<PAGE>
PROSPECTUS
2,500,000 SHARES
[LOGO]
COMMON STOCK
------------------
All of the shares of Common Stock offered hereby are being sold by Alliance
Pharmaceutical Corp. ("Alliance" or the "Company"). The Company's Common Stock
is traded on the Nasdaq National Market under the symbol "ALLP." The closing
price of the Common Stock on April 2, 1996 was $16 3/4 per share. See "Price
Range of Common Stock."
------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
---------------------
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.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts Proceeds to
Public and Commissions(1) Company(2)
<S> <C> <C> <C>
Per Share...................... $16.50 $0.97 $15.53
Total(3)....................... $41,250,000 $2,425,000 $38,825,000
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $400,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
375,000 additional shares of Common Stock on the same terms and conditions
as set forth herein solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $47,437,500, $2,788,750 and
$44,648,750, respectively. See "Underwriting."
------------------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery and acceptance by the Underwriters and
to certain further conditions. It is expected that delivery of certificates for
the shares of Common Stock will be made at the offices of Lehman Brothers Inc.,
New York, New York, on or about April 9, 1996.
------------------------
LEHMAN BROTHERS
COWEN & COMPANY
OPPENHEIMER & CO., INC.
APRIL 2, 1996
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1995, which was filed with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1995, which was filed with the Commission pursuant
to the Exchange Act on November 13, 1995, the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 31, 1995, which was filed with the
Commission pursuant to the Exchange Act on February 6, 1996, 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 Lloyd Rowland, 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"). 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.
OXYGENT-TM-, LIQUIVENT-Registered Trademark-, IMAGENT-Registered Trademark-,
and SAT PAD-REGISTERED TRADEMARK- are all trademarks of the Company.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
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 THE UNDERWRITERS' OVER-ALLOTMENT
OPTION, OUTSTANDING WARRANTS, OPTIONS OR 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 developing scientific discoveries into potential drug products and licensing
these products to multinational pharmaceutical companies in exchange for fixed
payments and royalties. To date, the Company has entered into agreements with
researchers for the rights to two innovative products, developed these products
through initial clinical (human) trials, and entered into collaborative
relationships with multinational pharmaceutical companies for the final stages
of development and worldwide marketing. These products are OXYGENT, an
intravascular oxygen carrier designed to reduce the need for donor blood
transfusions during surgery, which is currently in Phase IIb clinical trials and
is licensed to affiliates of Johnson & Johnson, and LIQUIVENT, an intrapulmonary
agent for use in treatment of acute respiratory failure, which is currently in a
pivotal Phase II/III clinical trial and is licensed to Hoechst Marion Roussel,
Inc., an affiliate of Hoechst AG. Alliance intends to enter into a collaborative
agreement for IMAGENT US, an ultrasound contrast agent with respect to which the
Company has just begun a Phase I clinical trial.
The Company's strategy is to identify potential new pharmaceutical products
through scientific collaborations with researchers and clinicians in
universities and medical centers where many of the basic causes of disease and
potential targets for new therapies are discovered. Using its experience in
defining pharmaceutical formulations, designing manufacturing processes,
conducting preclinical pharmacology and toxicology studies, and conducting
early-phase human testing, Alliance endeavors to advance such discoveries into
clinical development. The Company seeks collaborative relationships for the
final stages of drug development, including completing late-phase human testing,
obtaining worldwide regulatory approvals, building large-scale manufacturing
capacities, and marketing.
Alliance's products currently in clinical development -- OXYGENT, LIQUIVENT,
and IMAGENT US -- are based upon perfluorochemical ("PFC") and emulsion
technologies. PFCs are biochemically inert compounds and may be employed in a
variety of therapeutic and diagnostic applications. The Company's primary drug
substance is perflubron, a brominated PFC that has a high solubility for
respiratory gases and can be used to transport these gases safely throughout the
body.
OXYGENT, an emulsion containing perflubron, is an intravascular oxygen
carrier to be used as a temporary "blood substitute" to provide oxygen to
tissues during elective surgeries where substantial blood loss is anticipated.
OXYGENT has several potential advantages compared to allogeneic (donor) blood:
there is no risk of infectious disease transmission, it is compatible with all
blood types, it has a shelf-life in excess of one year, and it can be
sterilized. OXYGENT can be used with autologous blood collection techniques,
including predonation, hemodilution, and salvage, to enhance safety by reducing
the need for allogeneic blood. OXYGENT is currently in Phase IIb clinical trials
with surgical patients at multiple sites in the United States and Europe.
In August 1994, the Company entered into a license agreement (the "Ortho
License Agreement") with Ortho Biotech, Inc. and The R.W. Johnson Pharmaceutical
Research Institute, a division of Ortho Pharmaceutical Corporation, affiliates
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
product is being developed jointly by Alliance and Ortho, with Ortho responsible
for substantially all of the remaining costs of development and marketing. In
3
<PAGE>
conjunction with the Ortho License Agreement, Johnson & Johnson Development
Corp. ("J&JDC") purchased equity securities of the Company for $15.0 million. In
addition, Ortho paid Alliance an initial license fee and will pay milestone
payments and royalties on product sales.
LIQUIVENT, sterile perflubron, is an intrapulmonary agent to treat acute
respiratory failure, a disorder that can result from many causes, including
serious infection, traumatic shock, severe burns, and inhalation of toxic
substances, and is characterized by impairment of normal lung function. The
Company is conducting a multi-center pivotal Phase II/III clinical trial with
LIQUIVENT in pediatric patients with acute respiratory failure, and separate
multi-center Phase II clinical trials in adults and premature infants are
underway. The U.S. Food and Drug Administration ("FDA") has granted Subpart E
status (expedited review) for the development of LIQUIVENT.
In February 1996, the Company entered into a license agreement (the "HMRI
License Agreement" and, together with the Ortho License Agreement, the "License
Agreements") with Hoechst Marion Roussel, Inc. ("HMRI"), which provides HMRI
with worldwide marketing rights to the intratracheal administration of liquids,
including LIQUIVENT, which perform bronchoalveolar lavage or liquid ventilation.
The product will be developed jointly by Alliance and HMRI, with HMRI
responsible for substantially all of the costs of development and marketing. In
conjunction with the HMRI License Agreement, HMRI purchased equity securities of
the Company for $22.0 million. In addition, HMRI paid Alliance an initial
license fee and will pay further license fees, milestone payments, and royalties
on product sales.
IMAGENT US is a PFC-based intravenous ultrasound contrast agent being
developed to aid in the assessment of cardiac function and myocardial perfusion,
as well as the detection of solid organ lesions and blood flow abnormalities
caused by vascular diseases. In preclinical studies, this agent has been found
to enhance the signal from perfused tissues and blood vessels using traditional
gray-scale and color Doppler technologies, as well as the emerging harmonic
ultrasound imaging technique. The Company filed an investigational new drug
application ("IND") with the FDA in February 1996 and began a Phase I clinical
trial in the United States in March 1996.
Alliance is assessing an apoptotic factor for regulation of cancerous cell
death and has ongoing research activities to exploit its expertise in PFC,
emulsion, and surfactant technologies. In addition, the Company is evaluating
its antigenized antibody technology for use in developing a prototype vaccine
for an infectious disease and a prototype tolerogen for an autoimmune disease.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered................... 2,500,000 shares
Common Stock to be outstanding after
this offering......................... 27,416,691 shares
Use of proceeds........................ To fund research, preclinical testing, and clinical
trials for the Company's products, to repurchase an
oustanding warrant for approximately $1.8 million,
and for general corporate purposes.
Nasdaq National Market symbol.......... ALLP
</TABLE>
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1994 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................ $ 1,582 $ 1,805 $ 2,370 $ 409 $ 11,816 $ 7,209 $ 4,186
Loss from operations.......................... (18,494) (24,304) (28,802) (38,508) (30,332) (15,724) (14,761)
Dividends on preferred stock.................. -- -- -- -- (594) (219) (375)
Net loss applicable to Common Stock........... (17,702) (21,766) (26,380) (36,946) (29,717) (15,368) (14,706)
Net loss per share of Common Stock............ $ (1.24) $ (1.25) $ (1.39) $ (1.83) $ (1.35) $ (0.72) $ (0.59)
Weighted average number of common shares out-
standing..................................... 14,258 17,344 18,946 20,226 21,959 21,385 24,851
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------
AS
ACTUAL ADJUSTED (1)
--------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...................................... $ 12,722 $ 70,382
Working capital........................................................................ 11,144 68,804
Total assets........................................................................... 44,892 102,552
Long-term debt......................................................................... 1,314 1,314
Accumulated deficit.................................................................... (203,766) (203,766)
Stockholders' equity................................................................... 37,003 94,663
</TABLE>
- ------------------------
(1) Adjusted to give effect to the sale of the 2,500,000 shares of Common Stock
offered hereby, after deducting the underwriting discounts and estimated
offering expenses, the net proceeds from the sale of $22.0 million of
preferred stock to HMRI, and the application of the proceeds of this
offering as described herein. See "Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. The following factors and cautionary statements 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, 1995, the Company had an accumulated deficit of $203.8 million, of
which approximately $35.4 million reflects non-cash charges from the Company's
acquisition by merger of Fluoromed Pharmaceutical, Inc. on February 24, 1989.
