<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 12, 1995
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERFERON SCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 22-2313648
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
783 JERSEY AVENUE
NEW BRUNSWICK, NEW JERSEY 08901
(908) 249-3250
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LAWRENCE M. GORDON, ESQ.
GENERAL COUNSEL
INTERFERON SCIENCES, INC.
9 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 230-9513
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
ROBERT J. HASDAY, ESQ.
DUANE, MORRIS & HECKSCHER
SUITE 2125
122 EAST 42ND STREET
NEW YORK, NEW YORK 10168
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share........ 1,032,483 shares(2) $1.8125 $1,871,376 $645.30
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee based
on the average of the high and low prices of the Common Stock on December 8,
1995 as reported by NASDAQ, pursuant to rule 457(c).
(2) Includes 392,483 shares issuable upon the exercise of warrants. There is
also registered hereunder such indeterminate additional number of shares of
Common Stock as may become issuable pursuant to the anti-dilution provisions of
such warrants.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
Subject to Completion, Dated December 12, 1995
PROSPECTUS
INTERFERON SCIENCES, INC.
1,032,483 SHARES OF COMMON STOCK
The shares of Common Stock, par value $.01 per share (the "Common Stock"),
of Interferon Sciences, Inc., a Delaware corporation (the "Company"), being
offered hereby are being sold by certain stockholders of the Company (the
"Selling Stockholders"). The Company will not receive any proceeds from the sale
of shares by the Selling Stockholders. See "Selling Stockholders."
The Common Stock is quoted on the NASDAQ SmallCap Market under the symbol
"IFSC." On December 8, 1995, the last reported sale price of the Common Stock on
the NASDAQ SmallCap Market was $1.875 per share.
------------------------
INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 3-11 OF THIS PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1995
<PAGE> 3
AVAILABLE INFORMATION
The Prospectus omits certain of the information contained in the
Registration Statement relating to the securities offered hereby which is on
file with the Securities and Exchange Commission (the "Commission"). The Company
is subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith files
periodic reports, proxy statements, and other information with the Commission.
Such Registration Statement, reports, proxy statements, and other information
can be inspected, without charge, and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and at its regional offices located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60061. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference:
(a) the Company's Annual Report on Form 10-K for the year ended
December 31, 1994;
(b) the Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1995, June 30, 1995, and September 30, 1995; and
(c) the description of the Common Stock contained in the Company's
Prospectus included in the Company's Registration Statement on Form S-2,
File No. 33-59479, as filed pursuant to Rule 424(b) under the Securities
Act of 1933, as amended (the "Securities Act").
All documents filed by the Company pursuant to Section 13(a), 13(c), 14, or
15(d) of the Exchange Act on or after the date of this Prospectus and prior to
the termination of the offering hereby of the Common Stock shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
modifies, supersedes, or replaces such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. Any person receiving a copy of this
Prospectus may obtain without charge, upon written or oral request, a copy of
any of the documents incorporated by reference herein, except for exhibits to
such documents (unless such exhibits are specifically incorporated by reference
into the documents which this Prospectus incorporates). Requests should be
directed to: Corporate Secretary, Interferon Sciences, Inc., 783 Jersey Avenue,
New Brunswick, New Jersey 08901, telephone number (908) 249-3250.
------------------------
ALFERON(R) and ALFERON LDO(R) are registered trademarks of the Company.
2
<PAGE> 4
THE COMPANY
Interferon Sciences, Inc. (the "Company") is a biopharmaceutical company
currently engaged in the manufacture and sale of ALFERON N Injection, the only
product approved by the United States Food and Drug Administration ("FDA") that
is based upon a natural source, multi-species alpha interferon ("Natural Alpha
Interferon"). ALFERON N Injection is approved for the treatment by injection of
certain types of genital warts and is being developed by the Company for the
potential treatment of hepatitis C, hepatitis B, HIV, multiple sclerosis,
cancers, and other indications. The Company also is developing ALFERON N Gel and
ALFERON LDO, the Company's topical and oral formulations of Natural Alpha
Interferon. The Company's principal offices and research and production
facilities are located at 783 Jersey Avenue, New Brunswick, New Jersey 08901 and
its telephone number is (908) 249-3250.
RISK FACTORS
Prospective investors should consider carefully the following factors,
together with the other information contained in this Prospectus, in evaluating
an investment in the Common Stock offered hereby.
CONTINUING AND INCREASING OPERATING LOSSES; ACCUMULATED DEFICIT. The
Company has experienced significant operating losses since its inception in
1980. As of September 30, 1995, the Company had an accumulated deficit of
approximately $68.1 million. For the nine months ended September 30, 1995 and
the years ended December 31, 1994, 1993, and 1992, the Company had losses from
operations of approximately $5.3 million, $11.8 million, $8.3 million, and $6.0
million, respectively. The Independent Auditors' Report on the Company's 1994
financial statements indicates that the accumulated deficit and operating losses
raise substantial doubt about the Company's ability to continue as a going
concern.
Although the Company received approval to market ALFERON N Injection for
the treatment of genital warts from the FDA in October 1989 and from the
comparable Mexican regulatory authority in December 1994, it has had only
limited revenue from the sale of ALFERON N Injection to date. In order for the
Company to operate profitably, the Company must sell significantly more ALFERON
N Injection. Increased sales will depend primarily upon the expansion of
existing markets and/or successful attainment of FDA approval to market ALFERON
N Injection for additional uses, of which there can be no assurance. See
"Products Under Development" below in this section. There can be no assurance
that sufficient quantities of ALFERON N Injection will be sold to allow the
Company to operate profitably. Moreover, the Company cannot market ALFERON N
Injection in other markets or for such other uses unless appropriate regulatory
approvals are obtained.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company will
require substantial funds to conduct research and development and preclinical
and clinical testing, to market its products, and, if it decides to do so, to
exercise an option, which is exercisable until December 31, 1996, to repurchase
certain marketing rights from Purdue Pharma L.P. ("Purdue Pharma") and its
affiliates (collectively, "Purdue"). The cash required to exercise such option
and to repurchase certain shares of Common Stock from Purdue (which repurchase
is required in connection with the exercise of the option) is $5,029,133,
subject to reduction under certain circumstances. See "Business -- ALFERON N
Injection -- Marketing and Distribution -- Agreements with Purdue." For the nine
months ended September 30, 1995 and the years ended December 31, 1994, 1993, and
1992, the cash utilized by the Company's operations was approximately $5.4
million, $7.8 million, $7.8 million, and $4.4 million, respectively. In January
1994, the Company amended certain agreements with Purdue pursuant to which the
Company agreed to bear the costs of conducting clinical trials required to
develop new indications for ALFERON N Injection, most of which costs previously
had been borne by Purdue. The Company's future capital requirements will depend
on many factors, including: continued scientific progress in its drug
development programs; the magnitude of these programs; progress with preclinical
testing and clinical trials; the time and costs involved in obtaining regulatory
approvals; the costs involved in filing, prosecuting, and enforcing patent
claims; competing technological and market developments; changes in its existing
research relationships; the ability of the Company to establish collaborative
arrangements; and effective commercialization activities and arrangements.
3
<PAGE> 5
Management believes that the cash currently available will be sufficient to
enable the Company to continue operations until approximately December 1996,
although no assurance can be given in this regard. To fund the Company's
operations beyond such date and, if it decides to do so, to exercise the option
to repurchase certain marketing rights from Purdue and to repurchase certain
shares of Common Stock from Purdue, the Company will require additional funding,
whether through financial markets or collaborative or other arrangements with
corporate partners or from other sources, which may not be available when needed
or on terms acceptable to the Company. Insufficient funds will require the
Company further to delay, scale back, or eliminate certain or all of its
research and development programs or to license third parties to commercialize
products or technologies that the Company would otherwise seek to develop itself
or to shut down or curtail its manufacturing facility.
NO GUARANTEED SOURCE OF REQUIRED MATERIALS. The Company uses a number of
essential materials in the production of Natural Alpha Interferon, including
human white blood cells, and has limited sources from which to procure such
materials. The Company does not have long-term agreements for the supply of most
of such materials. There can be no assurance that long-term supply agreements
covering essential materials can be entered into on commercially reasonable
terms, if at all. Although the Company currently obtains human white blood cells
from several sources, the loss of any one source of supply could have a material
adverse effect on the Company. In such event, the Company may be required to
scale back its operations or stop manufacturing such product. The costs and
availability of products and materials required by the Company for the
commercial production of ALFERON N Injection and other products which the
Company may commercially produce are subject to fluctuation depending on a
variety of factors beyond the Company's control, including competitive factors,
changes in technology, and FDA and other governmental regulation and there can
be no assurance that the Company will be able to obtain such products and
materials on terms acceptable to the Company or at all.
DEPENDENCE ON CERTAIN DISTRIBUTORS; LIMITED MARKETING PROGRAM. The Company
currently has marketing arrangements for the distribution of ALFERON N Injection
in North America and several countries outside of North America. Unless the
Company enters into marketing arrangements with other companies or develops its
own sales force, the Company will be dependent on the ability of its current
distributors to sell sufficient quantities of ALFERON N Injection to allow the
Company to operate profitably. There can be no assurance that the Company will
be able to enter into any such marketing arrangements on acceptable terms, if at
all. See "Business -- ALFERON N Injection -- Marketing and Distribution" and
"Business -- Products under Development -- ALFERON N Gel and ALFERON
LDO -- Sales and Marketing Staff."
The Company has obtained an option, exercisable until December 31, 1996, to
reacquire from Purdue marketing rights for ALFERON N Injection in the United
States and Canada. The Company is exploring the possibility of entering into a
marketing arrangement with a new marketing partner for ALFERON N Injection in
the United States and Canada. However, there can be no assurance that a new
marketing partner will be found. If the Company exercises such option and
another such arrangement is not entered into, the Company would be left without
a marketing arrangement for ALFERON N Injection in the United States and Canada.
See "Business -- ALFERON N Injection -- Marketing and Distribution -- Agreements
with Purdue."
PRODUCTS UNDER DEVELOPMENT. The Company's products under development
include (i) ALFERON N Injection for the potential treatment of HIV, hepatitis C,
hepatitis B, multiple sclerosis, cancers, and other indications, (ii) ALFERON N
Gel for the potential treatment of cervical dysplasia, recurrent genital herpes,
other viral diseases, and cancers, and (iii) ALFERON LDO for the potential
treatment of certain symptoms of patients infected with the HIV virus and the
treatment of other viral diseases. However, there can be no assurance that these
products will be cost-effective, safe, and effective treatments for these
diseases, and there is no assurance of receiving regulatory approvals to market
these products. The Company cannot market such products until such approvals are
obtained. Even if such approvals are obtained, there can be no assurance that
any of these products will be successful or will produce significant revenues or
profits for the Company. The ability of the Company to become profitable depends
on the successful commercial development of these products.
4
<PAGE> 6
POTENTIAL ADVERSE SIDE EFFECTS. The Company is engaged in the manufacture
and sale of a single FDA approved product, ALFERON N Injection for the treatment
of refractory or recurring external genital warts in adults. In clinical trials
conducted for the treatment of genital warts with ALFERON N Injection, patients
have not experienced serious adverse side effects; however, there can be no
assurance that unexpected or unacceptable adverse side effects will not be found
in the future for this use or other potential uses of this product or for any
other product the Company might develop which could threaten or limit such
product's usefulness. See "Risk of Product Liability" below.
SUBSTANTIAL COMPETITION. In the United States, the Company currently
competes with Schering-Plough Corp.'s ("Schering") injectable recombinant
interferon product and other therapies in the treatment of genital warts. If and
when the Company obtains additional approvals of uses of its products, it
expects to compete primarily on the basis of product performance and price with
Schering and a number of additional pharmaceutical companies, both in the United
States and abroad, including Hoffmann-LaRoche, Inc. ("Hoffmann"), F.
Hoffmann-LaRoche Ltd. ("Roche"), Amgen Inc., and Burroughs Wellcome Co. The
Company's potential competitors have developed or may develop products
(containing either alpha interferon or other therapeutic compounds) or other
treatment modalities for those uses. Many of the Company's potential competitors
are among the largest pharmaceutical companies in the world, are well known to
the public and the medical community, and have substantially greater financial
resources, product development, and manufacturing and marketing capabilities
than the Company or its marketing partners. Schering's recombinant interferon
product has achieved market dominance for the treatment of hepatitis C and
hepatitis B in the United States and other markets, and there can be no
assurance that, if the Company is able to obtain regulatory approval of ALFERON
N Injection for the treatment of those diseases, it will be able to achieve any
significant penetration into those markets. In addition, because certain of the
competitive products are not dependent on a source of human blood cells, such
products may be able to be produced in greater volume and at a lower cost than
ALFERON N Injection and the Company's other Natural Alpha Interferon
formulations. Currently, the Company's wholesale price on a per unit basis of
ALFERON N Injection is substantially higher than that of the competitive
recombinant alpha interferon products. Other companies may succeed in developing
products earlier than the Company, obtaining approvals for such products from
the FDA more rapidly than the Company, or developing products that are more
effective than those proposed to be developed by the Company. While the Company
will seek to expand its technological capabilities in order to remain
competitive, there can be no assurance that research and development by others
or other medical advances will not render the Company's technology or products
obsolete or non-competitive or result in treatments or cures superior to any
therapy developed by the Company, or that any therapy developed by the Company
will be preferred to any existing or newly developed technologies. See
"Business -- ALFERON N Injection -- Competition," "Business -- Products under
Development -- ALFERON N Gel," and "Business -- Products under
Development -- ALFERON LDO."
