As filed with the Securities and Exchange Commission on December 9, 1998
Registration No. 333-62909
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
AMENDMENT NO.1 TO FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
----------
PHARMOS CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 36-3207413
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
33 Wood Avenue South, Suite 466
Iselin, New Jersey 08830
(732) 603-3526
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
----------
GAD RIESENFELD
33 Wood Avenue South, Suite 466
Iselin, New Jersey 08830
(732) 603-3526
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
----------
Copies to:
ADAM D. EILENBERG, ESQ.
Ehrenreich Eilenberg Krause & Zivian LLP
11 East 44th Street, 17th Floor
New York, New York 10017
----------
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of the registration statement
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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. |_|
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.|_|
The registrant hereby amends the registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that 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>
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 pursuant to this Prospectus 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 9, 1998
PROSPECTUS
PHARMOS CORPORATION
-------------------
3,000,000 SHARES OF COMMON STOCK
All of the shares (the "Shares") of Common Stock, par value $.03 per share
("Common Stock"), of Pharmos Corporation, a Nevada corporation ("Pharmos" or the
"Company"), offered hereby are being offered for sale by the Company from time
to time.
The Shares will be sold at prices and on terms to be determined at the time
of a sale or sales. The Shares may be sold on a negotiated or competitive bid
basis to or through underwriters or dealers designated from time to time. In
addition, the Shares may be sold by the Company to other purchasers directly or
through agents. Certain terms of the sale of the Shares in respect of which this
Prospectus is being delivered, including, where applicable, the names of the
underwriters, dealers and agents, the public offering price, the proceeds to the
Company from such sale, and any applicable commissions, discounts and other
terms constituting compensation to such underwriters, dealers or agents, will be
set forth in a Prospectus Supplement, to the extent required (the "Prospectus
Supplement"). See "Plan of Distribution".
The Company's Common Stock is traded on the over-the-counter market and is
quoted on the Nasdaq SmallCap Market under the symbol "PARS" The closing price
of the Company's Common Stock on December 4, 1998 was $1.72.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION AS
DESCRIBED HEREIN (SEE "RISK FACTORS" AND "DILUTION").
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 _________________________
<PAGE>
AVAILABLE INFORMATION
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 reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the Commission's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048, and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials also may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, the Company is required to file electronic
versions of these documents through the Commission's Electronic Data Gathering,
Analysis and Retrieval system (EDGAR). The Commission maintains a World Wide Web
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, supplements, exhibits and schedules thereto,
the "Registration Statement") under the Securities Act, with respect to the
Shares offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement, as certain items are omitted in
accordance with the rules and regulations of the Commission. For further
information pertaining to the Company and the Shares, reference is made to such
Registration Statement. Statements contained in this Prospectus or in any
document incorporated herein by reference regarding the contents of any
agreement or other document are not necessarily complete, and in each instance
reference is made to the copy of such agreement or document filed as an exhibit
to the Registration Statement or such other document, each such statement being
qualified in all respects by such reference. The Registration Statement may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of all or any part thereof may be
obtained from the Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K, as amended by Amendment No.
1, dated May 14, 1998, Amendment No.2, dated July 13, 1998 and Amendment
No. 3, dated July 14, 1998, for the fiscal year ended December 31, 1997,
filed pursuant to Section 13 of the Exchange Act (the "Form 10-K").
(b) The Company's Quarterly Report on Form 10-Q, as amended on November 5,
1998, for the quarter ended March 31, 1998, filed pursuant to Section 13 of
the Exchange Act.
(c) The Company's Quarterly Report on Form 10-Q, as amended on November 5,
1998 and November 16, 1998, for the quarter ended June 30, 1998, filed
pursuant to Section 13 of the Exchange Act.
<PAGE>
(d) The Company's Quarterly Report on Form 10-Q, for the quarter ended
September 30, 1998, filed pursuant to Section 13 of the Exchange Act.
(e) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A dated January 30, 1984, filed pursuant
to Section 12 of the Exchange Act.
(f) The Company's Current Report on Form 8-K, including the exhibits
thereto, dated February 4, 1998.
(g) The Company's Current Report on Form 8-K, dated March 10, 1998.
(h) The Company's Preliminary Proxy Statement for the Annual Meeting of
Stockholders to be held on September 16, 1998, filed with the Commission on
August 7, 1998.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the termination of the offering of the Securities registered hereby
shall be deemed to be incorporated by reference into 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 or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes 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.
The Company will furnish to each person to whom this Prospectus is
delivered, upon written request, a copy of any or all of the documents referred
to by reference, other than exhibits to such documents unless such exhibits are
specifically incorporated herein by reference. Requests should be addressed to:
Mr. Gad Riesenfeld, President and Chief Operating Officer, Pharmos Corporation,
33 Wood Avenue South, Suite 466, Iselin, New Jersey 08830.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS OR IN ANY APPLICABLE PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY
APPLICABLE PROSPECTUS SUPPLEMENT NOR ANY SALE MADE UNDER THIS PROSPECTUS AND ANY
APPLICABLE PROSPECTUS SUPPLEMENT SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF AND THEREOF OR THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS
OR ANY APPLICABLE PROSPECTUS SUPPLEMENT IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THEIR RESPECTIVE DATES. THIS PROSPECTUS AND ANY APPLICABLE PROSPECTUS SUPPLEMENT
DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH THEY RELATE. THIS
PROSPECTUS AND ANY APPLICABLE PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this Prospectus and any Prospectus Supplement, and in
the documents incorporated herein and therein by reference, constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 2B of the Exchange Act. For this purpose, any statements
contained in this Prospectus and any Prospectus Supplement, or incorporated
herein or therein by reference, that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "plans," "expects" and similar expressions are intended to
identify forward-looking statements. There are a number of important factors
that could cause the results of the Company to differ materially from those
indicated by such forward-looking statements. These factors include those set
forth under the heading "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors That May Affect
Future Results" in the Form 10-K and those set forth in "Risk Factors" herein.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, the terms "Pharmos" and "the Company" refer collectively to Pharmos
Corporation and its subsidiaries.
The Company
Pharmos is a pharmaceutical company engaged in the discovery, development
and commercialization of pharmaceuticals and delivery formulations based on
rational drug design. The Company is developing pharmaceuticals in three fields:
site specific drugs for ophthalmic indications, neuroprotective agents with a
novel mechanism of action for the treatment of certain central nervous system
("CNS") disorders and newly designed molecules to treat certain types of cancer.
The Company is also developing an emulsion-based delivery formulation for
topical and systemic applications.
In March 1998, the Company, together with its partner, Bausch & Lomb
Pharmaceuticals, Inc ("BLP"), announced the receipt of approval from the Food
and Drug Administration ("FDA") to manufacture and market two ophthalmic
products, Lotemax(TM) and Alrex(TM) . Lotemax is a topical, site-specific
steroid that is used to treat all steroid responsive inflammation of the eye as
well as post-operative eye inflammation such as that experienced following
cataract surgery. Lotemax was approved by the FDA for the broadest range of
indications of any ophthalmic steroid on the market. Alrex is a specially
developed formula of loteprednol etabonate that is used in the treatment of eye
allergies.
The regulatory approvals for Lotemax and Alrex are the first two of three
to be sought for the Company's and BLP's line of ophthalmic products containing
loteprednol etabonate ("LE"). The third product, which combines the active
ingredient LE with the anti-infective agent tobramycin ("LE-T"), is in clinical
development.
BLP, a subsidiary of the global eye care company Bausch & Lomb
Incorporated, co-developed Lotemax and Alrex with the Company after the Company
granted BLP the rights to market the new ophthalmic pharmaceutical line in 1995.
In 1996, BLP's rights were extended to select international markets including
Europe and Canada.
Dexanabinol (HU-211), the Company's lead CNS product aimed initially at
treating severe head trauma and stroke, is currently being studied in a Phase II
clinical trial for severe head trauma. The Company's tamoxifen analog
anti-cancer program is advancing in preclinical development.
Pharmos was incorporated in the State of Nevada in 1982. The Company's
executive offices are located at 33 Wood Avenue South, Suite 466, Iselin, New
Jersey 08830, and its telephone number is (732) 603-3526. The Company also
leases facilities used in the operation of its research, development, pilot
manufacturing and administrative activities in Rehovot, Israel.
1
<PAGE>
The Offering
Common Stock offered by the Company................... 3,000,000 shares
Common Stock to be outstanding after the Offering(1).. 42,355,843 shares
Use of proceeds....................................... The proceeds of the
Offering will be
used primarily for
research and product
development
activities;
conducting
preclinical studies
and clinical trials;
and the equipping of
facilities.
Nasdaq SmallCap symbol................................ "PARS"
- ----------
(1) Common Stock outstanding does not include the following shares of Common
Stock that were issuable as of December 4, 1998: (i) 923,934 shares
issuable upon the exercise of outstanding options which are exercisable at
a weighted average exercise price of $2.39; (ii) 4,359,713 shares issuable
upon the exercise of outstanding warrants which are exercisable at a
weighted average exercise price of $2.01; and (iii) 967,742 shares issuable
upon the conversion of 1,500 shares of Series C Preferred Stock which are
currently issued and outstanding. (The number of shares of Common Stock
assumes that all shares of Series C Preferred Stock were converted on
December 4, 1998 at a conversion price of $1.55. Holders of Series C
Preferred Stock have the right to convert their shares at the lower of (i)
90% of the average of the lowest sale price of the Common Stock for the
five consecutive trading days ending on the trading day immediately
preceding the conversion date or (ii) $2.891.) See "Description of
Securities --Preferred Stock."