There can be no assurance that the Company will be able to achieve profitability
at all or on a sustained basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RELIANCE ON COLLABORATIVE PARTNERS; FUTURE COLLABORATIONS. The Company has
entered into the License Agreements to support the development and
commercialization of OXYGENT and LIQUIVENT and to raise capital. Pursuant to the
License Agreements, 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 Agreements, the Company will depend
on Ortho and HMRI for development, regulatory approval, and marketing of
products. The termination of either of the License Agreements, which can occur
on at least one month's advance notice, or any other future collaborative
arrangement could adversely affect the Company's research, development or,
ultimately, product distribution plans. The Company's revenues from milestone
payments or sales of any product will depend in large part upon the efforts and
abilities of the collaborative partner to perform clinical testing, to obtain
regulatory approvals, and to manufacture and market the product. The amount and
timing of resources devoted to these activities will not be completely within
the Company's control. The collaborative partner will have certain discretion in
deciding whether to commercialize the product. There can be no assurance that
the corporate interests and motivations of the Company's collaborative partners
will remain consistent with those of the Company. See "Business -- Collaborative
Relationships."
GOVERNMENT REGULATION; UNCERTAINTIES RELATED TO CLINICAL TRIAL RESULTS. 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.
Clinical trials and the manufacturing and marketing of the Company's products
are subject to the testing and approval process of the FDA and foreign
regulatory authorities. The FDA and other regulatory authorities require that
the safety and efficacy of a drug be supported by results from adequate and
well-controlled clinical trials before approval for commercial sale. If the
results of the clinical trials of the Company's products do not demonstrate the
safety and efficacy of the products, the Company will not be able to submit a
New Drug Application ("NDA") to the FDA. Even if the Company believes the
clinical trials demonstrate the safety and efficacy of a product, the FDA and
other regulatory authorities may not accept the Company's assessment of the
results. In either case, the Company may have to conduct additional clinical
trials in an effort to demonstrate the safety and efficacy of the product. 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 basis. Without acceptable results and
regulatory approval, the Company would not be able to commercialize its
products, which would have a material adverse effect on the Company. There can
be no assurance that the results of any of the Company's clinical trials will be
favorable or that the Company's products will obtain regulatory approval for
commercialization. The effect of governmental regulations which might arise from
future legislative or administrative action cannot be predicted. See "Business
- -- Government Regulation."
6
<PAGE>
UNCERTAINTY OF DEVELOPMENT AND COMMERCIALIZATION EFFORTS. The Company's
products require substantial development efforts. The Company or its
collaborative partners 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. Further, even after successful technical
development and receipt of governmental approval, a product may not achieve
commercial success. To date, the Company has received regulatory approval for
the commercial sale of only one of its drug products, the sales of which were
discontinued due to limited revenue potential.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. The Company
believes that its existing capital resources, including expected revenues from
the License Agreements and investments, as well as the net proceeds from this
offering and income earned thereon, will be adequate to satisfy its capital
requirements for at least the next 24 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 or on terms
acceptable to the Company.
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, as well as patents
related to liquid ventilation. 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 delays in product development. Litigation, which could result in a
substantial cost to the Company, may be necessary to enforce any patents issued
to the Company and/or to determine the scope and validity of others' proprietary
rights. 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."
LIMITED MANUFACTURING CAPABILITY AND EXPERIENCE. While the Company believes
that it can produce materials for clinical trials and the initial market launch
for its emulsion products at its existing San Diego facility and for LIQUIVENT
at its Otisville facility, it may need to expand its commercial manufacturing
capabilities for 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, nor can there be any assurance that it will be able to do so.
The projected location and completion date of any production facility will
depend upon regulatory and development activities and 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 complies with Good Manufacturing Practices.
Construction of a facility will depend on regulatory approvals, product
development, and capital resources, among other things. The Ortho License
Agreement provides an option to Ortho to elect to manufacture the emulsion
products referred to therein, or to require the Company to manufacture such
products at a negotiated price. The HMRI License Agreement requires the
7
<PAGE>
Company to manufacture LIQUIVENT at its Otisville facility for a period of time
after market launch and to sell the product to HMRI at a negotiated price. HMRI
will be responsible for establishing production capacity beyond the maximum
capacity of the Otisville facility. See "Business -- Manufacturing."
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT. The Company's ability to
commercialize its products successfully will depend in part on the extent to
which appropriate reimbursement levels for the cost of the products and related
treatment are obtained from government authorities, private health insurers and
other organizations, such as health maintenance organizations ("HMOs").
Third-party payors are increasingly challenging the prices charged for medical
products and services. Also, the trend toward managed healthcare in the United
States, the growth of organizations such as HMOs, and legislative proposals to
reform healthcare and government insurance programs could significantly
influence the purchase of healthcare services and products, resulting in lower
prices and reducing demand for the Company's products. The cost containment
measures that healthcare providers are instituting and any healthcare reform
could affect the Company's ability to sell its products and may have a material
adverse effect on the Company. There can be no assurance that reimbursement in
the United States or foreign countries will be available for any of the
Company's products, that any reimbursement granted will be maintained, or that
limits on reimbursement available from third-party payors will not reduce the
demand for, or negatively affect the price of, the Company's products. The
unavailability or inadequacy of third-party reimbursement for the Company's
products would have a material adverse effect on the Company. The Company is
unable to forecast what additional legislation or regulation relating to the
healthcare industry or third-party coverage and reimbursement may be enacted in
the future, or what effect the legislation or regulation would have on the
Company's business.
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 attract and 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 attract and 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 Company's anticipated growth and expansion will require additional
expertise and are expected to place additional demands on the Company's
management and financial resources.
COMPETITION; RAPID TECHNOLOGICAL CHANGE. Biotechnology and pharmaceutical
companies 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 that may
be similar to, or seek to attack the same targets as, 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. In addition, other technologies or products may be
developed that have an entirely different approach or means of accomplishing the
intended purposes of the Company's products which might render the Company's
technology and products uncompetitive or obsolete. There can be no assurance
that the Company will be able to compete successfully. 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
8
<PAGE>
commercial products, government regulations, developments concerning proprietary
rights, including patents and litigation matters, a change in status of a
collaborative 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. See "Price Range of Common
Stock."
The Company has 1,500,000 shares of Series A 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 also has outstanding 750,000
shares of Series B Preferred Stock entitled to an annual $1.00 per share
preferred dividend, and a liquidation preference of $20.00 per share, plus all
accumulated but unpaid dividends and 200,000 shares of Series C Preferred Stock
entitled to a liquidation preference of $.01 per share.
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 in general is required to pay cumulative dividends on its
outstanding preferred stock prior to paying any dividends on its Common Stock.
As of December 31, 1995, the Company had recorded as a liability dividends
payable totalling $969,000 on the Series A Preferred Stock. The Company has
incurred losses and, thus, has had a deficiency in preferred stock dividend
coverage. For the years ended June 30, 1991, 1992, 1993, 1994 and 1995 and the
six months ended December 31, 1994 and 1995, the Company has incurred net losses
of $17,702,000, $21,766,000, $26,380,000, $36,946,000, $29,717,000, $15,368,000
and $14,706,000, respectively.
SHARES ELIGIBLE FOR FUTURE SALE. As of December 31, 1995, 3,580,505 shares
of Common Stock (or 13% of the total number of shares outstanding on a fully
diluted basis) were issuable upon the exercise of outstanding options and
warrants (excluding a warrant with respect to 500,000 shares to be repurchased
by the Company). See "Use of Proceeds." Additional shares may be issued upon the
conversion of preferred stock. See "Capitalization." The existence of such
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 this offering will
experience immediate and substantial dilution in book value per share. See
"Dilution."
THE CAUTIONARY STATEMENTS SET FORTH ABOVE AND ELSEWHERE IN THIS PROSPECTUS
SHOULD BE READ AS ACCOMPANYING FORWARD-LOOKING STATEMENTS INCLUDED UNDER "USE OF
PROCEEDS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND ELSEWHERE HEREIN. THE RISKS DESCRIBED IN SUCH
STATEMENTS COULD CAUSE THE COMPANY'S RESULTS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN OR INDICATED BY SUCH FORWARD- LOOKING STATEMENTS.
9
<PAGE>
USE OF PROCEEDS
The net proceeds from this offering are estimated to be $38.4 million.
Approximately $1.8 million of the proceeds of this offering will be used to
repurchase an outstanding warrant to acquire 500,000 shares of Common Stock (the
"Warrant Repurchase"). The remaining proceeds will be used to fund research,
preclinical testing, and clinical trials for the Company's products, and for
general corporate purposes. In particular, the Company expects to devote an
increasingly large amount of its resources to the clinical development of
IMAGENT US, its only clinical-stage product not presently subject to a
collaborative agreement. 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 -- Uncertainty of Development and
Commercialization Efforts" and "-- 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, 1995, the net tangible book value of the Company,
adjusted to include the purchase of equity securities by HMRI in connection with
the HMRI License Agreement, was approximately $41.3 million, or $1.53 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 at an assumed
conversion price of $16 1/2 per share). After giving effect to the sale of the
2,500,000 shares of Common Stock offered in this offering at a public offering
price of $16 1/2 per share, the pro forma net tangible book value of the Common
Stock as of December 31, 1995 (after deducting the underwriting discounts and
estimated expenses of this offering and after giving effect to the Warrant
Repurchase) would have been approximately $77.9 million, or $2.64 per share.