POTENTIAL PATENT INFRINGEMENT CLAIMS. On March 5, 1985, the United States
Patent and Trademark Office issued a patent to Hoffmann claiming purified human
alpha (leukocyte) interferon (regardless of how it is produced). On May 6, 1994,
the United States Patent and Trademark Office issued an Office Action in
Reexamination on the Hoffmann patent and rejected all of the 14 claims in the
Hoffmann patent. Claims in a patent under reexamination are valid and
enforceable until such time as a final disposition on the claims is reached. On
July 11, 1994, Hoffmann filed a response objecting to the Patent Office's
rejection of such claims. On July 20, 1995, the Patent Office issued another
Office Action in Reexamination on the Hoffmann patent and rejected three of the
claims in the Hoffmann patent and concluded that the remaining 11 claims are
patentable. In November 1995, Hoffmann filed another response objecting to the
Patent Office's rejection of such three claims. The outcome of such
reexamination of the Hoffmann patent cannot be determined at this time. Roche,
the parent of Hoffmann, also has been issued patents covering human alpha
interferon in many countries throughout the world. As of March 31, 1995, the
Company obtained a non-exclusive license from Hoffmann and Roche which grants
the Company the worldwide rights to make, use, and sell, without a potential
patent infringement claim from Hoffmann or Roche, any formulation of Natural
Alpha Interferon. If Hoffmann's United States patent, or the claims in such
patent which the marketing of Natural Alpha Interferon products by the Company
might infringe, were found to be invalid, the royalty payable by the Company to
Hoffmann and Roche on net sales of Natural Alpha Interferon products in the
United States
5
<PAGE> 7
would be eliminated, but potential competitors of the Company may be more likely
to enter the market. The license permits the Company to grant marketing rights
with respect to Natural Alpha Interferon products to third parties, except that
the Company cannot grant marketing rights with respect to injectable products in
any country in which Hoffmann or Roche has patent rights covered by the license
to any third party not listed on a schedule of approximately 50 potential
marketing partners without the consent of Hoffmann and Roche, which consent
cannot be unreasonably withheld. There can be no assurance that the Company will
not want to grant such marketing rights to a third party not listed on such
schedule, or that Hoffmann and Roche will not withhold the required consent. In
addition, if such license were terminated, the Company may be subject to a
patent infringement lawsuit by Hoffmann and Roche if it continued to market
Natural Alpha Interferon products. If such a suit were brought, the Company
would have to either counterclaim to attempt to invalidate the Hoffmann and
Roche patents or prove that it did not infringe such patents. See
"Business -- ALFERON N Injection -- Patents and Licenses" and
"Business -- ALFERON N Injection -- Royalty Obligations."
In addition, there may have been other patent applications filed in the
United States and in foreign countries, some of which may have been filed by
potential competitors of the Company, with respect to the technologies and/or
products which may be required by the Company to produce its current and
proposed products. If any of such patents issue in the United States or in
foreign countries in a form which covers the Company's products or processes,
the Company would be required to obtain licenses under such patents in
connection with the domestic and international commercialization of such
products. There can be no assurance that the Company could obtain licenses under
any of such patents if so issued, particularly if they were issued to companies
directly in competition with the Company, or that, even if the Company could
obtain licenses, it could do so on commercially reasonable terms.
If the sale or use of any of the Company's products were to become the
basis of a patent infringement lawsuit, assuming the Company could not obtain a
license on satisfactory terms, the Company may be required to incur substantial
litigation expenses, and such litigation could also consume substantial
management time, which could have a material adverse effect upon the financial
condition of the Company even if it were to be successful in the litigation. If
the Company proved unsuccessful in such litigation, it may be required to pay a
royalty for the use of the claimed patents or cease producing the products and
redevelop the products in such a way as to avoid infringing any claimed patent
rights. There can be no assurance in such case that the Company could obtain a
license under such patents on commercially reasonable terms or at all, or that
it could successfully redevelop the products to fall outside the scope of the
claim.
It is the Company's policy to seek licenses if it believes that the terms
of such licenses, when weighed against the expense and uncertainties of
potential litigation, are cost effective.
POSSIBLE INABILITY TO PROTECT TECHNOLOGY. To a significant extent, the
ability of the Company to protect its rights in any products or technology it
may develop depends upon its ability to obtain suitable patent or similar
protection. The ability of the Company to obtain patents, and the nature,
extent, and enforceability of the intellectual property rights that are obtained
as a result of the Company's research, involve complex legal and factual issues.
New technology and products developed by the Company may not qualify for patent
protection or, if they do qualify, may be subject to challenge or to protracted
judicial proceedings. In addition, the Company may determine not to seek
additional patent or other protection for its technology or products. It is not
certain that other patents will be issued or, if issued, that they will afford
the Company protection from competitive products. Although the Company's
practice is to require its technical and scientific employees and consultants to
execute confidentiality agreements covering proprietary information, there can
be no assurance that others will not independently make similar discoveries or
otherwise obtain access to proprietary information of the Company. In addition,
the Company has a non-exclusive license agreement with Hoffmann and Roche which
enables the Company to sell its products. There can be no assurance that
Hoffmann or Roche has not granted or will not grant a similar license to another
company with considerably greater financial, technical, and marketing resources
than the Company or that Hoffmann or Roche will not enter the market itself with
a competitive product.
While the Company has several patent applications pending, it does not
currently have significant patent protection for its products or technology. In
addition, even if such protection were obtained, it is possible that
6
<PAGE> 8
others have or may develop equivalent or superior products or technologies which
would not fall within the scope of the Company's patent claims or which might
involve inventions similar in scope to those of the Company for which patent or
similar rights are obtained by others prior to the time that the Company is able
to do so. See "Business -- ALFERON N Injection -- Patents and Licenses" and
"Business -- Products under Development -- ALFERON N Gel and ALFERON
LDO -- Patents and Licenses."
REGULATORY APPROVALS. The production and marketing of the Company's
products in the United States, as well as its ongoing research and development
activities, are subject to regulation by governmental agencies, most
significantly the FDA. Such regulation includes requirements for obtaining FDA
approval prior to marketing each of its products in the United States. In order
to obtain such FDA approval, the Company must demonstrate, among other things,
the safety and efficacy of each product through pre-clinical and clinical
testing. Obtaining such approvals is a time-consuming process and requires the
expenditure of substantial resources. Each facility in which the products are
produced and packaged, whether operated by the Company or a third party, must
meet the FDA's standards for current good manufacturing practices and must also
be approved prior to marketing any product produced or packaged in such
facility. Any significant change in the production process which may be
commercially required, including changes in sources of certain raw materials, or
any change in the location of the production facilities will also require FDA
approval. To the extent a portion of the manufacturing process for a product is
handled by an entity other than the Company, the Company must similarly receive
FDA approval for the participation by such third party in the manufacturing
process. For example, the Company has entered into an agreement with Sanofi
Winthrop, Inc. ("Sanofi") pursuant to which Sanofi formulates and packages
ALFERON N Injection. The Company presently has a biologic establishment license
for the facilities in which it produces ALFERON N Injection, which includes the
facilities in which Sanofi formulates and packages ALFERON N Injection. If the
Company's or Sanofi's present manufacturing facilities were damaged or destroyed
or the Company's arrangements with Sanofi were terminated, there can be no
assurance that FDA approval could be obtained for another facility or that
another facility could be built and approved on a timely basis or on
commercially reasonable terms. Delays in obtaining, or the failure to obtain,
any necessary regulatory approvals could have a material adverse effect on the
Company's ability to develop, produce, and sell its products. In addition,
failure of the Company to comply in any respect with FDA requirements with
respect to the production and marketing of drug products can subject the Company
to potential civil and criminal penalties and its products to seizure and other
civil enforcement action. Because of the uncertain nature of many of these
requirements, there can be no assurance that regulatory problems of this type
will not occur. See "Business -- Governmental Regulation."
FOREIGN REGULATORY APPROVALS. To market its products outside of the United
States, the Company is subject to numerous and varying foreign regulatory
requirements, implemented by foreign health authorities, governing the design
and conduct of human clinical trials and marketing approval. The approval
procedure varies among countries and can involve additional testing, and the
time required to obtain approval may differ from that required to obtain FDA
approval. At present, foreign marketing authorizations are applied for at a
national level, although certain registration procedures are available within
the European Union (the "EU") to companies wishing to market a product in more
than one EU member country. If a regulatory authority is satisfied that adequate
evidence of safety, quality, and efficacy has been presented, marketing
authorization is usually granted. The foreign regulatory approval process
includes all of the risks associated with obtaining FDA approval set forth
above. Approval by the FDA does not ensure approval by other countries. There
can be no assurance that the Company's products will receive such approvals. In
addition, in most cases, the Company may not export its products for commercial
sale for any use other than an FDA-approved use except that the FDA may under
certain circumstances authorize exportation of such products to one or more of
21 specifically-approved countries. However, these FDA export restrictions
generally do not apply if the Company's products are manufactured outside the
United States. At the present time, the Company does not have any foreign
manufacturing facilities.
In May 1990, the Company's licensee applied for a product license in the
United Kingdom for the use of ALFERON N Injection for the intralesional
treatment of refractory or recurring external genital warts in patients 18 years
of age or older. In October 1991, the Committee on Safety of Medicines informed
the
7
<PAGE> 9
Company's licensee that it might be unable to advise the Licensing Authority to
grant a product license. Subsequent oral and written representations made by the
Company to the Committee resolved certain of the issues raised by the Committee,
but the Committee believed that additional information and possibly clinical
work would be necessary to resolve certain other quality and safety issues and
determined to advise the Licensing Authority not to grant a product license at
that time. The Company's licensee was entitled to appeal this recommendation and
has done so. The Company can appear before or make written representations to
the Committee about such advice, but has not done so because of a lack of funds.
The Company is considering whether to continue to pursue this appeal or to have
the Company's licensee withdraw the product license application. The Company
could submit a new application for the same use or for another use if and when
sufficient clinical data is available. There can be no assurance, however, that
approval of the use of ALFERON N Injection for the treatment of genital warts or
any other indication will be obtained even if it is pursued.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND RELATED MATTERS; NEED FOR
REIMBURSEMENT. The future revenues and profitability of, and availability of
capital for, biotechnology companies may be affected by the continuing efforts
of governmental and third-party payors to contain or reduce the costs of health
care through various means. For example, in certain foreign markets, the pricing
and profitability of prescription pharmaceuticals is subject to government
control. In Japan, which is currently the world's largest market for interferon
products, the government imposed price cuts ranging from 13.5% to 22.7% in 1994
on certain interferon products then being marketed in Japan. The Company cannot
predict whether similar price cuts will be imposed on any of the Company's
products in Japan or in any other country at such time as such products are
being marketed in such country or the size or duration of any cuts that may be
imposed. However, there can be no assurance that any such cuts will not have a
material adverse effect on the Company's future results of operations. There
have been, and the Company expects there to continue to be, a number of United
States federal and state proposals to implement similar government control. It
is uncertain what form any health care reform legislation may take or what
actions the federal, state, and private payors may take in response to the
suggested reforms. The Company cannot predict when any suggested reforms will be
implemented, if ever, or the effect of any implemented reform on the Company's
business. There can be no assurance, however, that any implemented reform will
not have a material adverse effect on the Company's future results of
operations. The Company's long-term ability to market its products successfully
may depend in part on the extent to which reimbursement for the cost of such
products and related treatment will be available from public and private health
insurers and other organizations. Third-party payors are increasingly
challenging the prices of medical products and services. The reimbursement
status of newly-approved health care products is highly uncertain, and there can
be no assurance that third-party coverage will be available or that available
third-party coverage will enable the Company to maintain price levels sufficient
to realize an appropriate return on its investment in product development. While
recombinant alpha interferon products can be produced at a lower cost per unit
than the Company's formulations of Natural Alpha Interferon products, until dose
regimens and treatment durations are determined, the Company is unable to
determine whether the cost of treatment with the Company's products will be
greater, equal to, or less than the cost of competing treatments.