2
<PAGE>
RISK FACTORS
The Shares offered hereby involve a high degree of risk. The following risk
factors should be considered carefully in addition to the other information
included or incorporated by reference in this Prospectus or in any Prospectus
Supplement before purchasing the Shares offered hereby and thereby.
Early Stage of Development; Technological Uncertainty
The Company is at an early stage of development. Apart from Lotemax and
Alrex, most of the Company's other potential products are early in the research
and development phase, and product revenues may not be realized from the sale of
any such products for at least the next several years, if at all. Many of the
Company's proposed products will require significant additional research and
development efforts prior to any commercial use, including extensive preclinical
and clinical testing as well as lengthy regulatory approval. There can be no
assurance that the Company's research and development efforts will be
successful, that the Company's potential products will prove to be safe and
effective in clinical trials or that any commercially successful products will
ultimately be developed by the Company.
History of Operating Losses; Accumulated Deficit
The Company has experienced significant operating losses since its
inception. As of September 30, 1998, the Company had an accumulated deficit of
approximately $77 million. The Company expects to incur operating losses over
the next several years as the Company's research and development efforts and
preclinical and clinical testing activities continue. The Company's ability to
achieve profitability depends in part upon its ability, alone or with others, to
successfully commercialize its first approved product, to complete development
of its other proposed products, to obtain required regulatory approvals and to
manufacture and market such products.
Future Capital Needs; Uncertainty of Additional Financing
The Company's operations to date have consumed substantial amounts of cash.
The development of the Company's technology and potential products will require
a commitment of substantial funds to conduct the costly and time-consuming
research necessary to develop and optimize such technology, and ultimately, to
establish manufacturing and marketing capabilities. The Company's future capital
requirements will depend on many factors, including continued scientific
progress in the research and development of the Company's technology and drug
programs, the ability of the Company to establish and maintain collaborative
arrangements with others for drug development, progress with preclinical and
clinical trials, the time and costs involved in obtaining regulatory approvals,
the costs involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims, competing technological and market developments, changes in its
existing research relationships and effective product commercialization
activities and arrangements.
3
<PAGE>
The Company believes that its current cash resources and interest income
thereon should be sufficient to fund its operating expenses and capital
requirements as currently planned into the first quarter of 1999. The Company
will seek additional funding through collaborative arrangements or through
future public or private equity or debt financing. There can be no assurance
that additional financing will be available on acceptable terms, or at all. If
additional funds are raised by issuing equity securities, further dilution to
stockholders may result. If adequate funds are not available, the Company may be
required to delay, reduce the scope of or eliminate one or more of its research
or development programs or to obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates or products that the
Company would otherwise seek to develop or commercialize itself.
Dependence on Potential Collaborative Partners
The Company's strategy for the development, clinical testing,
manufacturing, marketing and commercialization of certain of its products
includes entering into collaborations with corporate partners, licensors,
licensees and others. To date, the Company has entered into agreements with BLP
to manufacture and market the Company's lead products, Lotemax and Alrex, in the
United States and throughout Europe, Canada and selected other countries. The
agreements also cover the co-development of LE-T, a combination of loteprednol
etabonate and the anti-infective tobramycin, that is currently being developed
by the Company and BLP. There can be no assurance that the Company will be able
to negotiate any future collaborative agreement with BLP or other companies on
acceptable terms, or that any present or future collaborative agreements will be
successful. To the extent that the Company chooses not to or is not able to
establish such arrangements, the Company would experience increased capital
requirements to undertake such activities at its own expense. In addition, the
Company may encounter significant delays in introducing its proposed products
currently under development into certain markets or find that the development,
manufacture, or sale of its proposed products in such markets is adversely
affected by the absence of such collaborative agreements.
Technological Change and Competition
The pharmaceutical industry is subject to rapid, unpredictable and
significant technological change. Competition from universities, research
institutions and other pharmaceutical, chemical and biotechnology companies is
intense. Many competitors or potential competitors have greater financial
resources, research and development capabilities, and manufacturing and
marketing experience than the Company. To this end, the Company has entered into
agreements with BLP for the manufacture and marketing of Lotemax and Alrex.
There can be no assurance that developments by the Company's competitors or
potential competitors will not render the Company's technology or proposed
applications of its technology obsolete.
4
<PAGE>
Technologies Subject to Licenses
The Company has license agreements with YISSUM Research Development Company
of the Hebrew University of Jerusalem ("Hebrew University") and Dr. Nicholas
Bodor, a former vice president and director of the Company, under which the
Company has acquired exclusive and co-exclusive rights to develop and
commercialize certain research technologies. The agreements generally require
the Company to pay royalties on sale of products developed from the licensed
technologies, fees on revenues from sublicensees, where applicable, and the
costs of filing and prosecuting patent applications. In addition, some of the
Company's license agreements require that the Company commit certain sums
annually for research and development of the licensed products. Should the
Company default on its obligations to any of its licensors, its licenses could
terminate, which would have a material adverse effect on the Company's
operations and prospects.
Uncertainty of Protection of Patents and Proprietary Rights
The Company's success will depend in large part on its ability to obtain
patents, maintain trade secrets and operate without infringing on the
proprietary rights of others, both in the U.S. and in other countries. The
patent positions of pharmaceutical companies can be highly uncertain and involve
complex legal and factual questions, and therefore the breadth and
enforceability of claims allowed in pharmaceutical patents cannot be predicted.
There can be no assurance that any issued or pending patents will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide proprietary protection or competitive advantages to the Company.
The commercial success of the Company also will depend, in part, on the
Company not infringing patents issued to others and not breaching the technology
licenses upon which any Company products are based. It is uncertain whether any
third-party patents will require the Company to alter its products or processes,
obtain licenses or cease certain activities. In addition, if patents are issued
to others which contain competitive or conflicting claims, and such claims are
ultimately determined to be valid, the Company may be required to obtain
licenses to these patents or to develop or obtain alternative technology. If any
licenses are required, there can be no assurance that the Company will be able
to obtain any such licenses on commercially favorable terms, if at all. The
Company's breach of an existing license or failure to obtain a license to any
technology that it may require to commercialize its products may have a material
adverse impact on the Company. Litigation, which could result in substantial
costs to the Company, may also be necessary to enforce any patents licensed or
issued to the Company or to determine the scope and validity of third-party
proprietary rights. If competitors of the Company prepare and file patent
applications in the U.S. that claim technology also claimed by the Company, the
Company may have to participate in interference proceedings declared by the U.S.
Patent and Trademark Office to determine priority of invention, which could
result in substantial costs to the Company, even if the eventual outcome is
favorable to the Company. An adverse outcome could subject the Company to
significant liabilities to third parties, require disputed rights to be licensed
from third parties or require the Company to cease using such technology.
The Company also relies on secrecy to protect its technology, especially
where patent protection is not believed to be appropriate or obtainable. Thus,
the Company seeks to protect its proprietary
5
<PAGE>
technology and processes, in part, by confidentiality agreements with its
employees, consultants and certain contractors. There can be no assurance that
these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets will not otherwise
become known or be independently discovered by competitors.
Extensive Government Regulation
The Company's products require the approval of the FDA before they can be
marketed in the U.S. In addition, approvals are also required from health
authorities in most foreign countries before the Company's products can be
marketed in such countries. Before an NDA, a type of submission used to obtain
FDA approval to market a new drug, can be filed with the FDA, a product must
undergo, among other things, extensive animal testing and human clinical trials,
which can take up to seven years to complete. Except for Lotemax and Alrex, the
Company has not yet filed NDAs on its products. The time required for regulatory
approval of the Company's products after acceptance for filing an NDA can vary
and is usually one to three years or more, and the FDA may require additional
animal studies and/or clinical trials before granting approval. There can be no
assurance that the FDA and foreign regulatory agencies will be satisfied with
the information, including that emanating from clinical trials, submitted to
them in applications (like NDAs) seeking approval and will approve the marketing
of any of the Company's potential products, or that problems will not arise that
could delay or prevent the commercialization of the Company's future products.
There can be no assurance that any potential products developed by the
Company alone or in conjunction with others will be proven to be safe and
effective in clinical trials and will meet all of the applicable regulatory
requirements needed to receive marketing approval. Data obtained from
preclinical testing and clinical trials can be susceptible to varying
interpretations which could delay, limit or prevent regulatory approvals. In
addition, delays or disapprovals may be encountered based upon additional
government regulation resulting from future legislation or administrative action
or changes in FDA policy made during the period of product development and FDA
regulatory review. Similar delays may also be encountered in foreign countries.
There can be no assurance that even after such time and expenditures, regulatory
approval will be obtained for any potential products developed by the Company.
