreements").
(k) The Company shall apply the net proceeds of its sale of
the Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a manner as
would require the Company to register as an investment company under the 1940
Act.
10
<PAGE>
(m) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
for the Common Stock.
(n) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company.
(o) The Company will comply with all applicable securities and
other applicable laws, rules and regulations in each jurisdiction in which the
Directed Shares are offered in connection with the Directed Share Program.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to
the performance of the obligations of the Company under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company; the cost of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary Prospectuses, the
Prospectus, this Agreement, the Underwriters' Selling Memorandum, the
Underwriters' Invitation Letter, the Nasdaq Listing Application, the Blue Sky
Survey and any supplements or amendments thereto; the filing fees of the
Commission; the filing fees and expenses (including legal fees and
disbursements) incident to securing any required review by the NASD of the terms
of the sale of the Shares; the Listing Fee of the Nasdaq Stock Market; and the
expenses, including the fees and disbursements of counsel for the Underwriters,
incurred in connection with the qualification of the Shares under State
securities or Blue Sky laws. The Company agrees to pay all costs and expenses of
the Underwriters, including the fees and disbursements of counsel for the
Underwriters, incident to the offer and sale of Directed Shares of the Common
Stock by the Underwriters to employees and persons having business relationships
with the Company. The Company shall not, however, be required to pay for any of
the Underwriters expenses (other than those related to qualification under NASD
regulation and State securities or Blue Sky laws) except that, if this Agreement
shall not be consummated because the conditions in Section 6 hereof are not
satisfied, or because this Agreement is terminated by the Representatives
pursuant to Section 11 hereof, or by reason of any failure, refusal or inability
on the part of the Company to perform any undertaking or satisfy any condition
of this Agreement or to comply with any of the terms hereof on its part to be
performed, unless such failure to satisfy said condition or to comply with said
terms be due to the default or omission of any Underwriter, then the Company
shall reimburse the several Underwriters for reasonable out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder; but the Company shall
not in any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Option Shares, if any, on the Option
Closing Date are subject to the
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accuracy, as of the Closing Date or the Option Closing Date, as the case may be,
of the representations and warranties of the Company contained herein, and to
the performance by the Company of its covenants and obligations hereunder and to
the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and
any request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that purpose
shall have been taken or, to the knowledge of the Company, shall be contemplated
by the Commission and no injunction, restraining order, or order of any nature
by a Federal or state court of competent jurisdiction shall have been issued as
of the Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of Cooley
Godward LLP, counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters (and stating
that it may be relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement; the Company
is duly qualified to transact business in all jurisdictions in which the conduct
of its business requires such qualification, or in which the failure to qualify
would have a material adverse effect upon the business of the Company.
(ii) The Company has authorized and outstanding
capital stock as set forth under the caption "Capitalization" in the Prospectus;
the authorized shares of the Company's Common Stock have been duly authorized;
the outstanding shares of the Company's Common Stock have been duly authorized
and validly issued and are fully paid and non-assessable; all of the Shares
conform to the description thereof contained in the Prospectus; the certificates
for the Shares, assuming they are in the form filed with the Commission, are in
a form that complies with the laws of the State of Delaware; the shares of
Common Stock, including the Option Shares, if any, to be sold by the Company
pursuant to this Agreement have been duly authorized and will be validly issued,
fully paid and non-assessable when issued and paid for as contemplated by this
Agreement; and no preemptive rights of stockholders exist with respect to any of
the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock or any
securities
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convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Shares or other securities of the Company
included in the Registration Statement.
(iv) The Registration Statement has become effective
under the Act and, to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Act.
(v) The Registration Statement, the Prospectus and
each amendment or supplement thereto comply as to form in all material respects
with the requirements of the Act and the applicable rules and regulations
thereunder (except that such counsel need express no opinion as to the financial
statements and related schedules therein or other financial and statistical
information derived therefrom).
(vi) The statements under the captions "Description
of Capital Stock" and "Shares Eligible for Future Sale" in the Prospectus,
insofar as such statements constitute a summary of documents referred to therein
or matters of law, fairly summarize in all material respects the information
called for with respect to such documents and matters.
(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are not so
filed or described as required. The contracts and documents filed as exhibits
to the Registration Statement and that are summarized in the Registration
Statement or the Prospectus are fairly summarized in all material respects.
(viii) Such counsel knows of no material legal or
governmental proceedings pending or overtly threatened against the Company
except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and
the consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Charter or By-Laws of the Company, or any
agreement or instrument listed as an exhibit to such opinion, filed as an
exhibit to the Registration Statement to which the Company is a party or by
which the Company may be bound.
(x) This Agreement has been duly authorized, executed
and delivered by the Company.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the
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transactions herein contemplated (other than as may be required by the NASD or
as required by State securities and Blue Sky laws as to which such counsel need
express no opinion) except such as have been obtained or made, specifying the
same.
(xii) The Company is not, and will not become, as a
result of the consummation of the transactions contemplated by this Agreement,
and application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
(xiii) Such counsel has reviewed the statements under
the Registration Statement/Prospectus captions "Business--Strategic
Relationships" and "Business--Intellectual Property" of the Registration
Statement and the Prospectus (the "Intellectual Property Portion"). Insofar as
such statements constitute a summary of the Company's license agreements,
obligations and rights, and matters related thereto, such counsel believes them
to fairly, accurately and completely summarize the legal matters, documents and
proceedings relating to such license rights described therein.
In rendering such opinion Cooley Godward LLP may rely as to
matters governed by the laws of states other than California, Delaware, or
federal laws on local counsel in such jurisdictions, provided that in each case
Cooley Godward LLP shall state that they believe that they and the Underwriters
are justified in relying on such other counsel. In addition to the matters set
forth above, such opinion shall also include a statement to the effect that
nothing has come to the attention of such counsel which leads them to believe
that (i) the Registration Statement, at the time it became effective under the
Act (but after giving effect to any modifications incorporated therein pursuant
to Rule 430A under the Act) and as of the Closing Date or the Option Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein or other financial and statistical information
derived therefrom). With respect to such statement, Cooley Godward LLP may state
that their belief is based upon the procedures set forth therein, but is without
independent check and verification.
(c) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of Pennie &
Edmonds LLP, intellectual property counsel for the Company, dated the Closing
Date or the Option Closing Date, as the case may be, addressed to the
Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) The Company is listed on the records of the
United States Patent and Trademark Office as the sole holder of record of each
of the patents listed under the heading
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"Patents Held by the Company" on a schedule provided by Pennie & Edmonds LLP
(the "Patents") and each of the patent applications listed under the heading
"U.S. Patent Applications Submitted by the Company" on such schedule (the "U.S.
Applications").
(ii) Such counsel has reviewed the statements under
the Registration Statement/Prospectus captions "Risk Factors--If we are not able
to adequately protect our intellectual property, our competitive position would
be banned," "Risk Factors--We may be subject to intellectual property litigation
which could be costly and time-consuming," and "Business--Intellectual Property"
of the Registration Statement and the Prospectus (the "Intellectual Property
Portion"). Insofar as such statements constitute a summary of the Company's
Patents and Applications and matters related thereto, such counsel believes them
to fairly, accurately and completely summarize the legal matters, documents and
proceedings relating to the Patents and Applications described therein.