ROYALTY OBLIGATIONS. The Company is a party to certain license agreements
pursuant to which it is obligated to pay royalties based upon the commercial
exploitation of its products. Royalty payments under such license agreements
with respect to ALFERON N Injection, ALFERON N Gel, and ALFERON LDO could
aggregate up to 9.5%, 13.5%, and 19.5%, respectively, of the Company's net sales
of such products. See "Business -- ALFERON N Injection -- Royalty Obligations"
and "Business -- Products under Development -- ALFERON N Gel and ALFERON
LDO -- Royalty Obligations." In addition, under the terms of a marketing
agreement, the Company may be obligated to pay an additional royalty equal to a
maximum of 3% of the net sales of ALFERON N Injection in certain territories.
See "Business -- ALFERON N Injection -- Marketing and Distribution." Such
royalty obligations, together with any additional royalties which may be payable
by the Company, may limit the Company's marketing strategies and prevent it from
obtaining adequate profit margins and could have a material adverse effect on
the commercial exploitation of the Company's products.
8
<PAGE> 10
In connection with the acquisition of certain intellectual property and
technology rights from National Patent Development Corporation ("NPDC"), the
Company agreed to pay NPDC a royalty of $1 million. Such amount is payable if
and when the Company generates income before income taxes, limited to 25% of
such income before income taxes per year until such amount is paid in full.
LIMITED PRODUCTION EXPERIENCE. Although the Company has produced ALFERON N
Injection in accordance with its commercial requirements, it has never produced
ALFERON N Injection at levels which would allow the Company to operate
profitably. There can be no assurance that, if the Company's commercial
requirements increase to such levels, the Company will be able to produce
ALFERON N Injection at such levels and at a competitive price.
RISK OF PRODUCT LIABILITY. The Company's products have undergone or will
undergo extensive clinical testing prior to the granting of any regulatory
approval for the purpose, among other things, of determining the safety of such
products. The Company may sell products which cause unexpected adverse reactions
or result in an allergic or other reaction or which are alleged to have
unacceptable adverse side effects. Product liability risk is inherent in the
testing, manufacture, marketing, and sale of the Company's products, and there
can be no assurance that the Company will be able to avoid significant product
liability exposure. Such liability might result from claims made directly by
consumers or by pharmaceutical companies or others selling such products. It is
impossible to predict the scope of injury or liability from such unexpected
reactions, or the measure of damages which might be imposed as a result of any
claims or the cost of defending such claims. The Company has a product liability
insurance policy in the amount of $10,000,000. Although the Company believes
this amount is sufficient, there is no assurance that the Company will be able
to maintain such coverage, and even if it does maintain it, in the event that
the Company becomes subject to liability claims in excess of any insurance
coverage it may have in effect, the Company may not have sufficient assets or
liquidity to satisfy such claims which could result in the Company's inability
to continue its operations. Furthermore, any published reports or rumors
suggesting a link between a Company product and injury to a person could be
expected to materially impair the Company's ability to market such product.
RETENTION OF KEY PERSONNEL. Because of the specialized scientific nature
of the Company's business, it is necessary to attract and retain personnel with
a wide variety of scientific capabilities. Competition for such personnel is
intense. There can be no assurance that the Company will continue to attract and
retain personnel of high scientific caliber. None of the Company's key employees
have employment agreements. The Company does not maintain key man life insurance
for any of its key employees and does not intend to obtain such insurance. The
Company's loss of services of certain of its employees or other members of its
staff could have a material adverse effect on the Company's operations.
CONTROL BY PRINCIPAL STOCKHOLDERS; CONFLICTS OF INTEREST. Based, in part,
on Schedule 13Ds filed by beneficial owners of the Company's securities with the
Commission, as of December 8, 1995, NPDC, David Blech, five trusts of which Mr.
Blech is the income beneficiary but not the trustee (the "Blech Trusts"), and
Biotechnology Investment Group L.L.C. beneficially owned approximately 21.7%,
2.3%, 7.4%, and 7.9%, respectively, of the outstanding shares of Common Stock,
certain of which shares have been pledged to their respective banks as
collateral to secure indebtedness owed to such banks.
Certain conflicts of interest may arise as a result of NPDC's stock
ownership in the Company and certain related transactions between the Company
and NPDC. Furthermore, certain officers of the Company also serve as officers of
NPDC and may have conflicts of interests in allocating management time,
services, and functions between the Company and NPDC. Presently, Samuel H.
Ronel, Ph.D., President and Chief Executive Officer, Stanley G. Schutzbank,
Ph.D., Executive Vice President, Lawrence M. Gordon, Vice President and General
Counsel, Drew R. Stoudt, Vice President Regulatory Affairs and Quality, and
Donald W. Anderson, Controller, devote a portion of their time to the business
of NPDC, which includes some overlapping responsibilities for the benefit of the
Company. In addition, certain directors of NPDC also serve as directors of the
Company. Transactions in which certain members of the Board of Directors or
principal stockholders of the Company may have a conflict of interest must be
approved by a majority of the disinterested directors.
9
<PAGE> 11
PREFERRED STOCK. The Company's charter provides for 5,000,000 authorized
but unissued shares of Preferred Stock, the rights, preferences, qualifications,
limitations, and restrictions of which may be fixed by the Board of Directors
without any further vote or action by the stockholders. The ability to issue the
Preferred Stock could have the effect of delaying, deferring, or preventing a
change of control of the Company.
SHARES AVAILABLE FOR FUTURE SALE. The Company, the Company's directors and
officers (who own in the aggregate 17,600 shares of Common Stock and options and
warrants to purchase 2,132,000 shares of Common Stock), and the Company's
principal stockholders (who own in the aggregate 13,513,816 shares of Common
Stock and no options and warrants to purchase shares of Common Stock), have
agreed (subject to certain exceptions) not to sell, directly or indirectly, any
of their shares of Common Stock or other equity securities of the Company for
periods ranging from six to 24 months from August 14, 1995, without the consent
of the Company and Sunrise Securities Corp. ("Sunrise"), the underwriter for a
best efforts offering (the "Best Efforts Offering") by the Company pursuant to
which it sold 12,000,000 shares of Common Stock in August and September, 1995.
However, certain of such principal stockholders have pledged an aggregate of
9,685,482 shares of Common Stock beneficially owned by them to their respective
banks as collateral to secure indebtedness owed to such banks. Any shares
acquired by lenders pursuant to such pledge arrangements would not be subject to
any agreements not to sell. In addition, any shares held by a principal
stockholder who was in bankruptcy proceedings might be released, in the
discretion of the bankruptcy court, from any agreement not to sell. Moreover,
Sunrise and the Company may, in their sole discretion and at any time without
notice, release all or any portion of the securities subject to agreements not
to sell. On the expiration of the agreements not to sell, and subject to the
pledge arrangements, the principal stockholders may sell certain of the shares
of Common Stock held by them pursuant to Rule 144 under the Securities Act or
otherwise. In addition, certain of the principal stockholders have certain
demand and/or "piggyback" registration rights with respect to the Common Stock
beneficially owned by them. The sale of a significant number of shares of Common
Stock, whether by the principal stockholders, the lenders pursuant to such
pledge arrangements, or otherwise, may adversely affect the market price of the
Common Stock.
The Company currently has outstanding options to purchase 4,186,183 shares
and warrants to purchase 1,112,941 shares of Common Stock. For the life of the
outstanding options and warrants, the holders are given, at nominal cost, the
opportunity to profit if the price for the Common Stock in the public market
exceeds the exercise price of the options or warrants, without assuming the risk
of ownership, with a resulting dilution in the interest of other security
holders. If the public market price of the Common Stock does not rise above the
exercise price of the options or warrants during the exercise period, then such
securities will expire worthless. As long as the outstanding options and
warrants remain unexercised, the terms under which the Company could obtain
additional capital may be adversely affected. Moreover, the holders of these
securities may be expected to exercise them at a time when the Company would, in
all likelihood, be able to obtain any needed capital by a new offering of its
securities on terms more favorable than those provided by these securities.
In addition, if the Company exercises its option to repurchase certain
marketing rights from Purdue, the Company will issue up to 750,000 shares of
Common Stock to Purdue which the Company has agreed to utilize its best efforts
to ensure will be registered and freely tradeable. See "Business -- ALFERON N
Injection -- Marketing and Distribution -- Agreements with Purdue."
REGISTRATION RIGHTS
The Company has granted demand and/or "piggyback" registration rights with
respect to an aggregate of 9,087,424 shares (or options or warrants to purchase
shares) of Common Stock. In March 1995, holders exercised demand registration
rights with respect to an aggregate of 610,000 shares of Common Stock. Upon
exercise of such rights, the Company was required, as expeditiously as
reasonably possible, to prepare and file with the Commission a registration
statement with respect to such shares. Such shares are included in this
Prospectus, and the Company believes that it has complied with its obligations;
however, the holders of such shares may commence litigation alleging that the
Company has breached its obligations. In addition, the holder of warrants to
purchase 61,000 shares of Common Stock at a purchase price of $2.70 per share
had the right to receive notice from the Company of the Best Efforts Offering
and to have its warrants or the underlying shares of Common Stock included in
the registration statement for the Best Efforts Offering. The
10
<PAGE> 12
Company did not furnish such notice to such holder, and such holder may commence
litigation as a result, even though such shares are included in this Prospectus.
The Company is unable to predict whether any such litigation will be commenced
and, if it is, the outcome of such litigation.
VOLATILITY OF SHARE PRICE; LACK OF LIQUIDITY. There has been significant
volatility in the market prices for publicly traded shares of biotechnology
companies, including the Company. There can be no assurance that the price of
the Common Stock will remain at or exceed current levels. Factors, such as
announcements of technological or product developments by the Company or its
competitors, governmental regulation, or patent or proprietary rights
developments, may have a significant impact on the market price of the Common
Stock.
Effective August 3, 1995, the trading market for the Common Stock was
changed from the NASDAQ National Market System to the NASDAQ SmallCap Market
because of the failure of the Company to satisfy the listing requirements for
the NASDAQ National Market System. The liquidity of the Common Stock may be
adversely affected by such change.
DIVIDENDS ON COMMON STOCK UNLIKELY. The Company does not, in the
foreseeable future, anticipate paying any dividends on the Common Stock.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1995.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
(UNAUDITED)
------------------
<S> <C>
Stockholders' equity:
Preferred Stock, par value $.01 per share, 5,000,000 shares authorized;
none issued and outstanding.......................................... --
Common Stock, par value $.01 per share, 55,000,000 shares authorized;
34,448,768 shares issued and outstanding(1).......................... $ 344,488
Capital in excess of par value............................................ 82,641,859
Accumulated deficit....................................................... (68,098,259)
------------------
Total stockholders' equity...................................... $ 14,888,088
------------------
Total capitalization.................................................... $ 14,888,088
==============
</TABLE>
- ---------------
(1) Does not include (i) 3,062,850 shares of Common Stock reserved for issuance
upon the exercise of options currently outstanding under the Company's stock
option plan, (ii) 1,112,941 shares reserved for issuance upon the exercise
of currently outstanding warrants, and (iii) 1,123,333 shares reserved for
issuance upon the exercise of options issued to Sunrise in connection the
Best Efforts Offering.
The Company has no short-term or long-term debt or material long-term lease
obligations.
12
<PAGE> 14
BUSINESS
THE COMPANY
The Company is a biopharmaceutical company currently engaged in the
manufacture and sale of ALFERON N Injection, the only product approved by the
FDA that is based upon Natural Alpha Interferon. ALFERON N Injection is approved
for the treatment by injection of certain types of genital warts and is being
developed by the Company for the potential treatment of hepatitis C, hepatitis
B, HIV, multiple sclerosis, cancers, and other indications. The Company also is
developing ALFERON N Gel and ALFERON LDO, the Company's topical and oral
formulations of Natural Alpha Interferon.
CLINICAL TRIALS SUMMARY
The table appearing below summarizes the more detailed information
contained elsewhere in this Prospectus concerning clinical trials of ALFERON N
Injection, ALFERON N Gel, and ALFERON LDO being conducted or proposed to be
conducted and is qualified in its entirety by reference to that information.
<TABLE>
<CAPTION>
POTENTIAL STATUS OF CLINICAL
PRODUCT APPLICATION/INDICATIONS TRIALS(1) SPONSOR
- -------------------- ------------------------- ------------------------- ---------------------
<S> <C> <C> <C>
ALFERON N Injection HIV-infected patients Initial Phase 1 completed (2)
Phase 2/3 in final stages Company(3)
of planning
Comparison of side Phase 1 completed Purdue
effects in healthy
subjects with recombinant
alpha interferon
Hepatitis C Three multi-center Company(3)(4)
Phase 2 -- two completed,
one in progress
Hepatitis C Phase 2 in Mexico in Andromaco(5)
final stages of planning
Hepatitis C Phase 3 being planned Company
Kaposi's sarcoma Phase 2 in progress Company
(in AIDS patients)
Small cell lung cancer Phase 2 open for Investigator(6)
enrollment
Multiple sclerosis Phase 2 being planned Company(3)
Hepatitis B Phase 2 proposed (7)
ALFERON N Gel Cervical dysplasia Phase 2 completed Company
Cervical dysplasia Phase 2 in progress Investigator(5)
(in HIV-infected
patients)
Mucocutaneous herpes in Phase 2 proposed (3)
immunocompromised
patients
Recurrent genital herpes Phase 2 proposed (7)
ALFERON LDO HIV-infected patients Initial Phase 2 completed Company
HIV-infected patients Phase 2 in final stages (5)(8)
of planning
</TABLE>
- ---------------
(1) Generally, clinical trials for pharmaceutical products are conducted in
three phases. In Phase 1, studies are conducted to determine safety and
tolerance. In Phase 2, studies are conducted to gain preliminary evidence as
to the efficacy of the product as well as additional safety data. In Phase
3, studies are conducted to provide sufficient data to establish safety and
statistical proof of efficacy in a specific dose. Phase 3 is the final stage
of such clinical studies prior to the submission of an application for
approval of a new drug or licensure of a biological product or for new uses
of a previously-approved product. See "Business -- Governmental Regulation."