If regulatory approval of a product is granted, such approval will be limited to
those therapeutic uses for which the product has been demonstrated through
clinical studies and other means to be safe and effective. Furthermore, approval
may entail ongoing requirements for post-marketing studies. Even if regulatory
approval is obtained, a marketed product, its manufacturer and its manufacturing
facilities are subject to continual review and periodic inspections. The
regulatory standards for manufacturing are currently being applied stringently
by the FDA. Discovery of previously unknown problems with a product,
manufacturer or facility may result in FDA restrictions being placed on such
product or manufacturer or facility, including an order to withdraw a specific
product from the market, and may also result in court enforced sanctions against
the product, manufacturer or facility.
The Company may establish collaborative relationships to conduct clinical
testing and seek regulatory approvals to market its products in major markets
outside the U.S. There can be no
6
<PAGE>
assurance that the Company will be successful in establishing such relationships
or that such approvals will be received in a timely manner, if at all. To market
its products abroad, the Company is also subject to numerous and varying foreign
regulatory requirements, implemented by foreign health authorities, governing
the design and conduct of human clinical trials, pricing and marketing. 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 within the European Union ("EU") certain registration
procedures are available 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 almost always 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.
Lack of Sales and Marketing Capability
The Company has no experience in sales, marketing or distribution. To
market any of its products directly, the Company must develop a marketing force
and sales force with technical expertise and with supporting distribution
capability. Alternatively, the Company may obtain the assistance of a
pharmaceutical company with an established distribution system and sales force.
The Company has entered into agreements with BLP to market Lotemax, Alrex and,
upon receipt of approvals, LE-T. There can be no assurance, however, that the
Company will be able to establish sales and distribution capabilities or be
successful in gaining market acceptance for its products.
Lack of Manufacturing Capability
The Company currently does not have manufacturing facilities to produce its
products. The Company's agreements with BLP provide for the manufacturing of
Lotemax, Alrex and, upon receipt of approvals, LE-T. The Company provides LE to
BLP for use in the manufacturing process through a third-party contract
manufacturer. Any delay in availability of products may result in delay in sales
of such products, which would have a material adverse effect on the Company.
Need to Attract and Retain Key Employees and Consultants
The Company is highly dependent on the principal members of its scientific
and management staff. In addition, the Company relies on consultants and
advisors to assist the Company in formulating its research and development
strategy. Retaining and attracting qualified personnel, consultants and advisors
is critical to the Company's success. In order to pursue its product development
and marketing plans, the Company will be required to hire additional qualified
scientific personnel to perform research and development, as well as personnel
with expertise in clinical testing, government regulation, manufacturing and
marketing. The Company faces competition for qualified individuals from numerous
pharmaceutical and biotechnology companies,
7
<PAGE>
universities and other research institutions. There can be no assurance that the
Company will be able to attract and retain such individuals on acceptable terms
or at all.
The Company's clinical development is conducted under agreements with
universities and medical institutions. The Company depends on the availability
of a principal investigator for each such program, and the Company cannot assure
that these individuals or their research staffs will be available to conduct
clinical development. The Company's academic collaborators are not employees of
the Company. As a result, the Company has limited control over their activities
and can expect that only limited amounts of their time will be dedicated to
Company activities. The Company's academic collaborators may have relationships
with other commercial entities, some of which may compete with the Company.
Uncertainty of Health Care Reform Measures and Third-Party Reimbursement
The levels of revenues and profitability of biotechnology and
pharmaceutical 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, pricing or
profitability of prescription pharmaceuticals is subject to government control.
In the U.S., there have been, and the Company expects that there will continue
to be, a number of federal and state proposals to control health care costs.
While the Company cannot predict whether any such legislative or regulatory
proposals will be adopted or the effect such proposals may have on its business,
the uncertainty surrounding such proposals could have a material adverse effect
on the Company. Furthermore, the Company's ability to commercialize its
potential product portfolio may be adversely affected to the extent that such
proposals have a material adverse effect on the business, financial condition
and profitability of other companies that are prospective collaborators for
certain of the Company's proposed products.
Dependence on Reimbursement
The Company's ability to commercialize its products successfully may depend
in part on the extent to which reimbursement for the cost of such products and
related treatments will be available from government health administration
authorities, private health insurers and other organizations. Third-party payors
are increasingly challenging the price of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products, and there can be no assurance that adequate third-party
coverage will be available to enable the Company to maintain price levels
sufficient to realize an appropriate return on its investment in product
development.
Risk of Product Liability; Availability of Insurance
The design, development and manufacture of the Company's products involve
an inherent risk of product liability claims and associated adverse publicity.
Although the Company currently maintains general liability insurance, there can
be no assurance that the coverage limits of the Company's insurance policies
will be adequate. Similarly, the Company currently maintains product liability
and clinical trial liability insurance, but there can be no assurance that the
8
<PAGE>
coverage limit of the Company's insurance policies will be adequate. There can
be no assurance that the Company will be able to maintain product liability
insurance on acceptable terms or with adequate coverage against potential
liabilities. Such insurance is expensive, difficult to obtain and may not be
available in the future on acceptable terms or at all. A successful claim
brought against the Company in excess of the Company's insurance coverage could
have a material adverse effect upon the Company and its financial condition.
Use of Hazardous Materials; Potential Liability to Comply with Environmental
Laws
The Company's research and development involves the controlled use of
hazardous materials. Although the Company believes that its safety procedures
for handling and disposing of such materials comply in all material respects
with the standard prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result, and any such liability could exceed the resources
of the Company. The Company may incur substantial costs to comply with
environmental regulations if the Company develops manufacturing capacity.
Market for the Company's Securities; Shares Eligible for Future Sale; Possible
Volatility of Share Prices
The market price of the Company's Common Stock, like that of other emerging
pharmaceutical companies, has fluctuated significantly in recent years and is
likely to fluctuate in the future. Announcements by the Company or others
regarding scientific discoveries, technological innovations, litigation,
products, patents or proprietary rights, the progress of clinical trials,
government regulation, public concern as to the safety of drugs and the
reliability of the Company's testing processes and general market conditions may
have a significant impact on the market price of the Common Stock. The addition
of the shares being offered hereby and the shares issuable upon exercise of the
Company's currently outstanding warrants and options to the number of
publicly-traded shares of the Company's Common Stock may affect the volatility
of share prices of the Company's Common Stock.
Anti-Takeover Provisions
The Company is subject to Sections 78.411-.444 of the Nevada General
Corporation Law ("Nevada Law"), an anti-takeover law, which may discourage
certain types of transactions involving an actual or potential change in control
of the Company, including transactions in which the stockholders might otherwise
receive a premium for their shares over the current prices, and may limit the
ability of the stockholders to approve a transaction that they may deem to be in
their best interests. In addition, the Board of Directors has the authority
without action by the stockholders to fix the rights and preferences of and
issue shares of Preferred Stock, which may have the effect of delaying or
preventing a change in control of the Company.
9
<PAGE>
Potential Future Acquisitions
Due to the current uncertainties of the capital markets for emerging
pharmaceutical companies, the Company has had preliminary discussions with
several emerging pharmaceutical and biotechnology companies about potential
business and/or product consolidations, joint ventures, acquisitions, mergers or
other business combinations (collectively "acquisitions"). In the event the
Company undertakes any such acquisitions it may use some of its cash or may
issue its stock in connection therewith. Although management would attempt to
structure such acquisitions in a manner that will minimize dilution of the
equity owned by current stockholders, no assurance can be given that
acquisitions will not result in such dilution or that control of the Company
will not be changed as a result of such acquisitions. Such acquisitions may be
negotiated or may be sought on an unsolicited basis and may involve speculative
and risky undertakings by the Company with increased risks to its stockholders.
Under Nevada law, acquisitions do not require shareholders' approval except when
accomplished by merger or consolidation. The Company does not, in general,
intend to submit acquisitions to shareholder vote except where required by
Nevada law. The Company has not entered into any preliminary undertaking with
any third parties involving any acquisitions or other business combination
transactions.
Special Considerations of Doing Business in Israel
A significant part of the operations of the Company is conducted in Israel
through its wholly-owned subsidiary, Pharmos Limited ("Pharmos Ltd."), and is
directly affected by economic, political and military conditions there. In
addition, Pharmos Ltd. has received certain funding from the Office of the Chief
Scientist of the Israel Ministry of Industry and Trade (the "Chief Scientist")
primarily relating to its proprietary submicron emulsion technology and to
dexanabinol. Such funding prohibits the transfer or license of know-how and the
manufacture of resulting products outside of Israel without the permission of
the Chief Scientist. Although it is the Company's belief that the Chief
Scientist does not unreasonably withhold this permission if the request is based
upon commercially justified circumstances and any royalty obligations to the
Chief Scientist are sufficiently assured, there can be no assurance that such
consent, if requested, would be granted upon terms satisfactory to the Company
or granted at all.
Absence of Dividends
No dividends have been paid on the Common Stock to date, and the Company
does not expect to pay cash dividends in the foreseeable future.
10
<PAGE>
BUSINESS
Introduction
Pharmos is a pharmaceutical company engaged in the discovery, development
and commercialization of pharmaceuticals and delivery formulations based on
rational drug design. The Company is developing pharmaceuticals in three fields:
site specific drugs for ophthalmic indications, neuroprotective agents with a
novel mechanism of action for the treatment of certain central nervous system
("CNS") disorders and newly designed molecules to treat certain types of cancer.