This represents an immediate increase in net tangible book value of $1.11 per
share to existing shareholders and an immediate dilution of $13.86 per share to
new investors purchasing shares of Common Stock in this offering. "Dilution per
share" represents the difference between the price per share of Common Stock
paid by the new investors in this offering and the net tangible book value per
share at December 31, 1995 as adjusted to give effect to this offering.
The following table illustrates the dilution per share taking into account
estimated expenses of this offering:
<TABLE>
<S> <C> <C>
Public offering price per share.............................. $ 16.50
Net tangible book value per share as of December 31, 1995.... $ 1.53
Increase to present shareholders attributable to this
offering.................................................... 1.11
---------
Pro forma net tangible book value per share after this
offering.................................................... 2.64
---------
Dilution to investors in this offering....................... $ 13.86
---------
---------
</TABLE>
The foregoing calculations take into account the underwriting discounts and
other estimated expenses of this offering and assume no exercise of the
Underwriters' over-allotment option. If the over-allotment option to purchase up
to an additional 375,000 shares of Common Stock is exercised in full, the pro
forma net tangible book value would be approximately $2.80 per share, resulting
in a dilution to investors in this offering of $13.70 per share.
The dilution described above could be substantially greater, depending on
the conversion rates of the series of the Company's preferred stock issued to
Ortho and HMRI. See Notes 4 and 8 of Notes to Consolidated Financial Statements
elsewhere herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
31, 1995 and as adjusted to give effect to (i) the sale of the Common Stock
offered in this offering, (ii) the net proceeds from the sale of $22.0 million
of preferred stock to HMRI described elsewhere herein, (iii) the Warrant
Repurchase, and (iv) in the case of clauses (i) and (ii), the application of the
net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt...................................................... $ 1,314 $ 1,314
Stockholders' equity:
Preferred stock $.01 par value -- 5,000,000 shares authorized;
1,500,000 shares issued and outstanding as of December 31, 1995;
2,450,000 shares as adjusted..................................... 15 25
Common Stock $.01 par value -- 50,000,000 shares authorized;
24,916,691 issued and outstanding as of December 31, 1995;
27,416,691 shares as adjusted.................................... 249 274
Additional paid-in capital.......................................... 240,505 298,130
Accumulated deficit................................................. (203,766) (203,766)
----------- -----------
Total stockholders' equity...................................... 37,003 94,663
----------- -----------
Total capitalization........................................ $ 38,317 $ 95,977
----------- -----------
----------- -----------
</TABLE>
As of December 31, 1995, there were 3,580,505 shares of Common Stock
reserved for issuance upon the exercise of outstanding options and warrants
(excluding the 500,000 shares underlying the Warrant Repurchase). The Company
has reserved an additional 1,050,000 shares of Common Stock for issuance upon
the conversion or possible mandatory redemption of the preferred stock and
exercise of the warrants issued to HMRI and 750,000 shares of Common Stock for
issuance upon the conversion of the Series A Preferred Stock issued to J&JDC.
For a description of the conversion and mandatory redemption features of the
preferred stock, see Note 4 of Notes to Consolidated Financial Statements
contained herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
11
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"ALLP." The following table sets forth, for the periods indicated, the high and
low sale prices of the Common Stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1996
First Quarter ended September 30, 1995................................. $ 12.63 $ 7.88
Second Quarter ended December 31, 1995................................. 14.25 10.50
Third Quarter ended March 31, 1996..................................... 19.75 12.63
Fourth Quarter ending June 30, 1996
(through April 2, 1996)............................................... 17.38 16.25
FISCAL 1995
First Quarter ended September 30, 1994................................. 12.00 8.00
Second Quarter ended December 31, 1994................................. 8.75 5.63
Third Quarter ended March 31, 1995..................................... 7.63 4.25
Fourth Quarter ended June 30, 1995..................................... 8.63 4.75
FISCAL 1994
First Quarter ended September 30, 1993................................. 14.00 8.50
Second Quarter ended December 31, 1993................................. 10.75 7.75
Third Quarter ended March 31, 1994..................................... 10.50 8.00
Fourth Quarter ended June 30, 1994..................................... 12.25 8.25
</TABLE>
On April 2, 1996, the closing price of the Common Stock as reported by the
Nasdaq National Market was $16 3/4 per share. As of March 26, 1996, there were
approximately 1,828 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid dividends on its Common Stock and
does not anticipate paying any cash dividends in the foreseeable future.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data set forth below for the fiscal
years ended June 30, 1993, 1994, and 1995 and the consolidated balance sheet
data at June 30, 1994 and 1995 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,
1991 and 1992, and the consolidated balance sheet data at June 30, 1991, 1992,
and 1993 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, 1994 and 1995 and the consolidated balance sheet
data at December 31, 1994 and 1995 are derived from unaudited consolidated
financial statements previously filed with the Commission, which, 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. Operating results for the six months
ended December 31, 1995 are not necessarily indicative of the results that may
be expected for the entire year ending June 30, 1996. This information is not
necessarily indicative of the Company's future performance.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1994 1995
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................................. $ 1,582 $ 1,805 $ 2,370 $ 409 $ 11,816 $ 7,209 $ 4,186
Operating expenses:
Research and development...................... 15,092 20,922 24,767 31,605 35,063 19,129 15,562
General and administrative.................... 4,984 5,187 6,405 7,312 7,085 3,804 3,385
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses.................... 20,076 26,109 31,172 38,917 42,148 22,933 18,947
Loss from operations............................ (18,494) (24,304) (28,802) (38,508) (30,332) (15,724) (14,761)
Investment and other income -- net.............. 792 2,538 2,422 1,562 1,209 575 430
Dividends on preferred stock.................... -- -- -- -- (594) (219) (375)
Net loss applicable to Common Stock............. $ (17,702) $ (21,766) $ (26,380) $ (36,946) $ (29,717) $ (15,368) $ (14,706)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share of Common Stock.............. $ (1.24) $ (1.25) $ (1.39) $ (1.83) $ (1.35) $ (0.72) $ (0.59)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average number of common shares
outstanding.................................... 14,258 17,344 18,946 20,226 21,959 21,385 24,851
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1994 1995
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.................................... $ 16,812 $ 66,420 $ 39,542 $ 21,056 $ 23,483 $ 20,100 $ 12,722
Working capital................................. 15,643 65,578 39,745 19,446 22,346 20,877 11,144
Total assets.................................... 44,848 97,976 72,537 53,132 56,030 52,864 44,892
Total long-term debt............................ 8,336 223 -- -- -- -- 1,314
Accumulated deficit............................. (74,251) (96,017) (122,397) (159,343) (189,060) (174,492) (203,766)
Stockholders' equity............................ 33,855 94,553 69,144 49,825 50,077 48,615 37,003
</TABLE>
13
<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 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, and commercial manufacturing start-up. The amount of net losses and
the time required by the Company to achieve profitability are highly uncertain
due to differences in the timing of revenues earned and expenses incurred. The
Company has entered into collaborative research and development agreements with
pharmaceutical companies that generate revenue to augment the level of its
research and development activities and to offset portions of its research and
development costs. See "Business -- Collaborative Agreements." The timing and
amounts of such revenue, if any, cannot be predicted with certainty and will
likely fluctuate sharply. To date, the Company's revenue from the sale of
products has been immaterial. The majority of the Company's products are in the
development stage and there can be no assurance as to whether or when it will be
able to increase its revenues significantly. There can be no assurance that the
Company will be able to achieve profitability at all or on a sustained basis.
RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1995 AS COMPARED WITH SIX MONTHS ENDED DECEMBER
31, 1994
The Company's license and research revenue was $4.1 million for the six
months ended December 31, 1995, compared to $7.1 million for the six months
ended December 31, 1994. The period ended December 31, 1994 included a one-time
license fee of $4.0 million.
Research and development expenses decreased by 19% to $15.6 million for the
six months ended December 31, 1995, compared to $19.1 million for the six months
ended December 31, 1994. The decrease in expenses was primarily the result of a
$3.6 million reduction in purchases of raw materials, a $929,000 net reduction
in acquired research and development expense, and reduced staffing costs. These
reductions were partially offset by $639,000 paid to a supplier under a previous
raw material commitment. The Company also increased payments to universities and
outside consultants. The expenses for the six months ended December 31, 1994
included a one-time $1.7 million charge to research and development expense
which arose when the Company licensed product rights to Ortho. The expenses for
the six months ended December 31, 1995 included a $757,000 charge arising from
the acquisition of certain PFC patents, patent rights, and related documents in
exchange for 50,000 shares of Common Stock and a five-year warrant to purchase
up to an additional 100,000 shares of Common Stock at $10.00 per share.
General and administrative expenses decreased by 11% to $3.4 million for the
six months ended December 31, 1995, compared to $3.8 million for the six months
ended December 31, 1994. The decrease in general and administrative expenses was
primarily due to decreased professional fees.
Investment income and other was $430,000 for the six months ended December
31, 1995, compared to $575,000 for the six months ended December 31, 1994. The
decline was primarily a result of lower average cash balances.