(iii) Such counsel has no knowledge of any facts that
(i) would lead such counsel to conclude that any of the Patents are invalid or
unenforceable; or (ii) that any patent that may ultimately issue from one or
more of the Applications would be invalid or unenforceable.
(iv) Such counsel is not aware of any material
defects of form in the preparation or filing of the Applications on behalf of
the Company. The Applications are being diligently pursued by the Company.
(v) Such counsel knows of no pending or threatened
action, suit, proceeding or claims by governmental authorities or others that
the Company is infringing or otherwise violates any patent, licenses or trade
secrets.
(vi) Such counsel is not aware of any pending or
threatened actions, suits, proceedings or claim by others challenging the
validity or scope of the Applications or the Patents.
(vii) Such counsel is not aware of any infringement
on the part of any third-party of the Patents or Applications of the Company.
(viii) Nothing has come to the attention of such
counsel which causes such counsel to believe that the information contained in
the Intellectual Property Portion of (a) the Registration Statement, or any
amendments thereof contained or contains an untrue statement of a material fact
or omitted or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or of (b) the
Prospectus, or any amendments thereof, contained or contains an untrue statement
of a material fact or omitted or omits 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.
(d) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of Buc &
Beardsley, regulatory counsel for the Company, dated the Closing Date or the
Option Closing Date, as the case may be, addressed to
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<PAGE>
the Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) Such counsel has reviewed the statements under
the Registration Statement/Prospectus captions "Risk Factors--We are subject to
extensive government regulation, and failure to obtain FDA approvals would delay
or prevent commercialization of our drug candidates," and "Business--Government
Regulation" of the Registration Statement and the Prospectus (the "Regulatory
Portion"). Insofar as such statements constitute a summary of the Company's
position regarding regulatory and related matters, such counsel believes them to
fairly, accurately and completely summarize the legal matters, documents and
proceedings relating to such regulatory matters described therein.
(ii) Nothing has come to the attention of such
counsel which causes such counsel to believe that the information contained in
the Regulatory Portion of (a) the Registration Statement, or any amendments
thereof contained or contains an untrue statement of a material fact or omitted
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or of (b) the Prospectus, or any
amendments thereof, contained or contains an untrue statement of a material fact
or omitted or omits 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.
(e) The Representatives shall have received from Latham &
Watkins, counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect specified
in subparagraphs (ii), (iii), (iv), (ix) and (xi) of Paragraph (b) of this
Section 6, and that the Company is a duly organized and validly existing
corporation under the laws of the State of Delaware. In rendering such opinion
Latham & Watkins may rely as to all matters governed other than by the laws of
the State of Delaware or Federal laws on the opinion of counsel referred to in
Paragraph (b) of this Section 6. In addition to the matters set forth above,
such opinion shall also include a statement to the effect that nothing has come
to the attention of such counsel which leads them to believe that (i) the
Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date
or the Option Closing Date, as the case may be, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Latham &
Watkins may state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.
(f) The Representatives shall have received at or prior to the
Closing Date from Latham & Watkins a memorandum or summary, in form and
substance satisfactory to the
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Representatives, with respect to the qualification for offering and sale by the
Underwriters of the Shares under the State securities or Blue Sky laws of such
jurisdictions as the Representatives may reasonably have designated to the
Company.
(g) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option Closing Date, as the case may be, in
form and substance satisfactory to you, of Ernst & Young LLP confirming that
they are independent auditors within the meaning of the Act and the applicable
Rules and Regulations thereunder adopted by the SEC and stating that in their
opinion the financial statements examined by them and included in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the related Rules and
Regulations adopted by the SEC; and containing such other statements and
information as is ordinarily included in accountants' "comfort letters" to
Underwriters with respect to the financial statements and certain financial and
statistical information contained in the Registration Statement and Prospectus.
(h) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate of the Chief
Executive Officer and Principal Finance and Accounting Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents as follows:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been taken
or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the
Company contained in Section 1 hereof are true and correct as of the Closing
Date or the Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant
to Rules 424 or 430A under the Act have been made;
(iv) He or she has carefully examined the
Registration Statement and the Prospectus and, in his or her opinion, as of the
effective date of the Registration Statement, the statements contained in the
Registration Statement were true and correct, and such Registration Statement
and Prospectus did not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not misleading, and
since the effective date of the Registration Statement, no event has occurred
which should have been set forth in a supplement to or an amendment of the
Prospectus which has not been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or otherwise,
of the Company or the earnings,
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business, management, operations, condition (financial or otherwise) or
prospects or material properties, assets or rights of the Company, whether or
not arising in the ordinary course of business.
(i) The Company shall have furnished to the Representatives
such further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(j) The Firm Shares and Option Shares, if any, have been
approved for listing upon notice of issuance on the Nasdaq Stock Market.
(k) The Lockup Agreements described in Section 4(j) are in
full force and effect.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if they are
in all material respects satisfactory to the Representatives and to Latham &
Watkins, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representatives by notifying the Company of such termination in writing
or by telegram at or prior to the Closing Date or the Option Closing Date, as
the case may be.
In such event, the Company and the Underwriters shall not be
under any obligation to each other (except to the extent provided in Sections 5
and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion
of the Shares required to be delivered as and when specified in this Agreement
are subject to the conditions that at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees:
(1) to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of the
Act, against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any
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Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
(ii) the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
(iii) any act or failure to act, or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Shares or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based upon
matters covered by clause (i) or (ii) above (PROVIDED, that the Company shall
not be liable under this clause (iii) to the extent that it is determined in a
final judgment by a court of competent jurisdiction that such loss, claim,
damage, liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct); provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof.
(2) to reimburse each Underwriter and each such
controlling person upon demand for any legal or other out-of-pocket expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage or liability,
action or proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Shares, whether or not such Underwriter or
controlling person is a party to any action or proceeding. In the event that it
is finally judicially determined that the Underwriters were not entitled to
receive payments for legal and other expenses pursuant to this subparagraph, the
Underwriters will promptly return all sums that had been advanced pursuant
hereto.
(b) Each Underwriter severally and not jointly will 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 Act, against any losses, claims, damages
or liabilities to which the Company or any such director, officer, or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or (ii) the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made or the failure by an Underwriter to comply with the Prospectus
delivery requirements of the Act; and will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer, or
controlling person in connection with investigating or defending any such
loss, claim, damage, liability, action or proceeding; provided, however, that
each Underwriter will be liable in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance upon
and in conformity with written information furnished to the Company by or
through the Representatives
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specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a), (b) or (c) shall be available to
any party who shall fail to give notice as provided in this Section 8(d) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a), (b) or (c). In case any such proceeding shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them or (iii) the
indemnifying party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees and expenses of more than
one separate firm for all such indemnified parties. Such firm shall be
designated in writing by you in the case of parties indemnified pursuant to
Section 8(a) or (b) and by the Company in the case of parties indemnified
pursuant to Section 8(c). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) The Company agrees to indemnify and hold harmless DBSI and
its affiliates and each person, if any, who controls DBSI or its affiliates
within the meaning of either
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Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) (i) caused by any untrue
statement or alleged untrue statement of a material fact contained in any
material prepared by or with the consent of the Company for distribution to
Participants in connection with the Directed Share Program, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; (ii)
caused by the failure of any Participant to pay for and accept delivery of
Directed Shares that the Participant has agreed to purchase; or (iii) related
to, arising out of, or in connection with the Directed Share Program other than
losses, claims, damages or liabilities (or expenses relating thereto) that are
finally judicially determined to have resulted from the bad faith or gross
negligence of DBSI.