The Company is also developing an emulsion-based delivery formulation for
topical and systemic applications. In March 1998, the Company, together with its
partner, Bausch & Lomb Pharmaceuticals, Inc ("BLP"), announced the receipt of
approval from the Food and Drug Administration ("FDA") to manufacture and market
two ophthalmic products, Lotemax(TM) (loteprednol etabonate ophthalmic
suspension 0.5%) and Alrex(TM) (loteprednol etabonate ophthalmic suspension
0.2%).
Lotemax is a topical, site-specific steroid that is used to treat all
steroid responsive inflammation of the eye as well as post-operative eye
inflammation such as that experienced following cataract surgery. The novel
chemical structure of Lotemax allows it to be predictably transformed by enzymes
in the eye to an inactive metabolite, thus improving its safety profile as
compared to other steroids used for eye disorders. The safety profile of Lotemax
was demonstrated in clinical trials by a low incidence of increased intraocular
pressure, a significant side effect of ophthalmic steroid use. Lotemax was
approved by the FDA for the broadest range of indications of any ophthalmic
steroid on the market.
Alrex is a specially developed formula of loteprednol etabonate that is
used in the treatment of eye allergies. Alrex is indicated for the treatment of
seasonal allergic conjunctivitis, an inflammation of the eye usually caused by
environmental factors such as pollens. Seasonal allergic conjunctivitis produces
itching, tearing, redness and swelling in the conjunctiva, the membrane that
covers the inside of the eyelid and the white part of the eye.
The regulatory approvals for Lotemax and Alrex are the first two of three
to be sought for the Company's and BLP's line of ophthalmic products containing
loteprednol etabonate ("LE"). The third product, which combines the active
ingredient LE with the anti-infective agent tobramycin ("LE-T"), is in clinical
development.
BLP, a subsidiary of the global eye care company, Bausch & Lomb
Incorporated, co-developed Lotemax and Alrex with the Company after the Company
granted BLP the rights to market the new ophthalmic pharmaceutical line in 1995.
In 1996, BLP's rights were extended to select international markets including
Europe and Canada.
Dexanabinol (HU-211), the Company's lead CNS product aimed initially at
treating severe head trauma and stroke, is currently being studied in a Phase II
clinical trial for severe head trauma. The Company's tamoxifen analog
anti-cancer program is advancing in preclinical development.
11
<PAGE>
Strategy
The Company's strategy is to design and develop novel drugs with superior
safety and efficacy profiles, initially targeted to ophthalmic and neurological
disorders and certain types of cancer. The Company seeks to enter into
collaborative relationships with established pharmaceutical companies to
complete development and commercialize its products.
This strategy has resulted in the development of the Company's ophthalmic
line of products, particularly Lotemax and Alrex, which have received FDA
marketing approval, and the co-development and marketing agreement with BLP to
market these products in the United States and internationally. The Company is
currently seeking a co-development and marketing partner for its CNS compound,
dexanabinol, to fund the clinical development and market the product upon
receipt of FDA approval, and will also seek a partner to advance the development
of its tamoxifen analog program.
The Company is seeking to develop pharmaceuticals which are designed to
address unmet needs in certain markets and to exhibit superior efficacy and/or
safety profiles over competing products in other markets. For example, many
current anti-inflammatory ophthalmic drugs have either significant side effects,
such as the elevation of intraocular pressure ("IOP") by steroids, or are drugs
which are safer, but only moderately effective at reducing inflammation, such as
non-steroidal anti-inflammatory drugs ("NSAIDs"). For many neurological
indications, such as severe head trauma, there are no effective drug therapies
available. In the case of cancer treatment, potential side effects make many
current therapies less desirable.
The Company is applying its experience in drug design and its novel drug
delivery technology in developing products directed at several fields including:
site specific drugs for ophthalmic indications, neuroprotective compounds
targeted at specific CNS biochemical pathways associated with neurological
indications, and systemic drugs specifically designed to avoid CNS side effects
and to have an excellent peripheral safety profile. The Company is also using
proprietary lipid-based technologies, primarily submicron emulsions, in tests
designed to achieve better delivery routes of existing drugs.
Products
Loteprednol Etabonate ("LE")
Lotemax and Alrex are the trade names of drug products in the form of eye
drop suspensions in which the active compound is LE. LE is a unique steroid,
designed to act in the eye and ameliorate inflammatory and allergic conditions,
and is rapidly converted into a predictable inactive metabolite once it reaches
the inner eye or systemic circulation. This pharmacological profile results in
improved safety by avoiding the side effects related to exposure to most ocular
steroids. In the eye, the most unwanted side effect of steroids is the elevation
of IOP, which can be sight-threatening. While steroids, for lack of an
alternative, are regularly used for severe inflammatory conditions of the eye,
milder conditions, such as allergies, are preferentially treated with less
effective non-steroidal agents.
12
<PAGE>
In March 1998, Lotemax received product approval from the FDA for the
treatment of steroid responsive inflammatory conditions of the eye, including
uveitis and the treatment of post operative eye inflammation. Also in March
1998, Alrex received product approval from the FDA for the treatment of seasonal
allergic conjunctivitis. LE-T, a product for the treatment of inflammatory eye
conditions where a risk of infection exists, is in clinical development. Final
clinical trials are anticipated to begin in the third quarter of 1998.
In 1995, the Company entered into an agreement with BLP to market Lotemax,
Alrex and LE-T in the United States. A second agreement, covering Europe, Canada
and other selected countries, was signed in 1996. Both agreements give BLP the
right to purchase the "drug substance" from the Company, to manufacture the
"drug product" and to assist the Company in developing the products.
Dexanabinol (HU-211)
Dexanabinol (HU-211) is the Company's lead synthetic compound in a family
of non psychotic cannabinoid molecules originally designed to avoid the
psychotropic and sedative spectrum of cannabinimetic agents, while retaining
their beneficial properties as anti-emetics (anti-nausea), analgesics (pain
relief), and anti-inflammatory and neuroprotective agents.
It is now well established that the psychotropic effects of cannabinoids
are mediated via stereo selective (-) preferring receptors. Dexanabinol is a (+)
optical isomer and does not interact with cannabinoid receptors. It does,
nevertheless, retain other pharmacological properties. More importantly, it is
also a stereo selective, non-competitive antagonist of the glutamate NMDA
receptor channel with a unique safety profile, activation of which is believed
to play a key role in secondary neuronal damage due to brain ischemia, such as
in head trauma, stroke and cardiac arrest. The molecule also has free radical
scavenging properties, and anti-inflammatory properties (involving inhibition of
TNF-[alpha] production). Both of these latter mechanisms are important for
neuroprotection. Therefore, dexanabinol appears to have a unique modality to
neuroprotection, combining three relevant mechanisms of action in a single
molecule which act at different steps of the neurotoxic process in stroke, head
trauma and potentially other indications.
While head trauma and stroke are the highest priority indications for
dexanabinol, its spectrum of activities has potential as an anti-inflammatory
and protectant in other diseases such as glaucoma, Parkinson's and Alzheimer's
diseases, as well as various other inflammatory conditions. The Company is
exploring development of dexanabinol for these chronic indications at the
preclinical level.
In several animal models (including closed head injury, focal and global
forebrain ischemia and optic nerve crush), the drug has demonstrated significant
neuroprotective activity. In these studies, a single injection of dexanabinol
given after the injury suggests significant long term functional improvement and
an increase in neuronal survival.
13
<PAGE>
In early 1996, a Phase I study of rising dose tolerance in healthy
volunteers (50 subjects) showed dexanabinol to be safe and well tolerated at
doses up to and including the expected therapeutic doses. Specifically, there
were no hallucinations, sedation or blood pressure changes of the type reported
with other NMDA antagonists. In late 1996, the Company commenced a Phase II
study of head injured patients, which is targeted for completion in 1999. This
study, being conducted at six medical centers in Israel on patients with severe
head injury, has been reviewed and approved by the American Brain Institute
Consortium (ABIC). The clinical protocol was also reviewed and accepted by the
European Brain Institute Consortium (EBIC). As of August 1998, there were 70
patients enrolled in the study, which is expected to have a total enrollment of
approximately 90-100 patients.
Tamoxifen Analogs
Several diseases are currently treated with drugs that produce mild to
dose-limiting CNS side effects. For instance, tamoxifen, which is used to treat
breast cancer and has been suggested for use as a prophylactic agent in healthy
women at risk of developing the disease, causes hot flashes and may be
associated with cognitive and affective deficits. These side effects could be
addressed by designing drugs with limited passage to the brain through the blood
brain barrier (BBB).
In light of this concept, several analogs of tamoxifen with poor CNS uptake
have been synthesized and tested in several animal models. Tamoxifen methiodide,
a permanently charged tamoxifen derivative, was tested in animals (nude mice)
inoculated with human breast cancer cells. Treatment resulted in rapid arrest of
growth followed by tumor regression. Growth arrest was also observed in
estrogen-independent tumors. The rate and magnitude of response was higher than
that seen with tamoxifen itself. The compound retains the anti-osteoporotic
effects of tamoxifen in bone but is considerably less active than tamoxifen as a
uterotrophic agent, demonstrating an improved therapeutic profile as compared to
the parent compound.
