<PAGE>
As filed with the Securities and Exchange Commission on April 21, 1995
REGISTRATION NO. 33-58093
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------------
ALLIANCE PHARMACEUTICAL CORP.
(Exact name of registrant as specified in its charter)
NEW YORK 14-1644018
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
3040 SCIENCE PARK ROAD
SAN DIEGO, CALIFORNIA 92121
(619) 558-4300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------------
DUANE J. ROTH
PRESIDENT
3040 SCIENCE PARK ROAD
SAN DIEGO, CALIFORNIA 92121
(619) 558-4300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------
Copies to:
MELVIN EPSTEIN, ESQ. STEPHANIE W. ABRAMSON, ESQ.
STROOCK & STROOCK & LAVAN MORGAN, LEWIS & BOCKIUS
7 HANOVER SQUARE 101 PARK AVENUE
NEW YORK, NEW YORK 10004 NEW YORK, NEW YORK 10178
(212) 806-5400 (212) 309-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are being
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SHARES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
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Common Stock, par value $0.01 per share 3,175,000 $5.00 $15,875,000 $6,229
=========================================================================================================
</TABLE>
(1) All of these shares are to be offered both in the United States and in
certain countries outside the United States. Those shares offered outside
the United States may be resold from time to time in the United States in
transactions requiring registration under the Securities Act of 1933, as
amended.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based upon the last sale price of the registrant's
Common Stock as reported on the Nasdaq National Market on April 17, 1995.
(3) Of this amount, $5,065 was previously paid on March 6, 1995 and March 14,
1995.
----------------------
THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933.
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<PAGE>
3,175,000 SHARES
LOGO OF ALLIANCE PHARMACEUTICAL CORP.
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by the
Company in an offering in the United States (the "U.S. Offering") and in a
concurrent offering in certain countries outside of the United States (the
"International Offering" and, together with the U.S. Offering, the
"Offerings"). The offering price per share of Common Stock in the U.S. Offering
and the International Offering is identical. The Company's Common Stock is
traded over-the-counter on the Nasdaq National Market under the symbol "ALLP."
On April 17, 1995, the closing price of the Common Stock was $5.00 per share.
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS."
-----------
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.
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<TABLE>
<CAPTION>
PRICE PROCEEDS TO
TO PUBLIC FEE(/1/) COMPANY(/2/)
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<S> <C> <C> <C>
Per Share.................................. $5.00 $0.30 $4.70
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Total(3)..................................... $15,875,000 $952,000 $14,923,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The Common Stock is being offered on an all or none basis by the Company
principally to selected institutional investors. Oppenheimer & Co., Inc.
and Cowen & Company have been retained to act, on a best efforts basis, as
agents for the Company in connection with the U.S. Offering. Oppenheimer &
Co., Inc., Cowen & Company and ABB Aros Fondkommission AB have been
retained to act, on a best efforts basis, as agents for the Company in
connection with the International Offering. Oppenheimer & Co., Inc., Cowen
& Company and ABB Aros Fondkommission AB are referred to herein as the
"Placement Agents." The Company has agreed (i) to pay the Placement Agents
a fee in connection with the Offerings and to reimburse them for certain
out-of-pocket expenses, (ii) to indemnify Oppenheimer & Co., Inc. and Cowen
& Company against certain liabilities under the Securities Act of 1933, as
amended, and (iii) to indemnify the Placement Agents against certain
liabilities in connection with the International Offering. See "Plan of
Distribution."
(2) The termination date of the Offerings is April 28, 1995, subject to earlier
termination if all the shares are sold and to extension by the mutual
agreement of the Company and the Placement Agents. The closing of the
Offerings is conditioned on the sale of all 3,175,000 shares. Prior to the
closing date of the U.S. Offering, all investor funds will promptly be
placed in escrow with Citibank, N.A., as escrow agent for funds collected
in connection with the U.S. Offering (the "U.S. Escrow Agent"), and prior
to the closing of the International Offering, all investor funds will
promptly be placed in escrow with Citibank, N.A. in London, England, as
escrow agent for funds collected in connection with the International
Offering (the "International Escrow Agent" and, with the U.S. Escrow Agent,
the "Escrow Agents"), in each case in an escrow account established for the
benefit of the investors. Upon receipt of notice from the Escrow Agents
that investors have affirmed purchase of the Common Stock and deposited the
requisite funds in the applicable escrow account, the Company will deposit
with The Depository Trust Company the applicable Common Stock to be
credited to the accounts of the investors and will collect the investor
funds from the Escrow Agents. In the event that investor funds are not
received in the full amount necessary to satisfy the requirements for the
Offerings, all funds deposited with the Escrow Agents in the escrow
accounts will promptly be returned to the investors. See "Plan of
Distribution."
(3) Before deducting expenses of the Offerings estimated at $400,000 payable by
the Company.
The date of this Prospectus is April 21, 1995.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1994, which was filed with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Exchange Act of 1934 (the "Exchange
Act"), as amended by Form 10-K/A filed on March 10, 1995, the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1994,
which was filed with the Commission pursuant to the Exchange Act on November
10, 1994, as amended by Form 10-Q/A for such quarter filed on March 10, 1995,
and the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1994, which was filed with the Commission pursuant to the Exchange
Act on February 10, 1995, as amended by Form 10-Q/A for such quarter filed on
March 10, 1995, and the information under the caption "Description of the
Company's Securities" contained in the Company's Registration Statement on Form
8-A, dated October 25, 1984, with respect to the Company's Common Stock, are
incorporated herein by reference and made a part of this Prospectus as of the
date hereof. All reports subsequently filed pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act prior to the termination of the offering of the
Common Stock offered hereby shall be deemed to be incorporated by reference
into this Prospectus. Any statement contained herein or 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 document which 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 provide without charge to any person to whom this Prospectus
is delivered, upon written or oral request of such person, a copy of any or all
of the documents which have been incorporated by reference in this Prospectus,
other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the documents so incorporated. Requests for such
copies should be directed to Gwen Rosenberg, Alliance Pharmaceutical Corp.,
3040 Science Park Road, San Diego, California 92121, telephone (619) 558-4300.
AVAILABLE INFORMATION
This Prospectus is part of a Registration Statement on Form S-3 (together
with all amendments and exhibits thereto, the "Registration Statement") which
the Company has filed with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"). The Registration Statement relates to the
Common Stock being offered in the United States in the U.S. Offering. The
Registration Statement also relates to shares of Common Stock that will be sold
outside the United States in the International Offering, but that may be resold
from time to time in the United States in transactions requiring registration
under the Securities Act. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information pertaining to the Company and the Common Stock, reference
is made to the Registration Statement. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to herein
are not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such
reference.
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's New York Regional Office, Seven World Trade
Center, 13th Floor, New York, New York 10048, and at its Chicago Regional
Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies of such materials can be obtained by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company's Common Stock is
listed on the Nasdaq National Market. Reports and other information concerning
the Company may be inspected at the offices of the National Association of
Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements contained in this Prospectus or previously filed with the Securities
and Exchange Commission. Unless otherwise noted, all financial information,
share and per share data in this Prospectus assume no issuance of shares of
Common Stock issuable upon the exercise of outstanding warrants, options and
convertible securities. As used in this Prospectus, the terms "Company" and
"Alliance" refer to Alliance Pharmaceutical Corp. and its consolidated
subsidiaries.
THE COMPANY
Alliance is a pharmaceutical research and development company that focuses on
the application of scientific discoveries which can be developed into
innovative drug products. Alliance has entered into agreements with
institutions and inventors for the rights to their discoveries and is adding
value to these discoveries by defining the product, market and regulatory
strategies prior to seeking collaborative relationships with multinational
pharmaceutical companies for the delivery of these products to the market.
Alliance intends to seek to enter into similar agreements and, through this
approach, Alliance believes it can play an important role in the development of
innovative pharmaceutical products.
Three of the products under development by Alliance are based upon
perfluorochemical ("PFC") technologies. The Company's primary drug substance is
perflubron, an eight-carbon brominated PFC. Alliance has in various stages of
development three products which are based on PFC technologies and which
address significant medical needs: Oxygent(TM), an intravascular oxygen carrier
designed to reduce the need for donor blood transfusions during surgery, which
is in clinical development; LiquiVent(TM), an intrapulmonary agent for use in
the treatment of acute respiratory failure, which is in clinical development;
and Imagent(R) US, a diagnostic ultrasound imaging agent, which is in
preclinical development. In addition, the Company is evaluating its antigenized
antibody technology for potential use in the production of novel vaccines and
immune modulators.
Oxygent (an emulsion containing perflubron) is an intravascular oxygen
carrier for use as a temporary "blood substitute" to provide oxygen to tissues
during elective surgeries where substantial blood loss is anticipated. Oxygent
has several potential advantages over the use of allogeneic (donor) blood: it
does not transmit infectious disease, is compatible with all blood types and
has a shelf life in excess of one year. Oxygent is intended for use with
autologous blood collection techniques including predonation, hemodilution, and
salvage.
In August 1994, the Company entered into a license agreement (the "License
Agreement") with Ortho Biotech, Inc. and The R.W. Johnson Pharmaceutical
Research Institute, a division of Ortho Pharmaceutical Corporation,
subsidiaries of Johnson & Johnson (collectively referred to as "Ortho"), which
provides Ortho with worldwide marketing rights to the Company's injectable PFC
emulsions capable of transporting oxygen for therapeutic use, including
Oxygent. The Company has conducted early-stage clinical trials with Oxygent in
surgical patients. The product will be jointly developed by Alliance and Ortho,
with Ortho responsible for substantially all of the remaining costs of
development. Ortho will pay Alliance royalties based on sales of the product
after commercialization. In conjunction with the License Agreement, Johnson &
Johnson Development Corporation purchased $15.0 million of the Company's
convertible preferred stock. In addition, Ortho paid Alliance an initial
license fee of $4.0 million and will make other payments upon the achievement
of certain milestones.
LiquiVent (sterile perflubron) is in clinical development for use as an
intrapulmonary agent to treat acute respiratory failure, a disorder that can
result from many causes, including serious infections, traumatic shock, severe
burns and inhalation of toxic substances, and is characterized by impairment of
normal lung function. The Company is conducting separate early-stage clinical
trials with LiquiVent in premature infants, pediatric patients, and adults with
acute respiratory distress syndrome ("ARDS"), the most severe form of acute
respiratory failure. The U.S. Food and Drug Administration (the "FDA") has
granted the Company Subpart E status (expedited review) for development of the
product in the treatment of ARDS.
3
<PAGE>
Imagent US is a PFC-based intravenous contrast agent for enhancement of
ultrasound images of blood flow abnormalities (perfusion defects), which can
occur as a result of myocardial infarctions, blood clots, or solid tumors. The
product is currently in preclinical development.
The Company's fourth current project utilizes its antigenized antibody
technology to develop a prototype vaccine for an infectious disease and a
prototype tolerogen for an autoimmune disease. Antigenized antibodies use human
immunoglobulin as a platform to carry specific peptides to modulate the immune
system. Depending on the disease and antigen, antigenized antibodies can be
used to either stimulate antibody production (as in a vaccine) to prevent
disease or to down-regulate antibody production (as in a tolerogen) to treat
certain autoimmune disorders.
The Company's headquarters are located at 3040 Science Park Road, San Diego,
California 92121, and its telephone number is (619) 558-4300.
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered 3,175,000 shares
Common Stock to be outstanding after the Offer-
ings 24,602,437 shares
Use of Proceeds To fund preclinical testing and clinical
trials,
research and development, and other general
corporate purposes
Nasdaq National Market symbol ALLP
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------------------------ ---------------------
1990 1991 1992 1993 1994 1993 1994
-------- -------- -------- -------- -------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues.......... $ 1,717 $ 1,582 $ 1,805 $ 2,370 $ 409 $ 252 $ 7,209
Loss from operations.... (14,363) (18,494) (24,304) (28,802) (38,508) (18,688) (15,724)
Other income--net....... 1,902 792 2,538 2,422 1,562 951 575
Dividends on preferred
stock.................. (219)
Net loss applicable to
common shares.......... $(12,461) $(17,702) $(21,766) $(26,380) $(36,946) $(17,737) $(15,368)
Net loss per share of
Common Stock .......... $ (0.94) $ (1.24) $ (1.25) $ (1.39) $ (1.83) $ (0.93) $ (0.72)
Weighted average number
of shares outstanding.. 13,255 14,258 17,344 18,946 20,226 19,109 21,385
<CAPTION>
DECEMBER 31, 1994
---------------------
AS
ACTUAL ADJUSTED(1)
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<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments.................... $ 20,100 $ 34,623
Working capital...................................................... 20,877 35,400
Total assets......................................................... 52,864 67,387
Long-term debt and other............................................. 518 518
Accumulated deficit.................................................. (174,492) (174,492)
Stockholders' equity................................................. 48,615 63,138
</TABLE>
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(1) Adjusted to give effect to the sale of the 3,175,000 shares of Common Stock
offered hereby, after deducting the Placement Agents' fee and estimated
offering expenses. See "Use of Proceeds" and "Capitalization."
4
<PAGE>
RISK FACTORS
An investment in the Common Stock offered in the Offerings involves a high
degree of risk. The following factors should be carefully considered in
evaluating the Company and its business:
Limited Product Revenues; History of Operating Losses. Substantially all of
the Company's revenues to date have consisted of licensing fees, milestone
payments and payments to fund research and development activities under joint
development and license agreements. The Company has had net operating losses
since its inception and expects such losses to continue unless and until such
time as revenues are sufficient to fund its continuing operations. As of
December 31, 1994, the Company had an accumulated deficit of $174,492,000, of
which approximately $34.3 million reflects non-cash charges from the Company's
acquisition by merger of Fluoromed Pharmaceutical, Inc. on February 24, 1989.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Future Capital Needs; Uncertainty of Additional Financing. The Company
believes that its existing capital resources, including expected revenues from
the License Agreement, investments, and product sales, as well as the net
proceeds from the Offerings and income earned thereon, will be adequate to
satisfy its capital requirements for approximately 12 months. The Company will
need additional financing to support its long- term product development
programs. The Company's future capital requirements will depend on many
factors, including continued scientific progress in its research and
development programs, progress with preclinical testing and clinical trials,
the time and cost involved in obtaining regulatory approvals, patent costs,
competing technological and market developments, changes in existing
collaborative relationships, the Company's ability to establish development,
sales, and marketing arrangements, and the cost of manufacturing scale-up, if
necessary. No assurance can be given that adequate financing will be available
to the Company in the future.