1995 AS COMPARED WITH 1994
The Company's license and research revenue increased to $11.6 million in
1995 compared to $163,000 in 1994. The increase was primarily due to $4.0
million of license revenue and $7.1 million of research revenue derived from the
Ortho License Agreement.
The Company incurred total operating expenses of $42.1 million for 1995.
Operating expenses include $5.0 million for purchases of raw material for
certain products currently being developed, $1.8 million for OXYGENT costs
incurred prior to execution of the Ortho License Agreement, $545,000 for
products no longer promoted or developed by Alliance, and a $1.7 million
non-cash charge related to the license of previously capitalized product rights.
The $5.0 million charge for the purchase of raw materials arises from a December
14
<PAGE>
1993 agreement the Company entered into with a supplier. In 1996, charges under
the agreement will be substantially less than in 1995. In January 1994, the
Company regained from Boehringer Ingelheim International GmbH ("BII") all
marketing and manufacturing rights to certain IMAGENT products, 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 11% to $35.1 million for 1995
compared to $31.6 million for 1994. The growth in expenses is primarily a result
of increased raw material costs and the product rights charge discussed above
and increased salary costs. These expenses were partially offset by a reduction
in payments to universities and outside consultants.
General and administrative expenses decreased by 3% to $7.1 million for 1995
compared to $7.3 million for 1994. During the fourth quarter of 1995, the
Company was successful in recovering $1.6 million from its insurance carrier to
offset professional fees incurred in connection with the defense of its lawsuit.
Investment and other income was $1.2 million for 1995 compared to $1.6
million for 1994. The decline in investment revenue was primarily a result of
lower average cash balances.
1994 AS COMPARED WITH 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
GI, a magnetic resonance ("MR") imaging contrast agent. The increase in net
product revenue from 1993 to 1994 was primarily attributable to sales of IMAGENT
GI and SAT PAD, an MR imaging accessory. Sales of IMAGENT GI and SAT PAD were
not expected to provide significant revenue to the Company. In September 1994,
the Company discontinued promotional activities for IMAGENT GI due to limited
revenue potential.
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 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 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.
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 incurred in connection with the defense of the
lawsuit.
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.
LIQUIDITY AND CAPITAL RESOURCES
Through December 1995, the Company financed its activities primarily from
public and private sales of equity and funding from collaborations with
corporate partners. In February 1996, the Company entered into the HMRI License
Agreement, which provides HMRI with worldwide marketing rights to the
intratracheal administration of liquids, including LIQUIVENT, which perform
bronchoalveolar lavage or liquid ventilation. The product will be developed
jointly by Alliance and HMRI, with HMRI responsible for substantially all of the
costs of development and marketing. In conjunction with the HMRI License
Agreement, HMRI purchased shares of Series B and Series C Preferred Stock for
$22.0 million. In addition,
15
<PAGE>
HMRI paid Alliance an initial license fee and will pay further license fees,
milestone payments, and royalties on product sales. HMRI also received a
five-year warrant to acquire 300,000 shares of Common Stock at $20.00 per share.
In August 1995, the Company entered into a loan and security agreement under
which the Company received $2.2 million. Amounts borrowed under the agreement
are secured by fixed assets, and will be repaid over three years commencing in
September 1995. If certain financial covenants are not satisfied, the debt may
become due and payable. The Company has financed substantially all of its office
and research facilities and related leasehold improvements under operating lease
arrangements.
In April 1995, the Company completed offerings of 3.2 million shares of
newly issued Common Stock, resulting in net proceeds to the Company of
approximately $14.3 million.
In August 1994, the Company entered into the Ortho License Agreement for
injectable PFC emulsions capable of transporting oxygen for therapeutic use,
including OXYGENT. Under the Ortho License Agreement, Ortho paid to Alliance an
initial fee of $4.0 million and will make other payments upon the achievement of
certain milestones. Ortho is responsible for substantially all the remaining
costs of developing and marketing the products and will pay Alliance a royalty
based upon sales of products after commercialization. From August 1994 through
December 31, 1995, the Company had received research revenue payments of $9.1
million from Ortho, and as of December 31, 1995, had recorded a receivable of
$2.0 million, which was received subsequently. In conjunction with the Ortho
License Agreement, J&JDC purchased 1.5 million shares of Series A Preferred
Stock for $15.0 million and obtained a three-year warrant to purchase 300,000
shares of Common Stock at $15.00 per share.
The Company had net working capital of $11.1 million at December 31, 1995
compared to $22.3 million at June 30, 1995. The Company's cash, cash
equivalents, and short-term investments decreased to $12.7 million at December
31, 1995 from $23.5 million at June 30, 1995. The decrease resulted primarily
from net cash used in operations of $12.1 million, and property, plant, and
equipment additions of $1.4 million related to the expansion of facilities used
for research, development, and pilot manufacturing. These decreases were
partially offset by $2.2 million received under the August 1995 loan and
security agreement, and $675,000 from the issuance of Common Stock upon exercise
of options. Capital expenditures for 1996 are expected to increase compared to
1995. The Company's operations to date have consumed substantial amounts of
cash, and are expected to continue to do so for the foreseeable future.
In December 1993, 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 supplier under which
the Company was obligated to make payments to the supplier through May 1997
based, in part, upon the achievement of certain milestones. Based upon the
supplier's intent to negotiate directly with the Company's existing and future
collaborative partners, that agreement was modified in July 1995 to terminate
certain commitments by both parties. Some or all of the Company's payment
obligations that remain may be reimbursed to the Company by existing and future
collaborative partners.
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 and
need, potential for regulatory approval and reimbursement under the existing
healthcare system, status of its proprietary rights, 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.
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. Additional
equity or debt financing may be required, and there can be no assurance that
funds from these sources will be available on reasonable terms,
16
<PAGE>
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.
Alliance anticipates that its existing capital resources, including expected
revenues from the License Agreements and investments, as well as the net
proceeds from this offering and income earned thereon, will be adequate to
satisfy its capital requirements for at least the next 24 months. 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 additional collaborative relationships, and the cost of
manufacturing scale-up.
During September 1992, the Company and certain of its officers and directors
were named as defendants in several lawsuits filed in the U.S. District Court
for the Southern District of California by certain shareholders. The actions
were consolidated into one class action lawsuit titled "In re Alliance
Pharmaceutical Securities Litigation." The complaint claimed, 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 portrayed
falsely the Company's financial condition. On May 25, 1995, summary judgment was
granted in favor of the Company and its officers and directors. Attorneys for
the plaintiffs have appealed the decision. A hearing on the appeal has not yet
been scheduled. The Company believes the eventual outcome of the litigation will
not have a material adverse effect on the Company's financial condition.
The Company's business is subject to significant risks that could cause the
Company's results to differ materially from those expressed in any
forward-looking statements made in this Prospectus. These risks include the
matters set forth above under this caption, under "Risk Factors," and elsewhere
herein.
17
<PAGE>
BUSINESS
OVERVIEW
Alliance is a pharmaceutical research and development company that focuses
on developing scientific discoveries into potential drug products and licensing
these products to multinational pharmaceutical companies in exchange for fixed
payments and royalties. To date, the Company has entered into agreements with
researchers for the rights to two innovative products, developed these products
through initial clinical (human) trials, and entered into collaborative
relationships with multinational pharmaceutical companies for the final stages
of development and worldwide marketing. These products are OXYGENT, an
intravascular oxygen carrier designed to reduce the need for donor blood
transfusions during surgery, which is currently in Phase IIb clinical trials and
is licensed to affiliates of Johnson & Johnson, and LIQUIVENT, an intrapulmonary
agent for use in treatment of acute respiratory failure, which is currently in a
pivotal Phase II/III clinical trial and is licensed to Hoechst Marion Roussel,
Inc., an affiliate of Hoechst AG. Alliance intends to enter into a collaborative
agreement for IMAGENT US, an ultrasound contrast agent with respect to which the
Company has just begun a Phase I clinical trial.
The Company's strategy is to identify potential new pharmaceutical products
through scientific collaborations with researchers and clinicians in
universities and medical centers where many of the basic causes of disease and
potential targets for new therapies are discovered. Using its experience in
defining pharmaceutical formulations, designing manufacturing processes,
conducting preclinical pharmacology and toxicology studies, and conducting
early-phase human testing, Alliance endeavors to advance such discoveries into
clinical development. The Company seeks collaborative relationships for the
final stages of drug development, including completing late-phase human testing,
obtaining worldwide regulatory approvals, building large-scale manufacturing
capacities, and marketing.
The Company's headquarters are located at 3040 Science Park Road, San Diego,
California 92121, and its telephone number is (619) 558-4300.
PRODUCTS IN CLINICAL DEVELOPMENT
Alliance's products currently in clinical development -- OXYGENT, LIQUIVENT,
and IMAGENT US -- are based upon PFC and emulsion technologies. PFCs are
biochemically inert compounds and may be employed in a variety of therapeutic
and diagnostic applications. The Company's primary drug substance is perflubron,
a brominated PFC that has a high solubility for respiratory gases and can be
used to transport these gases safely throughout the body.
OXYGENT. OXYGENT, an emulsion containing perflubron, is an intravascular
oxygen carrier to be used as a temporary "blood substitute" to provide oxygen to
tissues during elective surgeries where substantial blood loss is anticipated.