Further preclinical pharmacology is underway to identify additional analogs
of tamoxifen and to gain a fuller understanding of the mechanism of action.
Competition
The pharmaceutical industry is highly competitive, and research relating to
drug delivery and formulation technologies is developing rapidly. The Company
competes with a number of pharmaceutical companies that have financial,
technical and marketing resources significantly greater than those of the
Company. Some companies with established positions in the pharmaceutical
industry may be better equipped than the Company to develop and market products
in the markets the Company is seeking to enter. A significant amount of
pharmaceutical research is also being carried out at universities and other
not-for-profit research organizations. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for the use of technology they have developed. These institutions may
also market competitive commercial products on their own or through joint
ventures and will compete with the Company in recruiting highly qualified
scientific personnel.
14
<PAGE>
The Company is pursuing areas of product development in which there is a
potential for extensive technological innovation. The Company's competitors may
succeed in developing products that are more effective than those of the
Company. Rapid technological change or developments by others may result in the
Company's potential products becoming obsolete or noncompetitive.
Collaborative Relationships
The Company's commercial strategy is to develop products independently and,
where appropriate, in collaboration with established pharmaceutical companies
and institutions. Collaborative partners may provide financial resources,
research and manufacturing capabilities and marketing infrastructure to aid in
the commercialization of the Company's products in development and potential
future products. Depending on the availability of financial, marketing and
scientific resources, among other factors, the Company may license its
technology or products to others and retain profit sharing, royalty,
manufacturing, co-marketing, co-promotion or similar rights. Any such
arrangements could limit the Company's flexibility in pursuing alternatives for
the commercialization of its products. There can be no assurance that the
Company will establish any additional collaborative arrangements or that, if
established, any such relationships will be successful.
BLP
In 1995, the Company signed a definitive agreement with BLP to complete
manufacturing, package and market Lotemax and Alrex, the Company's lead
products, in the United States upon receipt of FDA approval. The agreement also
includes LE-T, currently being co-developed by the Company and BLP. A second
agreement signed in 1996, extends BLP's rights to market these products in
Europe, Canada and other selected countries pending regulatory approval.
Under the agreements, BLP will purchase the active drug substance from the
Company. BLP provided the Company with $5 million in cash advances against
future sales of drug substance, of which $415,764 has been repaid as of June 30,
1998. Another $1 million is due subject to receiving regulatory approval for
LE-T in the United States. An additional $1.6 million in advances against future
sales of BLP will be payable to the Company following receipt of regulatory
clearance in certain markets outside of the United States. BLP collaborates in
the development of these products by making available amounts up to 50% of their
Phase III clinical trial costs. The Company retains certain conditional
co-marketing rights in the U.S. to all of the products covered by the marketing
agreement.
In a separate agreement completed in 1996, BLP made a $2 million investment
in the common stock of the Company.
15
<PAGE>
Patents, Proprietary Rights and Licenses
Patents and Proprietary Rights
The Company owns or holds licenses to 24 families of issued patents and
pending applications relating to its four main technologies:
Site-Specific Drugs. There are three families of patents covering
site-specific drugs, which include the loteprednol etabonate-based products. The
Company has licensed two families of patents covering the compounds from Dr.
Nicholas Bodor; the third, relating to the formulation of the drugs, is owned by
the Company. The loteprednol etabonate compound is covered in a U.S. patent
issued in 1991. The formulation sold as Lotemax is covered in a U.S. patent
issued in 1996. Related patent applications are at various stages of
prosecution.
Neuroprotective Agents. Six families of patents relating to neuroprotective
agents, which cover dexanabinol, analogs of dexanabinol and the use of these
compounds for neuroprotection, are licensed from the Hebrew University. The use
of dexanabinol and its analogs for neuroprotection is covered by several patents
issued beginning in 1994. Related patent applications are at various stages of
prosecution.
Tamoxifen Analogs. Two families of patents relating to Tamoxifen analogs
are owned by the Company and cover the novel charged derivatives of steriods and
steriod antagonists, as well as the use of these compounds in the treatment and
prevention of cancer and as anti-angiogenic agents. A U.S. Patent was issued in
1997. Related patent applications are at various stages of prosecution.
Emulsion-based Drug Delivery Systems. Thirteen families of patents relate
to submicron emulsions and nanoemulsions and cover a broad range of formulations
as drug delivery systems. The first family of patents covers submicron emulsion
("SME") technology and is licensed from the Hebrew University. The other patent
families are owned by the Company. The earliest issuance date, for those patents
issued, is 1992. Related patent applications are at various stages of
prosecution.
The patent positions of pharmaceutical firms, including the Company, are
uncertain and involve complex factual questions. In addition, the coverage
claimed in a patent application can be significantly reduced before or after the
patent is issued. Consequently, the Company does not know whether any of the
pending patent applications underlying the licensed technology will result in
the issuance of patents or, if any patents are issued, whether they will provide
significant proprietary protection or will be circumvented or invalidated. Since
patent applications in the U.S. are maintained in secrecy until patents issue
and since publication of discoveries in the scientific or patent literature
often lag behind actual discoveries, the Company cannot be certain that it or
its licensors, as the case may be, were the first creators of inventions covered
by pending and issued patents or that it or its licensors, as the case may be,
were the first to file patent applications for such inventions. Moreover, the
Company may have to participate in interference proceedings declared by the U.S.
Patent and Trademark Office to determine priority of invention, which could
16
<PAGE>
result in substantial cost to the Company, even if the eventual outcome is
favorable to the Company. There can be no assurance that the patents relating to
the licensed technology, if issued, will be upheld by a court of competent
jurisdiction or that a competitor's product will be found to infringe such
patents.
Other pharmaceutical and drug delivery companies and research and academic
institutions may have filed patent applications or received patents in the
Company's fields. If patents are issued to other companies that contain
competitive or conflicting claims and such claims are ultimately determined to
be valid, there can be no assurance that the Company would be able to obtain
licenses to these patents at a reasonable cost or be able to develop or obtain
alternative technology.
The Company also relies upon trade secret protection for its confidential
and proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets.
It is the Company's policy to require its employees, consultants, outside
scientific collaborators and sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting or
advisory relationships with the Company. These agreements generally provide that
all confidential information developed or made known to the individual during
the course of the individual's relationship with the Company is to be kept
confidential and not disclosed to third parties except in specific
circumstances. In the case of employees and certain consultants, the agreements
provide that all inventions conceived by the individual in the course of their
employment or consulting relationship shall be the exclusive property of the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection or adequate remedies for the Company's trade secrets in
the event of unauthorized use or disclosure of such information.
Licenses
The Company's license agreements generally require the Company, as
licensee, to pay royalties on sale of products developed from the licensed
technologies, and fees on revenues the Company receives for sublicenses, where
applicable. The royalty rates defined in the licenses are customary and usual in
the pharmaceutical industry. The royalties will be payable for periods up to
fifteen years from the date of certain specified events, including the date of
the first sale of such products, or the date from which the first registered
patent from the developed technologies is in force, or the year following the
date in which FDA approval has been received for a developed product. Certain of
the license agreements also require annual payments.
Government Regulation
The Company's activities and products are significantly regulated by a
number of governmental entities, especially the FDA, in the U.S. and by
comparable authorities in other countries. These entities regulate, among other
things, research and development activities and the testing, manufacture,
safety, effectiveness, labeling, storage, record keeping, approval, advertising,
17
<PAGE>
promotion, distribution and sale of the Company's potential products. Product
development and approval within this regulatory framework take a number of years
and involve the expenditure of substantial resources. Many products that appear
promising initially ultimately do not reach the market because they are found to
be unsafe (perhaps too toxic) or to lack effectiveness, as demonstrated by
testing required by government regulation during the development process. In
addition, there can be no assurance that this regulatory framework will not
change or that additional regulation will not arise at any stage of the
Company's product development that may preclude or otherwise adversely affect
approval, delay an application or require additional expenditures by the
Company. Moreover, even if approval is obtained, failure to comply with present
or future regulatory requirements, or new information adversely reflecting on
the safety or effectiveness of the approved drug, can lead to FDA withdrawal of
approval to market the product.
The regulatory process required to be completed by the FDA before a new
drug delivery system may be marketed in the U.S. depends significantly on
whether the drug (which will be delivered by the drug delivery system in
question) has existing approval for use and in what dosage form. If the drug is
a new chemical entity that has not been approved, the process includes (i)
preclinical laboratory and animal tests, (ii) an IND application which has
become effective, (iii) adequate and well-controlled human clinical trials to
establish the safety and effectiveness of the drug for its intended indication
and (iv) FDA approval of a pertinent NDA. If the drug has been previously
approved, the approval process is similar, except that certain toxicity tests
normally required for the IND application may not be necessary. Even with
previously approved drugs, additional toxicity testing may be required when the
delivery form is substantially changed, or when a company does not have access
to the raw data from the prior preclinical studies.
The activities required before a pharmaceutical product may be marketed in
the U.S. begin with preclinical testing. Preclinical tests include laboratory
evaluation of product chemistry and other end points and animal studies to
assess the potential safety and efficacy of the product as formulated. The
conduct of preclinical studies is regulated by the FDA under a series of
regulations called the Good Laboratory Practice regulations. Violations of these
regulations can, in some cases, lead to invalidation of the data from these
studies, requiring such studies to be replicated.