(e) To the extent the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings 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 Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to 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 Company
on the one hand or the Underwriters on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 8(f) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
8(f). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8(f) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the
21
<PAGE>
provisions of this subsection (f), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section 8(f)
to contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this Section 8
hereby consents to the jurisdiction of any court having jurisdiction over any
other contributing party, agrees that process issuing from such court may be
served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company, you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representatives, shall not have procured such
other Underwriters, or any others, to purchase the Firm Shares or Option Shares,
as the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which
22
<PAGE>
such defaulting Underwriter or Underwriters failed to purchase, or (b) if the
aggregate number of shares of Firm Shares or Option Shares, as the case may be,
with respect to which such default shall occur exceeds 10% of the Firm Shares or
Option Shares, as the case may be, covered hereby, the Company or you as the
Representatives of the Underwriters will have the right, by written notice given
within the next 36-hour period to the parties to this Agreement, to terminate
this Agreement without liability on the part of the non-defaulting Underwriters
or of the Company except to the extent provided in Section 8 hereof. In the
event of a default by any Underwriter or Underwriters, as set forth in this
Section 9, the Closing Date or Option Closing Date, as the case may be, may be
postponed for such period, not exceeding seven days, as you, as Representatives,
may determine in order that the required changes in the Registration Statement
or in the Prospectus or in any other documents or arrangements may be effected.
The term "Underwriter" includes any person substituted for a defaulting
Underwriter. Any action taken under this Section 9 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows:
If to the Underwriters, to:
Deutsche Bank Securities Inc.
One South Street
Baltimore, Maryland 21202
Attention:
with a copy to:
Deutsche Bank Securities Inc.
31 West 52nd Street
New York, New York 10019
Attention: General Counsel
If to the Company, to:
IntraBiotics Pharmaceuticals, Inc.
1255 Terra Bella Avenue
Mountain View, California 94043
Attention: Kenneth J. Kelley
11. TERMINATION.
(a) This Agreement may be terminated by you by notice to the
Company at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any
23
<PAGE>
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company or the earnings, business, management, operations, condition
(financial or otherwise) or prospects or material properties, assets, or
rights of the Company, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or
crisis or change in economic or political conditions if the effect of such
outbreak, escalation, declaration, emergency, calamity, crisis or change on
the financial markets of the United States would, in your reasonable
judgment, make it impracticable or inadvisable to market the Shares or to
enforce contracts for the sale of the Shares, (iii) suspension of trading in
securities generally on the New York Stock Exchange or the American Stock
Exchange or limitation on prices (other than limitations on hours or numbers
of days of trading) for securities on either such Exchange, (iv) the
enactment, publication, decree or other promulgation of any statute,
regulation, rule or order of any court or other governmental authority which
in your opinion materially and adversely affects or may materially and
adversely affect the business or operations of the Company, (v) declaration
of a banking moratorium by United States or New York State authorities, (vi)
any downgrading, or placement on any watch list for possible downgrading, in
the rating of the Company's debt securities by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g)
under the Exchange Act); (vii) the suspension of trading of the Company's
common stock by the Nasdaq Stock Market, the Commission, or any other
governmental authority, or (viii) the taking of any action by any
governmental body or agency in respect of its monetary or fiscal affairs
which in your reasonable opinion has a material adverse effect on the
securities markets in the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of
the Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that
the only information furnished or to be furnished by any Underwriter to the
Company for inclusion in any Prospectus or the Registration Statement consists
of the information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), legends required by
Item 502(d) of Regulation S-K under the Act and the information under the
caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain
24
<PAGE>
in full force and effect regardless of (a) any termination of this Agreement,
(b) any investigation made by or on behalf of any Underwriter or controlling
person thereof, or by or on behalf of the Company or its directors or officers
and (c) delivery of and payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
25
<PAGE>
If the foregoing letter is in accordance with your
understanding of our agreement, please sign and return to us the enclosed
duplicates hereof, whereupon it will become a binding agreement among the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
INTRABIOTICS PHARMACEUTICALS, INC.
By:
-------------------------------------
Kenneth J. Kelley
President and Chief Executive Officer
26
<PAGE>
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
DEUTSCHE BANK SECURITIES INC.
- ---------------------------------------------------
- ---------------------------------------------------
As Representatives of the several
Underwriters listed on Schedule I
By: Deutsche Bank Securities Inc.
By:
-------------------------------------
Authorized Officer
27
<PAGE>
SCHEDULE I
Schedule of Underwriters
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
- ---------------------------------------------------------- --------------------------------------------------------
<S> <C>
Deutsche Bank Securities Inc.
Warburg Dillon Read LLC
SG Cowen Securities Corporation
Adams Harkness & Hill, Inc.
Total ----------------
----------------
</TABLE>
28
<PAGE>
SCHEDULE III
SCHEDULE OF OPTION SHARES
<TABLE>
<CAPTION>
Maximum Number Percentage of
of Option Shares Total Number of
Name of Seller to be Sold Option Shares
- ---------------------------------------- -------------------------------------- ---------------------------------------
<S> <C> <C>
------- ---
Total ------- 100%
---
</TABLE>
29
<PAGE>
Exhibit 5.1
[Cooley Godward LLP Letterhead]
March 16, 2000
IntraBiotics Pharmaceuticals, Inc.
1255 Terra Bella Avenue
Mountain View, CA 94043
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by IntraBiotics Pharmaceuticals, Inc. (the "Company") of a
Registration Statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission, including a related prospectus filed with
the Registration Statement (the "Prospectus"), covering an underwritten public
offering of up to 7,500,000 shares of the Company's common stock, including
1,125,000 shares of common stock that may be sold pursuant to the exercise of an
over-allotment option.
In connection with this opinion, we have examined and relied upon the
Registration Statement and related Prospectus, the Company's Amended and
Restated Certificate of Incorporation and Bylaws, and the originals or copies
certified to our satisfaction of such records, documents, certificates,
memoranda and other instruments as in our judgment are necessary or appropriate
to enable us to render the opinion expressed below.
On the basis of the foregoing, and in reliance thereon, we are of the
opinion that the Shares to be sold by the Company, when sold and issued in
accordance with the Registration Statement and the related Prospectus will be
validly issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in
the Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
Cooley Godward LLP
By /s/ LAURA A. BEREZIN
- ------------------------------------
Laura A. Berezin
<PAGE>
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
EXHIBIT 10.5
DEVELOPMENT SUPPLY AGREEMENT
regarding
IB-367
between
Ferring Peptide Production AB
P.O. Box 30047, Soldattorpsvagen 5
S-20061 Malmo
Sweden
and
Polypeptide Laboratories A/S
Herredsvejen 2
3400 Hillerod
Denmark
and
IntraBiotics Pharmaceuticals, Inc.
816 Kifer Road
Sunnyvale
California 94086
USA
<PAGE>
THIS AGREEMENT is entered into on the 3rd day of January, 1997, between
POLYPEPTIDE LABORATORIES A/S, a Danish company incorporated under the laws of
Denmark, with its registered offices at Herredsvejen 2, 3400 Hillerod, Denmark
and FERRING PEPTIDE PRODUCTION AB, a Swedish company incorporated under the laws
of Sweden, with its registered office at Soldattorpsvagen 5, S-20061 Malmo,
Sweden (hereinafter jointly referred to as POLYPEPTIDE), and INTRABIOTICS
PHARMACEUTICALS, INC., a company incorporated in the state of Delaware under the
laws of the United States, with its registered offices at 816 Kifer Road,
Sunnyvale, California 94086, USA (hereinafter referred to as INTRABIOTICS).