It is estimated that in excess of three million patients annually in the United
States may receive one or more units of blood during elective surgeries,
including, for example, cardiovascular, orthopedic, and general surgical
procedures. An oxygen carrier could be used instead of blood for a portion of
these patients. The OXYGENT dose for surgical applications is expected to
provide the equivalent oxygen delivery of at least two units of red blood cells.
OXYGENT has several potential advantages over the use of allogeneic (donor)
blood: there is no risk of infectious disease transmission; it is compatible
with all blood types; it has a shelf-life in excess of one year; and it can be
sterilized. According to the 1994 estimates of The National Institutes of
Health, the risks per unit of blood transfused in the United States are 1:2,500
for bacterial infections, 1:3,000 for hepatitis, 1:100,000 for fatal hemolytic
reactions, primarily due to clerical error, and 1:225,000 for HIV infection
(AIDS). To minimize the use of allogeneic blood and to avoid these risks,
certain techniques can be employed that allow use of the patient's own
(autologous) blood during surgery. These techniques include (i) predonation, in
which patients donate several units of their blood in the six weeks preceding
surgery, (ii) perioperative hemodilution, in which several units of the
patient's blood are removed just prior to surgery and are replaced with a plasma
expander, and (iii) salvage, wherein a device (cell saver) is used to collect
blood lost during the surgical procedure. OXYGENT can be used with any of these
autologous blood collection techniques to enhance safety, by reducing the need
for allogeneic blood. When a blood transfusion
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is indicated during surgery, one or more doses of OXYGENT would be used in place
of allogeneic blood to maintain an adequate level of oxygen delivery despite a
lower red blood cell concentration. This use of OXYGENT delays or reduces the
need for the transfusion of donor blood, thereby avoiding its associated risks.
In October 1995, the Company and Ortho commenced a Phase IIb randomized,
controlled, efficacy trial involving surgical patients at multiple sites in the
United States. A similar Phase IIb clinical study was commenced in Europe in
January 1996. In February 1996, the Company and Ortho commenced a Phase II study
in the United States in cardiopulmonary bypass patients.
In August 1994, the Company entered into the Ortho 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 is being developed jointly by Alliance and Ortho, with Ortho being
responsible for substantially all of the remaining costs of development and
marketing.
LIQUIVENT. LIQUIVENT, sterile perflubron, is an intrapulmonary agent for
treatment of 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. Each year, approximately 235,000
patients in the United States are placed on mechanical gas ventilators for at
least four days for treatment of lung dysfunction due to acute injuries. The
most urgent need for these patients is to improve their blood oxygenation.
However, the prolonged use of high ventilatory pressures or high continuous
concentrations of inspired oxygen can damage the patient's lungs. Some of these
patients may benefit from treatment with LIQUIVENT.
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 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 promote
the migration of mucus and alveolar debris to the central airways, where
suctioning is easier. 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
potentially to reduce patient recovery time. Published results from initial
clinical trials have indicated that LIQUIVENT improved lung oxygenation, without
clinically significant side effects. In addition, preclinical studies indicate
LIQUIVENT may mitigate inflammation, ventilator-induced trauma, and oxygen
toxicity.
In January 1996, the Company began a multi-center pivotal Phase II/III
clinical trial with LIQUIVENT in pediatric patients with acute respiratory
failure, and separate multi-center Phase II clinical trials in adults and
premature infants are underway. The FDA has granted Subpart E status (expedited
review) for the product.
In February 1996, the Company entered into the HMRI License Agreement, which
provides HMRI with worldwide marketing and manufacturing rights to the
intratracheal administration of liquids, including LIQUIVENT, which perform
bronchoalveolar lavage or liquid ventilation. The product will be developed
jointly by Alliance and HMRI, with HMRI responsible for substantially all of the
costs of development and marketing.
IMAGENT US. IMAGENT US is an ultrasound contrast agent being developed to
aid in the assessment of cardiac function and myocardial perfusion, as well as
the detection of solid organ lesions and blood flow abnormalities. More than 30
million scans of the heart, vasculature, and abdominal organs are performed
annually in the United States, some of which may potentially benefit from a
cost-effective contrast agent. To be successful in the marketplace, ultrasound
contrast agents should provide enhanced diagnostic images during several minutes
of scanning, be easy to use, be stable during transportation, and have a long
shelf-life. IMAGENT US is being developed to meet these requirements.
IMAGENT US is a powder comprising hollow microspheres containing a PFC-based
gaseous mixture and water-soluble components that are known to be acceptable for
parenteral use. Prior to use, IMAGENT US is
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reconstituted with sterile water to form microbubbles that are then injected
into the patient. The gas bubbles are highly echogenic and, when delivered
intravenously, reflect signals that enhance ultrasonic images. In preclinical
studies, IMAGENT US has been found to enhance the ultrasound signal from
perfused tissues and blood vessels using traditional gray-scale and color
Doppler technologies, as well as the emerging harmonic ultrasound imaging
technique. The Company filed an IND with the FDA in February 1996 and began a
Phase I clinical trial in the United States in March 1996.
OTHER PRODUCTS
Alliance is supporting internal research efforts to expand the applicability
of its core technologies. The Company has patented fluorinated surfactants that
are potentially useful in the preparation of therapeutic or diagnostic emulsions
and other formulations. Certain of these surfactants have been licensed to Glaxo
Group Limited ("Glaxo") to be used as a component of its metered dose inhaler
delivery system for respiratory drugs.
Alliance is investigating the use of PFC-containing reverse emulsions,
microemulsions, gels, foams, and other compositions as drug delivery agents.
These compositions are either aqueous or oil-based, and may be administered via
oral, intravenous, intrapulmonary, or topical routes to distribute antibiotics,
chemotherapy agents, gene therapies, or other medicaments systemically or to
selected areas of the body. Alliance is also conducting preclinical studies of a
PFC emulsion that could be beneficial for warm temperature preservation of
kidneys or other organs which may extend the time the organ is viable for
transplantation.
The Company has initiated a pilot clinical study in Europe to assess
OXYFLOW, an apparatus designed to be a combined cardiovascular and oxygenation
monitor that acquires data by minimally invasive means. This device is intended
to provide on-line information pertaining to oxygen status and other
physiological parameters, which could assist physicians in their decisions
regarding transfusions and other interventions.
The Company has certain agreements with research institutions to develop
discoveries that the Company believes may be the basis of new products.
Antigenized antibodies that could potentially stimulate or down-regulate
antibody production are being developed in conjunction with Mt. Sinai Medical
Center in New York City. A prototype vaccine for infectious disease and a
prototype tolerogen for an autoimmune disease are also under development with
Mt. Sinai. In addition, Alliance is working with researchers at Temple
University to develop an apoptotic factor for regulating the death of certain
cancer cells.
The Company has developed and is marketing SAT PAD, a re-usable MR imaging
accessory that improves the quality of images obtained by certain MR imaging
techniques. SAT PAD is distributed by dealers specializing in radiology
products. Sales of SAT PAD were approximately $176,000 for fiscal 1995. The
Company expects that the sales volume of SAT PAD will be limited and does not
anticipate significant revenue from the product.
The Company intends to consider other technologies that may be available for
licensing and research agreements with other institutions or inventors. Alliance
intends, where appropriate, to seek outside sources of funding. If new license
and research agreements are added and the Company is not able to obtain outside
sources of funding, the Company's research and development expenses are expected
to increase significantly.
There can be no assurance that any of these products will be successfully
commercialized.
COLLABORATIVE RELATIONSHIPS
HOECHST MARION ROUSSEL, INC. In February 1996, the Company entered into the
HMRI License Agreement, which provides HMRI with worldwide marketing rights to
the intratracheal administration of liquids, including LIQUIVENT, which perform
bronchoalveolar lavage or liquid ventilation. The product will be developed
jointly by Alliance and HMRI, with HMRI responsible for substantially all of the
cost of development and marketing after March 31, 1996. In conjunction with the
HMRI License Agreement, HMRI purchased 750,000 shares of the Company's Series B
Preferred Stock and 200,000 shares of its Series C Preferred Stock for an
aggregate of $22.0 million. In addition, HMRI paid Alliance an initial license
fee and will pay further license fees, milestones payments, and royalties on
product sales. HMRI also received a five-year warrant to acquire 300,000 shares
of Common Stock at $20.00 per share. The Series B Preferred Stock is convertible
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into shares of Common Stock upon the earliest of: (i) the Common Stock closing
at a price per share of at least $20.00 for twenty consecutive days; (ii)
termination of the HMRI License Agreement; or (iii) February 28, 2001. Each
share of Series B Preferred Stock will be converted into a number of shares of
Common Stock based upon the lower of the average closing price of the Common
Stock over the twenty trading days preceding the time of conversion or $20.00
per share. The Series C Preferred Stock converts automatically on June 30, 1997
into a number of shares of Common Stock obtained by dividing the average closing
price of the Common Stock over the twenty trading days preceding January 14,
1997 into $5.0 million. Prior to June 29, 1997, HMRI may, if the HMRI License
Agreement is terminated, redeem the Series C Preferred Stock for $15.0 million,
payable in cash or Common Stock at Alliance's election, any time on or before
the expiration of five years following the redemption date. Prior to conversion,
each share of Series B Preferred Stock is entitled to one vote on matters on
which shareholders are entitled to vote. The Series B Preferred Stock carries a
cumulative annual dividend of $1.00 per share. The Series C Preferred Stock does
not have dividend or voting rights.