Reliance on Collaborative Partners; Future Collaborations. The Company has
entered into the License Agreement to support the development and
commercialization of Oxygent and to raise capital. Pursuant to the License
Agreement, the Company has granted significant licensing rights. The Company's
strategy is to seek additional collaborations; however, there can be no
assurance that the Company will be able to negotiate acceptable collaborative
arrangements in the future, or that any current or future arrangements will
ultimately be successful. Under the License Agreement, the Company will depend
on Ortho for development and regulatory approval of products in certain
markets. The termination of the License Agreement, which can occur on three
months' advance notice, or any other future collaborative arrangement could
adversely affect the Company's research, development or, ultimately, product
distribution plans. See "Business--Collaborative Relationships."
Uncertainty of Development Efforts. The Company's products require
substantial development efforts. The Company may encounter unforeseen
technological or scientific problems (including side effects) which may force
abandonment or substantial change in the development of a specific product or
process, or technological change or product developments by others, any of
which may have a material adverse effect on the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Government Regulation. The production and marketing of the Company's products
and its research and development activities are subject to regulation for
safety and efficacy by numerous government authorities in the United States and
other countries. To date, the Company has received regulatory approval for the
commercial sale of only two of its products. Clinical trials and the marketing
and manufacturing of the Company's products are subject to the testing and
approval process of the FDA and foreign regulatory authorities. The process of
obtaining regulatory clearances or approvals is costly and time consuming. The
Company cannot predict how long preclinical and clinical trials will take or
whether they will be successful; nor can the Company predict how long the
necessary regulatory approvals or clearances will take. Therefore, there can be
no assurance that the necessary clearances or approvals will be obtained, or
obtained on a timely
5
<PAGE>
basis. Delays in obtaining regulatory approval in the United States or other
countries would adversely affect the marketing of products developed by the
Company. The effect of governmental regulations which might arise from future
legislative or administrative action cannot be predicted. See "Business--
Government Regulation."
Health Care Reimbursement and Reform. The Company's ability to commercialize
its products will depend in part on the availability to end-users of
reimbursement for the cost of the Company's products and related treatment by
government health administration authorities, private health coverage insurers
and other organizations. The reimbursement status of newly approved health care
products is uncertain and there can be no assurance that adequate patient
insurance coverage will be available to permit the Company to maintain price
levels sufficient for the realization of a satisfactory return on its
investment in product development. In addition, the public and the federal
government have recently focused significant attention on reforming the health
care system in the United States. A number of health care reform measures have
been suggested, including price controls on pharmaceutical products. Public
discussion of such measures is likely to continue, and concerns about the
potential effects on different proposals have been reflected in the volatility
of the stock prices for companies in the health care and related industries.
The adoption of such reform proposals could have a material adverse effect on
the Company and its businesses.
Limited Manufacturing Capability and Experience. The Company currently
operates a pilot manufacturing facility and has constructed an intermediate
scale-up manufacturing plant at its San Diego headquarters for the production
of perflubron-based emulsions for use in research and development and clinical
trials. The Company believes that, if such products are approved by the FDA,
the intermediate scale-up plant has adequate capacity to support the market
introduction of its emulsion products. However, there can be no assurance that
FDA approval will be obtained or obtained on a timely basis. Pursuant to the
License Agreement, Ortho may elect to manufacture the product itself after
market introduction, or continue to require the Company to do so at a
negotiated price. If it is required to manufacture the product, the Company
will need to construct a commercial production facility. The Company has not
selected a site or obtained any regulatory approvals. Construction of a
facility will depend upon regulatory approvals, product development and capital
resources, among other things. See "Business--Manufacturing."
Unpredictability of Patent Protection; Proprietary Technology. The Company
believes that its success will depend largely on its ability to obtain and
maintain patent protection for its own inventions and licenses for the use of
patents owned by third parties. The Company has obtained patents covering
certain intermediate and high concentration PFC emulsions. The Company has
filed, and when appropriate will file, other patent applications with respect
to its products and processes in the United States and in foreign countries.
There can be no assurance, however, that the Company will develop any
additional products and processes which may be patentable or that any
additional patents will be issued. It is possible that patents issued to the
Company or any patents licensed to the Company may be challenged successfully,
that the Company may infringe patents of third parties unintentionally, and
that the Company may have to alter its products or manufacturing processes to
take into account the patents of third parties, causing additional unexpected
costs and delays in product development. The Company also attempts to protect
its proprietary products and processes by relying on trade secret laws and non-
disclosure and confidentiality agreements with its employees and certain other
persons who have access to its products or processes. No assurance can be given
that others will not develop such products or processes independently or obtain
access to such products or processes. To the extent that others develop or
obtain similar products or processes, the Company's competitive position may be
affected adversely. See "Business--Patents."
Dependence Upon Key Personnel. The Company's success in developing marketable
products and achieving a competitive position will depend, in part, on its
ability to retain qualified scientific and management personnel. Competition
for such personnel is intense, and no assurance can be given that the Company
will be able to retain such personnel. Scientific advisors to the Company are
employed by or have consulting arrangements with third parties which may
conflict with their obligations to the Company. The
6
<PAGE>
Company's anticipated growth and expansion into technologies will require
additional expertise and are expected to place additional demands on the
Company's management and financial resources.
Competition; Rapid Technological Change. Competition in the health care field
is intense. The Company faces competition from larger companies which have
substantially greater research and development, managerial, and financial
resources. Such competitors may develop more effective products on a more
timely basis. Rapid technological development may result in the Company's
products or processes becoming obsolete before they are marketed or before the
Company recovers a significant portion of the related research, development,
and commercialization expenses. See "Business--Competition."
Product Liability Claims and Uninsured Risks. Products or processes that may
be developed, licensed, or sold by the Company may expose the Company to
potential liability from claims by end-users of such products or of products
manufactured by such processes, or by manufacturers or others selling such
products, either directly or as a component of other products. The Company
currently maintains limited product liability insurance coverage. There can be
no assurance that the Company will be able to maintain such coverage or obtain
additional coverage on acceptable terms, or that such insurance will provide
adequate coverage against all potential claims.
Volatility of Stock Price; Liquidation Preference; and Lack of Dividends. The
market prices for securities of biopharmaceutical companies have historically
been highly volatile. Announcements concerning the Company or its competitors,
including the results of testing and clinical trials, technological
innovations, or commercial products, government regulations, developments
concerning proprietary rights, including patents and litigation matters, a
change in status of a corporate partner, public concern relating to the
commercial value or safety of the Company's products and stock market
conditions in general may have a significant impact on the price of the Common
Stock.
The Company has 1,500,000 shares of preferred stock outstanding. Such
preferred stock is entitled to an annual $0.50 per share preferential dividend,
and has a liquidation preference of $10.00 per share plus all accumulated but
unpaid dividends.
The Company has not paid dividends on its Common Stock since its inception
and does not intend to pay any such dividends in the foreseeable future.
Further, the Company is required to pay cumulative dividends on its outstanding
preferred stock prior to paying any dividends on its Common Stock. The Company
has incurred losses and thus, has had a deficiency in preferred stock dividend
coverage. For the years ended June 30, 1990, 1991, 1992, 1993 and 1994 and the
six months ended December 31, 1993 and 1994 the Company has incurred losses of
$12,461,000, $17,702,000, $21,766,000, $26,380,000, $36,946,000, $17,737,000
and $15,368,000, respectively.
Shares Eligible for Future Sales. As of December 31, 1994, 3,256,688 shares
of Common Stock (or 13% of the total number of shares outstanding on a fully
diluted basis) are issuable upon the exercise of outstanding options and
warrants. Additional shares may be issuable upon the conversion of preferred
stock. The existence of such outstanding warrants, options and convertible
securities, as well as certain registration rights, may adversely affect the
terms on which the Company may obtain additional equity financing. The holders
of the outstanding warrants and options are likely to exercise their securities
at a time when the Company would otherwise be able to obtain capital on terms
more favorable than those provided by the exercise or conversion prices
thereof.
Immediate and Substantial Dilution. Investors in the Offerings will
experience immediate and substantial dilution in book value per share. See
"Dilution."
7
<PAGE>
USE OF PROCEEDS
The net proceeds from the Offerings are estimated to be $14,523,000, at a
public offering price of $5.00 per share. Such net proceeds will be used to
fund research, preclinical testing, and clinical trials for the Company's
products under development, and for other general corporate purposes. Pending
such application, the Company intends to deposit such proceeds in interest-
bearing bank accounts or to invest them in short-term, high-grade, interest-
bearing securities. The Company believes it will need additional financing to
support its long-term product development programs. No assurance can be given
that adequate financing will be available to the Company. See "Risk Factors--
Future Capital Needs; Uncertainty of Additional Financing" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
DILUTION
As of December 31, 1994, the net tangible book value of the Company was
approximately $31,446,000, or $1.37 per share. "Net tangible book value per
share" represents the amount of total tangible assets of the Company reduced by
the total liabilities and divided by the number of shares of Common Stock
outstanding (after giving effect to the conversion of the outstanding shares of
preferred stock into Common Stock on a one to one basis). After giving effect
to the sale of the 3,175,000 shares of Common Stock offered in the Offerings,
at a public offering price of $5.00 per share, the pro forma net tangible book
value of the Common Stock as of December 31, 1994 (after the deduction of the
Placement Agents' fee and other estimated expenses of the Offerings) would have
been approximately $45,969,000, or $1.76 per share. This represents an
immediate increase in net tangible book value of $.39 per share to existing
shareholders and an immediate dilution of $3.24 per share to new investors
purchasing shares of Common Stock in the Offerings. "Dilution per share"
represents the difference between the price per share of Common Stock paid by
the new investors in the Offerings and the net tangible book value per share at
December 31, 1994 as adjusted to give effect to the Offerings.
The following table illustrates the dilution per share taking into account
estimated expenses of the Offerings:
<TABLE>
<S> <C> <C>
Public offering price per share.............................. $5.00
Net tangible book value per share as of December 31, 1994.... $1.37
Increase to present shareholders attributable to the
Offerings................................................... .39
-----
Pro forma net tangible book value per share after the
Offerings................................................... 1.76
-----
Dilution to investors in the Offerings....................... $3.24
=====
</TABLE>
The foregoing calculations take into account the Placement Agents' fee and
other estimated expenses of the Offerings. See "Plan of Distribution."
8
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
31, 1994 and as adjusted to give effect to the sale of the Common Stock offered
in the Offerings and the application of the net proceeds therefrom. See "Use of
Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------
AS
ACTUAL ADJUSTED
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt & other................................... $ 518 $ 518
Stockholders' equity:
Preferred stock $.01 par value--5,000,000 shares
authorized; 1,500,000 shares issued and outstanding..... 15 15
Common Stock $.01 par value--50,000,000 shares
authorized; 21,407,787 issued and outstanding as of
December 31, 1994; 24,582,787 shares as adjusted........ 214 246
Additional paid-in capital............................... 222,878 237,369
Accumulated deficit...................................... (174,492) (174,492)
--------- ---------
Total stockholders' equity............................... 48,615 63,138
--------- ---------
Total capitalization..................................... $ 49,133 $ 63,656
========= =========
</TABLE>
At December 31, 1994, there were 3,256,688 shares of Common Stock reserved
for issuance upon the exercise of outstanding options and warrants. For a
description of the conversion features of the preferred stock, see "Note 8 of
Notes to Consolidated Financial Statements" contained herein.
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data set forth below for the fiscal
years ended June 30, 1992, 1993, and 1994 and the consolidated balance sheet
data at June 30, 1993 and 1994 are derived from, and are qualified by reference
to, the audited consolidated financial statements included elsewhere herein.
The consolidated statement of operations data for the fiscal years ended June
30, 1990 and 1991, and the consolidated balance sheet data at June 30, 1990,
1991, and 1992, are derived from audited consolidated financial statements
previously filed with the Commission. The consolidated statement of operations
data for the six months ended December 31, 1993 and 1994 and the consolidated
balance sheet data at December 31, 1993 and 1994 are derived from unaudited
consolidated financial statements previously filed with the Commission, but, in
the opinion of management, have been prepared on the same basis as the audited
consolidated financial statements and reflect all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of the financial
position and results of operations for such periods.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------------------------ ------------------
1990 1991 1992 1993 1994 1993 1994
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $ 1,717 $ 1,582 $ 1,805 $ 2,370 $ 409 $ 252 $ 7,209
Operating expenses:
Research and
development........... 10,148 15,092 20,922 24,767 31,605 15,555 18,981
General and
administrative........ 5,932 4,984 5,187 6,405 7,312 3,385 3,952
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses............... 16,080 20,076 26,109 31,172 38,917 18,940 22,933
-------- -------- -------- -------- -------- -------- --------
Loss from operations.... (14,363) (18,494) (24,304) (28,802) (38,508) (18,688) (15,724)
Other income -- net..... 1,902 792 2,538 2,422 1,562 951 575
Dividends on preferred
stock.................. (219)
-------- -------- -------- -------- -------- -------- --------
Net loss applicable to
common shares.......... $(12,461) $(17,702) $(21,766) $(26,380) $(36,946) $(17,737) $(15,368)
======== ======== ======== ======== ======== ======== ========
Net loss per share of
Common Stock........... $ (0.94) $ (1.24) $ (1.25) $ (1.39) $ (1.83) $ (0.93) $ (0.72)
======== ======== ======== ======== ======== ======== ========
Weighted average number
of shares outstanding.. 13,255 14,258 17,344 18,946 20,226 19,109 21,385
======== ======== ======== ======== ======== ======== ========
<CAPTION>
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------------------------ ------------------
1990 1991 1992 1993 1994 1993 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and short--term
investment ............ $ 30,570 $ 16,812 $ 66,420 $ 39,542 $ 21,056 $ 38,497 $ 20,100
Total assets............ 59,451 44,848 97,976 72,537 53,132 70,865 52,864
Total current
liabilities............ 2,127 2,026 2,667 2,946 2,959 5,862 3,731
Total long-term debt and
other.................. 8,490 8,967 756 447 348 397 518
Accumulated deficit..... (56,549) (74,251) (96,017) (122,397) (159,343) (140,134) (174,492)
Stockholders' equity.... 48,834 33,855 94,553 69,144 49,825 64,606 48,615
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(References to years are to the Company's fiscal years ended June 30.)