(2) Sponsored by Walter Reed Army Institute of Research ("Walter Reed"). Funded
by Purdue and the Company.
(Footnotes continued on next page)
13
<PAGE> 15
(3) This trial may be funded in whole or in part from the Company's working
capital. If not funded in whole from the Company's working capital, the
timing of this trial will be dependent upon the Company's ability to obtain
additional funding or a sponsor.
(4) Previously funded by Purdue; currently funded by the Company.
(5) Notice of Claimed Investigational Exemption for a New Drug has been filed .
(6) The Company provides clinical supplies.
(7) This trial will not be funded from the Company's working capital. The timing
of this trial will be dependent upon the Company's ability to obtain
additional funding or a sponsor.
(8) Sponsored by The National Institute of Allergy and Infectious Disease
("NIAID").
SCIENTIFIC BACKGROUND
Interferons are a group of proteins produced and secreted by cells to
combat diseases. Researchers have identified four major classes of human
interferon: alpha, beta, gamma, and omega. The Company's three ALFERON products
contain a form of alpha interferon. The worldwide market for injectable alpha
interferon-based products has experienced rapid growth and various alpha
interferon injectable products are approved for 17 different medical uses in
more than 60 countries.
Alpha interferons are manufactured commercially in three ways: by genetic
engineering, by cell culture, and from human white blood cells. In the United
States, only two types of alpha interferon are approved for commercial sale:
recombinant (genetically engineered) alpha interferon and Natural Alpha
Interferon, which is manufactured from human white blood cells. Outside of the
United States, sales of alpha interferon produced by cell culture account for a
significant portion of the market.
The Company believes that the potential advantages of Natural Alpha
Interferon over recombinant interferon may be based upon their respective
molecular compositions. An analysis of Natural Alpha Interferon shows that it is
composed of a family of proteins containing many different molecular species of
interferon. In contrast, recombinant alpha interferons each contain only a
single species. Researchers have reported that the various species of interferon
may have differing anti-viral activity depending upon the strain of virus.
Natural Alpha Interferon presents a broad complement of species which the
Company believes may account for its higher efficacy in laboratory studies with
the HIV virus compared with that of single species recombinant alpha interferon.
Natural Alpha Interferon is also glycosylated, or partially covered with sugar
molecules, which does not occur with recombinant alpha interferon. The Company
believes that the absence of glycosylation may be responsible for the production
of interferon-neutralizing antibodies seen in patients treated with recombinant
alpha interferon.
The production of Natural Alpha Interferon is dependent upon a supply of
human white blood cells and other essential materials. The Company currently
obtains white blood cells from FDA-licensed blood donor centers. The Company
currently has no long-term commitments for a supply of such white blood cells.
ALFERON N INJECTION
Approved Indication. On October 10, 1989, the FDA approved ALFERON N
Injection for the intralesional treatment of refractory (resistant to other
treatment) or recurring external genital warts in patients 18 years of age or
older. Substantially all of the Company's revenues, to date, have been generated
from the sale of ALFERON N Injection for such treatment. Genital warts, a
sexually transmitted disease, are caused by certain types of human papilloma
viruses. A published report estimates that approximately eight million new and
recurrent cases of genital warts occur annually in the United States alone.
Genital warts are usually treated using caustic chemicals or through physical
removal methods. These procedures can be quite painful and effective treatment
is often difficult to achieve.
Clinical Trials for New Indications. In an effort to obtain approval to
market Natural Alpha Interferon for additional indications in the United States
and around the world, the Company is focusing its research program on conducting
and planning various clinical trials for new indications.
Hepatitis C. Chronic viral hepatitis is a liver infection caused by
various hepatitis viruses. The United States Centers for Disease Control
estimates that approximately two to three million people in the United States
are presently infected with the hepatitis C virus ("HCV") and an estimated
170,000 persons become
14
<PAGE> 16
newly infected each year, a majority of whom become chronic carriers and will
suffer gradual deterioration of their liver and possibly cancer of the liver.
Several brands of recombinant and cell-cultured interferon have been approved by
various regulatory agencies worldwide for the treatment of hepatitis C,
including a recombinant product in the United States. See "Business -- ALFERON N
Injection -- Competition." However, reports have indicated that many patients
either do not respond to treatment with the recombinant product or relapse after
treatment. The Company has recently completed one multi-center, randomized,
open-label, dose-ranging Phase 2 clinical trial utilizing ALFERON N Injection
with patients chronically infected with HCV and is presently conducting two
additional such trials. The objective of the Company's HCV clinical studies is
to compare the safety and efficacy of different doses of Natural Alpha
Interferon injected subcutaneously in naive (previously untreated), refractory
(unsuccessfully treated with recombinant interferon), and relapsing (initially
responded to recombinant interferon but later relapsed) patients.
Enrollment of naive patients has been completed at six centers, and all
patients have now finished the 24-week treatment and 24-week follow-up periods.
Patients were treated with one of four dose levels of Alferon N Injection
administered subcutaneously three times per week. 77 patients were enrolled in
the study with 66 patients completing the 24 weeks of treatment. Of the 66, 63
completed follow-up. In general, treatment was well tolerated, even at the
highest dose.
Preliminary results based on ALT values (ALT is a liver enzyme whose change
is used to determine the effectiveness of the therapy) indicated a significant
dose-dependent response at the end of treatment. Complete response rates
(normalization of ALT) ranged from 11% (2 of 18) for the lowest dose group to
67% (12 of 18) for the highest. At the end of the follow-up period, complete
response rates ranged from 8% (1 of 13) for the second to lowest dose group to
44% (8 of 18) for the highest. 33% (6 of 18) of the patients receiving the
highest dose exhibited a sustained complete response (normal ALT at the end of
treatment and throughout the follow-up period).
In addition to the ALT testing, the quantity of HCV in the bloodstream of
patients was measured by polymerase chain reaction (PCR) testing. Such testing
also indicated a significant dose-dependent response as measured by the
proportion of patients having no detectable HCV in the bloodstream at the end of
treatment. The percent of patients with no detectable HCV in the bloodstream
ranged from 0% (0 of 17) for the lowest dose group to 59% (10 of 17) for the
highest. At the end of the follow-up period, the percent of patients with no
detectable HCV in the bloodstream ranged from 0% (0 of 15) for the lowest dose
group to 24% (4 of 17) for the highest. 18% (3 of 17) of the patients receiving
the highest dose had no detectable HCV in the bloodstream at the end of
treatment and throughout the follow-up period. There was a high correlation
among patients between ALT response and detectable HCV in the bloodstream at the
end of treatment and at the end of the follow-up period.
Based on an abstract of the results submitted to the American Association
for the Study of Liver Diseases ("AASLD"), this study was selected for an oral
presentation at the AASLD meeting that took place in early November 1995.
Enrollment of refractory patients has been completed at seven centers, and
all patients have finished the 24-week treatment period and most have finished
the 24-week follow-up period. Patients were treated with one of three dose
levels of Alferon N Injection administered subcutaneously three times per week.
69 patients were enrolled in the study with 63 patients completing the 24 weeks
of treatment. Of the 63, 58 completed follow-up. Again, in general, treatment
was well tolerated, even at the highest dose.
Preliminary results based on ALT values indicated a significant response at
the end of treatment, as measured by normalization or near normalization (ALT
less than 150% of the upper limit of normal) of ALT, in the highest dose group.
At the end of treatment, the complete or near complete response rates were 14%
for the lowest (3 of 22) and middle (3 of 21) dose groups to 25% (5 of 20) for
the highest. 14% of the patients who have completed follow-up and for whom data
are available (7 of 49) had complete or near complete response rates at the end
of follow-up, including 22% of the patients (4 of 18) in the lowest dose group,
8% (1 of 13) in the middle dose group, and 11% (2 of 18) in the highest dose
group. Two patients with antibodies at the commencement of the study to the
recombinant interferon product approved in the United States for treatment of
hepatitis C had complete responses; one at the end of treatment (the patient
relapsed during the follow-up period) and the other at the end of the follow-up
period.
15
<PAGE> 17
In addition to the ALT testing, the quantity of HCV in the bloodstream of
patients was measured by PCR testing. Such testing also indicated a significant
response at the end of treatment, as measured by the proportion of patients
having at least a 90% reduction in detectable HCV in the bloodstream, in the
highest dose group. At the end of treatment, the percent of patients with at
least a 90% reduction in detectable HCV in the bloodstream ranged from 6% (1 of
18) for the middle dose group to 37% (7 of 19) for the highest. 3% of the
patients who have completed follow-up and for whom data are available (1 of 36,
such patient being in the lowest dose group) showed at least a 90% reduction in
detectable HCV in the bloodstream at the end of the follow-up.
At the end of treatment, the percent of patients with either normalization
or near normalization of ALT, or at least a 90% reduction in detectable HCV in
the bloodstream, was 23% (5 of 22) for the lowest dose group, 14% (3 of 21) for
the middle, and 45% (9 of 20) for the highest.
Based on an abstract of the available results submitted to the AASLD, this
study was selected for a poster presentation at the AASLD meeting that took
place in early November 1995.
Enrollment is actively continuing in five centers for relapsing patients.
The original study protocol only permitted patients who had been previously
treated with a single six-month course of recombinant interferon therapy.
However, since so many patients have a disease relapse after a single course of
recombinant interferon therapy, many of them had been treated with two or more
courses of this therapy, and therefore did not qualify for this study. The
inability to enroll qualified patients has delayed the trial and led the Company
recently to amend its protocol to allow for enrollment of patients who have
received up to three six-month courses of recombinant interferon therapy. This
protocol change should help to accelerate enrollment.
The Company believes that the preliminary results of the trials with naive
and refractory patients are promising. However, there can be no assurance that
the use of Alferon N Injection for the treatment of patients with hepatitis C
will be cost-effective, safe, and effective or that the Company will be able to
obtain FDA approval for such use. Furthermore, even if such approval is
obtained, there can be no assurance that such product will be commercially
successful or will produce significant revenues or profits for the Company. See
"Risk Factors -- Products Under Development."
In addition to the Company's HCV clinical studies, Andromaco has agreed to
sponsor, under a United States Notice of Claimed Investigational Exemption for a
New Drug, a clinical trial in Mexico of the use of ALFERON N Injection in
patients infected with HCV. See "ALFERON N Injection -- Marketing and
Distribution -- Other Marketing and Distribution Arrangements."
HIV-infected patients. The Human Immunodeficiency Virus ("HIV") infection
is at epidemic levels in the world. The World Health Organization projects that
this virus will affect 30 to 40 million people by the year 2000. HIV infection
usually signals the start of a progressive disease that compromises the immune
systems, ultimately resulting in Acquired Immune Deficiency Syndrome or AIDS.
HIV-infected patients can be asymptomatic for many years before being afflicted
by opportunistic infections or cancer. The Company believes that slowing the
progression of the HIV infection in healthier patients may help fight against
the development of opportunistic infections and cancer.
An article published in AIDS Research and Human Retroviruses in 1993 by
investigators at Walter Reed in collaboration with the Company's scientists
indicated that the various interferon species display vast differences in their
ability to affect virus replication. Walter Reed researchers found that the
Company's Natural Alpha Interferon was 10 to 100 times more effective than
recombinant interferons in blocking the replication of HIV-1, the AIDS virus, in
infected human cells in vitro.
Moreover, the Company's scientists were able to separate members of the
interferon family in single protein fractions or clusters of proteins using
advanced fractionation techniques. The individual fractions were tested for
their ability to block HIV replication in the laboratory by researchers at
Walter Reed. They found that the unusual anti-HIV activity was attributable to
very specific fractions in the Company's product. The most active fractions are
not present in marketed recombinant interferon.
This information provided additional support for a long-held belief of the
Company that its Natural Alpha Interferon has unique anti-viral properties
distinguishing it from recombinant interferon products.
16
<PAGE> 18
These promising findings led the Walter Reed researchers to conduct a Phase 1
clinical trial with the Company's product in asymptomatic HIV-infected patients.