ORTHO BIOTECH, INC. In August 1994, the Company entered into the Ortho
License Agreement for injectable PFC emulsions capable of transporting oxygen
for therapeutic use, including OXYGENT. Under the Ortho License Agreement, Ortho
paid to Alliance an initial fee of $4.0 million and will make other payments
upon the achievement of certain milestones. Ortho is responsible for
substantially all the remaining costs of developing and marketing the products
and will pay Alliance a royalty based upon sales of products after
commercialization. In conjunction with the Ortho License Agreement, J&JDC
purchased 1.5 million shares of Series A Preferred Stock for $15.0 million. On
or before June 30, 1998, each share of the Series A Preferred Stock will be
converted into shares of Common Stock based upon the lower of the average price
of Common Stock at the time of conversion or $20.00 per share. Prior to
conversion, each share of Series A Preferred Stock is entitled to one-half vote
on matters on which shareholders are entitled to vote. The Series A Preferred
Stock carries a cumulative annual cash dividend of $0.50 per share. Ortho also
obtained a three-year warrant to purchase 300,000 shares of Common Stock at
$15.00 per share.
The Company intends to enter into a collaborative relationship for IMAGENT
US, an ultrasound contrast agent with respect to which the Company has just
begun a Phase I clinical trial.
The Company entered into a license agreement with Glaxo for the use of
certain of the Company's fluorinated surfactants in metered dose inhalers that
deliver Glaxo's respiratory drug formulations. Glaxo is responsible for the
development and marketing of metered dose inhaler products incorporating the
Company's surfactants. 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, if any, to Alliance following commercialization.
There can be no assurances that the Company will be able to enter into
future collaborative relationships on acceptable terms. The termination of any
collaborative relationship or failure to enter into such relationships may limit
the ability of the Company to develop its technology and may have a material
adverse effect on the Company's business.
MARKETING
Under the terms of the Ortho License Agreement, Ortho has exclusive
worldwide marketing rights to OXYGENT and any other injectable PFC emulsion
products capable of transporting oxygen for therapeutic use. Under the terms of
the HMRI License Agreement, HMRI has exclusive worldwide marketing rights to the
intratracheal administration of liquids, including LIQUIVENT, which perform
bronchoalveolar lavage or liquid ventilation. The Company has not yet selected
its marketing partner for IMAGENT US. The Company's only commercialized product,
SAT PAD, is currently distributed through certain distributors of MR imaging
equipment and imaging products.
MANUFACTURING
The Company manufactures all of its products for preclinical testing and
clinical trials. OXYGENT is produced in Alliance's San Diego facility, which
includes both a pilot plant and a production-scale manufacturing facility. The
Company believes that this production facility will provide sufficient capacity
for future
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clinical trials and market launch of OXYGENT, if and when approved by the FDA.
However, a larger commercial-scale facility will be required in the future.
Under the terms of the Ortho 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 an NDA. If Alliance manufactures
OXYGENT for Ortho, the transfer price, which will not be less than Alliance's
fully burdened cost, will be determined by Ortho's net sales price for the
product. The Company has not selected a commercial-scale site or obtained any
regulatory approvals. Construction of such a facility will depend upon Ortho's
decision regarding manufacturing, product development, capital resources, and
regulatory approvals, among other things.
LIQUIVENT is manufactured for clinical trials at the Company's Otisville,
New York facility. LIQUIVENT is the same drug substance as IMAGENT GI, for which
Alliance obtained FDA approval in August 1993 as an oral contrast agent for MR
imaging. As a result, certain chemistry, manufacturing, and control requirements
have been accepted by the FDA, which may benefit the Company in the regulatory
review process. The HMRI License Agreement requires the Company to manufacture
LIQUIVENT at its Otisville facility for a period of time after market launch at
a negotiated price. HMRI will be responsible for establishing production
capacity beyond the maximum capacity of the Otisville facility.
IMAGENT US is manufactured for clinical studies at the San Diego facility,
using a proprietary process to form dry, PFC vapor-containing spheres which are
reconstituted with sterile water to form microbubbles just prior to use. The
facility is expected to provide sufficient capacity for clinical trials and
market launch.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company has obtained perflubron, the principal raw material utilized in
OXYGENT and LIQUIVENT, from several large chemical suppliers, and believes that
it has sufficient inventory of the drug substance for clinical trials. HMRI and
Ortho have indicated an intent to secure a long-term supply of perflubron from
manufacturers. The Company believes it has a sufficient supply of raw materials
for IMAGENT US for clinical trials. The Company's business could be materially
and adversely affected if it or its collaborative partners were unable to obtain
necessary raw materials on a timely basis and at a cost-effective price.
PATENTS
The Company seeks proprietary protection for its products, processes,
technologies, and ongoing improvements. The Company is pursuing patent
protection in the United States and in foreign countries that it regards as
important for future endeavors. Numerous patent applications have been filed in
the European Patent Office, Australia, Canada, Ireland, Israel, Japan, Norway,
and South Africa, and patents have been granted in some of these countries.
The Company has seven issued U.S. patents related to or covering PFC
emulsions. Such emulsions are the basis of the Company's OXYGENT products. The
issued patents and other pending patent applications cover specific details of
emulsified PFCs, and include product-by-process claims, method claims describing
their manufacture and use, 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 U.S. patent for its preferred method
of using blood substitutes to facilitate oxygen delivery. A related U.S. patent
was issued in September 1995. Corresponding patents are pending in Europe,
Japan, and other countries. The issued claims cover methods 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, animal, plant, or recombinant hemoglobin, in order to reduce or eliminate
the need for allogeneic blood transfusions during surgery.
The Company has filed U.S. and foreign patent applications on its method of
using oxygen-carrying PFCs to enhance respiratory gas exchange utilizing
conventional gas ventilators. In August 1995, a U.S. patent licensed to the
Company issued. The patent covers a method of administering liquids, including
LIQUIVENT, to patients. Another U.S. patent, covering other methods of
administration of liquids, including LIQUIVENT, to patients, was issued in
February 1996. The Company has patent applications pending which seek to cover
the use of PFCs to deliver drugs to the lungs and to wash debris from, and open,
collapsed
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lungs. In November 1995, the Company received a U.S. patent covering the use of
fluorochemicals to treat localized and systemic inflammation. The Company also
has patent applications pending that cover apparati for liquid ventilation using
PFCs.
The Company has filed eight U.S. patent applications related to IMAGENT US
concerning the composition, manufacture, and use of novel stabilized microbubble
compositions, which include applications based on its discovery that PFC gases,
in combination with appropriate surfactants, can stabilize microbubbles for use
in ultrasonic imaging. International applications directed to the same subject
matter have also been filed.
The Company has patents that have issued in the United States 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 fields of medicine, biomolecular engineering,
microelectronics, and electro-optics.
Aside from the issued patents and allowed applications referred to above,
however, no assurance can be given that any of these applications will result in
issued U.S. or foreign patents. Although patents are issued with a presumption
of validity and require a challenge with a high degree of proof to establish
invalidity, no assurance can be given that any issued patents would survive such
a challenge and would be valid and enforceable.
The Company also attempts to protect its proprietary products, processes,
and other information by relying on trade secret laws and non-disclosure and
confidentiality agreements with its employees, consultants, and certain other
persons who have access to such products, processes, and information. The
agreements affirm that all inventions conceived by employees are the exclusive
property of the Company, with the exception of inventions unrelated to the
Company's business and developed entirely on the employee's own time.
Nevertheless, there can be no assurance that these agreements will afford
significant protection against or adequate compensation for misappropriation or
unauthorized disclosure of the Company's trade secrets.
COMPETITION
Biotechnology and pharmaceutical companies 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 that 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. In addition, other technologies or products may be
developed that have an entirely different approach or means of accomplishing the
intended purposes of the Company's products, which might render the Company's
technology and products uncompetitive or obsolete. There can be no assurance
that the Company will be able to compete successfully.
Well-publicized side effects associated with the transfusion of human 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 chemically modified,
stroma-free 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, three of which
have entered Phase II clinical trials. One major U.S. pharmaceutical company is
collaborating with a company developing a recombinant hemoglobin-based blood
substitute. Alliance is aware of two other companies developing PFC-based
temporary oxygen carriers, one of which has entered Phase I clinical trials. The
Company believes that the relatively low cost and ease of production of OXYGENT
provide advantages over hemoglobin-based products.
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Although liquid ventilation therapy has been in the research phase for the
last two decades, the Company is unaware of any potential competitor that has
reached the clinical trial stage. However, other companies may be evaluating
compounds with the possibility of entering this field. If major manufacturers of
PFCs entered the field, the Company could face competition from companies with
substantially greater resources. The Company believes that its patent position
and stage of research and development give it an advantage over these potential
competitors. Alliance is aware of other companies that are attempting to develop
alternative types of therapies for treatment of acute respiratory failure.