Alliance has devoted substantial resources to research and development
related to its pharmaceutical products based upon perfluorochemical ("PFC") and
emulsion technologies. The Company has been unprofitable since inception and
expects to incur operating losses for at least the next several years due to
continued requirements for research and development, preclinical testing and
clinical trials, regulatory activities, commercial manufacturing start-up, and
the establishment of a sales and marketing organization and/or arrangements
therefor. The amount of net losses and the time required by the Company to
achieve profitability are highly uncertain. There can be no assurance that the
Company will be able to achieve profitability at all or on a sustained basis.
LIQUIDITY AND CAPITAL RESOURCES
Through December 1994, the Company financed its activities primarily from
public and private sales of equity and funding from marketing and related
agreements with corporate partners. In August 1994, the Company and Ortho
entered into the License Agreement, which granted to Ortho a worldwide
exclusive license to market injectable PFC emulsions capable of transporting
oxygen for therapeutic use, including Oxygent (a temporary blood substitute).
As a result of the License Agreement, license and research revenues are
expected to continue to increase in 1995. Under the License Agreement, Ortho
paid to Alliance an initial fee of $4.0 million and will make additional
payments upon the achievement of certain milestones. Ortho is responsible for
substantially all the remaining costs of developing the products and will pay
Alliance a royalty based upon sales of products after commercialization. As of
December 31, 1994, the Company had recorded a receivable of $3.1 million
(received in February 1995), representing funding due from Ortho for
development costs incurred. In conjunction with the License Agreement, Johnson
& Johnson Development Corp. ("J&JDC") purchased 1.5 million shares of Alliance
convertible preferred stock for $15.0 million and obtained a three year warrant
to purchase 300,000 shares of Alliance Common Stock at $15 per share. The
Company has financed substantially all of its office and research facilities
and related leasehold improvements under operating lease arrangements.
The Company had net working capital of $20.9 million at December 31, 1994,
compared to $19.4 million at June 30, 1994. The Company's cash, cash
equivalents, and short-term investments declined to $20.1 million at December
31, 1994, from $21.1 million at June 30, 1994. The decrease resulted primarily
from cash used for operating expenses of $18.7 million and from property,
plant, and equipment additions of $0.5 million. These uses of cash were offset
by $15.0 million received from the sale of convertible preferred stock to J&JDC
and from $4.0 million of license revenue attributable to the License Agreement.
Capital expenditures for 1995 are expected to be comparable to those incurred
during 1994. The Company's operations to date have consumed substantial amounts
of cash, and are expected to continue to do so over the foreseeable future.
During 1994, Alliance provided approximately $1.1 million to a majority-owned
subsidiary of the Company, Astral, Inc. ("Astral"), for its research
activities. During the six months ended December 31, 1994, Alliance provided an
additional approximately $1.1 million to Astral for its research activities.
The Company intends to consider additional technologies that may be available
to Astral or it for licensing and/or research agreements. The Company intends
to seek outside sources of funding for the operations of Astral or to fund any
such other agreements. There can be no assurance that such funding will be
available on favorable terms, if at all. If new license and research agreements
are added and outside sources of funding are not available, research funding
for these activities is expected to increase significantly.
The Company continually reviews its product development activities in an
effort to allocate its resources to those product candidates that the Company
believes have the greatest commercial potential. Factors considered by the
Company in determining the products to pursue include projected markets, the
medical need for such products, potential for regulatory approval and
reimbursement under the existing health care
11
<PAGE>
system, technical feasibility, expected and known product attributes, and
estimated costs to bring the product to market. Based on these and other
factors, the Company may from time to time reallocate its resources among its
product development activities. Additions to products under development or
changes in products being pursued can substantially and rapidly change the
Company's funding requirements.
In December 1993, the Company entered into an agreement with its primary
supplier of raw material for certain products. Under the terms of the
agreement, the Company is obligated to fund the supplier at defined minimum
levels. All costs associated with the contract are charged to expense as
incurred.
The Company expects to incur substantial additional expenditures associated
with product development. The Company will seek additional collaborative
research and development relationships with suitable corporate partners for its
non-licensed products. There can be no assurance that such relationships, if
any, will successfully reduce the Company's funding requirements.
Alliance anticipates that its current capital resources, including expected
revenues from the License Agreement, its investments, product sales, and the
net proceeds from the Offerings, including income earned thereon, will be
adequate to satisfy its capital requirements and fund current and planned
operations for approximately twelve months. If the net proceeds of the
Offerings are not sufficient, the Company will have to seek other sources of
financing. There can be no assurance that funds from these sources would be
available on favorable terms, if at all. If adequate funds are not available,
the Company may be required to delay, scale back, or eliminate one or more of
its product development programs, or 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 not otherwise relinquish. The Company's future capital
requirements will depend on many factors, including continued scientific
progress in its research and development programs, progress with preclinical
testing and clinical trials, the time and cost involved in obtaining regulatory
approvals, patent costs, competing technological and market developments,
changes in existing collaborative relationships, the ability of the Company to
establish development arrangements, the cost of manufacturing scale-up, if
necessary, and the establishment of an effective sales and marketing
organization and/or arrangements therefor.
While the Company believes that it can produce materials for the initial
market launch of its emulsion products at its existing San Diego facility, it
may need to expand its commercial manufacturing capability for all of its
products in the future. This expansion may occur in stages, each of which would
require regulatory approval, and product demand could at times exceed supply
capacity. The Company has not selected a site or obtained any regulatory
approvals for construction of a commercial production facility for its
products. The projected location and completion date of any production facility
will depend upon regulatory and development activities, among other factors.
The Company cannot predict the amount that it will expend for the construction
of such a production facility, and there can be no assurance as to when or
whether the FDA will determine that such facility conforms with Good
Manufacturing Practices. Pursuant to the License Agreement, Ortho may elect to
manufacture the emulsion products referred to therein, or require the Company
to manufacture such products at a negotiated price.
The Company's business is subject to significant risks, including the
uncertainties associated with the lengthy regulatory approval process,
obtaining and enforcing patents important to the Company's business, and
possible competition from other products. Even if the Company's products appear
promising at an early stage of development, they may not reach the market for a
number of reasons. Such reasons include, but are not limited to, the
possibilities that the potential products will be found ineffective or harmful
during clinical trials, failure to receive necessary regulatory approvals,
difficulties in manufacturing on a large scale, failure to obtain market
acceptance, and the inability to commercialize because of proprietary rights of
third parties. The research, development, and market introduction of new
products will require the application of considerable technical and financial
resources by Alliance, while revenues generated from such products, assuming
they are developed successfully, may not be realized for several years. Other
material and unpredictable factors which could affect operating results
include, without limitation, the uncertainty of the
12
<PAGE>
timing of product approvals and introductions and of sales growth; the ability
to obtain necessary raw materials at cost effective prices or at all; the
effect of possible technology and/or other business acquisitions or
transactions; and the increasing emphasis on controlling health care costs and
potential legislation or regulation of health care pricing.
The Company and certain of its officers and directors are named as
defendants in a lawsuit filed by certain stockholders in September 1992. The
Company believes it has meritorious defenses and intends to defend vigorously
against the claims brought by the stockholders in the action. The Company
believes the eventual outcome of the litigation will not have a material
adverse effect on the Company's financial condition.
RESULTS OF OPERATIONS
Six Months Ended December 31, 1994 as Compared to Six Months Ended December
31, 1993
The Company's license and research revenue increased to $7.1 million for the
six months ended December 31, 1994, compared to $102,000 for the six months
ended December 31, 1993. The increase was due to $4.0 million of license and
$3.1 million of research revenues derived from the License Agreement. The
Company expects license and research revenue to increase significantly during
1995, compared to 1994, due to the License Agreement.
The Company incurred total operating expenses of $22.9 million for the six
months ended December 31, 1994. Operating expenses include a $2.9 million
charge for purchases of raw material for certain products currently being
developed, $1.8 million for Oxygent (temporary blood substitute) costs
incurred prior to execution of the License Agreement, $0.5 million for
products no longer promoted or developed by Alliance, and a $1.7 million
charge for capitalized product rights. The $2.9 million charge for purchase of
raw materials arises under a December 1993 agreement the Company entered into
with its primary supplier. Under the agreement, the Company is obligated to
fund the supplier at defined minimum levels. All costs associated with the
contract are charged to research and development expense as incurred. In
January 1994, the Company regained from Boehringer Ingelheim International
GmbH ("BII") all marketing and manufacturing rights to Imagent (diagnostic
imaging agents) and Oxygent products outside of North America. In conjunction
with the acquisition of the marketing and manufacturing rights from BII, the
Company recorded product rights of $1.8 million, based on the value of
warrants issued to acquire the rights. The unamortized portion ($1.7 million)
of these product rights was charged to research and development expense when
the Company licensed these product rights to Ortho.
Research and development expenses increased by 22% to $19.0 million for the
six months ended December 31, 1994, compared to $15.6 million for the six
months ended December 31, 1993. The growth in expenses is primarily a result
of the increases discussed above and increased staffing to support growth in
research and development efforts. These expenses were partially offset by a
reduction in payments to universities and outside consultants.
General and administrative expenses increased by 17% to $4.0 million for the
six months ended December 31, 1994, compared to $3.4 million for the six
months ended December 31, 1993. The increase in general and administrative
expenses was primarily due to increased professional fees.
Investment income and other was $575,000 for the six months ended December
31, 1994, compared to $951,000 for the six months ended December 31, 1993. The
decline was primarily a result of lower average cash balances.
Operating losses may fluctuate from period to period as a result of
differences in the timing of revenues earned and expenses incurred and such
fluctuations may be substantial. The Company's historical results are not
necessarily indicative of future results.
13
<PAGE>
Fiscal Year 1994 as Compared to Fiscal Year 1993
The Company had net product revenue of $246,000 for 1994 compared to $50,000
for 1993. In August 1993, the Company received FDA approval to market
Imagent(R) GI, a product developed and marketed by the Company. The increase
in net product revenue from 1993 to 1994 was primarily attributable to sales
of Imagent GI and Sat Pad(TM) (also developed and marketed by the Company).
Sales of Imagent GI and Sat Pad have not been expected to provide significant
revenue to the Company, and substantial increases are not anticipated. In
September 1994, the Company discontinued promotional activities for Imagent
GI. The majority of the Company's products are in development stage and there
can be no assurance as to whether or when it will be able to increase its
revenues significantly.
License and research revenue decreased to $163,000 for 1994 compared to $2.3
million for 1993. The Company's 1993 license and research revenue was
primarily derived from its agreements with BII (the "BII Agreements"). In July
1993, the BII Agreements were modified, which resulted in BII discontinuing
all contract payments.
Research and development expenses increased by 28% to $31.6 million for 1994
compared to $24.8 million for 1993. The growth in expenses reflects increases
in staffing, costs of preclinical testing and clinical trials, and additional
laboratory supplies and equipment associated with the growth of the Company's
research and development efforts. Due to the Company's discontinuance of
Imagent GI promotional activities, the Company reduced its perflubron
inventories to the estimated net realizable value from sales of Imagent GI,
resulting in a charge of $2.1 million. The Company expects that research and
development expenses for 1995 will increase at a rate comparable to that
experienced in 1994.
General and administrative expenses increased by 14% to $7.3 million for
1994 compared to $6.4 million for 1993. The increases were principally due to
increases in staffing to support the growth of product research and
development efforts and professional fees. General and administrative expenses
for 1995 are expected to increase at a rate comparable to that experienced in
1994.
Investment and other income was $1.6 million for 1994 compared to $2.4
million for 1993. The decline in investment revenue was primarily a result of
lower average cash and short-term investment balances.
Fiscal Year 1993 as Compared to Fiscal Year 1992
The Company's revenues increased by 31% to $2.4 million for 1993 compared to
$1.8 million in 1992. The Company's revenues were primarily derived from the
BII Agreements. License and research revenue, including reimbursement of
clinical trial costs primarily from BII, totaled $2.3 million for 1993
compared to $1.8 million in 1992.
For 1993, the Company had net product revenue of $50,000 compared to $9,000
in 1992. The increase in net product revenue from 1992 to 1993 was primarily
attributable to revenue from Sat Pad sales which commenced in March 1993.
Research and development expenses increased by 18% to $24.8 million for 1993
compared to $20.9 million for 1992. The growth in expenses reflects increases
in staffing, costs of clinical trials and preclinical testing, additional
laboratory supplies and equipment, and expansion of the Company's facilities
associated with the growth of its research and development efforts. In
addition, the Company incurred a one-time charge of $1.7 million in 1992
related to its acquisition of BioPulmonics, Inc.
General and administrative expenses increased by 23% to $6.4 million for
1993 compared to $5.2 million for 1992. The increases were principally due to
increases in staffing and the expansion of the Company's facilities to support
the growth in product research and development efforts.
Interest income was $2.4 million for 1993 compared to $2.9 million for 1992.
The decline in interest revenue was primarily a result of lower average cash
balances and decreases in available market interest rates. Interest expense
was $6,000 for 1993 compared to $349,000 for 1992. The decrease in interest
expense was primarily a result of the conversion of the $8.0 million of
subordinated notes to shares of the Company's common stock in November 1991.
14
<PAGE>
BUSINESS
OVERVIEW
Alliance is a pharmaceutical research and development company that focuses on
the application of scientific discoveries which can be developed into
innovative drug products. Based on its perfluorochemical ("PFC") technologies,
the Company has two drug products in early clinical studies: Oxygent(TM), for
use as a temporary oxygen carrier to reduce or eliminate the requirement for
allogeneic (donor) blood transfusions during elective surgery ("blood
substitute"); and LiquiVent(TM), an intrapulmonary drug for use in treating
patients with acute respiratory failure to reduce the morbidity associated with
conventional mechanical ventilation therapy. Imagent(R) US, a PFC-based
contrast agent for enhancement of ultrasound images of blood flow abnormalities
(perfusion defects), which can occur as a result of myocardial infarction,
blood clots, or solid tumors is in the preclinical phase. The Company is also
in early research and development of antigenized antibody technology for
potential use in producing novel vaccines directed against infectious diseases
and for use in regulating autoimmune disorders.