The entire body of preclinical development work necessary to administer
investigational drugs to volunteers or patients is summarized in an
Investigative New Drug ("IND") application to the FDA. FDA regulations provide
that human clinical trials may begin thirty days following the submission and
receipt of an IND application, unless the FDA advises otherwise or requests
additional information, clarification or additional time to review the IND
application; it is generally considered good practice to obtain affirmative FDA
response before commencing trials. There is no assurance that the submission of
an IND application will eventually allow a company to commence clinical trials.
Once trials have commenced, the FDA may stop the trials, or particular types or
parts of trials, by placing a "clinical hold" on such trials because of concerns
about, for example, the safety of the product being tested or the adequacy of
the trial design. Such holds can cause substantial delay and in some cases may
require abandonment of a product.
18
<PAGE>
Clinical testing involves the administration of the drug to healthy
volunteers or to patients under the supervision of a qualified principal
investigator, usually a physician pursuant to an FDA-reviewed protocol. Each
clinical study is conducted under the auspices of independent Institutional
Review Boards ("IRBs") at the institutions at which the study will be conducted.
An IRB will consider, among other things, ethical factors, the safety of human
subjects and the possible liability of the institution.
Phase I clinical studies are commonly performed in 20 to 40 healthy human
subjects or, more rarely, in selected patients with the targeted disease or
disorder. Their goal is to establish initial data about tolerance and safety of
the drug in humans. Also, the first data regarding the absorption, distribution,
metabolism, and excretion of the drug in humans are established.
In Phase II human clinical studies, preliminary evidence is sought
regarding the pharmacological effects of the drug and the desired therapeutic
efficacy in limited studies with small numbers of selected patients (50 to 200).
Efforts are made to evaluate the effects of various dosages and to establish an
optimal dosage level schedule and validate clinical efficacy endpoints to be
used in Phase III trials. Additional safety data are also gathered from these
studies.
Phase III clinical studies consist of expanded, large scale studies of
patients (200 to several thousand) with the target disease or disorder, to
obtain definitive statistical evidence of the effectiveness and safety of the
proposed product and dosing regimen. These studies may also include separate
investigations of the effects in subpopulations of patients, such as the
elderly.
At the same time that the human clinical program is being performed,
additional non-clinical (i.e., animal) studies are also being conducted.
Expensive, long duration (12-18 months) toxicity and carcinogenicity studies are
done to demonstrate the safety of drug administration for the extended period of
time required for effective therapy. Also, a variety of laboratory, animal, and
initial human studies may be performed to establish manufacturing methods for
the drug, as well as stable, effective dosage forms.
The results of product development, preclinical studies and clinical
studies and other information are submitted to the FDA in an NDA to seek
approval for the marketing and interstate commercial shipment of the drug. With
the NDA, a company must pay the FDA a user fee in excess of $200,000. Companies
with less than 500 employees and no revenues from products may be eligible for
an exception. This exception was granted to the Company in connection with Alrex
and with one NDA filing for Lotemax and reduced the respective fees by 50%. The
FDA may refuse to file or deny an NDA if applicable regulatory requirements,
such as compliance with Current Good Clinical Practice ("cGCP") requirements,
are not satisfied or may require additional clinical testing. Even if such data
are submitted, the FDA may ultimately decide that the NDA does not satisfy the
requirements for approval. If the FDA does ultimately approve the product, it
may require, among other things, post-marketing testing, including potentially
expensive Phase IV studies, and surveillance to monitor the safety and
effectiveness of the drug. In addition, the FDA may in some circumstances impose
restrictions on the use of the drug that may be difficult and expensive to
administer, and almost always seeks to require prior approval of promotional
materials. Product approvals may be withdrawn if compliance with regulatory
requirements is not
19
<PAGE>
maintained or if problems occur after the product reaches the market. After a
product is filed for a given indication in an NDA, subsequent new indications or
dosages for the same product are reviewed by the FDA via the filing and upon
receipt of a Supplemental NDA ("sNDA") submission as well as payment of a
separate user fee. The sNDA is more focused than the NDA and deals primarily
with safety and effectiveness data related to the new indication or dosage, and
labeling information for the sNDA indication or dosage. Finally, the FDA
requires reporting of certain information, e.g., adverse experience reports,
that becomes known to a manufacturer of an approved drug.
Each domestic drug product manufacturing establishment must be registered
with, and approved by, the FDA and must pay the FDA a registration fee and
annual fee. In addition, each such establishment must inform the FDA of every
drug product it has in commercial distribution and keep such list updated.
Establishments handling controlled substances must be licensed and are inspected
by the U.S. Drug Enforcement Agency ("DEA"). The Company has a current DEA
license appropriate for handling the substances it uses in its facilities.
Domestic establishments are also subject to inspection by the FDA for compliance
with cGMP regulations after an NDA has been filed and thereafter, at least
biennially. The labeling, advertising and promotion of drug products also must
be in compliance with pertinent FDA regulatory requirements. Failure to comply
with applicable requirements relating to production, distribution or promotion
of a drug product can lead to FDA demands that production and shipment cease,
and, in some cases, that product be recalled, or to enforcement actions that can
include seizures, injunctions and criminal prosecution.
To develop and market its potential products abroad, the Company is also
subject to numerous and varying foreign regulatory requirements, implemented by
foreign health authorities, governing, among other things, the design and
conduct of human clinical trials, pricing and marketing. 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 within the European Union ("EU") certain registration procedures are
available 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
almost always 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.
Various aspects of the Company's business and operations are also regulated
by a number of other governmental agencies including the DEA, U.S. Department of
Agriculture, Environmental Protection Agency and Occupational Safety and Health
Administration as well as by other federal, state and local authorities. In
addition, any future international sales would be regulated by numerous foreign
authorities.
There continue to be a number of legislative and regulatory proposals aimed
at changing the health care system. It is uncertain what, if any, legislative
proposals will be adopted or what actions federal or state agencies, or third
party payors may take in response to any health care
20
<PAGE>
reform proposals or legislation. Although the Company cannot predict whether any
such legislative or regulatory proposals will be adopted or the effect such
proposals may have on its business, the uncertainty surrounding such proposals
could have a material adverse effect on the Company. Furthermore, the Company's
ability to commercialize its potential product portfolio may be adversely
affected to the extent that such proposals have a material adverse effect on the
business, financial condition and profitability of other companies that are
prospective collaborators for certain of the Company's potential products.
The Company's ability to commercialize its products successfully may depend
in part on the extent to which reimbursement for the cost of such products and
related treatments will be available from government health administration
authorities, private health insurers and other organizations. There can be no
assurance that adequate third-party coverage will be available to enable the
Company or any of its future licensees to maintain price levels sufficient to
realize an appropriate return on its investment in product development.
Human Resources
As of August 31, 1998, the Company had 41 full time employees, 5 in the
U.S. and 36 in Israel, of whom 14 hold doctorate or medical degrees.
The Company's employees are not covered by a collective bargaining
agreement. The Company has never experienced employment-related work stoppages
and considers its employee relations to be excellent.
Public Funding and Grants
The Company's subsidiary, Pharmos Ltd., has received certain funding from
the Chief Scientist of the Israel Ministry of Industry and Trade (the "Chief
Scientist") primarily for research and development of dexanabinol as a
neuroprotective drug for head trauma and stroke. Additional grants were received
in the past for research and development of SME technology for injection and
nutrition, as well as for research relating to a variety of ophthalmic
formulations. Each of the projects sponsored by the Chief Scientist has been
suspended, with the exception of the dexanabinol project. The Company has
received a total of $2,042,532 under such agreements through June 30, 1998, of
which $929,537 was received for the dexanabinol project. The Company is required
to pay royalties to the Chief Scientist of 2% to 5% of product sales, if any, as
a result of the research activities conducted with such funds. Aggregate royalty
payments are limited to the amount of funding received. In 1997, the Company
joined a five year program under the Chief Scientist, the "MAGNET" program,
pursuant to which the Company has received a total of $296,168 through June 30,
1998. Funds received under the MAGNET program are not subject to the royalty
requirement. Funding by the Chief Scientist places certain legal restrictions on
the transfer of know-how and the manufacture of resulting products outside of
Israel. See "Conditions in Israel."
21
<PAGE>
Conditions in Israel
The Company conducts significant operations in Israel through its
subsidiary, Pharmos Ltd., and therefore is affected by the political, economic
and military conditions to which that country is subject.
As described above, Pharmos Ltd. has received certain funding from the
Chief Scientist. The proclaimed purpose of the legislation under which such
funding was provided is to develop local industry, improve the state balance of
trade and to create new jobs in Israel. Such funding prohibits the transfer or
license of know-how and the manufacture of resulting products outside of Israel
without the permission of the Chief Scientist. Although it is the Company's
belief that the Chief Scientist does not unreasonably withhold this permission
if the request is based upon commercially justified circumstances and any
royalty obligations to the Chief Scientist are sufficiently assured, there can
be no assurance that such consent, if requested, would be granted upon terms
satisfactory to the Company or granted at all.