Competition in the development of ultrasound imaging contrast agents is
intense and is expected to increase. There is currently only one commercially
available ultrasound imaging contrast agent for certain cardiology applications.
The Company believes that other companies are in advanced clinical trials with
ultrasound contrast agents. The Company expects that competition in the
ultrasound contrast imaging agent field will be based primarily on the product's
safety profile, efficacy, stability, ease of administration, breadth of approved
indications, and physician, healthcare payor, and patient acceptance. Although
the Company believes that if and when IMAGENT US is approved for commercial sale
it will be well positioned to compete successfully, there can be no assurance
that the Company will be able to do so.
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.
Generally, all potential pharmaceutical products must successfully complete
two major stages of development (preclinical and clinical testing) prior to
receiving marketing approval by the governing regulatory agency. 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.
Clinical trials are typically conducted in three sequential phases, although
the phases may overlap. In Phase I, which frequently begins with the initial
introduction of the drug into healthy human subjects prior to introduction into
patients, the compound will be tested for safety and dosage tolerance. Phase II
typically involves studies in a somewhat larger patient population to identify
possible adverse effects and safety risks, to begin gathering preliminary
efficacy data, and to investigate potential dose sizes and schedules. Phase III
trials are undertaken to further evaluate clinical efficacy and to further test
for safety within an expanded patient population. Each trial is conducted in
accordance with certain standards under protocols that detail the objectives of
the study, the parameters to be used to monitor safety, and the efficacy
criteria to be evaluated. Each protocol must be submitted to the FDA as part of
the IND. Further, each clinical study must be evaluated by an independent review
board at the institution at which the study will be conducted. The review board
will consider, among other things, ethical factors, the safety of human
subjects, and the possible liability of the institution.
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
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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. See "Business -- Manufacturing."
However, all materials contained in the Company's products remain 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 U.S. 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
During September 1992, the Company and certain of its officers and directors
were named as defendants in several lawsuits filed in the U.S. District Court
for the Southern District of California by certain shareholders. The actions
were consolidated into one class action lawsuit titled "In re Alliance
Pharmaceutical Securities Litigation." The complaint claimed, 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 portrayed
falsely the Company's financial condition. On May 25, 1995, summary judgment was
granted in favor of the Company and its officers and directors. Attorneys for
the plaintiffs have appealed the decision. A hearing on the appeal has not yet
been scheduled. 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 POSITION
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Duane J. Roth Chairman of the Board of Directors, President, Chief
Executive Officer
Harold W. DeLong Executive Vice President -- Business Development
Theodore D. Roth Executive Vice President, Chief Financial Officer,
Secretary
B. Jack DeFranco Vice President -- Market Planning
N. Simon Faithfull, M.D., Ph.D. Vice President -- Medical Research
Henry A. Graham, Ph.D. Vice President -- Operations
Ronald M. Hopkins, Ph.D. Vice President -- Research and Development
Gordon L. Schooley, Ph.D. Vice President -- Clinical Research and Regulatory
Affairs
Elias Lazarides, Ph.D. President and Chief Operating Officer of Astral, Inc.
Carroll O. Johnson Director
Stephen M. McGrath Director
Donald E. O'Neill Director
Helen M. Ranney, M.D. Director
Jean G. Riess, Ph.D. Director
Thomas F. Zuck, M.D. Director
</TABLE>
DUANE J. ROTH. Mr. Roth, who is 46, 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, who is 47, has been Executive Vice President
- -- Business Development for the Company since February 1989. Mr. DeLong has been
employed for more than 20 years in the medical diagnostics and pharmaceutical
industry in various sales, marketing, and management positions. Prior to joining
Alliance, Mr. DeLong was Vice President, Sales and Marketing for Murex
Corporation, a company participating in the infectious disease diagnostics
market. He previously served as Director, Sales and Marketing for Becton
Dickinson's Immunocytometry Systems division. Mr. DeLong was also previously
employed by Ortho Diagnostic Systems, Inc., for over ten years, where his last
position was Director of the Hemostasis and Chemistry Products business units.
THEODORE D. ROTH. Mr. Roth, who is 45, 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.
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B. JACK DEFRANCO. Mr. DeFranco, who is 50, has been Vice President --
Market Planning for Alliance since January 1991. He has more than 20 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. 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, who is 55, 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. He has also served as Senior
Lecturer in Anesthesia at the University of Manchester (UK), and has 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. 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, who is 52, has been Vice President --
Operations since January 1990. In his more than 20 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 Ortho Diagnostic
Systems, Inc. for at least five years prior to 1990. 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, who is 54, has been Vice President --
Research and Development since May 1990. Prior to joining Alliance, Dr. Hopkins
spent 20 years with Mallinckrodt Medical, Inc. As Vice President at Mallinckrodt
his responsibilities 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 and
business development experience, Dr. Hopkins has an extensive background 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, who is 49, has been Vice President
- -- Clinical Research and Regulatory Affairs since January 1989. Dr. Schooley has
been employed for over 20 years in research and development in the
pharmaceutical industry. Prior to joining Alliance in 1989, Dr. Schooley was
Vice President of Clinical Research and Regulatory Affairs for Newport
Pharmaceuticals, a company developing antiviral drugs. For the previous eight
years, he was Director of Clinical Research and Biostatistics for Allergan
Pharmaceuticals, a division of SmithKline Beecham, developing ophthalmologic and
dermatologic drugs and devices. He was also employed by McGaw Laboratories as
Manager of Biostatistics for parenteral products and by The Upjohn Company as a
senior biostatistician for analgesic and CNS drugs. Dr. Schooley received a
Ph.D. from the University of Michigan School of Public Health.
ELIAS LAZARIDES, PH.D. President & COO, Astral, Inc. ("Astral"). Dr.
Lazarides, who is 46, 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.
27
<PAGE>
CARROLL O. JOHNSON. Mr. Johnson is 62 and 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, 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 is 60 and has served as a director of the
Company since 1989. He is an Executive Vice President of Oppenheimer & Co., Inc.
and serves as the Director of its Corporate Finance Department. For the eleven
years prior to his employment by Oppenheimer & Co., Inc. in 1983, he held
various executive positions with Warner-Lambert 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.
He is a director of PetroCorp, Inc.
DONALD E. O'NEILL. Mr. O'Neill is 70 and 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., Immunogen,
Inc., Fuisz Technologies Ltd. and Cytogen Corp.
HELEN M. RANNEY, M.D. Dr. Ranney is 75 and 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 is 59 and has served as a director of
the Company since 1989. He has been the Director of Laboratoire 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 more than 20 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, in the physical chemistry of emulsion stabilization and in
surfactant self-aggregation. 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 is 62 and 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 and is
President of Ohio Enterprises International, Inc., a consulting company. Dr.
Zuck was formerly director of the Division of Blood and Blood Products at the
Office of Biologics Research & Review within the U.S. Food and Drug
Administration. He has served in numerous scientific professional societies,
including as President of the American Association of Blood Banks and the
Council of Community Blood Centers. He was Editor-in-Chief of the journal
TRANSFUSION and has more than 100 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.
28
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement between
the Company and Lehman Brothers Inc., Cowen & Company and Oppenheimer & Co.,
Inc., as the Representatives, the Underwriters named below have severally agreed
to purchase from the Company, and the Company has agreed to sell to the
Underwriters, the respective numbers of shares of Common Stock set forth
opposite their names:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
----------
<S> <C>
Lehman Brothers Inc........................................................................ 487,000
Cowen & Company............................................................................ 486,500
Oppenheimer & Co., Inc..................................................................... 486,500
Alex. Brown & Sons Incorporated............................................................ 90,000
Everen Securities, Inc..................................................................... 90,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated......................................... 90,000
Montgomery Securities...................................................................... 90,000
Robertson, Stephens & Company LLC.......................................................... 90,000
UBS Securities LLC......................................................................... 90,000
Brean Murray, Foster Securities Inc........................................................ 50,000
Crowell, Weedon & Co....................................................................... 50,000
Cruttenden & Co., Inc...................................................................... 50,000
Hanifen, Imhoff Inc........................................................................ 50,000
Josephthal Lyon & Ross Incorporated........................................................ 50,000
Ladenburg, Lyon & Ross, Inc................................................................ 50,000
Monness, Crespi, Hardt & Co., Inc.......................................................... 50,000
Needham & Company, Inc..................................................................... 50,000
Raymond James & Associates, Inc............................................................ 50,000
Vector Securities International, Inc....................................................... 50,000
----------
Total.................................................................................. 2,500,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase and pay for all of the
above shares of Common Stock if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus, and at such price less a concession not in excess of $0.55 per share
of Common Stock to certain dealers who are members of the National Association
of Securities Dealers, Inc. The Underwriters may allow, and such dealers may
re-allow, discounts not in excess of $0.10 per share of Common Stock to certain
other dealers. After this offering to the public, the offering price and selling
terms may be changed by the Representatives.
The Underwriters have been granted a 30-day over-allotment option to
purchase up to an aggregate of 375,000 additional shares of Common Stock,
exercisable at the public offering price less the underwriting discount. If the
Underwriters exercise such over-allotment option, then each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage thereof as the number of shares of Common
Stock to be purchased by it as shown in the above table bears to the 2,500,000
shares of Common Stock offered hereby. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of the shares of
Common Stock offered hereby.