In March 1992, Walter Reed launched a Phase 1 clinical trial with
asymptomatic HIV-infected patients to investigate the safety and tolerance, at
several dose regimens, of Natural Alpha Interferon, self-injected subcutaneously
for periods of up to 24 weeks. The investigators concluded that the treatment
was "surprisingly" well tolerated by patients, at all dose regimens. Preliminary
findings were reported by Walter Reed at the IXth International Conference on
AIDS in Berlin in 1993. The investigators also reported that CD4 white blood
cell counts either stabilized or improved in most patients while on therapy and
that the expected interferon side effects, such as flu-like symptoms, were rare
or absent in the majority of patients treated with the Company's product.
Although this Phase 1 clinical trial was designed primarily to provide
safety information on various doses of Natural Alpha Interferon used for
extended periods of time, there were encouraging indications that certain
disease parameters had stabilized or even improved in certain patients by the
end of the experimental treatment.
In a recent follow-up analysis of patients' blood testing data, it was
found that after an average of 16 months after treatment, CD4 lymphocyte levels
(the white blood cells which normally decline in HIV infected patients) remained
essentially unchanged or were higher than at the onset of the trial in 11 of 20
patients. In addition, the amount of HIV detectable in the patients' blood, as
measured by a quantitative PCR (Polymerase Chain Reaction) technique, declined
in a dose dependent manner (the greatest declines were observed in the highest
dose group). Also, none of the patients were found to have developed
neutralizing antibodies to Natural Alpha Interferon, even after being treated
three times weekly for many months. These results were reported at the Third
International Congress on Biological Response Modifiers held in Cancun, Mexico
in January 1995, and were selected for a poster presentation at the 35th
Interscience Conference on Antimicrobial Agents and Chemotherapy held in San
Francisco in September 1995. An extensive report has been prepared and submitted
for publication.
It is important to note that, because of the small number of study
participants and the absence of a control group, no firm conclusions can be
drawn from these observations. However, the information obtained from this trial
has been helpful in designing a multi-center Phase 2 clinical trial of Natural
Alpha Interferon in HIV-infected patients.
Kaposi's sarcoma (in AIDS patients). Kaposi's sarcoma is a cancerous
growth characterized by vascular skin tumors and affects approximately 10% of
AIDS patients. It is often the first notable manifestation of AIDS, and as the
tumors become more widely disseminated on the skin, it is associated with
visceral lesions and lymph node involvement. Traditional treatment involves
single agent or combination chemotherapy, but the typical side effects of
chemotherapy can be severe. In the United States, recombinant alpha interferon
has been approved for the treatment of Kaposi's sarcoma in AIDS patients.
However, response has been limited and often followed by relapse. The Company
presently is conducting a Phase 2 clinical trial in Mexico utilizing ALFERON N
Injection for the treatment of Kaposi's sarcoma in patients with AIDS.
Small Cell Lung Cancer. Small Cell Lung Cancer ("SCLC") represents
approximately 25% of all newly-diagnosed cases of lung cancer and affected
approximately 42,000 people in 1992. Although patients with SCLC initially
respond to high-dose combination chemotherapy regimens, the rate of relapse is
high and such patients have a median survival rate of only 7 to 16 months,
depending upon the extent of disease.
The Company has agreed to supply Natural Alpha Interferon for a
multi-center, physician-initiated, Phase 2 study which is being conducted at
Allegheny General Hospital and at the University of Pittsburgh. Patients who are
in remission following successful treatment with standard chemotherapy will be
entered into this study. They will first receive high dose combination
chemotherapy, followed by peripheral blood stem cell augmentation. One month
after hematologic recovery, patients will then be given Natural Alpha Interferon
injections until evidence of disease progression or intolerable toxicity occurs.
The expected duration of
17
<PAGE> 19
treatment is up to 12 months. The goal of this study is to investigate Natural
Alpha Interferon's potential to extend the disease-free period and overall
survival of these patients.
Multiple Sclerosis. Multiple sclerosis ("MS") is a chronic, sometimes
progressive, immune-mediated disease of the central nervous system that is
believed to occur in genetically predisposed individuals following exposure to
an environmental factor, such as virus infection. The disease affects an
estimated 250,000 to 350,000 people in the United States, primarily young
adults. Symptoms of MS, including vision problems, muscle weakness, slurred
speech, and poor coordination, are believed to occur when the patient's own
cells attack and ultimately destroy the insulating myelin sheath surrounding the
brain and spinal cord nerve fibers, resulting in improper transmission of
signals throughout the nervous system.
In the United States, a recombinant form of beta interferon has been
approved for the treatment of relapsing-remitting MS. However, reports in the
scientific literature and elsewhere have indicated that the significant adverse
reactions associated with the treatment may limit its usefulness. In December
1995, an FDA advisory panel recommended approval of another recombinant form of
beta interferon for the treatment of MS. Such alternate form appeared to be
effective in halting the progression of the disease in certain patients
(something the approved form has not been shown to do) and to cause less severe
adverse reactions than the approved form. The Company is planning to conduct a
clinical trial in order to investigate the potential use of Natural Alpha
Interferon for MS, but may not start such trials unless additional funding or a
sponsor is secured.
Chronic Viral Hepatitis B. Hepatitis B ("HBV") is currently the most
common form of hepatitis virus. Approximately three and a half to four million
people in the United States are infected with this virus, with some 300,000 new
infections occurring annually and over 200 million infected people worldwide.
HBV is transmitted through contact with infected blood, sexual intercourse, and
needle-sharing among intravenous drug users. Infants born to infected mothers
may become infected as they pass through the birth canal. According to the
Centers for Disease Control, approximately 25% of hepatitis B patients develop
irreversible chronic liver conditions, and about 10% of all patients become
lifetime carriers and can transmit the virus to others. The Company is currently
planning clinical trials using ALFERON N Injection in persons infected with
hepatitis B; however, the Company does not anticipate starting the clinical
trials unless additional funding or a sponsor is secured.
Marketing and Distribution.
Agreements with Purdue. In 1988, the Company entered into exclusive
marketing and distribution agreements with Mundipharma Pharmaceutical Company
("Mundipharma"), a related entity of Purdue Pharma, with respect to ALFERON N
Injection, which agreements have been amended from time to time (as amended, the
"Purdue Marketing Agreements"). In 1991, Mundipharma assigned the right to
market and distribute ALFERON N Injection in the United States to Purdue Pharma
and retained the right to market and distribute ALFERON N Injection in Canada,
Western Europe, Israel, India, Japan, and Australia. In 1993, the Company
reacquired the right to market and distribute ALFERON N Injection in Japan.
In 1994, an amendment to these agreements was entered into (the "1994
Purdue Amendment") pursuant to which the Company reacquired the right to market
ALFERON N Injection in Western Europe and other countries and took over from
Purdue the conduct and funding of clinical trials. Specifically, the 1994 Purdue
Amendment provided, among other things, that (i) the Company reacquired the
right to market ALFERON N Injection in Western Europe, Israel, India, and
Australia (the "Returned Territories"), subject to the payment to Mundipharma of
a royalty equal to 3% of net sales (as defined) in the Returned Territories
until Mundipharma has received royalty payments equal to $3 million ($5 million
under certain circumstances) and 1% of net sales thereafter; (ii) the Company
assumed responsibility for the conduct and funding of clinical trials to develop
new indications for ALFERON N Injection; Purdue was granted the right to obtain
marketing and distribution rights for each additional indication of ALFERON N
Injection at such time as the Company files a product license application or
receives FDA approval for any such additional indication, by reimbursing the
Company for some or all of its clinical costs plus an additional lump-sum
payment; and the Company was given the right to reacquire the rights to market
and distribute ALFERON N Injection in the United States and Canada after each of
the first three additional indications if Purdue does not
18
<PAGE> 20
exercise its right to obtain marketing and distribution rights for such
indication, at a price based on a percentage of total sales or gross profit
during a specified period of all products subject to the agreement; (iii) the
Company agreed to purchase for $4.00 per share 994,994 shares of Common Stock
held by Purdue and certain related parties over a period of 18 months; (iv)
Purdue Pharma and Mundipharma retained the right to market and distribute
ALFERON N Injection in the United States and Canada, respectively, subject to
the Company's option (the "First Option") to reacquire such rights at a price of
$12 million until July 25, 1995 ($10 million if the First Option had been
exercised before January 1995); provided that the First Option could not have
been exercised unless the Company simultaneously paid the unpaid balance of the
purchase price for the 994,994 shares referred to above, which payment would
have reduced the First Option exercise price; and (v) Purdue ordered 45,000
vials of ALFERON N Injection at an agreed upon price. Unless certain minimum
purchase levels are reached during certain annual periods, or minimum payments
are made to the Company in lieu of such minimum purchases, the Company can
terminate Purdue Pharma and Mundipharma's exclusive marketing and distribution
rights. All marketing and distribution costs are borne by Purdue Pharma and
Mundipharma in their respective territories.
In March 1995, the Company entered into an amendment to the 1994 Purdue
Amendment (the "March 1995 Purdue Amendment") pursuant to which the Company
obtained an option, exercisable until June 30, 1995 (the "Second Option"), to
reacquire the remaining marketing and distribution rights from Purdue Pharma and
Mundipharma. The exercise price of the Second Option was 2.5 million shares of
Common Stock; provided that the Option could not have been exercised unless the
Company simultaneously paid the unpaid balance of the purchase price for the
994,994 shares referred to above. If, 18 months from the date of exercise of the
Second Option by the Company (the "Valuation Date"), the 2.5 million shares of
Common Stock did not have a value of at least $9,037,807 (which value was
calculated using the average of the closing bid and asked prices of the Common
Stock as quoted by the NASDAQ National Market System for the ten trading days
ending on the day prior to the Valuation Date), the Company was required to
issue a note for the shortfall. Such note was required to bear interest at the
prime rate and became due and payable 24 months from the Valuation Date. The
Company agreed that it would utilize its best efforts to ensure that the 2.5
million shares of Common Stock would be registered and freely tradeable 18
months from the date of exercise of the Second Option. If the Second Option were
exercised, the First Option, the royalty obligations, and Purdue's right to
obtain marketing and distribution rights for new indications contained in the
1994 Purdue Amendment would have terminated.
In July 1995, the Company entered into an amendment, which became effective
upon the sale on August 22, 1995 of more than the minimum number of shares of
Common Stock in the Best Efforts Offering, to the 1994 Purdue Amendment and the
March 1995 Purdue Amendment (the "July 1995 Purdue Amendment"), pursuant to
which the balance owed to Purdue for the 62,500 shares of Common Stock required
to be repurchased in April 1995 was forgiven and the Company obtained an option,
exercisable until December 31, 1996 (the "Third Option"), to reacquire the
remaining marketing and distribution rights from Purdue Pharma and Mundipharma.
The exercise price of the Third Option is $5,029,133, subject to reduction as
set forth below, plus 350,000 shares of Common Stock if exercised on or before
December 31, 1995 or 750,000 shares of Common Stock if exercised after December
31, 1995. The Company has agreed that it will utilize its best efforts to ensure
that such shares will be registered and freely tradeable upon issuance. The
Third Option may not be exercised unless the Company simultaneously pays the
unpaid balance of the purchase price for any of the 994,994 shares referred to
above then held by Purdue. As of December 8, 1995, Purdue held 619,994 of such
shares and such unpaid balance was $2,479,976. The cash exercise price of the
Third Option will be reduced by the aggregate of (i) the amount paid by the
Company to Purdue to repurchase any of such 619,994 shares then held by Purdue,
(ii) if Purdue sells any or all of such 619,994 shares, which may only be done
until December 31, 1996 with the consent of the Company, the amount received by
Purdue from such sale, and (iii) the amount by which the transfer price for
vials sold by the Company to Purdue Pharma or Mundipharma exceeds $25 per vial.
If the Third Option is exercised, the royalty obligations and Purdue's right to
obtain marketing and distribution rights for new indications contained in the
1994 Purdue Amendment will terminate. If the Third Option is not exercised, the
Company will no longer have the obligation to repurchase the 619,994 shares. In
July 1995, the Company and Purdue also agreed to extend the date on which the
Company was obligated to repurchase the final 619,994 shares of
19
<PAGE> 21
Common Stock if the July 1995 Purdue Amendment did not become effective from
July 25, 1995 to August 31, 1995 (or such earlier date on which the Best Efforts
Offering shall have terminated prior to the sale of the minimum number of shares
of Common Stock).
The Company entered into the 1994 Purdue Amendment, the March 1995 Purdue
Amendment, and the July 1995 Purdue Amendment to provide it with greater
financial flexibility and control over the worldwide marketing and distribution
of ALFERON N Injection. The July 1995 Purdue Amendment provides the Company with
the flexibility to enter into a strategic alliance with a multinational
marketing partner if it elects to exercise the Third Option.