Over the past several years, the health care industry has experienced
significant and rapid change. One of these changes is the rapid pace at which
scientific discoveries are being made. These discoveries often occur in the
universities and medical centers where the researchers and clinicians work
toward identifying the basic causes of disease and potential targets for new
therapies. The Company believes that research and development companies such as
Alliance are in a position to collaborate with inventors to develop innovative
pharmaceutical products based on the intellectual property arising from these
discoveries. Alliance has developed significant experience defining
pharmaceutical formulation, designing manufacturing processes, conducting
preclinical pharmacology and toxicology studies, and conducting early-phase
human testing in accordance with regulatory guidelines. The final phase of drug
development requires greater resources and involves the completion of late-
phase human testing, obtaining worldwide regulatory approvals, building large-
scale manufacturing capacity, and implementing marketing strategies.
Multinational pharmaceutical companies with established capabilities and
expertise are in a stronger position to perform these tasks.
Alliance has entered into agreements with institutions and inventors for the
rights to their discoveries and is adding value to these discoveries by
defining the product, market and regulatory strategies prior to seeking
collaborative relationships with multinational pharmaceutical companies for the
delivery of these products to the market. Alliance intends to seek to enter
into similar agreements and, through this approach, Alliance believes it can
play an important role in the development of innovative pharmaceutical
products.
PRODUCTS
Three of the products currently under development by Alliance are based upon
PFC technologies. PFCs are clear, colorless and non-flammable liquids, are
twice as dense as water, and are biochemically inert. Alliance's primary drug
substance is perflubron (perfluorooctyl bromide), an eight-carbon brominated
PFC that, along with other attributes, produces a stable emulsion.
Oxygent. Oxygent (an emulsion containing perflubron) is an intravascular
oxygen carrier for use as a temporary "blood substitute" to provide oxygen to
tissues during elective surgeries where substantial blood loss is anticipated.
Oxygent has several potential advantages over the use of allogeneic (donor)
blood; it does not transmit infectious disease, is compatible with all blood
types and has a shelf life exceeding one year.
According to the 1994 estimates of The National Institutes of Health, the
risks per unit of blood transfused in the U.S. are 1:2,500 for bacterial
infections; 1:3,000 for hepatitis; 1:100,000 for fatal hemolytic reactions
(clerical error); and 1:250,000 for HIV infections (AIDS). To avoid these
risks, certain techniques can be employed that allow use of the patient's own
(autologous) blood. These techniques include (1) predonation, in which patients
donate several units of their blood in the six weeks leading up to surgery, (2)
perioperative hemodilution, in which several units of their blood are removed
just prior to the surgery
15
<PAGE>
and are replaced with a plasma expander, and (3) salvage, where a "cell saver"
is used to collect shed blood lost during the surgical procedure. In the
future, drugs such as erythropoietin, serine protease inhibitors, and oxygen-
carrying drugs may increase the utilization of these techniques by improving
both their safety and effectiveness. Oxygent is intended for use with any of
the above-mentioned autologous blood collection techniques. During surgery,
when a blood transfusion is indicated, Oxygent would be given instead to
maintain an adequate level of oxygen delivery despite a lower red blood cell
concentration, thereby delaying the need for transfusion. This delay allows for
the majority of the previously removed autologous blood to be reinfused at the
end of the procedure, providing a safe red blood cell concentration level for
recovery while avoiding donor blood.
The Oxygent dose for surgical applications is expected to provide the
equivalent oxygen delivery of approximately two units of red blood cells. It is
estimated that approximately three million patients are at risk of receiving
one or more units of blood during elective surgeries annually in the United
States.
The Company conducted early-stage clinical trials with Oxygent in surgical
patients and, in conjunction with Ortho, is continuing the clinical development
of the product. See "--Collaborative Relationships."
LiquiVent. LiquiVent (sterile perflubron) is in clinical development for use
as an intrapulmonary agent to treat acute respiratory failure, a disorder that
can result from many causes, including serious infections, traumatic shock,
severe burns, or inhalation of toxic substances. Acute respiratory failure is
generally characterized by an excessive inflammatory response, which leads to
blockage of the small airways and collapse of alveoli, resulting in inadequate
gas exchange and impairment of normal lung function.
Approximately 700,000 patients in the United States are placed on mechanical
gas ventilators each year for treatment of lung dysfunction due to acute
injuries or exacerbations of chronic lung diseases. The most urgent need for
these patients is to improve their blood oxygenation; however, the prolonged
use of high ventilatory pressures or high concentrations of inspired oxygen can
be damaging to the lungs. Each year, approximately 150,000 patients in the
United States suffering from respiratory failure progress to the most severe
form, referred to as acute respiratory distress syndrome ("ARDS"), where the
risk of death is 40-60%.
LiquiVent is intended to be used in a technique called partial liquid
ventilation ("PLV"). In this procedure, the drug is administered through an
endotracheal tube into the lungs of a patient being supported by a mechanical
ventilator. The initial goal of LiquiVent/PLV therapy is to open collapsed
alveoli to improve pulmonary function and gas exchange. Once this has been
accomplished, ventilator pressure and oxygen concentration may be lowered to
minimize ventilator-induced lung trauma. In clinical studies, LiquiVent has
also been observed to encourage the migration of mucus and alveolar debris to
the central airways, where suctioning is made easier. In conjunction with a
possible direct LiquiVent anti-inflammatory effect, the ability to remove such
debris may significantly reduce the excessive inflammatory response associated
with acute respiratory failure and enhance the effectiveness of other
therapeutic interventions, all serving to potentially reduce patient recovery
time.
The Company is conducting separate early-stage clinical trials with LiquiVent
in premature infants, pediatric patients, and adults with ARDS. The FDA has
granted the Company Subpart E status (expedited review) for the product in
connnection with the treatment of ARDS. See "--Government Regulation."
Imagent US. Imagent US is a contrast agent that is an aqueous dispersion of
PFC vapor-containing microbubbles. The gas bubbles are highly echogenic and,
when delivered intravenously, generate signals that enhance ultrasonic images.
Imagent US is intended to be used to enhance ultrasound images of blood flow
abnormalities (perfusion defects), which can occur as a result of myocardial
infarctions, blood clots or solid tumors. Approximately 18 million scans of the
heart, vasculature, and abdominal organs are performed annually in the United
States. More than 50% of these procedures may potentially benefit from a cost-
effective contrast agent. In preclinical studies, Imagent US has been found to
enhance the ultrasound signal from perfused tissues and blood vessels using
both gray-scale and color Doppler imaging techniques.
16
<PAGE>
To be successful in the marketplace, ultrasound contrast agents should
provide enhanced diagnostic images during several minutes of scanning, be easy
to use, and have a shelf life greater than one year. Imagent US is being
developed to meet these requirements. It has the potential for assessing
general vascular disease, cardiac (ventricular) function and, most importantly,
myocardial perfusion. The agent may also be useful in detecting space-occupying
lesions (such as solid tumors) in organs such as the liver.
The Company has evaluated multiple formulations for Imagent US, each of which
has advantages for certain applications. Imagent US is in the preclinical phase
and the Company estimates that it will file an IND to begin clinical trials
around the end of 1995.
Antigenized Antibodies. Antigenized antibodies utilize the human
immunoglobulin as a platform to carry specific peptides to modulate the immune
system. The presentation of the peptide is accomplished by use of genetic
engineering techniques to make a substitution in the complementarity
determining regions (CDR) of the antibody. Depending on the disease and the
antigen, antigenized antibodies can be used to either stimulate antibody
production (as in a vaccine) to prevent disease or to down-regulate antibody
production (as in a tolerogen) to treat certain autoimmune disorders.
Antigenized antibodies provide for a delivery system with advantages over the
free peptide, including its half-life in blood circulation and the ability of
the peptide to stimulate both a cellular and a humoral antibody response. In
this manner a cost-effective combination vaccine or vaccine/tolerogen therapy
can be engineered by using a common platform and a common manufacturing
process. Further chemical modification of these molecules may obviate the
requirement for adjuvants during immunization or tolerization. The Company,
through its Astral subsidiary, is developing a prototype vaccine for an
infectious disease and a prototype tolerogen for an autoimmune disease.
COLLABORATIVE RELATIONSHIPS
In August 1994, the Company entered into the License Agreement, which
provides Ortho with worldwide marketing rights to the Company's injectable PFC
emulsions capable of transporting oxygen for therapeutic use, including
Oxygent. The product will be jointly developed by Alliance and Ortho, with
Ortho being responsible for substantially all of the remaining costs of
development. Ortho paid Alliance an initial license fee of $4.0 million and
will make other payments upon the achievement of certain milestones. In
addition, Ortho will pay to Alliance a royalty based upon its sales of the
product after commercialization. In conjunction with the License Agreement,
J&JDC purchased 1.5 million shares of Alliance convertible preferred stock for
$15.0 million and obtained a three year warrant to purchase 300,000 shares of
Common Stock at $15 per share. See "Note 7 of Notes to Audited Consolidated
Financial Statements."
In November 1994, the Company entered into a license agreement with Glaxo
Group, Ltd. ("Glaxo") for the use of the Company's fluorinated surfactants in
certain metered-dose inhalers ("MDI") in delivering Glaxo's respiratory drug
formulations. Glaxo is responsible for the development and marketing of MDI
products incorporating the Company's surfactant. The agreement provides for an
initial license fee and milestone payments to Alliance, which are not expected
to exceed $2.5 million in the aggregate, with royalties to Alliance following
commercialization.
The Company intends to seek and evaluate collaborative relationships for the
marketing of LiquiVent and Imagent US on terms conceptually similar to those
contained in the License Agreement.
MANUFACTURING
The Company manufactures all of its products for preclinical and clinical
trials. Oxygent is produced in Alliance's San Diego facility, which includes
both pilot-scale (18 liter) and intermediate-scale (250 liter) production
capability. The Company believes that, if and when approved by the FDA, the
intermediate scale-up facility will provide sufficient production capacity for
future clinical trials and market launch. A larger commercial-scale facility
will be required for products in the future. Under the terms of the License
Agreement, Ortho has the right to elect to manufacture Oxygent itself or have
the Company continue to do so, which election must be made at or prior to the
filing of the New Drug Application. If Alliance
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manufactures Oxygent for Ortho, the transfer price will be determined by
Ortho's net sales price for the product, provided that Alliance will not
transfer it for less than Alliance's burdened cost. The Company has not
selected a commercial-scale site or obtained any regulatory approvals.
Construction of such a facility will depend upon regulatory approvals, product
development, and capital resources, among other things.
LiquiVent is manufactured for clinical trials at the Company's Otisville,
New York facility. It is the same drug substance for which Alliance obtained
FDA approval in August 1993 as an oral contrast agent for magnetic resonance
imaging (Imagent GI). As a result, certain chemistry, manufacturing, and
control requirements for perflubron have been accepted by the FDA, which may
benefit the Company in the regulatory review process for certain products.
Imagent US is manufactured for preclinical studies at the San Diego
facility, using a proprietary process to form PFC vapor containing dry
microbubbles which are reconstituted with sterile water just prior to use. The
existing process is satisfactory for production of quantities of Imagent US
for clinical trials and to support introductory marketing after
commercialization.
PATENTS
The Company has six issued U.S. patents related to or covering PFC emulsions
which are the basis for its Oxygent product. The issued patents and other
pending patent applications cover specific details of emulsified PFCs which
are covered by product-by-process claims, method claims describing their
manufacture, and some composition claims. These broadly cover high
concentration PFC emulsions, typically 40-125% weight per volume (although
some are limited to 75-125% weight per volume), and manufacturing methods.
In September 1994, Alliance received a United States patent for its
preferred method of using blood substitutes to facilitate oxygen delivery. The
patent is pending in Europe, Japan, and other countries. The issued claims
cover a method for facilitating autologous blood use in conjunction with
administering oxygen enriched gas and oxygen carriers that contain
fluorochemicals, as well as those derived from human, plant, or recombinant
hemoglobin, in order to reduce or eliminate the need for allogeneic blood
transfusions during surgery.
The method of completely filling the lungs with PFCs to perfuse the lungs as
a means of oxygenation has been known for many years and thus, as a broad
method of treatment, is not patentable. The Company has discovered that
partially filling the lungs with oxygen-carrying PFCs can enhance respiratory
gas exchange utilizing conventional gas ventilators. This potentially
significant improvement in gas exchange may be the preferred method of
treatment for patients with acute respiratory failure. The Company has filed
and obtained a license to patent applications on this method and has patent
applications pending which cover the use of PFCs to deliver drugs to the lungs
and to wash debris from, and open, collapsed lungs. The Company also has
patent applications pending which cover apparatus for liquid ventilation using
PFCs.
The Company has filed four patent applications concerning the composition,
manufacture and use of novel stabilized microbubble compositions, which are
based on its discovery that PFC gases, in combination with appropriate
surfactants, can stabilize microbubbles that are effective for ultrasonic
imaging.
The Company has patents that have issued in the U.S. and abroad, and
additional pending patents, covering its novel fluorinated surfactants. These
compounds may be useful in oxygen-carrying or drug-transport compositions, and
in liposomal formulations that have therapeutic and diagnostic applications.
Additional fluorinated compounds disclosed in pending applications may be
employed in cosmetics, protective creams, and lubricating agents. Compositions
that can be structured as emulsions, microemulsions, and gels may be useful as
contrast enhancement agents for radiography and scintigraphy. The Company also
has pending applications relating to microstructures (tubules, helixes,
fibers) that may have uses in the biomedical field, biomolecular engineering,
microelectronics, and electro-optics.
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<PAGE>
COMPETITION
The biotechnology and pharmaceutical industries are highly competitive. There
are many pharmaceutical companies, biotechnology companies, public and private
universities and research organizations actively engaged in research and
development of products which may be similar to Alliance's products. Many of
the Company's existing or potential competitors have substantially greater
financial, technical and human resources than the Company and may be better
equipped to develop, manufacture and market products. These companies may
develop and introduce products and processes competitive with or superior to
those of the Company. There can be no assurance that the Company will be able
to compete successfully with such companies.