RECITALS
WHEREAS, POLYPEPTIDE has developed or acquired patented and
non-patented inventions, manufacturing and testing practices and procedures, and
know-how, relating to the manufacture and testing of peptides, and owns
production facilities for large scale manufacturing of pharmaceutical peptides;
WHEREAS, INTRABIOTICS has the priority rights to IB-367 (hereinafter
referred to as "Product"), the specification of which is described in Annex 1
(the "Specification");
WHEREAS, INTRABIOTICS desires to have POLYPEPTIDE develop a [ * ]
manufacturing process for the Product and to enter into a Supply Agreement with
POLYPEPTIDE for the manufacture and supply of IB-367 for commercial use,
NOW THEREFORE, the parties hereto agree as follows:
As used herein, "Affiliate" or a Party shall mean an entity: (i) in
which at least 50 percent of the voting share or other means of control of such
entity are owned or controlled by such Party, or (ii) which owns or controls at
least 50 percent of the voting shares of such Party, or (iii) in which at least
50 percent of such ownership or control is owned or controlled by an entity
owning or controlling at least 50 percent of the voting shares of such Party.
AGREEMENT
1. DEVELOPMENT PROJECT
1.1 POLYPEPTIDE will develop a commercial scale solution phase
manufacturing process which will yield Product according to the Specification
contained in Annex 1 (the "Specification"). The Specification of the Product may
be changed from time to time as directed by INTRABIOTICS. Significant changes to
the Specification may result in cost and timing changes to the project. The
parties will negotiate in good faith and make only those necessary changes of
the Time Schedule and/or the Compensation payable to POLYPEPTIDE which are a
direct consequence of the change in the Specification.
1.2 POLYPEPTIDE will conduct the development project in four phases and
in accordance with the Time Schedule set out in the project plan (Annex 2). Each
phase will have a number of milestones as described in Annex 3.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
1.
<PAGE>
1.3 PHASE I; will consist of development of the strategy and the
method for [ * ] of the Product, with a [ * ] process ("Process"). In the
course of Phase I, POLYPEPTIDE will produce [ * ] of Product, whereof [ * ]
shall be delivered to INTRABIOTICS and the remaining [ * ] shall be used by
POLYPEPTIDE for [ * ]. Phase I will be completed [ * ] based on signing of
this agreement on or before 3 January 1997.
1.4 PHASE II; will consist of development and validation of [ * ] of
the Product, preparing of the necessary documentation (including
specifications for raw materials or intermediates, batch records and
in-process controls) and scaling up of the Process. In the course of scaling
up the Process POLYPEPTIDE shall deliver to INTRABIOTICS [ * ] Product for
clinical trials. The [ * ] will be in accordance with [ * ]. The Product for
clinical trials shall be delivered in the amount of [ * ] in [ * ].
Furthermore [ * ] will prepare and maintain Drug Master Files ("DMF") for the
purpose of the IND filing of the Product. [ * ], (as supportive data), will
be conducted by POLYPEPTIDE with Product manufactured in this Phase II.
1.5 PHASE III; will consist of production and delivery of at least
[ * ]manufactured in [ * ] consecutive conforming batches of at least [ * ]
each utilising the final production process for registration [ * ]. The exact
batch sizes to be mutually agreed upon between the parties but in the absence
of agreement, the batch size shall be [ * ]. [ * ]. POLYPEPTIDE will with
regard to technology and equipment be able to scale up the batch size to at
least [ * ] for later commercial use.
1.6 PHASE IV; will consist of [ * ] in accordance with the
Specification and the then current ICH guidelines and the compilation of the
DMF for registration purpose.
1.7 INTRABIOTICS will provide to POLYPEPTIDE existing analytical
methods for testing the Product and a reference sample. POLYPEPTIDE shall use
the analytical methods as outlined in the Specification subject to
modifications to be agreed during the project.
2. COMPENSATION
INTRABIOTICS will pay POLYPEPTIDE upon completion of each milestone as
agreed and set out in Annex 3. The total sum for each phase amounts to:
<TABLE>
<S> <C> <C>
Phase I USD [ * ]
Phase II USD [ * ]
Phase III USD [ * ] (based on delivery of [ * ] of the Product)
Phase IV USD [ * ]
</TABLE>
Payments under this Development Supply Agreement will be made by wire
transfer within [ * ] from the date of completion of the respective milestone
and upon receipt of a corresponding invoice to an account indicated by
POLYPEPTIDE.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
2.
<PAGE>
3. REPORTS AND VISITS
During each phase of the development project, POLYPEPTIDE, will make a
monthly status report to INTRABIOTICS by fax with originals by mail (Att.:
Senior Director of Pharmaceutical Development). On a quarterly basis a meeting
will be conducted between the parties to discuss the progress of the development
project. Upon reasonable notice, POLYPEPTIDE will receive visitors from
INTRABIOTICS or another company authorised by INTRABIOTICS to discuss with them
any issue which may arise in connection with the development project.
4. DELAYS OF THE DEVELOPMENT PROJECT
4.1 POLYPEPTIDE acknowledges that in light of the time schedule of the
clinical trial and Product registration, timely completion of the development
project is of essential importance to INTRABIOTICS and POLYPEPTIDE shall use its
best efforts to complete the project according to the Time Schedule in Annex 2.
4.2 If any unforeseen problem arises which may delay the completion of
a phase, POLYPEPTIDE will promptly inform INTRABIOTICS of such problem and
provide its best estimate for the completion of the affected development phase.
If necessary, POLYPEPTIDE will employ [ * ] outside specialists (subject to
confidentiality undertakings pursuant to Section 10) and do its best to overcome
the problem and achieve the timely completion of the development project.
5. OWNERSHIP OF INTELLECTUAL PROPERTY
5.1 [ * ] shall own and will have [ * ] and will own [ * ] relating
to the [ * ] or its external advisors in the course of [ * ]. All [ * ] will
be paid by [ * ] will direct all [ * ]. In order to [ * ] will ensure that
the [ * ] is [ * ], and execute such documents, including but not limited to
[ * ], as are necessary for [ * ]. [ * ] will supply to [ * ] copies of [ * ]
on a quarterly basis. Such reports shall also [ * ] is entitled to [ * ].
5.2 The DMF developed based on the facilities, technology and knowledge
of POLYPEPTIDE is the property of [ * ], which is only permitted to make use of
the DMF [ * ].
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
3.
<PAGE>
6. PRODUCTION, CGMP AND QUALITY CONTROL
6.1 GMP PRODUCTION:
POLYPEPTIDE will manufacture the Product in phases [ * ] of the
development project according to current Good Manufacturing Practice guidelines
("cGMP") as described in the Code of Federal Regulations, Title 21, Part 211 (21
CFR 211) as applicable to Bulk Pharmaceutical Chemicals. Furthermore, [ * ] will
authorise the United States Food and Drug Administration ("FDA") and any other
regulatory agency around the world to review the Drug Master File in support of
the Product registration applications. [ * ] reserves the right to review the
DMF prior to its submission to the FDA. If during the course of this contract
POLYPEPTIDE is inspected by FDA, it will promptly inform INTRABIOTICS that such
inspection has taken place and supply a copy of any FDA Form 483, in the form
that would be available under the Freedom of Information Act, and all other
documentation applicable to the manufacturing of the Product.