Under the terms of the Purdue Marketing Agreements, the Company receives a
transfer price for the sale of vials of ALFERON N Injection to Purdue Pharma or
Mundipharma. Such transfer price is calculated based on either a manufacturing
cost formula or a fixed price formula (subject to consumer price index
adjustments); provided, however, that if the Company chooses the fixed price
formula, the Company may be entitled to additional payments if the net sales
price received by Purdue Pharma or Mundipharma for ALFERON N Injection exceeds
certain levels. Pursuant to the July 1995 Purdue Amendment, the transfer price
for each vial will be payable $25 in cash and the balance as an offset to the
cash exercise price of the Third Option. If the Third Option is not exercised,
such offsets will have no value. The Company may choose the applicable formula
every six months. Except as described below, Purdue Pharma and Mundipharma have
no recourse against the Company in the event that they are unable to resell
ALFERON N Injection to third parties.
In January 1994, pursuant to the 1994 Purdue Amendment, Purdue ordered
45,000 vials of ALFERON N Injection at an agreed upon price. In addition, the
Company agreed, under certain circumstances, to replace up to 15,000 vials of
ALFERON N Injection from Purdue's existing inventory at an agreed upon
discounted price. The Company also granted Purdue an option, exercisable (in
whole only) until July 25, 1995, to purchase an additional 100,000 vials of
ALFERON N Injection at an agreed upon discounted price. The option was not
exercised.
Purdue Pharma utilizes its affiliate's, The Purdue Frederick Company's,
sales force in the United States. The Purdue Frederick Company's principal
products include BETADINE(R) antiseptics, UNIPHYL(R) controlled release
theophylline, TRILISATE(R) analgesic/anti-inflammatory products, and M.S.
CONTIN(R) tablets for the prolonged relief of pain in cancer patients.
Other Marketing and Distribution Arrangements. In the first quarter of
1995, the Company concluded an agreement with Fujimoto Diagnostics, Inc.
("Fujimoto") for the commercialization of ALFERON N Injection and ALFERON N Gel
in Japan (the "Fujimoto Agreement"). Fujimoto is affiliated with Fujimoto
Pharmaceutical Company, a 60-year old company with facilities in central Japan.
The Fujimoto Agreement grants Fujimoto exclusive rights to develop, distribute,
and sell ALFERON N Injection and ALFERON N Gel in Japan. Pursuant to the terms
of the Fujimoto Agreement, Fujimoto agreed to fund and conduct all preclinical
and clinical studies required for Japanese regulatory approval. For the
injectable product, ALFERON N Injection, Fujimoto has advised the Company that
it will initially focus on the use of the product for the treatment of patients
infected with the hepatitis C virus. The Company will supply Fujimoto with
ALFERON N Injection and will also manufacture and supply Fujimoto with ALFERON N
Gel. The first indication to be developed for ALFERON N Gel has not yet been
determined. Fujimoto will also purchase certain quantities of ALFERON N
Injection and ALFERON N Gel at agreed-upon prices during the preclinical and
clinical phases. In connection with the Fujimoto Agreement, Fujimoto purchased
$1,500,000 of Common Stock for $1.45 per share (the then current market price),
and agreed to purchase an additional $500,000 of Common Stock on February 6,
1996 at the then current market price.
In February 1994, the Company entered into an exclusive distribution
agreement for ALFERON N Injection in Mexico with Industria Farmaceutica
Andromaco, S.A. De C.V. ("Andromaco"), a privately-held pharmaceutical company
headquartered in Mexico City which specializes in oncology and immunology
products. Under the agreement, Andromaco applied for and recently obtained
approval from the Mexican regulatory authorities to sell ALFERON N Injection for
the treatment of genital warts, which will be marketed under the trade name
ALTEMOL(R). Andromaco has also agreed to sponsor, under a United States Notice
of Claimed Investigational Exemption for a New Drug, a clinical trial in Mexico
of the use of
20
<PAGE> 22
ALFERON N Injection in patients infected with the hepatitis C virus. The
agreement establishes performance milestones for the maintenance of distribution
rights by Andromaco in Mexico. In addition, the Company has a buy-out option to
reacquire the marketing and distribution rights in Mexico under certain terms
and conditions.
The Company is also exploring development and marketing arrangements that
would involve the potential use of Natural Alpha Interferon for the treatment of
hepatitis B and C, multiple sclerosis, HIV-infected patients, and cancer.
Although the Company has exclusive marketing and distribution agreements
with Purdue Pharma, Mundipharma, Fujimoto, and Andromaco, and has the right to
sell ALFERON N Injection in the Returned Territories, no sales of ALFERON N
Injection can be made in Canada, Japan, or the Returned Territories until such
product is approved for sale in these countries. Submissions for regulatory
approval to sell ALFERON N Injection for treatment of genital warts have been
filed in a number of countries other than the United States and regulatory
approval has been obtained in Mexico. There can be no assurance, however, that
any additional approvals will be granted. See "Business -- Governmental
Regulation," "Risk Factors -- Regulatory Approvals," and "Risk
Factors -- Foreign Regulatory Approvals."
Manufacturing. The purified drug concentrate utilized in the formulation
of ALFERON N Injection is manufactured in the Company's facility located in New
Brunswick, New Jersey, and ALFERON N Injection is formulated and packaged at a
production facility located in McPherson, Kansas and operated by Sanofi pursuant
to a processing and supply agreement entered into in September 1994. Under the
terms of the agreement with Sanofi, the Company pays Sanofi an agreed price to
formulate and package ALFERON N Injection in accordance with specifications
provided by the Company. These facilities received FDA approval in October 1989.
Subsequently, the Company developed process improvements and completed an
expansion of its manufacturing facility, both of which were approved by the FDA
in June 1991. The process improvements and expanded facility enabled the Company
to reduce the manufacturing costs of ALFERON N Injection and gave the Company
increased production capacity for ALFERON N Injection. See "Risk
Factors -- Regulatory Approvals" and "Business -- Governmental Regulation."
Competition. Presently, INTRON(R) A, manufactured by Schering, is the one
other injectable interferon product approved by the FDA for the treatment of
genital warts. INTRON(R) A is made from recombinant alpha interferon. ALFERON N
Injection also competes with surgical, chemical, and other methods of treating
genital warts. The Company cannot assess the impact products developed by the
Company's competitors or advances in other methods of the treatment of genital
warts will have on the commercial viability of its product.
If and when the Company obtains approvals for additional indications of
ALFERON N Injection and its proposed products, it expects to compete primarily
on the basis of product performance and price with a number of pharmaceutical
companies (such as Hoffmann, Roche, Schering, Amgen Inc., and Burroughs Wellcome
Co.), both in the United States and abroad. In addition, the Company's potential
competitors have developed or may develop products (containing either alpha
interferon or other therapeutic compounds) or other treatment modalities which
may compete with the Company's products. For example, Schering's recombinant
interferon product is already approved for the treatment of hepatitis C and
hepatitis B in the United States and other markets, as well as for many other
medical uses, and there is no assurance that, if the Company is able to obtain
regulatory approval of ALFERON N Injection for the treatment of those diseases,
it will be able to achieve any significant penetration into those markets. In
addition, since production of the competitive products is not dependent on a
source of human blood cells, such products may be able to be produced in greater
volume and at a lower cost than ALFERON N Injection. Currently, the Company's
wholesale price on a per unit basis of ALFERON N Injection is substantially
higher than that of the competitive recombinant alpha interferon products. Many
of the Company's potential competitors are among the largest pharmaceutical
companies in the world, are well known to the public and the medical community,
and have substantially greater financial resources and product development,
manufacturing, and marketing capabilities than the Company or its marketing
partners.
21
<PAGE> 23
Patents and Licenses. On March 5, 1985, the United States Patent and
Trademark Office issued a patent to Hoffmann claiming purified human alpha
(leukocyte) interferon (regardless of how it is produced). In 1988, the Company
obtained a non-exclusive license from Hoffmann which allowed the Company to
make, use, and sell in the United States, without a potential patent
infringement claim from Hoffmann, (i) ALFERON N Injection for the treatment of
genital warts and (ii) injectable formulations of interferon alfa-n3 (which is
the same active ingredient contained in ALFERON N Injection), for the treatment
of patients with diseases which are refractory to recombinant interferon
therapy. On May 6, 1994, the United States Patent and Trademark Office issued an
Office Action in Reexamination on the Hoffmann patent and rejected all of the 14
claims in the Hoffmann patent. Claims in a patent under reexamination are valid
and enforceable until such time as a final disposition on the claims is reached.
On July 11, 1994, Hoffmann filed a response objecting to the Patent Office's
rejection of such claims. On July 20, 1995, the Patent Office issued another
Office Action in Reexamination on the Hoffmann patent and rejected three of the
claims in the Hoffmann patent and concluded that the remaining 11 claims are
patentable. In November 1995, Hoffmann filed another response objecting to the
Patent Office's rejection of such three claims. The outcome of such
reexamination of the Hoffmann patent cannot be determined at this time. Roche
also has been issued patents covering human alpha interferon in many countries
throughout the world. As of March 31, 1995, the Company obtained a non-exclusive
license from Hoffmann and Roche (the "Hoffmann Agreement") which grants the
Company the worldwide rights to make, use, and sell, without a potential patent
infringement claim from Hoffmann or Roche, any formulation of Natural Alpha
Interferon. The Hoffmann Agreement permits the Company to grant marketing rights
with respect to Natural Alpha Interferon products to third parties, except that
the Company cannot grant marketing rights with respect to injectable products in
any country in which Hoffmann or Roche has patent rights covered by the Hoffmann
Agreement (the "Hoffmann Territory") to any third party not listed on a schedule
of approximately 50 potential marketing partners without the consent of Hoffmann
and Roche, which consent cannot be unreasonably withheld. The Hoffmann Agreement
will enable the Company, if it is successful in obtaining necessary regulatory
approvals, to expand the formulations of Natural Alpha Interferon it makes,
uses, and sells in the United States and the rest of the world and to market its
products for the treatment of additional indications. See "Risk Factors --
Potential Patent Infringement Claims" and "Business -- ALFERON N
Injection -- Royalty Obligations."
Royalty Obligations. The Company is a party to certain license agreements
pursuant to which it is obligated to pay royalties based upon the commercial
exploitation of Natural Alpha Interferon products. Under the terms of the
Hoffmann Agreement, the Company is obligated to pay Hoffmann and Roche an
aggregate royalty on net sales (as defined) of Natural Alpha Interferon products
by the Company in an amount equal to (i) 8% of net sales in the Hoffmann
Territory, and 2% of net sales outside the Hoffmann Territory of products
manufactured in the Hoffmann Territory, up to $75,000,000 of net sales in any
calendar year and (ii) 9.5% of net sales in the Hoffmann Territory, and 2% of
net sales outside the Hoffmann Territory of products manufactured in the
Hoffmann Territory, in excess of $75,000,000 of net sales in any calendar year,
provided that the total royalty payable in any calendar year shall not exceed
$8,000,000. The Hoffmann Agreement can be terminated by the Company on 30 days'
notice with respect to the United States patent, any individual foreign patent,
or all patents owned by Hoffmann or Roche. If the Hoffmann Agreement is
terminated with respect to the patents owned by Hoffmann or Roche in a specified
country, such country is no longer included in the Hoffmann Territory. If
Hoffmann's United States patent, or the claims in such patent which the
marketing of Natural Alpha Interferon products by the Company might infringe,
were found to be invalid, the Company intends to terminate the Hoffmann
Agreement with respect to Hoffmann's United States patent, which would eliminate
the royalty payable to Hoffmann and Roche on net sales in the United States of
products manufactured in the United States. When the Company received FDA
approval for ALFERON N Injection for the treatment of genital warts in 1989, the
Company became obligated to issue shares of Common Stock to Hoffmann as a
prepaid royalty against future net sales by the Company. Under the terms of the
Hoffmann Agreement, certain payments previously made to Hoffmann (including a
portion of the value of the Common Stock previously issued to Hoffmann) are
available as offsets against 50% of the Company's future royalty obligations to
Hoffmann and Roche until the Company obtains an FDA approval to market ALFERON N
Injection for an additional indication. As of September 30, 1995, the Company
had approximately $1,084,363 of credits available to offset its future royalty
obligations to Hoffmann and Roche.
22
<PAGE> 24
Under the terms of the Purdue Marketing Agreements, unless the Third Option
is exercised and the royalty obligation is terminated as provided in the July
1995 Purdue Amendment, the Company is obligated to pay Mundipharma a royalty
equal to 3% of the net sales of ALFERON N Injection in the Returned Territories
until Mundipharma has received royalty payments equal to $3 million ($5 million
under certain circumstances) and 1% of the Company's net sales in the Returned
Territories thereafter. See "Business -- ALFERON N Injection -- Marketing and
Distribution -- Agreements with Purdue."
In addition, the Company agreed to pay NPDC a royalty of $1 million in
connection with the acquisition of certain intellectual property and technology
rights from NPDC. Such amount is payable if and when the Company generates
income before taxes, limited to 25% of such income before income taxes per year
until the amount is paid in full. See "Risk Factors -- Royalty Obligations."
PRODUCTS UNDER DEVELOPMENT
ALFERON N Gel.