Properties
The Company is headquartered in Iselin, New Jersey where it leases its
general administrative facilities. The Company also leases facilities used in
the operation of its research, development, pilot manufacturing and
administrative activities in Rehovot, Israel. These facilities have been
improved to meet the special requirements necessary for the operation of the
Company's research and development activities. In the opinion of the management
these facilities are sufficient to meet the current and anticipated future
requirements of the Company. In addition management believes that it has
sufficient ability to renew its present leases related to these facilities or
obtain suitable replacement facilities.
Legal Proceedings and Disputes
There are currently no material legal proceedings pending against or
involving the Company.
22
<PAGE>
USE OF PROCEEDS
Except as otherwise described in any applicable Prospectus Supplement, the
net proceeds to the Company from the sale of the Shares offered hereby will be
used for general corporate purposes, primarily research and product development
activities, and conducting preclinical studies and clinical trials, and for the
equipping of facilities. Pending application of the proceeds of the offering,
the Company intends to invest the net proceeds of the offering in short-term,
investment-grade, U.S. dollar denominated, interest bearing instruments.
The amounts actually expended by the Company and the purposes of such
expenditures may vary significantly depending upon numerous factors, including
the progress of the Company's research, drug discovery and development programs,
the results of preclinical studies and clinical trials, the timing of regulatory
approvals, technological advances, determinations as to the commercial potential
of the Company's compounds and the status of competitive products. In addition,
expenditures will also depend upon the establishment of collaborative research
arrangements with other companies, the availability of other financing and other
factors.
DESCRIPTION OF SECURITIES
Common Stock
The Common Stock being offered hereby is fully described in the Company's
Registration Statement on Form 8-A dated January 30, 1984, filed pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). See "Incorporation of Certain Documents by Reference".
The Company's Restated Articles of Incorporation currently authorize the
issuance of up to 60,000,000 shares of Common Stock. As of December 4, 1998,
there were 39,355,843 shares outstanding.
Preferred Stock
The Company's Restated Articles of Incorporation currently authorize the
issuance of up to 1,250,000 shares of Preferred Stock. Of the authorized
Preferred Stock, no shares, designated as Series A or Series B Preferred Stock,
are currently outstanding. 1,500 shares, designated as Series C Preferred Stock,
are currently issued and outstanding. There are an additional 3,000 shares
designated as Series C Preferred Stock which may be issued at the discretion of
the Company. The Company, however, does not intend to issue such shares. The
Series C Preferred Stock was issued in connection with a private placement
transaction in February 1998. Holders of Series C Preferred Stock have the right
to convert their shares at the lower of (i) 90% of the average of the lowest
sale price of the Common Stock for the five consecutive trading days ending on
the trading day immediately preceding the conversion date or (ii) $2.891. For a
complete
23
<PAGE>
description of the rights of holders of Series C Preferred Stock, see the
Company's Current Report on Form 8-K, including the exhibits thereto, dated
February 4, 1998.
The Board of Directors may, without the necessity of further action or
authorization by the stockholders, authorize the issuance of Preferred Stock
from time to time in one or more series and to fix the relative rights,
preferences and limitations of each such series. The issuance of Preferred Stock
could adversely affect the voting power of holders of Common Stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no present plan to issue any
additional shares of Preferred Stock.
Other Securities--Options and Warrants
As of December 4, 1998, the Company had outstanding incentive stock options
to purchase an aggregate of 484,669 shares of Common Stock at an average
exercise price of $2.17 per share and non-qualified stock options to purchase an
aggregate of 439,265 at an average exercise price of $2.63 per share issued to
employees, directors and consultants pursuant to stock option plans and
individual agreements with management and directors of the Company and warrants
(excluding the Warrants) to purchase 4,359,713 shares of the Company's Common
Stock at an average price of $2.01 per share, consisting of: 112,979 warrants
which can be exercised until February 1999 each to purchase a single share of
Common Stock for $2.44; 454,121 warrants which can be exercised until August
1999 each to purchase a single share of Common Stock for $2.67; 65,044 warrants
which can be exercised until September 1999 each to purchase a single share of
Common Stock for $2.26; 150,000 warrants which can be exercised until October
1999 each to purchase a single share of Common Stock for $0.84; 500,000 warrants
which can be exercised until April 2005 each to purchase a single share of
Common Stock for $2.75; 10,000 Warrants which can be exercised until April 2005
each to purchase a single share of Common Stock for $0.78; 7,119 warrants which
can be exercised until April 2000 each to purchase a single share of Common
Stock for $.75; 17,119 Warrants which can be exercised until April 2000 each to
purchase a single share of Common Stock for $1.00; 17,119 warrants which can be
exercised until April 2000 each to purchase a single share of Common Stock for
$1.50; 821,489 warrants which can be exercised until September 2000 each to
purchase a single share of Common Stock for $1.80; 10,000 warrants which can be
exercised until October 2001 each to purchase a single share of Common Stock for
$1.88; 15,000 warrants which can be exercised until March 2002 each to purchase
a single share of Common Stock for $2.31; 65,000 warrants which can be exercised
until September 2007 each to purchase a single share of Common Stock for $1.34;
50,000 warrants which can be exercised until September 2007 each to purchase a
single share of Common Stock for $1.75; 10,000 warrants which can be exercised
until November 2002 each to purchase a single share of Common Stock for $1.39;
110,000 warrants which can be exercised until February 2003 each to purchase a
single share of Common Stock for $1.59; 849,250 warrants which can be exercised
until February 2007 each to purchase a single share of Common Stock for $1.59;
159,000 warrants which can be exercised until March 2001 each to purchase a
single share of Common Stock for $1.75; 10,000 warrants which can be exercised
until March 2007 each to purchase a single share of Common Stock for $1.66;
239,473 warrants which can be exercised until March 2008 each to purchase a
single share of Common Stock for $1.38; 15,000 warrants which can be exercised
until April 2003
24
<PAGE>
each to purchase a single share of Common Stock for $1.22.; 22,000 warrants
which can be exercised until October 2005 each to purchase a single share of
Common Stock for $2.22; 500,000 warrants which can be exercised until February
4, 2003 each to purchase a single share of Common Stock for $2.67; and 150,000
warrants which can be exercised until February 4, 2003 each to purchase a single
share of Common Stock for $2.28.
Nevada Anti-Takeover Laws
The Company is subject to the provisions of Sections 78.411 through 78.444
of the Nevada Law, an anti-takeover statute (the "Business Combination
Statute"). In general, the Business Combination Statute prohibits a
publicly-held Nevada corporation from engaging in a "combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless such
combination is approved in a prescribed manner or satisfies certain fair value
requirements. For the purposes of the Business Combination Statute,
"combination" includes a merger, an asset sale, the issuance or transfer by the
corporation of its shares in one transaction or a series of transactions, having
an aggregate fair market value equal to five percent or more of the aggregate
market value of the corporation's outstanding shares, to the interested
stockholder or to an associate of the interested stockholder, and certain other
types of transactions resulting in a financial benefit the interested
stockholder. An "interested stockholder" is a person who is the beneficial
owner, directly or indirectly, of ten percent or more of the corporation's
voting stock or an affiliate or associate of the corporation that at any time
within the three years immediately preceding the date in question was the
beneficial owner, directly or indirectly, of ten percent or more of the
corporation's voting stock.
By an amendment to its By-laws, the Company has exempted itself from the
provisions of Sections 78.378 through 78.3793 of the Nevada Law, a "control
share" statute which otherwise prohibits an acquiring person, under certain
circumstances, from voting certain shares of a target corporation's stock after
such acquiring person's percentage of ownership of such corporation's stock
crosses certain thresholds, unless the target corporation's disinterested
stockholders approve the granting of voting rights to such shares.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer and Trust Company, New York, New York.
PLAN OF DISTRIBUTION
The Shares offered hereby may be sold by the Company on a negotiated or
competitive bid basis through underwriting syndicates represented by managing
underwriters or by underwriters without a syndicate, dealers or agents
designated from time to time, or directly to other purchasers. The distribution
of the Shares offered hereby may be effected from time to time in one or more
25
<PAGE>
transactions at a fixed price or prices, which may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. To the extent required, any Prospectus
Supplement with respect to the Shares will set forth the terms of the offering
and the proceeds to the Company from the sale thereof, any underwriting
discounts and other items of price, and any discounts or concessions allowed or
reallowed or paid to dealers. Any public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from time to
time.
If underwriters are utilized, the Shares being sold to them will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price, or at varying prices determined at the time of
sale. The Shares may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. To the extent required, the underwriter or
underwriters with respect to the Shares being offered by the Company will be
named in the Prospectus Supplement relating to such offering and, if an
underwriting syndicate is used, the managing underwriter or underwriters will be
set forth on the cover page of such Prospectus Supplement. Any underwriting
agreement will provide that the obligations of the underwriters are subject to
certain conditions precedent.
If a dealer is utilized in the sale of the Shares, the Company will sell
the Common Stock to the dealer as principal. The dealer may then resell the
Common Stock to the public at varying prices to be determined by the dealer at
the time of sale. To the extent required, any dealer involved in the offer or
sale of the Shares in respect of which this Prospectus is delivered will be set
forth in the Prospectus Supplement.
The Shares may be sold directly by the Company or through agents designated
by the Company from time to time. To the extent required, any agent involved in
the offer or sale of the Shares in respect of which this Prospectus is delivered
will be set forth in the Prospectus Supplement. Unless otherwise indicated in
the Prospectus Supplement, any such agent will be acting on a best efforts basis
for the period of its appointment.