6.2 ACTIVE DRUG SUBSTANCE
(a) POLYPEPTIDE will procure, test, and release the necessary
raw material ingredients for the manufacturing of each batch/lot of bulk drug
substance according to the Specification.
(b) Certificates of Analysis, copies of Batch Records for
manufacturing, and all Release Documents for items supplied to INTRABIOTICS must
be submitted prior to the receipt of the materials at INTRABIOTICS or its
designee, unless an alternative procedure has been agreed in writing between the
parties.
6.3 TESTING
(a) POLYPEPTIDE is responsible for [ * ]. Testing shall
conform to the Specification and current specifications in the United States
Pharmacopoeia ("USP") or the National Formulary (NF), or the European
Pharmacopoeia if available and/or internal specifications. INTRABIOTICS reserves
the right to review and approve all such specifications prior to their use in
the production of intermediates or bulk drug substance. Such approval shall not
be unreasonably withheld.
(b) POLYPEPTIDE and INTRABIOTICS agree that in the event of
unresolved inter-laboratory differences, a mutually agreed upon independent
testing facility shall resolve said discrepancies.
(c) All testing laboratories shall have an acceptable retest
and re-sampling procedure on file which is consistent with the Specification and
meets current cGMP laboratory guidelines.
(d) The testing laboratory shall be equipped with sufficient
equipment which is maintained in a calibration program adequate to perform
required testing.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
4.
<PAGE>
(e) All methods used to evaluate and release drug substance
shall be validated for use or conform to [ * ]. All validation procedures
shall be in accordance with ICH guidelines.
(f) POLYPEPTIDE will conduct and furnish the appropriate
inspection, testing and release documents for the following items as part of the
batch record, or minimally reference these documents in the batch record:
- [ * ]
- [ * ]
- [ * ]
- [ * ]
- [ * ]
- [ * ].
6.4 LABELLING
(a) POLYPEPTIDE shall label each container of bulk drug
substance according to the Specification including manufacturer name, name of
product, product code, storage temperature, expiration date (if available),
and quantity and number of containers. Each container will carry a caution
statement as required by the applicable regulations in the country of
shipping, transit and destination. INTRABIOTICS reserves the right to review
and approve the master sample of the bulk drug container labels prior to
their use.
(b) Each container will contain a status label such as "IN
QUARANTINE" or "RELEASED" etc.
(c) Copies of labels used to label the bulk container will be
kept as part of the batch record.
6.5 POLYPEPTIDE will maintain reserve samples for each lot of bulk
drug substance sufficient to complete all Certificate of Analysis testing [ * ]
times. Reserve samples shall be stored at the temperature recommended in the
Specification, or if no recommendation, at [ * ]. Samples to be stored by
POLYPEPTIDE for [ * ] unless otherwise agreed between the parties in writing.
6.6 LOT INFORMATION:
(a) POLYPEPTIDE will provide a copy of all information and
records relating to the batch/lot (e.g., expected lot size, yield,
manufacturing deviations or rework).
(b) INTRABIOTICS will have the right to review and/or audit
all batch records and test and release data prior to acceptance of the material.
(c) Changes to manufacturing parameters or specifications that
may impact the quality or integrity of the Product shall be subject to review
and approval by the INTRABIOTICS QA/QC unit prior to shipment to INTRABIOTICS.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
5.
<PAGE>
6.7 MASTER BATCH RECORDS:
(a) POLYPEPTIDE will prepare Master Batch Records to include
directions in sufficient detail to manufacture the bulk drug substance under
cGMP guidelines. INTRABIOTICS reserves the right to review and approve the
Master Batch Records prior to their use in the production of intermediates or
bulk drug substance.
(b) POLYPEPTIDE will notify INTRABIOTICS of proposed
changes to the Master Batch Record in advance of the proposed implementation.
A verbal telephone call outlining significant changes to responsible person
is acceptable, but shall be confirmed in writing; telefax transmission is
acceptable. INTRABIOTICS acceptance or rejection of the proposed changes will
be provided in writing before implementation; telefax transmission is
acceptable.
(c) INTRABIOTICS shall be notified about proposed
deviations in a timely manner. INTRABIOTICS will respond to proposed
deviations in writing; telefax transmission is acceptable.
(d) Master Batch Record changes shall be finalised in typed
written format and approved in writing by representatives of both POLYPEPTIDE
and INTRABIOTICS.
6.8 MANUFACTURING:
(a) POLYPEPTIDE will provide qualified labour to manufacture
the Product according to approved Master Batch Records, and in full compliance
with the Specification and cGMP rules and regulations. Training records for all
labour utilised shall be made available for INTRABIOTICS' review upon written
requested.
(b) Upon request of INTRABIOTICS, POLYPEPTIDE will allow to
have a QA audit of the production operation while in process and a complete
review of all documentation pertaining to the manufacture and test of the
Product. Regular audits of POLYPEPTIDES cGMP compliance status will also be
allowed with adequate advance notice. INTRABIOTICS reserves the right to retain
third party auditors to perform these audits if necessary.
6.9 STORAGE:
(a) POLYPEPTIDE will store the bulk drug Product according to
the Specification, [ * ] for up to [ * ] after release to INTRABIOTICS.
6.10 SHIPMENT:
(a) POLYPEPTIDE will furnish the shipping containers according
to the Specification.
(b) POLYPEPTIDE will use its best efforts to deliver the
Product within [ * ] of release.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
6.
<PAGE>
(c) POLYPEPTIDE may at the request of INTRABIOTICS prepare one
set of pre-delivery samples to INTRABIOTICS or INTRABIOTICS' designated party.
(d) INTRABIOTICS will communicate to POLYPEPTIDE the shipping
address in writing at least 30 days prior to the delivery date.
(e) All shipments must be sent to the above address by
overnight courier (24 hours delivery) under [ * ] (Incoterms 1990) delivery
terms unless otherwise agreed.
6.11 The responsibility of each of the parties concerning Quality
Assurance and Quality Control matters is specified in Annex 4.
6.12 (a) INTRABIOTICS shall be deemed to have accepted delivery of
Product supplied hereunder unless INTRABIOTICS shall have notified POLYPEPTIDE
of any non-conformity in respect of a shipment within [ * ] following
INTRABIOTICS' receipt of same.
(b) Any claim of nonconformity hereunder shall be accompanied
by a report of analysis of the allegedly nonconforming material prepared by or
on behalf of INTRABIOTICS. If POLYPEPTIDE confirms INTRABIOTICS' claim, of
nonconformity, POLYPEPTIDE shall within [ * ] from POLYPEPTIDES confirmation of
nonconformity replace the nonconforming goods with conforming goods to
INTRABIOTICS. Pursuant to written directions from POLYPEPTIDE, INTRABIOTICS
shall either return the nonconforming goods to POLYPEPTIDE, or destroy same,
each [ * ].
(c) In case of disagreement between the parties regarding the
conformity or nonconformity of a delivery of the Product, the parties shall
refer the matter for review and/or analysis and final settlement to an
independent expert laboratory to be agreed by both of them. The costs of such
expertise and analysis shall be [ * ].