ALFERON N Gel is a topical interferon preparation which the Company has
developed and believes has potential in the treatment of cervical dysplasia,
vaginal human papilloma virus infection, recurrent genital herpes, other viral
diseases, and cancers.
Clinical Trials for ALFERON N Gel. The Company has completed one clinical
trial and plans to conduct various other clinical trials for its ALFERON N Gel
formulation to develop applications and obtain initial approvals for such
products.
Cervical Dysplasia. Affecting approximately 500,000 to one million women
each year in the United States alone, cervical dysplasia, or abnormal cervical
cells, has been identified as a potential precursor to cervical cancer, which
strikes approximately 13,000 women in the United States each year. Cervical
dysplasia is caused by certain strains of the human papilloma virus (HPV), the
same family of viruses that causes genital warts. The Company has completed a
Phase 2 dose-ranging study using ALFERON N Gel at the Columbia Presbyterian
Medical Center in New York for the treatment of mild cervical dysplasia. In this
pilot study, patients were treated with either a high or low dose of ALFERON N
Gel, both of which were well-tolerated. From both the high and low dose groups,
cytological analyses of Pap smears, identification tests for the presence of
HPV, and cervical biopsies indicated that ALFERON N Gel potentially improved the
course of cervical dysplasia in the majority of patients who completed the
treatment course. Based upon these initial results, a physician-sponsored study
in HIV-infected women with cervical dysplasia commenced in August 1995, as
described below.
Cervical Dysplasia (in HIV-infected patients). Cervical dysplasia is
particularly difficult to treat in HIV-infected women. These women have a high
recurrence rate of cervical dysplasia after their initially successful surgical
treatment. As a result of the preliminary results in the initial cervical
dysplasia study described above, the investigator at Columbia-Presbyterian
Medical Center is conducting this physician-sponsored study in which ALFERON N
Gel is being used as an adjuvant to surgical treatment in HIV-infected women
with mild and more severe forms of cervical dysplasia.
Other widespread dermatological lesions potentially treatable with ALFERON
N Gel therapy. Nearly 30 million people in the U.S. are infected with the
herpes simplex type II virus, which is the infectious virus that causes genital
herpes. Up to 500,000 new cases are reported each year, according to the Alan
Guttmacher Institute. To date, there is no cure for genital herpes. Preliminary
findings with a previous formulation of recombinant interferon in the Company's
proprietary gel showed significant shortening of the contagious period and
relief of symptoms, but the Company will not start clinical trials unless
additional funding or a sponsor is secured. ALFERON N Gel may also be of benefit
to immunocompromised patients with mucocutaneous herpes. Patients with this form
of herpes suffer from persistent skin lesions which have become resistant to
existing therapies. While this disease represents an important potential target
for ALFERON N Gel treatment, additional studies may be dependent upon securing
additional funding or a sponsor.
Competition. The Company believes that only one product presently sold in
the United States is indicated for the treatment of recurrent genital herpes.
This product, ZOVIRAX(R), produced by Burroughs
23
<PAGE> 25
Wellcome Co., contains a drug called acyclovir which is administered orally in
either solution or capsule form for the management of recurrent episodes of
genital herpes. Two other ZOVIRAX(R) formulations, one of which is an ointment
and the other of which is an intravenous product, also are sold by Burroughs
Wellcome Co. in the United States for this use.
ALFERON LDO.
ALFERON LDO is a low dose oral liquid alpha interferon preparation. In
October 1989, the Company entered into an agreement (as amended, the "ACC
Agreement") with Amarillo Cell Culture Company, Incorporated ("ACC"), a
privately-held company located in Amarillo, Texas, engaged in the research and
development of animal health products. Under the terms of the ACC Agreement, the
Company has a non-exclusive license under all of ACC's issued patents, patent
applications, and "know-how" relating to the treatment of humans by the oral
administration of Natural Alpha Interferon in low doses. The Company will be
obligated to pay ACC royalties of 10% on the sales of Natural Alpha Interferon
products using ACC's patented technology as determined under the ACC Agreement.
In addition, ACC has the right to purchase the Company's Natural Alpha
Interferon for use in the animal health market and is obligated to pay royalties
to the Company based upon sales using the Company's Natural Alpha Interferon. In
April 1995, in connection with certain amendments to the ACC Agreement, ACC
agreed to purchase 312,500 shares of Common Stock at $2.00 per share and Pharma
Pacific Management Pty. Ltd. ("PPM"), a company which has also obtained a
license from ACC, agreed to purchase 62,500 shares of Common Stock at $2.00 per
share, all of which shares were purchased during the second quarter of 1995.
Clinical Trials for ALFERON LDO. The Company has conducted and plans to
conduct various clinical trials for its ALFERON LDO formulation to develop
applications and obtain initial approvals for such products.
HIV-infected patients. The Company has completed two studies at Mount
Sinai Medical Center in New York involving ALFERON LDO. One was a
placebo-controlled study in AIDS-related complex ("ARC") patients, and the other
was a dose ranging study in AIDS or ARC patients. The results from the
placebo-controlled study did not demonstrate a significant improvement or
alteration in the expected progression of the disease, although patients
receiving ALFERON LDO reported greater energy and appetite than those given the
placebo. Preliminary results from the dose ranging study indicate that one of
the doses may promote weight gain and increased energy.
At the insistence of AIDS groups and community-based physicians who had
been using low-dose formulations of interferon in their practice, the NIAID
agreed to launch a trial of low-dose oral interferon in the United States. An
advisory committee comprised of representatives from interferon manufacturers,
AIDS support groups, FDA, and National Institutes of Health was organized to
design a nationwide, controlled study. This study will investigate the effect of
a number of oral dosage forms of alpha interferon on several quality-of-life
parameters of importance to patients infected with the AIDS virus.
The Company has been active in helping plan this trial, and has agreed to
make clinical quantities of ALFERON LDO available for use in the study. In a
February 24, 1995 press release, the NIAID AIDS Research Advisory Committee
reaffirmed the need to conduct this study and stated that the NIAID will now
begin implementation of this trial. Based upon this press release, the Company
believes that this trial will begin later this year if the NIAID completes all
the necessary steps to initiate this trial.
Competition. Under the terms of the ACC Agreement, (i) the Company has the
exclusive right to sell ALFERON LDO, containing Natural Alpha Interferon, in the
United States and all foreign countries other than Japan, (ii) ACC and PPM each
has the right to sell any interferon other than Natural Alpha Interferon in the
United States and all foreign countries other than Japan, and (iii) Hayashibara
Biochemical Laboratory has the right to sell its low dose alpha interferon in
Japan. Therefore, with respect to low dose oral interferon products, the Company
will potentially compete with ACC and PPM in the United States and in the rest
of the world except Japan.
24
<PAGE> 26
ALFERON N Gel and ALFERON LDO.
Sales and Marketing Staff. The Company does not have a marketing or sales
staff nor does it have a marketing agreement with respect to ALFERON N Gel
(other than the Fujimoto Agreement) or ALFERON LDO and, if FDA marketing
approval of ALFERON N Gel OR ALFERON LDO is obtained, no assurance can be given
that the Company will be able to enter into a marketing agreement for such
products on terms satisfactory to the Company. In February 1995, the Company
entered into the Fujimoto Agreement which, among other things, grants Fujimoto
the exclusive right to develop, distribute, and sell ALFERON N Gel in Japan. See
"Business -- ALFERON N Injection -- Other Marketing and Distribution
Agreements."
Patents and Licenses. The United States Patent and Trademark Office issued
two patents to the Company which disclose and claim topical interferon
preparations. The patents encompass interferon preparations for the topical
delivery of one or more interferons to the site of a disease which responds
therapeutically to interferon, and a system for delivering interferon topically
which prevents oxidation of the protein. The inventions specifically encompass
the topical treatment for treating viral diseases, such as herpes genitalis,
with alpha interferon. The Company has various other issued patents and patent
applications pending in the field of biotechnology, purification processes, and
therapeutics. See "Business -- ALFERON N Injection -- Patents and Licenses."
Royalty Obligations. The Company is a party to certain license agreements,
including the Hoffmann Agreement, pursuant to which it is obligated to pay
royalties based upon commercial exploitation of ALFERON N Gel and ALFERON LDO.
Under the terms of such license agreements, the Company would pay royalties of
up to 13.5% and 19.5% of net sales of ALFERON N Gel and ALFERON LDO,
respectively. See "Risk Factors -- Royalty Obligations."
GOVERNMENTAL REGULATION
Regulations imposed by U.S. federal, state, and local authorities, as well
as their counterparts in other countries, are a significant factor in the
conduct of the research, development, manufacturing, and marketing activities
for present and proposed products developed by the Company.
The Company's or its licensees' potential products will require regulatory
approval by governmental agencies prior to commercialization. In particular,
human medical products are subject to rigorous pre-clinical and clinical testing
and other approval procedures by the FDA in the United States and similar health
authorities in foreign countries. Various federal and, in some cases, state
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, recordkeeping, and marketing of such products, including the
use, manufacture, storage, handling, and disposal of hazardous materials and
certain waste products. The process of obtaining these approvals and the
subsequent compliance with applicable federal and foreign statutes and
regulations involves a time-consuming process and requires the expenditure of
substantial resources.
The effect of government regulation may be to delay for a considerable
period of time or prevent the marketing of any product that the Company may
develop and/or impose costly procedures on the Company's activities, the result
of which may be to furnish an advantage to the Company's competitors. Any delay
in obtaining or failure to obtain such approvals would adversely affect the
marketing of the Company's products and the ability to earn product revenue.
Before testing of any agents with potential therapeutic value in healthy
human test subjects or patients may begin, stringent government requirements for
pre-clinical data must be satisfied. These data, obtained from studies in
several animal species, as well as from laboratory studies, are submitted in a
Notice of Claimed Investigational Exemption for a New Drug ("IND") or its
equivalent in countries outside the U.S. where clinical studies are to be
conducted. If the necessary authorizations are received, the Company then
conducts clinical tests of its products on human beings at various unaffiliated
medical centers and institutions. Initial trials (Phase 1) are conducted on a
small number of volunteers to determine whether the drug is safe for human
beings. If the initial trials demonstrate the safety of the product, trials
(Phase 2) are then conducted on patients affected with the disease or condition
under investigation to establish the proper dose and dosing
25
<PAGE> 27
interval. The findings of these trials are then used to design and implement
large-scale controlled trials (Phase 3) to provide statistical proof of
effectiveness and adequate evidence of safety to meet FDA and/or foreign
approval requirements.
The FDA closely monitors the progress of each of the phases of clinical
testing and may, at its discretion, re-evaluate, alter, suspend, or terminate
the testing based on the data which have been accumulated to that point and its
assessment of the risk/benefit ratio to the patient. Estimates of the total time
required for completing clinical testing vary between four and ten years. Upon
successful completion of clinical testing of a new drug, a company typically
submits a New Drug Application ("NDA"), or for biological products such as
Natural Alpha Interferon, a Product and Establishment License Applications
("PLA/ELA") to the FDA summarizing the results and observations of the drugs
during the clinical trials.
To the extent a portion of the manufacturing process for a product is
handled by an entity other than the Company, the Company must similarly receive
FDA approval for the other entity's participation in the manufacturing process.
The Company has entered into an agreement with Sanofi, pursuant to which Sanofi
formulates and packages ALFERON N Injection. The Company presently has a
biologic establishment license for the facilities in which it produces ALFERON N
Injection, which includes the facilities in which Sanofi formulates and packages
ALFERON N Injection. In addition, FDA approval would have to be obtained if the
Company should choose to use an outside formulator and/or packager for ALFERON N
Gel or ALFERON LDO.
Once the manufacture and sale of a product is approved, various FDA
regulations govern the production processes and marketing activities of such
product. A post-marketing testing, surveillance, and reporting program may be
required to continuously monitor the product's usage and effects. Product
approvals may be withdrawn, or other actions may be ordered, if compliance with
regulatory standards is not maintained.
Each individual lot of Natural Alpha Interferon produced must be tested for
compliance with specifications and released for sale by the FDA prior to
distribution in the marketplace. Even after initial FDA marketing approval for a
product has been granted, further studies may be required to provide additional
data on safety or efficacy; to obtain approval for marketing a product as a
treatment for specific diseases other than those for which the product was
originally approved; to change the dosage levels of a product; to support new
safety or efficacy claims for the product; or to support changes in
manufacturing methods, facilities, sources of raw materials, or packaging.
In many markets, effective commercialization also requires inclusion of the
product in national, state, provincial, or institutional formularies or cost
reimbursement systems. The impact of new or changed laws or regulations cannot
be predicted with any accuracy. The Company uses its own staff of regulatory
affairs professionals and outside consultants to enable it to monitor
compliance, not only with FDA laws and regulations, but also with state and
foreign government laws and regulations. See "Risk Factors -- Regulatory
Approvals."