Well-publicized side effects associated with the transfusion of allogeneic
(donor) blood have spurred efforts to develop a blood substitute. Two primary
approaches have shown promise as temporary oxygen carriers: PFC emulsions and
hemoglobin solutions. Hemoglobin development efforts include: stroma-free,
chemically modified hemoglobin from human or bovine red blood cells, and the
use of genetic engineering to produce recombinant hemoglobin. There are several
companies working on hemoglobin solutions as a blood substitute, some of which
have entered clinical trials. Recently, a major U.S. pharmaceutical company
announced a manufacturing and marketing collaboration with a company developing
a recombinant hemoglobin-based blood substitute. The Green Cross Corporation
("Green Cross") of Japan developed a first-generation PFC emulsion, Fluosol,
which was marketed in the U.S. as an adjunct to percutaneous transluminal
coronary angioplasty; however, Green Cross recently announced that it was
withdrawing the product from the market due to its limited sales volume. The
Company believes that its PFC-based emulsion product compares favorably with
Fluosol for several reasons, including its higher oxygen- carrying capacity,
its greater stability and its ease of use. Alliance is aware of two other
companies developing PFC-based temporary oxygen carriers, one of which has
entered clinical trials.
Although liquid ventilation therapy has been in the research phase for the
last two decades, the Company is unaware of any potential competition which has
reached the clinical trial stage. However, other companies may be evaluating
PFC liquids with the possibility of entering this field. The Company believes
that its patent position and stage of research and development give it an
advantage over potential competitors.
A number of larger companies currently market a broad range of contrast
agents. One U.S. pharmaceutical company has recently gained FDA approval to
market an ultrasound contrast agent and other companies are known to be
developing similar products. One of these companies is believed to have a
product in Phase III clinical trials, another has reported that it has
completed a Phase II clinical trial, and a third is believed to be in Phase II
clinical trials.
PRODUCT LIABILITY CLAIMS AND UNINSURED RISKS
The sale or use of the Company's present products and any other products or
processes that may be developed or sold by the Company may expose the Company
to potential liability from claims by end-users of such products or by
manufacturers or others selling such products, either directly or as a
component of other products. While the Company has product liability insurance,
there can be no assurance that the Company will continue to maintain such
insurance or that it will provide adequate coverage. If the Company is held
responsible for damages in a product liability suit, the Company's financial
condition could be materially and adversely affected.
GOVERNMENT REGULATION
The Company's products require governmental approval before production and
marketing can commence. The regulatory approval process is administered by the
FDA in the United States and by similar agencies in foreign countries. The
process of obtaining regulatory clearances or approvals is costly and time
consuming. The Company cannot predict how long the necessary clearances or
approvals will take or whether it will be successful in obtaining them.
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Generally, all potential pharmaceutical products must successfully complete
two major stages of development prior to receiving marketing approval by the
governing regulatory agency. These are preclinical and clinical testing.
In preclinical testing, potential compounds are tested both in vitro and in
animals to gain safety information prior to administration in humans. Knowledge
is obtained regarding the effects of the compound on bodily functions as well
as its absorption, distribution, metabolism and elimination.
In clinical testing, a three-phase progression of studies includes:
<TABLE>
<CAPTION>
PHASE DESCRIPTION PURPOSE
- ----- ---------------------------------------------- ------------------------------------
<S> <C> <C>
I The first trials of a new drug in humans; the To gain preliminary human
drug is given for a short period to a small pharmacology and safety information
number of healthy volunteers or patients concerning the drug
suffering from the disease for which the drug
is intended
II Pilot studies on a small number of patients in To determine if the drug has the
the population for which the drug is intended intended effect and to approximate
the therapeutic range
III Expanded trials in the target patient Pivotal studies to determine the
population optimal dosages, and efficacy of the
drug
</TABLE>
Following completion of these studies, a new drug application must be
submitted to and approved by the FDA in order to market the product in the
United States. Similar applications are required in foreign countries. There
can be no assurance that, upon completion of the foregoing trials, the results
will be considered adequate for government approval. If and when approval is
obtained to market a product, the FDA's (or applicable foreign agency's)
regulations will govern manufacturing and marketing activities.
The FDA has established a designation to speed the availability of new
therapies for life-threatening or severely debilitating diseases. This
designation, defined in Subpart E of the FDA's investigational new drug
regulations, may expedite clinical evaluation and regulatory review of some new
drugs, such as LiquiVent, which has been so designated.
Perflubron is an eight-carbon halogenated fluorocarbon liquid. Certain
halogenated fluorocarbons (primarily the gaseous chlorofluorocarbons) have been
implicated in stratospheric ozone depletion. The FDA issued a Finding of No
Significant Impact under the National Environmental Protection Act in
connection with the approval for marketing Imagent GI, a perflubron-based drug;
however, perflubron remains subject to regulation by governmental agencies.
In addition to FDA regulation, the Company is subject to regulation by
various governmental agencies including, without limitation, the Drug
Enforcement Administration, the United States Department of Agriculture, the
Environmental Protection Agency, the Occupational Safety and Health
Administration, and the California State Department of Health Services, Food
and Drug Branch. Such regulation, by governmental authorities in the United
States and other countries, may impede or limit the Company's ability to
develop and market its products.
LEGAL PROCEEDINGS
The Company and certain of its officers and directors are named as defendants
in a lawsuit filed by certain stockholders in September 1992. The Company
believes it has meritorious defenses and intends to defend vigorously against
the claims brought by the stockholders in the action. The Company believes the
eventual outcome of the litigation will not have a material adverse effect on
the Company's financial condition.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Duane J. Roth 45 President, Chief Executive Officer,
Chief Operating Officer, Director
Harold W. DeLong 46 Executive Vice President--Business
Development and Marketing
Theodore D. Roth 43 Executive Vice President,
Chief Financial Officer, Secretary
B. Jack DeFranco 49 Vice President--Marketing
N. Simon Faithfull, 54 Vice President--Medical Research
M.D., Ph.D.
Henry A. Graham, Ph.D. 51 Vice President--Technology Development
Ronald M. Hopkins, Ph.D. 53 Vice President--Research and Development
Gordon L. Schooley, 48 Vice President--Clinical Research and
Ph.D. Regulatory Affairs
Elias Lazarides, Ph.D. 44 President and Chief Operating Officer of Astral
Carroll O. Johnson 61 Director
Stephen M. McGrath 58 Director
Donald E. O'Neill 68 Director
Helen M. Ranney, M.D. 74 Director
Jean G. Riess, Ph.D. 57 Director
Thomas F. Zuck, M.D. 60 Director
</TABLE>
DUANE J. ROTH. Mr. Roth has been President and Chief Executive Officer since
1985 and Chairman since October 1989. Prior to joining Alliance, Mr. Roth
served as President of Analytab Products, Inc., an American Home Products
company involved in manufacturing and marketing medical diagnostics,
pharmaceuticals and devices. For the previous ten years, he was employed in
various sales, marketing and general management capacities by Ortho Diagnostic
Systems, Inc., a Johnson & Johnson company, which is a manufacturer of
diagnostic and pharmaceutical products. Mr. Roth's brother, Theodore D. Roth,
is an Executive Vice President of the Company.
HAROLD W. DELONG. Mr. DeLong has been Executive Vice President--Business
Development and Marketing for the Company since February 1989. Mr. DeLong has
been employed for the past 21 years in the medical diagnostics and
pharmaceutical industry in various sales, marketing and management positions.
From 1985 to 1988, Mr. DeLong was Vice\President, Sales and Marketing for
Murex Corporation, a company participating in the infectious disease
diagnostics market. From 1984 to 1985, he was Director, Sales and Marketing
for the Immunocytometry Systems Division of Becton Dickinson. Between 1973 and
1984, Mr. DeLong was employed by Ortho Diagnostic Systems, Inc., where his
last position was Director of the Hemostasis and Chemistry Products business
units.
THEODORE D. ROTH. Mr. Roth has been Executive Vice President and Chief
Financial Officer of the Company since November 1987 and Secretary since 1990.
For more than ten years prior to joining the Company, he was General Counsel
of SAI Corporation, a company in the business of operating manufacturing
concerns, and General Manager of Holland Industries, Inc., a manufacturing
company.Mr. Roth received his J.D. from Washburn University and an LL.M. in
Corporate and Commercial Law from the University of Missouri in Kansas City.
He is the brother of Duane J. Roth, the Chairman of the Company.
B. JACK DEFRANCO. Mr. DeFranco has been Vice President--Marketing for
Alliance since January 1991. He has nearly 22 years experience in sales and
marketing in the medical products industry. He was President of Orthoconcept
Inc., a private firm marketing orthopedic and urological devices from 1986
through 1990.
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<PAGE>
Prior to 1986, he was Director of Marketing and New Business Development for
Smith and Nephew Inc., which markets orthopedic and general wound-care products
and he served in various sales and marketing positions with Ortho Diagnostic
Systems, Inc. Mr. DeFranco received an M.B.A. from Fairleigh Dickinson
University.
N. SIMON FAITHFULL, M.D., PH.D. Dr. Faithfull has been Vice President--
Medical Research for the Company since September 1990. Dr. Faithfull joined
Alliance after serving as Director of Medical Research for Delta Biotechnology
Ltd. from 1989 to 1990. From 1986 to 1989, he was Senior Lecturer in Anesthesia
at the University of Manchester (UK), and held various academic appointments
and clinical anesthesia positions at Erasmus University (Netherlands), Tulane
University and the University of Alabama (Birmingham) for more than 15 years
prior to 1986. He has served as Secretary of the International Society on
Oxygen Transport to Tissue. He received his Ph.D. from Erasmus University,
Rotterdam and his M.D. from London University.
HENRY A. GRAHAM, PH.D. Dr. Graham has been Vice President--Technology
Development since January 1990. In his 22 years in industrial research, he has
directed groups involved in the development of biological and immunodiagnostic
products. Prior to joining Alliance, he worked for Johnson & Johnson for 17
years on a broad range of projects including injectable human biologicals,
immunohematology reagents, immunoassay reagents and instrument systems. Dr.
Graham was Director of Product Development for at least five years prior to
1990. Much of his work has been on the development of methods to assure the
safety of blood products by the detection of blood-transmitted diseases and the
assurance of compatibility. During his tenure at Johnson & Johnson, he was the
recipient of several awards, including the Corporate Medal for Outstanding
Research. Dr. Graham received a Ph.D. in immunology from Rutgers University.
RONALD M. HOPKINS, PH.D. Dr. Hopkins has been Vice President--Research and
Development since May 1990. Prior to joining Alliance, Dr. Hopkins spent almost
20 years with Mallinckrodt Medical, Inc., a subsidiary of Imcera Group, Inc.
His responsibilities at Mallinckrodt primarily involved identification and
development of various diagnostic x-ray, magnetic resonance, ultrasound and
radiopharmaceutical imaging agents as well as angiographic catheters. In
addition to product development, Dr. Hopkins has extensive experience in
cardiovascular pharmacology and toxicology research, as well as sterile
pharmaceutical formulation and production. Dr. Hopkins received a Ph.D. in
pharmacology from the University of Maryland.
GORDON L. SCHOOLEY PH.D. Dr. Schooley has been Vice President--Clinical
Research and Regulatory Affairs since January 1989. From 1987 through 1988, Dr.
Schooley was a senior manager at Newport Pharmaceuticals where he had worldwide
responsibility for regulatory affairs and clinical research services. From 1979
to 1987, Dr. Schooley was a research director with Allergan Pharmaceuticals, a
subsidiary of SmithKline Beckman. Dr. Schooley received his M.S. from Brigham
Young University and a Ph.D. from the University of Michigan.
ELIAS LAZARIDES, PH.D. President & COO, Astral, Inc. Dr. Lazarides joined
Astral in November 1994. Prior to joining Astral, Dr. Lazarides was Executive
Director of Pharmacology at Merck Research Laboratories, where he managed a
very broad range of drug discovery programs in cardiovascular and ocular
pharmacology. Dr. Lazarides joined the Division of Biology at the California
Institute of Technology in 1977, where he was promoted to Professor in 1985. He
has been the recipient of numerous awards and academic honors, including an NIH
Career Development Award, a Camille and Henry Dreyfus Foundation Teacher-
Scholar Award, the Achievement Award of the Tokyo Society of Medical Sciences.
Dr. Lazarides received his B.S. from Wesleyan University in Connecticut and a
Ph.D. from Harvard University.
CARROLL O. JOHNSON. Mr. Johnson has served as a director of the Company since
1989. He has been President of Research Management, Inc. since 1985, an
independent contract research organization which provides services to the
pharmaceutical industry in the implementation of clinical trials. Previously,
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<PAGE>
he served for 25 years in various research, sales and marketing positions with
several pharmaceutical companies, including Pharmacia Laboratories, Inc., where
he created a national sales force which introduced three major products.
STEPHEN M. MCGRATH. Mr. McGrath has served as a director of the Company since
1989. He is an Executive Vice President of Oppenheimer & Co., Inc.
("Oppenheimer") and serves as the Director of its Corporate Finance Department.
Prior to his employment by Oppenheimer in 1983, he held various executive
positions with Warner-Lambert Company for eleven years and was responsible for
the development and implementation of a strategic restructuring program that
substantially altered the nature of such company. Before joining Warner-
Lambert Company, Mr. McGrath was Controller and Assistant Treasurer of Sterling
Drug, Inc. and a certified public accountant for Price Waterhouse & Co.
DONALD E. O'NEILL. Mr. O'Neill has served as a director of the Company since
1991. He retired from Warner-Lambert Company in 1991 after 20 years of service.
During his tenure, he held various managerial positions, including President of
the Parke-Davis Group, President of the Health Technologies Group and
President--International Operations. At the time of his retirement from Warner-
Lambert Company, he held the offices of Executive Vice President of the
corporation and President and Chairman of its International Operations. He is a
director of New Jersey Resources Corporation, Targeted Genetics Corp., Scios-
Nova, Inc., MDL Information Systems, Inc., and Immunogen, Inc.
HELEN M. RANNEY, M.D. Dr. Ranney has served as a director of the Company
since 1991. She is Professor Emerita, Department of Medicine, University of
California at San Diego, having served as Chairman of the Department from 1973
through 1986. From 1986 through 1991, she was Distinguished Physician of the
U.S. Department of Veterans Affairs. She formerly was Professor of Medicine at
Albert Einstein College of Medicine (New York) and at the State University of
New York, Buffalo. Dr. Ranney is a member of many professional societies,
including the National Academy of Sciences, the Institute of Medicine, the
Association of American Physicians (past President) and the American Society of
Hematology (past President). She has more than 150 publications, primarily
relating to blood and blood disorders. Dr. Ranney served on the Board of
Directors of Squibb Corp. prior to its merger with Bristol-Myers. She received
her M.D. from the College of Physicians and Surgeons, Columbia University.