7. COMMERCIAL PURCHASE AND SUPPLY
If INTRABIOTICS decides to use the Process for producing the Product
for commercial sale, INTRABIOTICS agrees to use POLYPEPTIDE as the primary
supplier of the Product under the terms of the Purchase/Supply Agreement entered
into on the date hereof ("Purchase/Supply Agreement").
8. EFFECTIVE DATE, EXPIRATION AND TERMINATION
8.1 This Agreement becomes effective on the day of signature.
8.2 This Agreement will expire [ * ] after [ * ] that the DMF is ready
for submission to FDA for registration purposes provided that POLYPEPTIDE will
complete any ongoing work required for registration. In case INTRABIOTICS after
expiration of this Agreement decides not to continue the registration process of
the Product INTRABIOTICS shall immediately notify POLYPEPTIDE and POLYPEPTIDE
shall have no obligation to continue any such ongoing work for registration.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
7.
<PAGE>
8.3 In case INTRABIOTICS is in need of further Product after the
completion of this agreement but before the approval by the United States Food
and Drug Administration such Product shall be delivered by POLYPEPTIDE under the
terms of this agreement, [ * ].
8.4 Each party may terminate this Agreement by written notice if the
other party is breaching materials terms of this Agreement and does not remedy
such breach within [ * ] after receiving written notice specifying the breach
from the non-breaching party.
8.5 If POLYPEPTIDE has not met the [ * ] or if commercial, clinical, or
toxicological data presented by documentation show that further progress on the
development project cannot be commercially justified by INTRABIOTICS,
INTRABIOTICS may terminate this Agreement by written notice effective [ * ] from
the date of receipt by POLYPEPTIDE. In this event, INTRABIOTICS will pay to
POLYPEPTIDE [ * ] plus all costs [ * ].
8.6 Clauses 5.1, 5.2, 6.1, 6.5, 7, 8.3, 10 and 11 will survive the
expiration or termination of this agreement.
9. WARRANTIES
POLYPEPTIDE warrants that it has the necessary permits, facilities,
knowledge, specialists, and personnel for the manufacture of the Product
(including the scale-up) pursuant to the terms of this Agreement, including that
POLYPEPTIDE is registered with the US FDA as a manufacturer of bulk substances.
POLYPEPTIDE warrants that all Product supplied to INTRABIOTICS pursuant
to this Agreement shall be manufactured, stored and shipped in accordance with
the applicable Specifications and Master Batch Record and in compliance with all
applicable laws and regulations, including cGMP regulations.
10. CONFIDENTIALITY
This Clause shall replace any prior confidentiality agreement entered
into between the parties INTRABIOTICS and POLYPEPTIDE concerning IB-367.
10.1 Both POLYPEPTIDE and INTRABIOTICS mutually acknowledge and
recognise the valuable and proprietary nature of POLYPEPTIDE Confidential
Information and INTRABIOTICS Confidential Information and agree that the
Confidential Information of the other party shall remain confidential
throughout the term of this Agreement, and until 5 years after its
termination. In this regard, the parties agree to receive and maintain the
Confidential Information of the other party in confidence and to refrain from
any use thereof, in whole or in part, except for the express purposes
authorised by this Agreement.
10.2 In recognition of the proprietary nature and value of the
Confidential Information and the likelihood of loss of business by the other
party in the event of unauthorised disclosure of its Confidential Information,
the parties agree that the obligations of the Paragraph shall continue unabated
regardless of termination of this Agreement for any reason.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
8.
<PAGE>
10.3 INTRABIOTICS and POLYPEPTIDE may disclose such Confidential
Information of the other party as is necessary or appropriate in order to have
qualified employees act hereunder. However, no disclosure shall be made without
taking suitable steps to assure that such employee is bound under the
confidentiality requirements at least equal in scope to those of this Agreement.
All reasonable steps shall be taken to assure that the disclosure of the
Confidential Information of the other party to any employee will be limited to
those having a need to know to fulfil the terms and conditions of this
Agreement. Further the receiving party will take all reasonable steps to assure
that its employees will maintain the confidential nature of the other's
Confidential Information. In case external resources are being used, the
provisions for employees also apply for such external resources.
10.4 Neither party shall be obligated or required to maintain in
confidence any information, even though deemed by the disclosing party to be its
Confidential Information, for which it can be demonstrated by competent
documentary evidence that it was:
(a) In the public knowledge prior to the earliest disclosure
made between the parties at any time, whether before, during or after the
effective date of this Agreement; or
(b) In the possession of the receiving party without binder of
secrecy prior to the earliest disclosure made between the parties at any time,
whether during or before the effective date of this Agreement; or
(c) While originally Confidential Information, subsequently is
received without binder of secrecy from a third party who is free to disclose
the information, as of the date of such third party disclosure; or
(d) While originally Confidential Information, and
subsequently becomes part of the public knowledge through no fault of the
receiving party; or
(e) Independently developed by the receiving party's employees
or agents provided that those employees or agents had no access to any
corresponding Confidential Information of the disclosing party received
hereunder.
10.5 The parties may disclose Confidential Information pursuant to an
order of a competent court or administrative agency, provided that the party
subject to such order has informed the other party thereof, and has used
reasonable efforts to limit the scope of the disclosure and to obtain
confidential treatment by the court or administrative agency of Confidential
Information disclosed pursuant to such order.
10.6 INTRABIOTICS may disclose Confidential Information to potential
and established licensees of the Product, potential and established investors in
INTRABIOTICS, and to other relevant business partners under a separate
confidentiality agreement. However, no disclosure shall be made without taking
suitable steps to assure that such receiving party is bound under the
confidentiality requirements at least equal in scope to those of this Agreement.
10.7 The parties may disclose Confidential Information to the United
States Food and Drug Administration or such other relevant regulatory agency
world-wide in the course of seeking regulatory approval for the Product.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
9.
<PAGE>
11. PRODUCT LIABILITY AND INDEMNIFICATIONS
11.1 INTRABIOTICS shall indemnify, defend and hold POLYPEPTIDE and its
agents, employees and directors (the "POLYPEPTIDE Indemnitees") harmless from
and against any and all liability, damage, loss, cost or expense (including
reasonable attorneys' fees) arising out of third party claims or suits resulting
from the use, sale or promotion of Product or a product containing Product by
INTRABIOTICS, its sublicensees, distributors or agents, except to the extent
that such claims or suits result from negligence or intentional misconduct of
POLYPEPTIDE or a POLYPEPTIDE Indemnitee in the manufacture of the Product. Upon
assertion of such claim or suit, the POLYPEPTIDE Indemnitees shall promptly
notify INTRABIOTICS thereof and INTRABIOTICS shall appoint counsel reasonably
acceptable to the POLYPEPTIDE Indemnitees to represent the POLYPEPTIDE
Indemnitees with respect to any claim or suit for which indemnification is
sought. The POLYPEPTIDE Indemnitees shall not settle any such claim or suit
without the prior written consent of INTRABIOTICS, unless they shall have first
waived their rights to indemnification hereunder.