Promotional and educational communications by the Company and its
distributors also are regulated by the FDA and are governed by statutory and
regulatory restrictions and FDA policies regarding the type and extent of data
necessary to support claims that may be made. The Company currently does not
have data adequate to satisfy FDA requirements with respect to potential
comparative claims between Natural Alpha Interferon and competing recombinant
interferon products.
For marketing outside the United States, the Company will also be subject
to foreign regulatory requirements governing human clinical trials,
manufacturing, and marketing approval for drugs and other medical products. The
requirements governing the conduct of clinical trials, product licensing,
pricing, and reimbursement vary widely from country to country. See "Risk
Factors -- Foreign Regulatory Approvals" and "Risk Factors -- Uncertainty of
Pharmaceutical Pricing and Related Matters; Need for Reimbursement."
26
<PAGE> 28
SELLING STOCKHOLDERS
The following table sets forth certain information as of the date of this
Prospectus with respect to the Selling Stockholders. The shares to be sold by
the Selling Stockholders represent shares of Common Stock currently owned by the
Selling Stockholders or which may be acquired by them on exercise of warrants.
The Company will receive the exercise price on any such exercise but will not
receive any of the proceeds from the sale of such shares. Beneficial ownership
after this offering will depend on the number of shares sold by each Selling
Stockholder.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED PERCENTAGE OF
NAME AND ADDRESS PRIOR TO THIS CLASS PRIOR TO NUMBER OF
OF BENEFICIAL OWNER OFFERING THIS OFFERING(1) SHARES OFFERED
- -------------------------------------- ------------------ ------------------ --------------
<S> <C> <C> <C>
Gary Kaufman.......................... 30,000(2) (3) 30,000(2)
DFA Group Trust-Small Company
Subtrust............................ 377,000 (3) 312,000(4)
U.S. 6-10 Small Company Series of the
DFA Investment Trust Company........ 15,900 (3) 7,000(4)
The 6-10 Subtrust of DFA Group
Trust............................... 136,000 (3) 111,000(4)
U.S. 9-10 Small Company Portfolio of
DFA Investment Dimensions Group
Inc................................. 210,000 (3) 180,000(4)
Capello Capital Corp.................. 61,000(5) (3) 61,000(5)
Commonwealth Associates............... 90,832(6) (3) 90,832(6)
James Mitarotonda..................... 16,574(6) (3) 16,574(6)
Kerry Dukes........................... 10,772(6) (3) 10,772(6)
Jacob Agam............................ 99,446(6) (3) 99,446(6)
Michael Falk.......................... 35,634(6) (3) 35,634(6)
Edmund Shea........................... 22,968(6) (3) 22,968(6)
James Giordano........................ 55,257(6) (3) 55,257(6)
</TABLE>
- ---------------
(1) The percentage of class calculation assumes for each beneficial owner that
all of the options or warrants are exercised in full only by the named
beneficial owner and that no other options or warrants are deemed to be
exercised by any other stockholders.
(2) Consists of shares purchased pursuant to a Purchase Agreement dated May 28,
1993 and shares acquired pursuant to a Purchase and Exchange Agreement
dated December 6, 1994. The purchaser has certain demand registration
rights as to the securities acquired under the Purchase Agreement and
certain demand and "piggyback" registration rights as to the securities
acquired under the Purchase and Exchange Agreement. Pursuant to the
Purchase Agreement, the purchaser agreed to vote for the election of two
nominees of NPDC as directors of the Company. Such agreement was cancelled
pursuant to the Purchase and Exchange Agreement.
(3) Less than 1%.
(4) Shares purchased pursuant to a Stock Purchase Agreement dated as of August
31, 1994 by a Selling Stockholder who is an entity advised by Dimensional
Fund Advisors Inc. The purchaser has certain demand and "piggyback"
registration rights as to the securities acquired under the Stock Purchase
Agreement.
(5) Consists of shares issuable upon exercise of warrants with an exercise
price of $2.70 per share and expiring on August 31, 1999. Such warrants
were issued in connection with a private placement by the Company in August
1994 of 610,000 shares of Common Stock to entities advised by Dimensional
Fund Advisors Inc. for which Capello Capital Corp. acted as placement
agent. The holder of the warrants has certain "piggyback" registration
rights as to the warrants and underlying shares of Common Stock.
(6) Consists of shares issuable upon exercise of warrants with an exercise
price of $3.62 per share and expiring on October 29, 1996. Such warrants
were issued in connection with an underwritten public offering by the
Company in October 1991 of 2,000,000 shares of Common Stock for which
Commonwealth Associates ("Commonwealth") served as representative of the
underwriters. The holders of such warrrants have certain demand and
"piggyback" registration rights as to the warrants and underlying shares of
Common Stock. The Company has agreed, for a period of five years commencing
upon the completion of such offering, to use its best efforts to secure the
election of a designee of Commonwealth
27
<PAGE> 29
to the Board of Directors of the Company. Mr. E. Donald Shapiro was so
designated by Commonwealth and served as a director of the Company from
October, 1991 until his resignation in May, 1995. Commonwealth has not
designated a replacement for Mr. Shapiro. In addition, the Company retained
Commonwealth as financial advisor at an annual fee of $26,244 for a
two-year period commencing upon the completion of such offering and agreed
to pay Commonwealth an additional fee in connection with its participation
in any completed transaction. Each individual Selling Stockholder who owns
such warrants, other than Jacob Agam, is or was an officer or partner of
Commonwealth. Mr. Agam received his warrants, and approximately $87,000,
for his services in connection with introducing the Company to
Commonwealth.
The sale of shares of Common Stock by the Selling Stockholders may be
effected from time to time in transactions (which may include block transactions
by or for the account of the Selling Stockholders) in the over-the-counter
market or in negotiated transactions, through the writing of options on such
shares, a combination of such methods of sale, or otherwise. Sales may be made
at fixed prices which may be changed, at market prices prevailing at the time of
sale, or at negotiated prices.
Selling Stockholders may effect such transactions by selling their shares
directly to purchasers, through broker-dealers acting as agents for the Selling
Stockholders, or to broker-dealers who may purchase shares as principals and
thereafter sell the shares from time to time in the over-the-counter market, in
negotiated transactions, or otherwise. Such broker-dealers, if any, may receive
compensation in the form of discounts, concessions, or commissions from the
Selling Stockholders and/or the purchasers for whom such broker-dealers may act
as agents or to whom they may sell as principals or both (which compensation as
to a particular broker-dealer may be in excess of customary commissions).
The Selling Stockholders and broker-dealers, if any, acting in connection
with such sale might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act and any commission received by them and any
profit on the resale of such shares might be deemed to be underwriting discounts
and commissions under the Securities Act.
LEGAL MATTERS
The legality of the securities offered hereby will be passed on for the
Company by Lawrence M. Gordon, General Counsel of the Company. Mr. Gordon does
not own any shares of Common Stock but has options to purchase 312,500 shares of
Common Stock, 222,500 of which are currently exercisable.
EXPERTS
The audited consolidated financial statements of the Company and its
subsidiary at December 31, 1994 and 1993, and for each of the years in the three
year period ended December 31, 1994, incorporated by reference herein have been
incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in auditing and
accounting. The report of KPMG Peat Marwick LLP contains an explanatory
paragraph that states that the Company's recurring losses from operations and
accumulated deficit raise substantial doubt about its ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the shares of Common Stock being
offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Offering, reference is made to the Registration Statement,
including the exhibits thereto, which may be inspected without charge at the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the Registration Statement may be obtained from the Commission at its
principal office upon payment of prescribed fees. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance where such contract or other document
is an exhibit to the Registration Statement, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each statement being qualified in all respects by such reference.
28
<PAGE> 30
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES AS OF WHICH
SUCH INFORMATION IS GIVEN.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company......................... 3
Risk Factors........................ 3
Capitalization...................... 12
Business............................ 13
Selling Stockholders................ 27
Legal Matters....................... 28
Experts............................. 28
Additional Information.............. 28
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
INTERFERON SCIENCES, INC.
1,032,483 SHARES
OF
COMMON STOCK
------------------
PROSPECTUS
------------------
, 1995
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 31
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemized statement of all estimated
expenses in connection with the issuance and distribution of the securities
being registered hereby other than the SEC fee.
<TABLE>
<S> <C>
SEC registration fee....................................................... $ 645
Accounting fees and expenses............................................... 5,000
Legal fees and expenses.................................................... 10,000
Cost of printing........................................................... 25,000
Miscellaneous.............................................................. 9,355
-------
Total............................................................ $50,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 9 of the Company's Restated Certificate of Incorporation provides
that the Company shall, to the full extent then permitted by law, indemnify all
persons whom it may indemnify pursuant thereto. In addition, Article 10 of the
Company's Restated Certificate of Incorporation eliminates personal liability of
its directors to the full extent permitted by Section 102(b)(7) of the General
Corporation Law of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation to indemnify its directors and officers against expenses
(including attorney's fees), judgments, fines and amounts paid in settlements
actually and reasonably incurred by them in connection with any action, suit or
proceeding brought by third parties, if such directors or officers acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reason to believe their conduct was unlawful. In a derivative
action, i.e., one by or in the right of the corporation, indemnification may be
made only for expenses actually and reasonably incurred by directors and
officers in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interest of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant officers or directors are
reasonably entitled to indemnity for such expenses despite such adjudication of
liability.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation may eliminate or limit the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate or limit
the liability of a director for any act or omission occurring prior to the date
when such provision becomes effective.
The Company currently has a $1,000,000 directors' and officers' liability
insurance policy.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<S> <C> <C>
(a) -- Exhibits
5.1 -- Opinion of Lawrence M. Gordon, Esq., General Counsel, Registrant, as to the
legality of the securities being registered*
23.1 -- Consent of Independent Auditors*
23.2 -- Consent of Lawrence M. Gordon (included in Exhibit 5.1)*
(b) -- Financial Statement Schedules
None
</TABLE>
- ---------------
* Filed herewith.
II-1
<PAGE> 32
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act, as amended (the "Securities Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
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, 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.
A. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
B. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
Provided, however, That paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished
to the Commission by the Registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference
in this Registrant Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remains unsold at the
termination of the offering.
II-2
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, and the State of New York, on this 12th day
of December, 1995.
INTERFERON SCIENCES, INC.
By: /s/ SAMUEL H. RONEL, PH.D.
------------------------------------
Samuel H. Ronel, Ph.D.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in their
capacities on December 12, 1995.
<TABLE>
<C> <S>
/s/ MARTIN M. POLLAK Chairman of the Board
- ---------------------------------------------
Martin M. Pollak
/s/ JEROME I. FELDMAN Chairman of the Board's Executive Committee,
- --------------------------------------------- Treasurer and Director
Jerome I. Feldman
/s/ SAMUEL H. RONEL, PH.D. President, Chief Executive Officer, and
- --------------------------------------------- Director
Samuel H. Ronel, Ph.D. (Principal Executive Officer)
/s/ STANLEY G. SCHUTZBANK, PH.D. Executive Vice President and Director
- ---------------------------------------------
Stanley G. Schutzbank, Ph.D.
Director
- ---------------------------------------------
Leon Botstein, Ph.D.
Director
- ---------------------------------------------
Sheldon L. Glashow, Ph.D
Director
- ---------------------------------------------
Roald Hoffmann, Ph.D
/s/ OGDEN R. REID Director
- ---------------------------------------------
Ogden R. Reid
/s/ DONALD W. ANDERSON Controller (Principal Accounting and Financial
- --------------------------------------------- Officer)
Donald W. Anderson
</TABLE>
The foregoing constitute a majority of the members of the Board of
Directors.
II-3
<PAGE> 34
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <C> <S> <C>
5.1 -- Opinion of Lawrence M. Gordon, Esq., General Counsel, Registrant, as to
the legality of the securities being registered*
23.1 -- Consent of Independent Auditors*
23.2 -- Consent of Lawrence M. Gordon (included in Exhibit 5.1)*
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
[MASTER]
EXHIBIT 5.1
INTERFERON SCIENCES, INC. [LOGO] [LETTERHEAD]
December 12, 1995
Interferon Sciences, Inc.
783 Jersey Avenue
New Brunswick, New Jersey 08901
Gentlemen:
Reference is made to the Registration Statement on Form S-3 of Interferon
Sciences, Inc. (the "Company") relating to the registration of shares of the
Company's common stock, par value $.01 per share (the "Common Stock").
I am General Counsel of the Company, and have examined such corporate
records and other documents as I have deemed relevant. Based upon the above, I
am of the opinion that the Common Stock to be sold pursuant to the
Registration Statement is validly authorized and issued, fully paid, and
non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the use of my name in the Prospectus.
Very truly yours,
Lawrence M. Gordon
<PAGE> 1
23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Interferon Sciences, Inc.
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
Our report dated April 3, 1995 contains an explanatory paragraph that states
that the Company has suffered recurring losses from operations and has an
accumulated deficit, which raise substantial doubt about its ability to continue
as a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
KPMG PEAT MARWICK LLP
New York, New York
December 12, 1995