JEAN G. RIESS, PH.D. Professor Riess has served as a director of the Company
since 1989. He has been the Director of Laboratorie de Chimie Moleculaire at
the University of Nice for over 20 years. He has been an active researcher
since receiving a Ph.D. from the University of Strasbourg, with numerous
patents and over 300 publications. For the past 15 years Dr. Riess has focused
on chemistry related to perfluorochemical emulsions for medical application. In
this field, his research group has been active in synthesis of tailored
perfluorochemicals, in emulsion technology, in synthesis of fluorinated
surfactants and in the physical chemistry of emulsion stabilization. Dr. Riess
is responsible for the Corporation's research efforts at its affiliated
company, Applications et Transferts de Technologies Avancees in Nice, France.
THOMAS F. ZUCK, M.D. Dr. Zuck has served as a director of the Company since
1990. He is Professor of Transfusion Medicine and Director of Hoxworth Blood
Center at the University of Cincinnati Medical Center. He is currently
President of the Council of Community Blood Centers. Dr. Zuck was formerly
director of the Division of Blood and Blood Products at the Office of Biologics
Research & Review within the FDA. He has served in numerous scientific
professional societies, including as President of the American Association of
Blood Banks, was Editor-in-Chief of the journal Transfusion and has more than
60 publications to his credit. Dr. Zuck is a retired U.S. Army Colonel, where
he was a Commander of the Letterman Army Institute of Research and, for many
years, involved with the Army's blood substitute development program. Dr. Zuck
received his LL.B. from Yale Law School and his M.D. from Hahnemann Medical
College.
23
<PAGE>
PLAN OF DISTRIBUTION
The Common Stock is being offered for sale by the Company on a best efforts,
all or none, basis principally to selected institutional investors in the U.S.
Offering and in the International Offering (collectively, the "Offerings").
Oppenheimer & Co., Inc. and Cowen & Company (the "U.S. Placement Agents") have
been retained pursuant to a placement agency agreement (the "U.S. Placement
Agency Agreement") to act as the exclusive agents for the Company in connection
with the U.S. Offering.
The Company has also entered into a placement agency agreement (the
"International Placement Agency Agreement") with Oppenheimer & Co., Inc., Cowen
& Company and ABB Aros Fondkommission AB (the "International Placement Agents";
and together with the U.S. Placement Agents, the "Placement Agents") pursuant
to which the International Placement Agents shall act as the exclusive agents
for the Company in connection with the International Offering to persons other
than U.S. persons. As used herein, the term "U.S. person" means: (i) any
natural person resident in the United States or any corporation organized or
incorporated under the laws of the United States (other than a branch or agency
thereof located outside the United States), (ii) any branch or agency located
in the United States of a corporation incorporated or partnership organized
under the laws of any jurisdiction other than the United States, (iii) any
account managed or held on a non-discretionary basis for any person,
corporation or partnership referred to in clause (i) or (ii), and (iv) any
account (including any estate or trust) managed or held on a discretionary
basis by a person, corporation or partnership referred to in clause (i) or
(ii). The term "United States" means the United States of America, its
territories and its possessions, any state of the United States and the
District of Columbia.
The Company has agreed to pay to the Placement Agents a fee equal to 6% of
the proceeds of the Offerings and to reimburse them in the aggregate for
expenses incurred by them in connection with such Offerings, in an amount up to
$225,000 in the aggregate.
The closings of the Offerings are conditioned upon the sale of all of the
3,175,000 shares offered hereby and shall occur simultaneously.
None of the Placement Agents are obligated or intend to themselves take (or
purchase) any of the Common Stock. It is anticipated that the Placement Agents
will obtain indications of interest from potential investors for the amount of
the Offerings and that effectiveness of the Registration Statement will not be
requested and no investor funds will be accepted until indications of interest
have been received by the U.S. Placement Agents and/or the International
Placement Agents for the full amount of the Offerings. Confirmations and
definitive prospectuses (or definitive offering materials in the case of non-
U.S. investors) will be distributed to all investors at the time of pricing,
informing investors of the closing date, which will be scheduled for five
business days after pricing. No investor funds will be accepted prior to
effectiveness of the Registration Statement. Prior to the closing date, all
U.S. investor funds will promptly be placed in escrow with Citibank, N.A., as
escrow agent (the "U.S. Escrow Agent"), in an escrow account established for
the benefit of U.S. investors. The U.S. Escrow Agent will invest such funds in
accordance with Rule 15c2-4 promulgated under the Exchange Act. All non-U.S.
investor funds will be placed in escrow with Citibank, N.A. in London, England,
as escrow agent (the "International Escrow Agent"; and together with the U.S.
Escrow Agent, the "Escrow Agents") in an escrow account established for the
benefit of non-U.S. investors. Prior to the closing date, the Escrow Agents
will advise the Company that payment for the purchase of the Common Stock has
been affirmed by investors and that investors have deposited the requisite
funds in the respective escrow accounts at the Escrow Agents. Upon receipt of
such notice, the Company will deposit with The Depository Trust Company the
Common Stock to be credited to the respective accounts of investors within and
without the United States, as appropriate. Investor funds, together with
interest thereon, if any, will be collected by the Company through the
facilities of each Escrow Agent, as appropriate, on the scheduled closing date.
Neither the U.S. Offering nor the International Offering will continue after
the closing date. In the event that investor funds are not received in the full
amount necessary to satisfy the requirements of the Offerings, all funds
deposited in the escrow accounts will promptly be returned.
24
<PAGE>
The Placement Agents have entered into an Agreement Among Agents pursuant to
which each International Placement Agent has agreed that it is not arranging
for the sale of the Common Stock to any U.S. person in the International
Offering.
The Company has agreed to indemnify the U.S. Placement Agents against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the U.S. Placement Agents may be required to make in respect
thereof. The Company has agreed to indemnify the International Placement Agents
against certain liabilities in connection with the International Offering, or
to contribute to payments that the International Placement Agents may be
required to make in respect thereof.
Certain officers and directors of the Company have agreed that they will not,
directly or indirectly, offer, sell or otherwise dispose of any shares of
Common Stock or any securities convertible into or exercisable for, or any
rights to purchase or acquire, Common Stock for a period of ninety (90) days
after the date of this Prospectus, without the prior written consent of the
Placement Agents.
LEGAL MATTERS
The legality of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Stroock & Stroock & Lavan. Certain legal
matters will be passed on for the U.S. Placement Agents by Morgan, Lewis &
Bockius. The information under "Risk Factors" and "Business--Patents" with
respect to patents and patent laws has been reviewed by Knobbe, Martens, Olson
& Bear.
EXPERTS
The consolidated financial statements of Alliance Pharmaceutical Corp. at
June 30, 1994, and for the year then ended, appearing and incorporated by
reference in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and incorporated herein by reference, and are
included and incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Alliance Pharmaceutical Corp. at
June 30, 1993 and for each of the two years in the period then ended, appearing
and incorporated by reference in this Prospectus and Registration Statement
from the Company's Annual Report on Form 10-K for the year ended June 30, 1994
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is also included and incorporated herein by reference. Such
financial statements have been so included and incorporated by reference in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
25
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Report of Deloitte & Touche LLP, Independent Auditors..................... F-3
Consolidated Balance Sheets at June 30, 1993 and 1994 and December 31,
1994 (unaudited)......................................................... F-4
Consolidated Statements of Operations for each of the three years in the
period ended June 30, 1994 and for the six months ended December 31, 1993
(unaudited) and 1994 (unaudited)......................................... F-5
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended June 30, 1994 and the six months ended
December 31, 1994 (unaudited)............................................ F-6
Consolidated Statements of Cash Flows for each of the three years in the
period ended June 30, 1994 and the six months ended December 31, 1993
(unaudited) and 1994 (unaudited)......................................... F-7
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Alliance Pharmaceutical Corp.:
We have audited the accompanying consolidated balance sheet of Alliance
Pharmaceutical Corp. and subsidiaries as of June 30, 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The consolidated financial statements
of Alliance Pharmaceutical Corp. and subsidiaries for the years ended June 30,
1993 and 1992, were audited by other auditors whose report, dated July 27,
1993, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the 1994 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Alliance Pharmaceutical Corp. and subsidiaries at June 30, 1994, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
San Diego, California
August 16, 1994
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Alliance Pharmaceutical Corp.:
We have audited the accompanying consolidated balance sheet of Alliance
Pharmaceutical Corp. and Subsidiaries (the "Company") as of June 30, 1993, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the two years in the period ended June 30, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at June 30, 1993, and
the results of its operations and its cash flows for each of the two years in
the period ended June 30, 1993 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
July 27, 1993
F-3
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
-------------------------- DECEMBER 31,
NOTES 1993 1994 1994
----- ------------ ------------ ------------
ASSETS
- ------ (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $ 5,316,000 $ 1,902,000 $ 5,946,000
Short-term investments (cost
of $14,854,000 at December
31, 1994).................. 2 34,226,000 19,154,000 14,154,000
Research revenue receivable. 8 501,000 -- 3,100,000
Inventories and other
current assets............. 3 2,648,000 1,349,000 1,408,000
------------ ------------ ------------
Total current assets...... 42,691,000 22,405,000 24,608,000
Property, plant and
equipment--net.............. 3 9,620,000 10,165,000 9,861,000
Purchased technology--net.... 1 18,194,000 17,033,000 16,452,000
Other assets--net............ 3 2,032,000 3,529,000 1,943,000
------------ ------------ ------------
$ 72,537,000 $ 53,132,000 $ 52,864,000
============ ============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
EQUITY
- -----------------------------
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable............ $ 1,664,000 $ 1,074,000 $ 1,692,000
Accrued expenses............ 1,079,000 1,885,000 2,039,000
Current portion of long-term
debt....................... 203,000 -- --
------------ ------------ ------------
Total current liabilities. 2,946,000 2,959,000 3,731,000
Other........................ 7 447,000 348,000 518,000
Stockholders' Equity: 4,5,8
Preferred stock--$.01 par
value; authorized 5,000,000
shares, 1,500,000 issued
and outstanding at December
31, 1994................... -- -- 15,000
Common stock--$.01 par
value; 30,000,000 shares
authorized at June 30, 1993
and 1994 and 50,000,000
shares authorized at
December 31, 1994;
19,000,120 shares,
21,372,054 shares and
21,407,787 shares issued
and outstanding at
June 30, 1993 and 1994 and
December 31, 1994,
respectively............... 190,000 214,000 214,000
Additional paid-in capital.. 190,671,000 208,954,000 222,878,000
Capital arising from
acquisition of subsidiary.. 800,000 -- --
Deferred compensation....... (120,000) -- --
Accumulated deficit......... (122,397,000) (159,343,000) (174,492,000)
------------ ------------ ------------
Total stockholders'
equity................... 69,144,000 49,825,000 48,615,000
------------ ------------ ------------
$ 72,537,000 $ 53,132,000 $ 52,864,000
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
---------------------------------------- --------------------------
NOTES 1992 1993 1994 1993 1994
----- ------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product revenue--net.. $ 9,000 $ 50,000 $ 246,000 $ 150,000 $ 109,000
License and research
revenue.............. 5,8 1,796,000 2,320,000 163,000 102,000 7,100,000
------------ ------------ ------------ ------------ ------------
1,805,000 2,370,000 409,000 252,000 7,209,000
Operating expenses:
Research and
development.......... 20,922,000 24,767,000 31,605,000 15,555,000 18,981,000
General and
administrative....... 5,187,000 6,405,000 7,312,000 3,385,000 3,952,000
------------ ------------ ------------ ------------ ------------
26,109,000 31,172,000 38,917,000 18,940,000 22,933,000
------------ ------------ ------------ ------------ ------------
Loss from operations.... (24,304,000) (28,802,000) (38,508,000) (18,688,000) (15,724,000)
Other income--net....... 2,538,000 2,422,000 1,562,000 951,000 575,000
------------ ------------ ------------ ------------ ------------
Net loss................ (21,766,000) (26,380,000) (36,946,000) (17,737,000) (15,149,000)
Dividends on preferred
stock.................. -- -- -- -- (219,000)
------------ ------------ ------------ ------------ ------------
Net loss applicable to
common shares.......... $(21,766,000) $(26,380,000) $(36,946,000) $(17,737,000) $(15,368,000)
============ ============ ============ ============ ============
Net loss per share...... $ (1.25) $ (1.39) $ (1.83) $ (0.93) $ (0.72)
============ ============ ============ ============ ============
Weighted average number
of shares outstanding.. 17,344,000 18,946,000 20,226,000 19,109,000 21,385,000
============ ============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1994 AND THE SIX MONTHS ENDED
DECEMBER 31, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL
ADDITIONAL ARISING FROM
COMMON STOCK PREFERRED STOCK PAID-IN ACQUISITION OF ACCUMULATED DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL SUBSIDIARY DEFICIT COMPENSATION
------ ------ ------ ------- ------------ -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30,
1991................... 14,512,000 $145,000 -- $ -- $108,847,000 $ $ (74,251,000) $(886,000)
Sale of common stock--
public offering........ 3,151,000 32,000 66,946,000
Exercise of stock
options and warrants... 608,000 6,000 4,990,000
Acquisition of
BioPulmonics, Inc...... 13,000 316,000 1,544,000
Issuance of common stock
in connection with
subordinated
debentures............. 533,000 5,000 7,736,000
Issuance of stock
options below fair
market value........... 450,000 (225,000)
Amortization of deferred
compensation........... 664,000
Net loss................ (21,766,000)
---------- -------- --------- ------- ------------ --------- ------------- ---------
Balances at June 30,
1992................... 18,817,000 188,000 -- -- 189,285,000 1,544,000 (96,017,000) (447,000)
Exercise of stock
options and warrants... 109,000 1,000 449,000
Installment payment
related to acquisition
of BioPulmonics, Inc... 69,000 1,000 876,000 (744,000)
Issuance of stock in
satisfaction
of employer matching
contribution to 401(k)
savings plan........... 5,000 61,000
Amortization of deferred
compensation........... 327,000
Net loss................ (26,380,000)
---------- -------- --------- ------- ------------ --------- ------------- ---------
Balances at June 30,
1993................... 19,000,000 190,000 -- -- 190,671,000 800,000 (122,397,000) (120,000)
Sale of common stock--
private placement...... 2,180,000 22,000 15,228,000
Exercise of stock
options and warrants... 75,000 1,000 199,000
Installment payment
related to acquisition
of BioPulmonics, Inc... 105,000 1,000 921,000 (800,000)
Issuance of warrants in
connection with
acquisition of product
rights................. 1,840,000
Issuance of stock in
satisfaction
of employer matching
contribution to 401(k)
savings plan........... 12,000 95,000
Amortization of deferred
compensation........... 120,000
Net loss................ (36,946,000)
---------- -------- --------- ------- ------------ --------- ------------- ---------
Balances at June 30,
1994................... 21,372,000 214,000 -- -- 208,954,000 -- (159,343,000) --
Exercise of stock
options and warrants... 36,000 225,000
Issuance of preferred
stock.................. 1,500,000 15,000 14,618,000
Cumulative effect of
change in accounting
for investments in
available-for-sale
securities............. (127,000)
Change in unrealized
gains and losses on
available-for-sale
securities............. (573,000)
Net loss................ (15,149,000)
Dividends on preferred
stock.................. (219,000)
---------- -------- --------- ------- ------------ --------- ------------- ---------
Balances at December 31,
1994................... 21,408,000 $214,000 1,500,000 $15,000 $222,878,000 $ -- $(174,492,000) $ --
========== ======== ========= ======= ============ ========= ============= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
---------------------------------------- --------------------------
1992 1993 1994 1993 1994
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss............... $(21,766,000) $(26,380,000) $(36,946,000) $(17,737,000) $(15,149,000)
------------ ------------ ------------ ------------ ------------
Adjustments to
reconcile net loss to
net cash used in
operations:
Depreciation and
amortization......... 2,123,000 2,633,000 3,073,000 1,562,000 1,458,000
Non-cash
compensation--net.... 889,000 388,000 215,000
Acquired research and
development.......... 1,744,000 1,686,000
Changes in assets and
liabilities:
Inventories and
other................ (1,259,000) (1,628,000) 1,331,000 (3,100,000)
Accounts payable and
accrued expenses and
other................ 195,000 330,000 285,000 2,917,000 441,000
------------ ------------ ------------ ------------ ------------
Net adjustments....... 3,692,000 1,723,000 4,904,000 4,479,000 485,000
------------ ------------ ------------ ------------ ------------
Net cash used in
operating activities... (18,074,000) (24,657,000) (32,042,000) (13,258,000) (14,664,000)
------------ ------------ ------------ ------------ ------------
Financing activities:
Payments of long-term
debt.................. (339,000) (149,000) (3,000)
Issuance of common
stock, warrants and
convertible notes..... 71,974,000 450,000 15,450,000 13,029,000 14,859,000
Restricted cash........ (323,000) 17,000
------------ ------------ ------------ ------------ ------------
Net cash provided by
financing activities... 71,312,000 318,000 15,447,000 13,029,000 14,859,000
------------ ------------ ------------ ------------ ------------
Investing activities:
Short-term investments. (41,888,000) 16,727,000 15,072,000 15,282,000 4,300,000
Property, plant and
equipment............. (3,630,000) (2,539,000) (1,891,000) (816,000) (451,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by
(used in) investing
activities............. (45,518,000) 14,188,000 13,181,000 14,466,000 3,849,000
------------ ------------ ------------ ------------ ------------
Increase (decrease) in
cash and cash
equivalents............ 7,720,000 (10,151,000) (3,414,000) 14,237,000 4,044,000
Cash and cash
equivalents at
beginning of period.... 7,747,000 15,467,000 5,316,000 5,316,000 1,902,000
------------ ------------ ------------ ------------ ------------
Cash and cash
equivalents at end of
period................. $ 15,467,000 $ 5,316,000 $ 1,902,000 $ 19,553,000 $ 5,946,000
============ ============ ============ ============ ============
Supplemental disclosure
of cash flow
information:
Interest paid.......... $ 343,000 $ 13,000 $ -- $ -- $ --
============ ============ ============ ============ ============
Supplemental disclosure
of non-cash investing
and financing
activities:
Preferred stock
dividend.............. $ 219,000
Common stock issued for
BioPulmonics, Inc.