11.2 POLYPEPTIDE shall indemnify, defend and hold INTRABIOTICS and its
agents, employees and directors (the "INTRABIOTICS Indemnitees") harmless from
and against any and all liability, damage, loss, cost or expense (including
reasonable attorneys' fees) arising out of third party claims or suits resulting
from negligence or intentional misconduct in the manufacture of Product by
POLYPEPTIDE, except to the extent such claims or suits result from the
negligence or willful misconduct of INTRABIOTICS or an INTRABIOTICS Indemnitee.
Upon assertion of such claim or suit, the INTRABIOTICS Indemnitees shall
promptly notify POLYPEPTIDE thereof and POLYPEPTIDE shall appoint counsel
reasonably acceptable to the INTRABIOTICS Indemnitees to represent the
INTRABIOTICS Indemnitees with respect to any claim or suit for which
indemnification is sought. The INTRABIOTICS Indemnitees shall not settle any
such claim or suit without the prior written consent of POLYPEPTIDE, unless they
shall have first waived their rights to indemnification hereunder.
11.3 In no event shall either Party be liable to the other for
incidental or consequential damages or for punitive damages as a result of any
breach of this Agreement.
12. FORCE MAJEURE
12.1 Neither party is liable for failing to perform or having delayed
the performance of its obligation under this agreement, if the performance is
delayed or precluded by circumstances beyond its control, including but not
limited to fire, flood, war, strike, lock-out, failure or shortage of public
utilities due to governmental decrees, orders or legislation and court
injunctions.
The party, whose performance is delayed or precluded, shall immediately
inform the other party of the circumstances preventing the performance.
In the event that the circumstances preventing the performance continue
for more than [ * ], each party will have a right to cancel the Agreement and
neither of the parties will have a right to reimbursement or to any claim for
damages as a result of the cancellation of the Agreement.
13. ASSIGNMENT
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
10.
<PAGE>
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. Neither
party shall assign its rights and obligations under this Agreement without first
obtaining the written consent of the other parties, which consent shall not be
unreasonably withheld. Each of the parties may assign its rights and obligations
to an Affiliate provided that the assigning party shall guarantee its
Affiliate's performance and obligations under this Agreement, or to any
successor by virtue of a merger or acquisition of substantially the entire
business to which this Agreement relates or in the case of INTRABIOTICS to a
licensee of the Product, without the consent, but upon notice to the other
party.
14. SEVERABILITY
Should any provision or part of this agreement be held invalid,
illegal, or unenforceable in whole or in part by any court of competent
jurisdiction, this Agreement is deemed modified to the extent necessary to make
it valid and enforceable and the Agreement as thus modified shall be in force to
give effect to the intention of the parties to the extent possible.
15. APPLICABLE LAW AND JURISDICTION
All matters arising under or related to the Agreement shall be governed
by and construed under and pursuant to the laws of the State of California
without regard to conflict of laws principles.
16. ARBITRATION
All disputes between the parties relating to this Agreement, including
its interpretation that cannot be settled amicably by the parties, shall be
settled by binding arbitration in the state/country of the defending party in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The arbitration carried out hereunder shall apply to the exclusion
of regular legal means, provided that the rights of the Parties in urgent
situations in which time is of the essence to obtain proper remedies in court of
law or equity shall remain unimpaired.
17. PUBLISHING OF THIS AGREEMENT
Except as otherwise required by law, neither Party shall make any
public disclosure as to the terms or existence of this Agreement without the
prior written consent of the other. Notwithstanding this clause, INTRABIOTICS
may publish that such an agreement has been entered into between the Parties
subject to pre-approval by POLYPEPTIDE of the wording.
18. COMPLETE AGREEMENT
The provisions contained in this agreement and its appendices and the
Purchase/Supply Agreement set out the entire agreement between the parties
with respect to the subject matter of this agreement and shall supersede all
previous communication, representations or agreements with respect to the same
subject and may not be amended except by an instrument in writing signed by or
on behalf of the parties.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
11.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorised officers as of the day and year
first above written, each copy of which shall for all purposes be deemed to be
original.
POLYPEPTIDE LABORATORIES A/S INTRABIOTICS PHARMACEUTICALS INC.
/s/ Erik Lorentsen /s/ Thomas Shepherd
- ------------------------------------- -------------------------------------
Erik Lorentsen Thomas Shepherd
General Manager Vice President Corporate; Development
FERRING PEPTIDE PRODUCTION AB
/s/ Anders J. Andersen
- ------------------------------------
Anders J. Andersen
General Manager
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
12.
<PAGE>
ANNEX 1
SPECIFICATION
TABLE OF CONTENTS:
PAGES 1 AND 2 INTRABIOTICS QUALITY SPECIFICATION NO.: [ * ]
PAGE 3 - STORAGE
- SHIPMENT
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, 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>
INTRABIOTICS QUALITY SPECIFICATION
QA ISSUED COPY
SPECIFICATION NO.: [ * ]
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
MATERIAL: FOR INFORMATION ONLY
IB-367-03
- ----------------------------------------------------------------------------------------------------------------------
DATE EFFECTIVE: SUPERCEDES: PAGE:
NOV 26 1996 [ * ] 1 of 2
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
AUTHOR: DEPT.: DATE:
/s/ Jodi L. Fausnaugh Analytical Development 11/26/96
- ----------------------------------------------------------------------------------------------------------------------
APPROVED: DEPT.: DATE:
/s/ William R. Trilsch Quality Assurance 11/26/96
- ----------------------------------------------------------------------------------------------------------------------
APPROVED: DEPT.: DATE:
/s/ Leo Gu Pharmaceutical Development 11-26-96
- ----------------------------------------------------------------------------------------------------------------------
DESCRIPTION:
[ * ]
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
TEST SPECIFICATION METHOD
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------------------------------
2. [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------------------------------
3. [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------------------------------
4. [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------------------------------
5. [ * ] [ * ] [ * ]
- ---------------------------------------- --------------------------------------------------------- -------------------
</TABLE>
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, 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>
INTRABIOTICS QUALITY SPECIFICATION
QA ISSUED COPY
SPECIFICATION NO.: [ * ]
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
MATERIAL: FOR INFORMATION ONLY
IB-367-03
- ----------------------------------------------------------------------------------------------------------------------
DATE EFFECTIVE: SUPERCEDES: PAGE:
NOV 26 1996 [ * ] 2 of 2
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
TEST SPECIFICATION METHOD
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
6. [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------------------------------
7. [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------------------------------
8. [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------------------------------
9. [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------------------------------
10. [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------------------------------
11. [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------------------------------
12. [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------------------------------
13. [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------------------------------
14. [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, 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>
ANNEX 1
SPECIFICATION
STORAGE: Store at recommended storage conditions. [ * ].
SHIPMENT: [ * ].
NB. The storage container and shipping conditions may be modified in the future
once the proper stability data are available.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, 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>
ANNEX 2
[ * ]
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, 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>
ANNEX 3
MILESTONES AND MILESTONE PAYMENTS
1st Milestone [ * ]
Payment of [ * ] will be effected by completion of [ * ] in the Time
Schedule meaning the completion of the development of [ * ].