Any underwriters, dealers and agents that participate in the distribution
of the Common Stock may be deemed to be underwriters as the term is defined in
the Securities Act of 1933, as amended (the "Securities Act"), and any discounts
or commissions received by them from the Company and any profits on the resale
of the Common Stock by them may be deemed to be underwriting discounts and
commissions under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements that may be entered into with the Company to
indemnification against or to contribution toward certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments that the underwriters, dealers or agents may be required to make in
respect of such liabilities.
Underwriters, dealers and agents may engage in other transactions with or
perform other services for the Company. To the extent required, any such
relationships will be set forth in a Prospectus Supplement.
26
<PAGE>
COMMISSION'S POLICY ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Article 12 of the Company's Restated Articles of Incorporation directs the
Company to provide in its bylaws for provisions relating to the indemnification
of directors and officers to the full extent permitted by law, including the
federal securities law. Section 78.751 of the Nevada Revised Statutes, as
amended, authorizes the Company to indemnify any director or officer under
certain prescribed circumstances and subject to certain limitations against
certain costs and expenses, including attorneys' fees actually and reasonably
incurred in connection with any action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which such person is a party by
reason of being a director or officer of the Company if it is determined that
such person acted in accordance with the applicable standard of conduct set
forth in such statutory provisions. The Company may also purchase and maintain
insurance for the benefit of any director or officer which may cover claims for
which the Company could not indemnify such person.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the Company, or to
underwriters (or controlling persons thereof) of which an officer, partner, or
controlling person thereof is one of the foregoing pursuant to the foregoing
provisions or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by any such persons, in the successful
defense of any action, suit or proceeding) is asserted by any such persons in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
LEGAL OPINIONS
Legal matters in connection with the securities being offered hereby will
be passed upon for the Company by Ehrenreich Eilenberg Krause & Zivian LLP, 11
East 44th Street, 17th Floor, New York, NY 10017.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K of Pharmos Corporation for the year ended
December 31, 1997, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
27
<PAGE>
PHARMOS CORPORATION
____________, 1998
INDEX
Page No.
------
AVAILABLE INFORMATION................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......................... ii
SUMMARY................................................................. 1
RISK FACTORS............................................................ 3
BUSINESS................................................................ 11
USE OF PROCEEDS......................................................... 23
DESCRIPTION OF SECURITIES............................................... 23
COMMISSION'S POLICY ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES........................................ 27
LEGAL OPINIONS.......................................................... 27
EXPERTS................................................................. 27
28
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following statement sets forth the estimated expenses in connection
with the offering described in the Registration Statement (all of which will be
borne by the Registrant).
Securities and Exchange Commission Fee $ 1,521
Printing and Engraving Expenses* 2,000
Accountants' Fees and Expenses* 5,000
Legal Fees and Expenses* 75,000
Blue Sky Filing Fees* 1,500
Miscellaneous* 4,979
-------
TOTAL* $90,000
=======
Item 15. Indemnification of Directors and Officers.
Article 12 of the Registrant's Certificate of Incorporation directs the
Registrant to provide in its bylaws for provisions relating to the
indemnification of directors and officers to the full extent permitted by law.
Section 78.751 of the Nevada Revised Statutes, as amended, authorizes the
Registrant to indemnify any director or officer under certain prescribed
circumstances and subject to certain limitations against certain costs and
expenses, including attorneys' fees actually and reasonably incurred in
connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which such person is a party by reason of
being a director or officer of the Registrant if it is determined that such
person acted in accordance with the applicable standard of conduct set forth in
such statutory provisions.
The Registrant may also purchase and maintain insurance for the benefit of
any director or officer which may cover claims for which the Registrant could
not indemnify such person.
Item 16. Exhibits
4(a) Specimen of Common Stock Certificate (incorporated by reference to
Form S-3 Registration Statement of the Company dated November 25, 1994
[No. 33-86720])
4(b) Restated Articles of Incorporation (incorporated by reference to
Appendix E to the Joint Proxy Statement/ Prospectus included in the
Form S-4 Registration Statement of the Registrant dated September 28,
1992 [No. 33-52398])
4(c) Certificate of Amendment of Restated Articles of Incorporation
(incorporated by reference to the Company's Annual Report on Form 10-
K for the year ended December 31, 1994 [No. 0-11550])
4(d) Certificate of Amendment of Restated Articles of Incorporation dated
January 16, 1998 (incorporated by reference to Form S-3 Registration
Statement of the Company dated March 5, 1998 [333-47359])
4(e) Certificate of Designation, Rights, Preferences and Privileges of
Series A Preferred Stock of the Company (incorporated by reference to
Form S-3 Registration Statement of the Company dated December 20, 1996
[No. 333-15165])
4(f) Certificate of Designation, Rights, Preferences and Privileges of
Series B Preferred Stock of the Company (incorporated by reference to
Form S-3 Registration Statement of the Company dated April 30, 1997
[No. 333- 26155])
II-1
<PAGE>
4(g) Certificate of Designation, Rights, Preferences and Privileges of
Series C Convertible Preferred Stock of the Company (incorporated by
reference to the Company's Current Report on Form 8-K filed on
February 4, 1998)
4(h) Amended and Restated By-Laws (incorporated by reference to Form S-1
Registration Statement of the Company dated June 30, 1994 [No. 33-
80916])
4(i) Form of Stock Securities Purchase Agreement dated as of February 4,
1998 between the Company and the Investor (incorporated by reference
to the Company's Current Report on Form 8-K filed on February 4, 1998)
4(j) Form of Stock Purchase Warrant dated as of February 4, 1998 between
the Company and the Investor and the Company and the Placement Agent
(incorporated by reference to the Company's Current Report on Form 8-
K filed on February 4, 1998)
4(k) Form of Stock Purchase Warrant dated as of March 31, 1997 between the
Company and the Investor (incorporated by reference to Form S-3
Registration Statement of the Company dated March 5, 1998 [333-47359])
**5 Opinion re: legality
23(a) Consent of Ehrenreich Eilenberg Krause & Zivian LLP (included in the
Opinion filed as Exhibit 5)
**23(b) Consent of PricewaterhouseCoopers LLP
- ----------
** Filed herewith.
Item 17. Undertakings.
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 of 1933;
(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;
(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 (i) and (ii) above do not apply if the
Registration Statement is on Form S-3 and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-2
<PAGE>
(4) That, for the purpose of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or 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 the registration statement 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, 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 Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
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 Iselin and State of New Jersey on the 8th day of
December, 1998.
PHARMOS CORPORATION
By: /s/ Dr. Haim Aviv
-----------------------------------
Dr. Haim Aviv, Chairman, Chief
Scientist, Chief Executive Officer
and Director (Principal Executive
Officer)
Pursuant to the requirements of the Securities Act of 1933, this registration
statement or amendment has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Robert Cook Chief Financial Officer December 8, 1998
- ---------------------------- (Principal Financial
Robert Cook and Accounting Officer)
/s/ Dr. Gad Riesenfeld President, Chief Operating December 8, 1998
- ---------------------------- Officer and Acting
Dr. Gad Riesenfeld Secretary
/s/ Marvin P. Loeb Director December 8, 1998
- ----------------------------
Marvin P. Loeb
/s/ E. Andrews Grinstead III Director December 8, 1998
- ----------------------------
E. Andrews Grinstead III
/s/ Stephen C. Knight Director December 8, 1998
- ----------------------------
Stephen C. Knight
/s/ David Schlachet Director December 8, 1998
- ----------------------------
David Schlachet
/s/ Anthony Marcel Director December 8, 1998
- ----------------------------
Anthony Marcel
/s/ Mony Ben Dor Director December 8, 1998
- ----------------------------
Mony Ben Dor
II-4
Exhibit 5
EHRENREICH EILENBERG KRAUSE & ZIVIAN LLP
December 7, 1998
Pharmos Corporation
33 Wood Avenue South, Suite 466
Iselin, New Jersey 08830
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 (the "Registration
Statement") to be filed by you with the Securities and Exchange Commission in
connection with the offer by Pharmos Corporation ("the Company") to sell up to
3,000,000 shares (the "Shares") of the Common Stock, par value $.03 per share
(the "Offering"). As your counsel in connection with the Offering and sale of
the Shares, we have examined the originals, or photostatic or certified copies,
of such records of the Company, certificates of the Company and of public
officials and such other matters and documents as we have deemed necessary or
relevant as a basis for this opinion.
Based on these examinations, it is our opinion that the Shares, when issued upon
payment therefor, will be validly issued, fully paid and non-assessable shares
of Common Stock of the Company.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the reference to this firm under the caption
"Legal Opinions" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
EHRENREICH EILENBERG KRAUSE & ZIVIAN LLP
/s/ Ehrenreich Eilenberg Krause & Zivian LLP
Exhibit 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Pharmos Corporation
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
March 16, 1998 appearing on Page F-2 of Pharmos Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997. We also consent to the reference
to us under the heading "Experts" in such Prospectus.
/S/PRICEWATERHOUSECOOPERS LLP
- -----------------------------
PRICEWATERHOUSECOOPERS LLP
New York, New York
December 8, 1998