installment payment... $ 877,000 $ 922,000
Issuance of warrants in
connection with
acquisition of product
rights................ $ 1,840,000
Conversion of
subordinated notes to
equity, net........... $ 7,741,000
Net assets of
BioPulmonics, Inc.
acquired.............. $ 311,000
BioPulmonics, Inc.
liabilities satisfied
with common stock..... $ 216,000
Deferred compensation
resulting from stock
options granted....... $ 225,000
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JUNE 30, 1994, EXCEPT FOR NOTE 8, IS UNAUDITED.)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Alliance Pharmaceutical Corp. ("Alliance") and its subsidiaries
(collectively, the "Company") are engaged in the development, manufacturing,
and early-stage marketing of medical and pharmaceutical products.
Principles of Consolidation
The consolidated financial statements include the accounts of Alliance and
its wholly owned subsidiaries, BioPulmonics, Inc. ("BioPulmonics") and Rosanin
Corporation, and its majority-owned subsidiaries, Astral, Inc. (formerly known
as Advax Pharmaceutical, Inc.) and Applications et Transferts de Technologies
Avancees. All significant intercompany accounts and transactions have been
eliminated. Certain amounts in 1992 and 1993 have been reclassified to conform
to the 1994 presentation.
Cash, Cash Equivalents, and Short-Term Investments
Cash and cash equivalents consist of cash and highly liquid investments,
primarily U.S. government securities and corporate obligations, with original
maturities of less than 90 days when purchased. Short-term investments are
carried at amortized cost which approximates market.
Accounting For Investments In Debt and Equity Securities
In July 1994, the Company adopted Statement of Financial Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
The Company's management has classified its investment securities as available-
for-sale and records holding gains or losses as a separate component of
stockholders' equity. The cumulative effect of the change resulted in an
adjustment to stockholders' equity of $127,000 at July 1, 1994.
Concentration of Credit Risk
Cash, cash equivalents, and short-term investments are financial instruments
which potentially subject the Company to concentration of credit risk. The
Company invests its excess cash primarily in U.S. government securities and
marketable debt securities of financial institutions and corporations with
strong credit ratings. The Company has established guidelines relative to
diversification and maturities that maintain safety and liquidity. These
guidelines are periodically reviewed and modified to take advantage of trends
in yields and interest rates. The Company has not experienced any material
losses in its investments.
Property, Plant, Equipment, and Other Assets
Buildings, furniture, and equipment are stated at cost and depreciation is
computed using the straight-line method over the estimated useful lives of 4 to
25 years. Leasehold improvements are amortized using the straight-line method
over the shorter of the estimated useful lives of the assets or the lease term.
Patent, product, and technology rights are amortized using the straight-line
method over 5 to 15 years.
Purchased Technology
The purchased technology was acquired by virtue of the merger of Fluoromed
Pharmaceutical, Inc. into a subsidiary of the Company in fiscal 1989. The
technology acquired is the Company's core perfluorochemical ("PFC") technology
and was valued based on an analysis of the present value of future earnings
anticipated from this technology at that time. The Company identified
alternative future uses for the PFC technology, including the Oxygent
(temporary blood substitute) and LiquiVent (intrapulmonary oxygen carrier)
products.
F-8
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1994, EXCEPT FOR NOTE 8, IS UNAUDITED.)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The PFC technology is the basis for the Company's main drug development
programs and is being amortized over a 20 year life. Amortization of purchased
technology is included in research and development expense. Accumulated
amortization was $5,032,000, $6,193,000 and $6,774,000 at June 30, 1993 and
1994 and December 31, 1994, respectively.
The carrying value of purchased technology is reviewed periodically based on
the projected cash flows to be received from license fees, milestone payments,
royalties and other product revenues. If such cash flows are less than the
carrying value of the purchased technology, the difference will be charged to
expense.
Research and Development Expenses
Research and development expenditures are charged to expense as incurred.
Income Taxes
The Company adopted Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes ("Statement 109"), as of July 1, 1993. Statement
109 is an asset and liability approach that requires the recognition of
deferred assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. Prior years' financial statements have not been restated and the
adoption of Statement 109 had no impact on the results of operations for the
year ended June 30, 1994.
Net Loss Per Share
Net loss per share is based on the weighted average number of shares
outstanding during the respective years and does not include common stock
equivalents since their effect on the net loss per share would be anti-
dilutive.
Interim Financial Information
The financial statements for the six months ended December 31, 1993 and 1994
are unaudited, but include all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for a fair presentation of
the financial position at those dates and the operating results and cash flows
for those periods. Results for the interim periods are not necessarily
indicative of results to be expected for the entire year.
2. INVESTMENTS
Short-term investments are recorded at estimated fair market value at
December 31, 1994, and consist primarily of treasury securities, and corporate
obligations with maturities of more than three months. The Company has
classified all of its investments as available-for-sale securities. The
following table summarizes available-for-sale securities at December 31, 1994:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
----------------------------------
GROSS ESTIMATED
UNREALIZED FAIR
COST LOSSES VALUE
----------- ---------- -----------
<S> <C> <C> <C>
U.S. Government Securities.................. $ 6,215,000 $535,000 $ 5,680,000
Corporate Obligations....................... 8,639,000 165,000 8,474,000
Cash and Cash Equivalents................... 5,946,000 5,946,000
----------- -------- -----------
$20,800,000 $700,000 $20,100,000
=========== ======== ===========
</TABLE>
F-9
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1994, EXCEPT FOR NOTE 8, IS UNAUDITED.)
2. INVESTMENTS--(CONTINUED)
The gross realized losses on sales of available-for-sale securities totaled
$80,000 for the six months ended December 31, 1994. There were no gross
realized gains.
The amortized cost and estimated fair value of debt and marketable securities
at December 31, 1994, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because the issuants of the
securities may have the right to prepay obligations without prepayment
penalties.
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Due in one year or less................................ $10,314,000 $10,314,000
Due after one year through three years................. 4,995,000 4,740,000
Due after three years.................................. 5,491,000 5,046,000
----------- -----------
$20,800,000 $20,100,000
=========== ===========
</TABLE>
3. FINANCIAL STATEMENT DETAILS
Property, Plant, and Equipment--Net
Property, plant, and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------ DECEMBER 31,
1993 1994 1994
----------- ----------- ------------
<S> <C> <C> <C>
Land.................................... $ 225,000 $ 225,000 $ 225,000
Buildings............................... 300,000 300,000 300,000
Building improvements................... 1,344,000 1,561,000 1,571,000
Furniture, fixtures, and equipment...... 7,866,000 9,467,000 9,895,000
Leasehold improvements.................. 3,293,000 3,356,000 3,369,000
----------- ----------- ----------
13,028,000 14,909,000 15,360,000
Less accumulated depreciation and amor-
tization............................... (3,408,000) (4,744,000) (5,499,000)
----------- ----------- ----------
$ 9,620,000 $10,165,000 $9,861,000
=========== =========== ==========
</TABLE>
Inventories and Other Current Assets
Inventories and other current assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30
---------------------- DECEMBER 31,
1993 1994 1994
----------- ---------- ------------
<S> <C> <C> <C>
Inventories................................. $ 1,828,000 $ 384,000 $ 217,000
Loan receivable............................. 135,000 197,000 757,000
Interest receivable......................... 433,000 362,000 226,000
Deferred financing costs.................... -- 126,000 --
Other....................................... 252,000 280,000 208,000
----------- ---------- ----------
$ 2,648,000 $1,349,000 $1,408,000
=========== ========== ==========
</TABLE>
In fiscal 1995, the Company discontinued the promotion of Imagent(R) GI.
Accordingly, the Company established a reserve as of June 30, 1994 to reduce
its inventories of perflubron to the estimated net realizable value from sales
of Imagent GI.
F-10
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1994, EXCEPT FOR NOTE 8, IS UNAUDITED.)
3. FINANCIAL STATEMENT DETAILS--(CONTINUED)
Other Assets--Net
Other assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30
--------------------- DECEMBER 31,
1993 1994 1994
---------- ---------- ------------
<S> <C> <C> <C>
Product, technology, and patent rights (see
Note 5) (net of accumulated amortization of
$935,000, $1,387,000 and $1,355,000 at
June 30, 1993 and 1994, and
December 31, 1994, respectively)........... $ 895,000 $2,494,000 $ 717,000
Other....................................... 1,137,000 1,035,000 1,226,000
---------- ---------- ----------
$2,032,000 $3,529,000 $1,943,000
========== ========== ==========
</TABLE>
4. STOCKHOLDERS' EQUITY
Stock Option Plans
The Company has an Incentive Stock Option Plan (the "1983 Plan") which
provides for the granting of options to purchase up to an aggregate of 500,000
shares of the Company's common stock to employees of the Company. All such
options have been granted. Options granted under the 1983 Plan generally vest
in installments of 30 percent, 25 percent, 20 percent, 15 percent, and 10
percent of the number of shares initially subject to the options, commencing
12, 24, 36, 48, and 59 months, respectively, from the date of grant and are
exercisable for a period of five years from the date of grant.
The Company also has two Non-Qualified Stock Option Programs (the "1983
Program" and the "1991 Plan"). These programs provide for the granting of
options to purchase shares of the Company's common stock (up to an aggregate of
2,500,000 shares and 1,000,000 shares for the 1983 Program and the 1991 Plan,
respectively) to directors, officers, and other employees and consultants. The
optionees, dates of grant, option price (which for the 1991 Plan cannot be less
than 80 percent of the fair market value of the common stock on the date of
grant), and terms of the options, which cannot exceed ten years for both the
1983 Program and 1991 Plan, are determined by the Board of Directors. In May
1994, the Board of Directors amended and restated the 1991 Plan, approved by
the stockholders in November 1994, to, among other things, increase the number
of shares available under the 1991 Plan by 1,000,000 shares and to allow the
issuance of incentive stock options.
F-11
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1994, EXCEPT FOR NOTE 8, IS UNAUDITED.)