POLYPEPTIDE will at the first milestone supply a small sample of the
Product (non GMP) together with a written method for the manufacture of
[ * ] of the Product. [ * ]
2nd Milestone [ * ]
Is reached after the completion of [ * ], meaning completion of [ * ]
including the delivery of [ * ] of the Product to INTRABIOTICS. [ * ]
3rd Milestone [ * ]
After the completion of the [ * ] and the [ * ] for the Product [ * ]
4th Milestone [ * ]
After the completion of [ * ], meaning completion [ * ] including the
development of the [ * ] the Product. [ * ]
5th Milestone [ * ]
After the completion of [ * ] including the supply of [ * ]
6th, 7th, 8th, 9th Milestone [ * ]
After each [ * ] according to [ * ] and upon receiving [ * ]
10th Milestone [ * ]
After [ * ] with the written notification from [ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
2.
<PAGE>
ANNEX3, PAGE 2 OF 2
ANNEX 3
MILESTONE AND MILESTONE PAYMENTS
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, 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>
ANNEX 4
MATRIX OF RESPONSIBILITY OF THE PARTIES CONCERNING
QUALITY ASSURANCE AND QUALITY CONTROL
Product:IB-367
<TABLE>
<CAPTION>
RESPONSIBLE FOR POLYPEPTIDE INTRABIOTICS
<S> <C> <C>
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ]
[ * ] [ * ]
[ * ]
[ * ] [ * ]
</TABLE>
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, 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>
<TABLE>
<CAPTION>
ANNEX 4 CONTINUED POLYPEPTIDE INTRABIOTICS
RESPONSIBLE FOR
<S> <C> <C>
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ] [ * ] [ * ]
[ * ].
</TABLE>
Contact person regarding Quality Assurance and Control
POLYPEPTIDE:
[ * ], Director QA & QC
[ * ].
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.
2.
<PAGE>
AMENDMENT TO DEVELOPMENT SUPPLY AGREEMENT
This Amendment is made and is effective this first day of July 1997, (the
"Effective Date") by and between Polypeptide Laboratories A/S, a Danish company
incorporated under the laws of Denmark, with its registered offices at
Herredsvejen 2, 3400 Hillerod, Denmark and Ferring Peptide Product AB, a Swedish
company incorporated under the laws of Sweden, with its registered office a
Soldattorpsvaegen 5, S-20062 Malmo, Sweden (hereinafter jointly referred to as
POLYPEPTIDE), and IntraBiotics Pharmaceuticals, Inc., a company incorporated in
the state of Delaware under the laws of the United States, with its registered
office at 816 Kifer Road, Sunnyvale, California 94086, USA (hereinafter referred
to as INTRABIOTICS) and amends the Development Supply Agreement between the
parties dated January 3, 1997 (hereinafter referred to as the Development
Agreement).
WHEREAS, this amendment to the Development Agreement has become necessary as a
result of INTRABIOTICS request for additional supply from POLYPEPTIDE of [ * ]
of IB-367 peptide;
Now therefore, the parties agree to amend the Development Agreement as follows:
AMENDMENT 1.
A new annex 2 and annex 3 have been appended to this Amendment and these annexes
supersede and replace the original annex 2 and annex 3 of the Development
Agreement.
AMENDMENT 2.
Clause 1.4 of the Development Agreement is superseded and replaced by the
following new clause:
1.4 Phase II; will consist of development and validation of [ * ] of the
Product, preparing of the necessary documentation (including specifications of
raw materials or intermediates, batch records and in-process controls) and
scaling up of the Process. In the course of scaling up the Process POLYPEPTIDE
shall deliver to INTRABIOTICS [ * ] Product for non-clinical studies (task 11 of
Annex 2) and [ * ] Product for clinical trials (task 13 of Annex 2). The [ * ]
will be manufactured in accordance with the cGMP guidelines cf. Clause 6.1. The
[ * ] will be delivered in the amount of [ * ] in [ * ] and the [ * ] will be
delivered in the amount of [ * ] in [ * ]. Furthermore, [ * ] will prepare and
maintain Drug Master Files ("DMF") for the purpose of the IND filing of the
Product. [ * ], (as supportive data), will be conducted by POLYPEPTIDE with
Product manufactured in this Phase II.
AMENDMENT 3.
Clause 2 of the Development Agreement, entitled Compensation, is superseded and
replaced by the following new clause:
2. IntraBiotics will pay POLYPEPTIDE upon completion of each milestone as
agreed and set out in Annex 3. The total sum for each phase amounts to:
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
1.
<PAGE>
Phase I USD [ * ]
Phase II USD [ * ]
Phase III USD [ * ](based on delivery of 1,500g of the Product)
Phase IV USD [ * ]
Payments under this Development Supply Agreement will be made by wire transfer
within [ * ] from the date of completion of the respective milestone and upon
receipt of a corresponding invoice to an account indicated by POLYPEPTIDE.
END OF AMENDMENTS.
The remainder of the Development Agreement will remain in full force and effect.
As advance consideration for the production of [ * ] of [ * ] Product included
in [ * ] INTRABIOTICS shall pay to POLYPEPTIDE a non-refundable fee of [ * ]
within [ * ] of the effective date of this letter of amendment. This sum is
described in Annex 3 of the Development Agreement as being due in [ * ].
IN WITNESS WHEREOF, the parties have caused this letter of amendment to be
executed by their respective duly authorized officers as of the day and year
first above written, each copy of which shall for all purposes be deemed to be
original.
POLYPEPTIDE LABORATORIES A/S INTRABIOTICS PHARMACEUTICALS, INC.
/s/ Erik Lorentsen /s/ Thomas Shepherd
- -------------------------------------- --------------------------------------
Erik Lorentsen Thomas Shepherd
General Manager Vice President Corporate Development
FERRING PEPTIDE PRODUCTION AB
/s/ Anders J. Andersen
- --------------------------------------
Anders J. Andersen
General Manager
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
2.
<PAGE>
ANNEX 2
[ * ]
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
1.
<PAGE>
ANNEX 3
(JUNE 1997)
Task numbers refer to the project plan dated 10-06-1997.
1st Milestone [ * ]
Payment of [ * ] will be effected by completion of [ * ] in the Time
Schedule meaning the completion of the development of [ * ].
POLYPEPTIDE will at the first milestone supply a small sample of the
produce (non GMP) together with a written method for the manufacture of
[ * ] of the Product [ * ].
2a Milestone [ * ]
Is reached after completion of [ * ], meaning completion of [ * ]
including the delivery of [ * ] of the Product to IntraBiotics. [ * ].
2b Milestone [ * ]
At delivery of [ * ], Product to IntraBiotics, [ * ].
3a Milestone [ * ]
After having signed and approved [ * ], for the Product [ * ].
3b Milestone [ * ].
After completion of [ * ] part of [ * ].
4th Milestone [ * ].
After the completion of [ * ], meaning the completion [ * ] including
the development of the [ * ] the Product [ * ].
5th Milestone [ * ].
After the completion of [ * ] including the supply of [ * ].
6th, 7th, 8th, 9th Milestone [ * ].
After each [ * ] according to [ * ] and upon receiving [ * ].
10th Milestone[ * ].
After [ * ] with the written notification from [ * ].
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
1.
<PAGE>
ANNEX 2, PAGE 2 OF 2
ANNEX 3
MILESTONE AND MILESTONE PAYMENTS
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
1.
<PAGE>
EXHIBIT 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated January 14,
2000 (except for the second paragraph of Note 1, as to which the date is
February 28, 2000) in Amendment No. 2 to the Registration Statement (Form S-1
No. 333-95461) and related Prospectus of IntraBiotics Pharmaceuticals, Inc. for
the registration of 8,625,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Palo Alto, California
March 16, 2000