The following table summarizes stock option activity through June 30, 1994:
4. STOCKHOLDERS' EQUITY--(CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE PRICE
---------- -------------
<S> <C> <C>
Balance at June 30, 1991............................. 1,225,432
Granted............................................. 511,000 $21.06
Exercised........................................... (181,966) $ 6.75
Terminated/Expired.................................. (5,492) $ 9.68
----------
Balance at June 30, 1992 1,548,974
Granted............................................. 408,210 $12.04
Exercised........................................... (102,941) $ 5.50
Terminated/Expired.................................. (44,340) $22.77
----------
Balance at June 30, 1993 1,809,903
Granted............................................. 564,550 $ 9.42
Exercised........................................... (74,666) $ 2.81
Terminated/Expired.................................. (51,215) $11.57
----------
Balance at June 30, 1994............................. 2,248,572
==========
Available for future grant under the 1983 Program.... 16,985
==========
Available for future grant under the 1991 Plan, as
amended and restated, and approved by the
stockholders in November 1994....................... 963,600
==========
</TABLE>
At June 30, 1994, 1,406,235 options were vested and exercisable.
Certain of the options granted from July 1, 1990 through June 30, 1992 were
granted with exercise prices below fair market value at the date of the grant.
The Company has recorded such difference as deferred compensation, which was
amortized as compensation expense ratably over the vesting period of each
option.
Warrants
In December 1993, the Company issued a warrant to purchase 500,000 shares of
common stock through December 2000 at an exercise price of $12 per share (see
Note 5). At June 30, 1994, the Company had warrants outstanding to purchase
736,813 shares of common stock at prices ranging from $6.95 to $15.96 per
share. The warrants expire on various dates from July 1994 through December
2000. The cash proceeds that would be received upon the exercise of all
outstanding warrants at June 30, 1994 would be $8,290,000.
Acquisition of Biopulmonics, Inc.
In December 1991, the Company purchased all the outstanding stock of
BioPulmonics in a transaction recorded using the purchase method of accounting.
The total purchase price was $3,055,000, payable in four installments, of which
at least 80 percent of the consideration was to be paid in the Company's common
stock. Accordingly, the minimum amount of the aggregate purchase price to be
financed through the Company's common stock was recorded as capital arising
from the acquisition of a subsidiary and the remaining balance was recorded as
debt.
In December 1993, the Company made its third installment payment (of
$1,000,000) to the former BioPulmonics' stockholders with substantially all of
such payment made in the Company's common stock. The Company will pay
BioPulmonics' stockholders additional consideration of $1,000,000 (at least 80%
of which must be in common stock) in or before June 1995.
F-12
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1994, EXCEPT FOR NOTE 8, IS UNAUDITED.)
4. STOCKHOLDERS' EQUITY--(CONTINUED)
Should the Company elect not to continue development of the technology
acquired from BioPulmonics, the Company may transfer all the outstanding
capital stock of BioPulmonics back to the former BioPulmonics' stockholders in
lieu of making the final payment.
5. MARKETING AGREEMENT
In May 1989, the Company entered into a marketing agreement with Boehringer
Ingelheim International GmbH ("BII") (the "Marketing Agreement"), which
provided BII with marketing and manufacturing rights to certain of the
Company's products in all countries outside North America. In addition, the
Company and BII shared in the funding of research, development, and the conduct
of clinical trials of certain perfluorochemical products. The Company earned
license and research revenues of $2,200,000 and $1,753,000 under the agreement
during fiscal 1993 and 1992, respectively. In June 1993, the Company and BII
modified the Marketing Agreement and BII discontinued its research funding,
and, in January 1994, the Company regained all marketing and manufacturing
rights previously granted to BII in exchange for a warrant to purchase 500,000
shares of the Company's common stock through December 2000 at $12 per share.
The Company has the right to call the warrant if its stock price achieves
certain levels. In conjunction with the acquisition of the marketing and
manufacturing rights from BII, the Company has recorded product rights of
$1,840,000 (the estimated fair value of the warrant). The cost of these rights
was charged to expense in the first quarter of fiscal 1995, when the Company
licensed these product rights to Ortho Biotech, Inc. (see Note 8).
6. INCOME TAXES
Significant components of the Company's deferred tax assets as of June 30,
1994 are shown below. A valuation allowance of $58,173,000, of which
$16,160,000 is related to 1994, has been recognized to offset the deferred tax
assets as realization of such assets is uncertain.
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.................................. $48,686,000
Research and development credits.................................. 6,236,000
Capitalized research expense...................................... 3,372,000
Other--net........................................................ (121,000)
-----------
Total deferred tax assets......................................... 58,173,000
Valuation allowance for deferred tax assets....................... (58,173,000)
-----------
Net deferred tax assets........................................... $ 0
===========
</TABLE>
Approximately $1,698,000 of the valuation allowance for deferred tax assets
relates to stock option deductions which, when recognized, will be allocated to
contributed capital.
At June 30, 1994, the Company had federal and various state net operating
loss carryforwards of approximately $128,303,000 and $62,995,000, respectively.
The difference between the federal and state tax loss carryforwards is
primarily attributable to the capitalization of research and development
expenses for California tax purposes and the fifty percent limitation on
California loss carryforwards. The federal and various state tax loss
carryforwards will begin expiring in fiscal 1998 and 1996, respectively, unless
previously utilized. The Company also has federal and state research and
development tax credit carryforwards of $5,431,000 and $1,239,000,
respectively, which will begin expiring in fiscal 1998 unless previously
utilized.
F-13
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1994, EXCEPT FOR NOTE 8, IS UNAUDITED.)
6. INCOME TAXES--(CONTINUED)
Federal and California tax laws limit the utilization of income tax net
operating loss and credit carryforwards that arise prior to a change of control
of the Company. However, the Company believes that such limitations will not
have an impact on the utilization of the carryforwards.
7. COMMITMENTS AND CONTINGENCIES
The Company leases certain office and research facilities in San Diego and
certain equipment under operating leases. Provisions of the facilities lease
provide for abatement of rent during certain periods and escalating rent
payments during the lease terms based on changes in the Consumer Price Index.
Rent expense is recognized on a straight-line basis over the term of the
leases.
Minimum annual commitments related to operating lease payments at June 30,
1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1995....................................... $ 1,839,000
1996....................................... 1,837,000
1997....................................... 1,863,000
1998....................................... 1,908,000
1999....................................... 1,962,000
Thereafter................................. 2,471,000
-----------
Total...................................... $11,880,000
===========
</TABLE>
Rent expense for fiscal 1992, 1993, and 1994 and the six months ended
December 31, 1993 and 1994 was $1,168,000, $1,886,000, $2,286,000, $1,224,000
and $980,000, respectively.
In order to obtain a commitment for a long-term supply of raw material for
both clinical trials and anticipated future production requirements, the
Company entered into an agreement with a vendor under which the Company is
obligated to make payments to the vendor based, in part, upon the achievement
of certain milestones. The minimum payments are anticipated to commence during
1995 and will continue for a 26-month period. The Company's total minimum
future commitment is estimated not to exceed $3.5 million.
During September 1992, the Company and certain of its officers and directors
were named as defendants in several lawsuits filed by certain shareholders. The
actions have been consolidated into one class action lawsuit. The complaint
claims, among other things, that the defendants failed to disclose certain
problems with two of the Company's products under development, which conduct is
alleged to have falsely portrayed the Company's financial condition. The
complaint seeks unspecified damages and fees. The Company believes it has
meritorious defenses and intends to vigorously defend against the claims
brought by the shareholders in the action. The Company believes the eventual
outcome of the litigation will not have a material adverse effect on the
Company's financial condition.
8. SUBSEQUENT EVENT
In August 1994, the Company executed a license agreement with Ortho Biotech,
Inc. and The R.W. Johnson Pharmaceutical Research Institute, a division of
Ortho Pharmaceutical Corporation (collectively referred to as "Ortho"), which
provides Ortho with worldwide marketing and, at its election, manufacturing
rights to the Company's injectable perfluorochemical ("PFC") emulsions capable
of transporting oxygen for therapeutic use. Ortho will pay to Alliance a
royalty based upon its sales of the product after
F-14
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1994, EXCEPT FOR NOTE 8, IS UNAUDITED.)
8. SUBSEQUENT EVENT--(CONTINUED)
commercialization. In addition, Ortho will pay to Alliance an initial license
fee and other payments upon the achievement of certain milestones. Ortho will
also be responsible for the remaining costs of developing the products. As of
December 31, 1994, the Company had recorded a receivable of $3.1 million,
representing funding due from Ortho for development costs incurred. Such
amounts are recorded as research revenue in the statements of consolidated
operations. Concurrent with execution of the license agreement, Johnson &
Johnson Development Corp. ("J&JDC") agreed to purchase 1.5 million shares of
Alliance convertible preferred stock for $15.0 million and obtain a warrant to
purchase 300,000 shares of Alliance common stock at $15 per share during the
next three years. The preferred stock is convertible into common shares upon
the earlier of: 1) Alliance common stock trading for an average price per share
of at least $20 for twenty consecutive days; 2) termination of the license
agreement; or 3) June 30, 1998. Each share of the preferred stock will be
converted into a number of common shares based upon the lower of the average
price of Alliance common stock at the time of conversion or $20 per share.
Prior to conversion, each share of preferred stock is entitled to one-half vote
on matters on which shareholders are entitled to vote. The preferred stock
carries a cumulative annual dividend of $0.50 per share. J&JDC will have
certain registration rights for common stock obtained by conversion of the
preferred stock or exercise of the warrant.
F-15
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY PLACEMENT AGENT. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES, OR AN OFFER IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME AFTER THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Incorporation of Certain Documents by Reference.......................... 2
Available Information.................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 8
Dilution................................................................. 8
Capitalization........................................................... 9
Selected Consolidated Financial Data..................................... 10
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 11
Business................................................................. 15
Management............................................................... 21
Plan of Distribution..................................................... 24
Legal Matters............................................................ 25
Experts.................................................................. 25
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOGO OF ALLIANCE PHARMACEUTICAL CORP.
3,175,000 SHARES
OF COMMON STOCK
----------------
PROSPECTUS
----------------
In the United States and Certain Countries Outside the United States:
OPPENHEIMER & CO., INC.
COWEN & COMPANY
In Sweden and Certain Other Countries Outside the United States:
ABB AROS FONDKOMMISSION AB
April 21, 1995
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the offering, all of which
will be borne by the Registrant, are as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee................................ $ 6,229
N.A.S.D. Filing Fee................................. 2,307
Printing Costs...................................... 35,000
Legal Fees and Expenses............................. 75,000
Placement Agents Expense Reimbursement.............. 225,000
Escrow Agent Fees................................... 15,000
Accounting Fees and Expenses........................ 25,000
Miscellaneous....................................... 16,464
--------
Total............................................... $400,000
</TABLE>
=============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Article VI of the By-Laws of the Registrant and
to Sections 721-727 of the New York Business Corporation Law, which, among
other things and subject to certain conditions, authorize the Company to
indemnify each of its officers and directors against certain liabilities
and expenses incurred by such persons in connection with claims made by
reason of their being such officers or directors.
II-1
<PAGE>
ITEM 16. EXHIBITS
1.1 Form of U.S. Placement Agency Agreement*
1.2 Form of U.S. Escrow Agreement*
3. Restated Certificate of Incorporation of the Company, as amended,
dated December 1, 1994*
5. Opinion of Stroock & Stroock & Lavan*
10. Material Contracts*
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Deloitte & Touche LLP, Independent Auditors
23.3 Consent of Stroock & Stroock & Lavan (included in Exhibit 5)*
23.4 Consent of Knobbe, Martens, Olson & Bear*
24. Powers of Attorney*
-------------
* Previously filed.
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 paragraph (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, 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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) 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 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in
II-2
<PAGE>
reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of the
time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered herein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 2 to registration statement
to be signed on its behalf by the undersigned, duly authorized in the City
of San Diego, State of California, on April 19, 1995.
ALLIANCE PHARMACEUTICAL CORP.
By: \s\ Duane J. Roth
President
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the registration statement has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------- ---------------------------- --------------
<S> <C> <C>
\s\ Duane J. Roth President, Chief Executive April 19, 1995
- -------------------------------- Officer and Director
Duane J. Roth
\s\ Theodore D. Roth Executive Vice President April 19, 1995
- -------------------------------- and Chief Financial Officer
Theodore D. Roth
\s\ Tim T. Hart Controller, Chief Accounting April 19, 1995
- -------------------------------- Officer
Tim T. Hart
\s\ Carroll O. Johnson* Director April 19, 1995
- --------------------------------
Carroll O. Johnson
\s\ Stephen M. McGrath* Director April 19, 1995
- --------------------------------
Stephen M. McGrath
\s\ Helen M. Ranney, M.D.* Director April 19, 1995
- --------------------------------
Helen M. Ranney, M.D.
\s\ Donald E. O'Neill* Director April 19, 1995
- --------------------------------
Donald E. O'Neill
\s\ Jean Riess, Ph.D.* Director April 19, 1995
- --------------------------------
Jean Riess, Ph.D.
\s\ Thomas F. Zuck, M.D.* Director April 19, 1995
- --------------------------------
Thomas F. Zuck, M.D.
</TABLE>
*By: /s/ Theodore D. Roth
----------------------------
Theodore D. Roth
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
-------------
Page Number
-----------
1.1 Placement Agency Agreement*
1.2 Escrow Agreement*
3. Restated Certificate of Incorporation of the Company, as
amended, dated December 1, 1994*
5. Opinion of Stroock & Stroock & Lavan*
10. Material Contracts*
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Deloitte & Touche LLP, Independent Auditors
23.3 Consent of Stroock & Stroock & Lavan*
23.4 Consent of Knobbe, Martens, Olson & Bear*
24. Power of Attorney*
___________________
* Previously filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Registration Statement (Form S-3 No. 33-58093) and
related Prospectus of Alliance Pharmaceutical Corp. for the registration of
3,175,000 shares of its common stock and to the use and incorporation by
reference therein of our report dated August 16, 1994, with respect to the
consolidated financial statements and schedule of Alliance Pharmaceutical Corp.
included in its Annual Report (Form 10-K) for the year ended June 30, 1994,
filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
San Diego, California
April 19, 1995
<PAGE>
EXHIBIT 23.2
CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
We consent to the use and incorporation by reference in this Amendment No. 2 to
Registration Statement No. 33-58093 of Alliance Pharmaceutical Corp. of our
report dated July 27, 1993, appearing in the Prospectus, which is part of this
Registration Statement, and appearing in the Annual Report on Form 10-K of
Alliance Pharmaceutical Corp. for the year ended June 30, 1994, and to the
reference to us under the heading "Experts" in such Prospectus.
Deloitte & Touche LLP
New York, NY
April 19, 1995