Certain of the Underwriters and selling group members (if any) that
currently act as market makers for the Common Stock may engage in "passive
market making" in the Common Stock on Nasdaq in accordance with Rule 10b-6A
under the Exchange Act. Rule 10b-6A permits, upon the satisfaction of certain
conditions, underwriters and selling group members participating in a
distribution that are also Nasdaq market makers
29
<PAGE>
in the security being distributed to engage in limited market making
transactions during the period when Rule 10b-6 under the Exchange Act would
otherwise prohibit such activity. Rule 10b-6A prohibits underwriters and selling
group members engaged in passive market making generally from entering a bid or
effecting a purchase at a price that exceeds the highest bid for those
securities reported on Nasdaq by a market maker that is not participating in the
distribution. Under Rule 10b-6A, each underwriter or selling group member
engaged in passive market making is subject to a daily net purchase limitation
equal to 30% of such entity's average daily trading volume during the two full
consecutive calendar months immediately preceding the date of the filing of the
registration statement under the Securities Act pertaining to the security to be
distributed.
The foregoing shall not prohibit any participants in the distribution from
making any purchases of securities otherwise permitted by Rule 10b-6 under the
Exchange Act. Such exemptive relief also requires that such firms not engage in
transactions for the purpose of creating actual or apparent active trading.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act, and to
contribute in respect thereof.
Stephen M. McGrath, a Director of the Company, is an Executive Vice
President of Oppenheimer & Co., Inc. and serves as Director of its Corporate
Finance Department. Oppenheimer & Co., Inc. is currently assisting the Company
in its search for a strategic partner to develop and market IMAGENT US on a
worldwide basis. Oppenheimer & Co., Inc. and certain related parties currently
hold warrants to acquire approximately 174,000 shares of Common Stock. See
"Business -- Marketing."
Lehman Brothers Inc. assisted the Company in obtaining the License
Agreements and has earned fees payable by the Company in connection with such
transactions.
The Company and certain of its officers and directors 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 exchangeable or
exercisable for, or any rights to purchase or acquire, Common Stock for a period
of 90 days after the date of this Prospectus, without the prior written consent
of Lehman Brothers Inc.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Stroock & Stroock & Lavan and for the
Underwriters by Shearman & Sterling. The information under "Risk Factors" and
"Business -- Patents" with respect to patents and patent laws has been passed
upon by Knobbe, Martens, Olson & Bear.
EXPERTS
The consolidated financial statements of Alliance Pharmaceutical Corp. at
June 30, 1994 and 1995, and for each of the two years in the period ended June
30, 1995, appearing in this Prospectus and Registration Statement and appearing
in the Company's Annual Report (Form 10-K) for the year ending June 30, 1995,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein and incorporated herein by
reference. Such consolidated financial statements 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. for
the year ended June 30, 1993, 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, 1995, 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.
30
<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, 1994 and 1995 and December 31, 1995 (unaudited).................... F-4
Consolidated Statements of Operations for each of the three years in the period ended June 30, 1995 and for
the six months ended December 31, 1994 and 1995 (unaudited)............................................... F-5
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended June 30,
1995 and the six months ended December 31, 1995 (unaudited)............................................... F-6
Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 1995 and the
six months ended December 31, 1994 and 1995 (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 sheets of Alliance
Pharmaceutical Corp. and subsidiaries as of June 30, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two years in the period ended June 30, 1995. 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. The consolidated financial statements of Alliance Pharmaceutical
Corp. and subsidiaries for the year ended June 30, 1993, were audited by other
auditors whose report, dated July 27, 1993, expressed an unqualified opinion on
those statements.
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
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 audits provide a
reasonable basis for our opinion.
In our opinion, the 1995 and 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, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended June 30, 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
July 26, 1995
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Alliance Pharmaceutical Corp.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Alliance Pharmaceutical Corp. and
Subsidiaries (the "Company") for the year 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 audit.
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
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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of the Company's operations and its cash
flows for the year 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
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------
1994 1995
--------------- --------------- DECEMBER 31,
1995
---------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 1,902,000 $ 12,519,000 $ 4,763,000
Short-term investments (Note 3)............................ 19,154,000 10,964,000 7,959,000
Research revenue receivable (Note 5)....................... -- 2,060,000 2,020,000
Inventories and other current assets (Note 2).............. 1,349,000 1,913,000 1,778,000
--------------- --------------- ---------------
Total current assets..................................... 22,405,000 27,456,000 16,520,000
Property, plant and equipment -- net (Note 2)................ 10,165,000 9,946,000 10,542,000
Purchased technology -- net (Note 1)......................... 19,385,000 17,371,000 16,725,000
Other assets -- net.......................................... 1,177,000 1,257,000 1,105,000
--------------- --------------- ---------------
$ 53,132,000 $ 56,030,000 $ 44,892,000
--------------- --------------- ---------------
--------------- --------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 1,074,000 $ 2,509,000 $ 1,821,000
Accrued expenses (Note 2).................................. 1,885,000 2,601,000 2,873,000
Current portion of long-term debt.......................... -- -- 682,000
--------------- --------------- ---------------
Total current liabilities................................ 2,959,000 5,110,000 5,376,000
Long-term debt (Note 7)...................................... -- -- 1,314,000
Other........................................................ 348,000 843,000 1,199,000
Commitments and contingencies (Note 7)
Stockholders' equity (Notes 4 and 5):
Preferred stock -- $.01 par value; 5,000,000 shares
authorized; 1,500,000 issued and outstanding at June 30,
1995 and December 31, 1995, respectively.................. -- 15,000 15,000
Common stock -- $.01 par value; 50,000,000 shares
authorized; 21,372,054, 24,759,150 and 24,916,691 shares
issued and outstanding at June 30, 1994 and 1995 and
December 31, 1995, respectively........................... 214,000 248,000 249,000
Additional paid-in capital................................. 208,954,000 238,874,000 240,505,000
Accumulated deficit........................................ (159,343,000) (189,060,000) (203,766,000)
--------------- --------------- ---------------
Total stockholders' equity............................... 49,825,000 50,077,000 37,003,000
--------------- --------------- ---------------
$ 53,132,000 $ 56,030,000 $ 44,892,000
--------------- --------------- ---------------
--------------- --------------- ---------------
</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,
---------------------------------------------- ------------------------------
1993 1994 1995 1994 1995
-------------- -------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License and research revenue (Note
5)................................ $ 2,320,000 $ 163,000 $ 11,640,000 $ 7,100,000 $ 4,110,000
Product revenue -- net............. 50,000 246,000 176,000 109,000 76,000
-------------- -------------- -------------- -------------- --------------
2,370,000 409,000 11,816,000 7,209,000 4,186,000
Operating expenses:
Research and development........... 24,767,000 31,605,000 35,063,000 19,129,000 15,562,000
General and administrative......... 6,405,000 7,312,000 7,085,000 3,804,000 3,385,000
-------------- -------------- -------------- -------------- --------------
31,172,000 38,917,000 42,148,000 22,933,000 18,947,000
-------------- -------------- -------------- -------------- --------------
Loss from operations................. (28,802,000) (38,508,000) (30,332,000) (15,724,000) (14,761,000)
Investment and other income -- net... 2,422,000 1,562,000 1,209,000 575,000 430,000
-------------- -------------- -------------- -------------- --------------
Net loss............................. (26,380,000) (36,946,000) (29,123,000) (15,149,000) (14,331,000)
Dividends on preferred stock......... -- -- (594,000) (219,000) (375,000)
-------------- -------------- -------------- -------------- --------------
Net loss applicable to common
shares.............................. $ (26,380,000) $ (36,946,000) $ (29,717,000) $ (15,368,000) $ (14,706,000)
-------------- -------------- -------------- -------------- --------------
Net loss per common share............ $ (1.39) $ (1.83) $ (1.35) $ (0.72) $ (0.59)
-------------- -------------- -------------- -------------- --------------
Weighted average number of common
shares outstanding.................. 18,946,000 20,226,000 21,959,000 21,385,000 24,851,000
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL
CONVERTIBLE ARISING FROM
PREFERRED STOCK COMMON STOCK ADDITIONAL ACQUISITION
---------------------- -------------------- PAID-IN OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL SUBSIDIARY DEFICIT
--------- ----------- --------- --------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1992................ 18,817,000 $ 188,000 $188,838,000 $ 1,544,000 $(96,017,000)
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................ 19,000,000 190,000 190,551,000 800,000 (122,397,000)
Sale of common stock..................... 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)
Sale of convertible preferred stock...... 1,500,000 $ 15,000 14,618,000
Sale of common stock..................... 3,175,000 32,000 14,262,000
Exercise of stock options and warrants... 56,000 1,000 36,000
Installment payment related to
acquisition of BioPulmonics, Inc........ 131,000 1,000 999,000
Issuance of stock in satisfaction of
employer matching contribution to 401(k)
savings plan............................ 25,000 150,000
Net unrealized loss on available-for-sale
securities.............................. (145,000)
Dividends on preferred stock............. (594,000)
Net loss................................. (29,123,000)
--------- ----------- --------- --------- ----------- ------------- ------------
Balances at June 30, 1995................ 1,500,000 15,000 24,759,000 248,000 238,874,000 (189,060,000)
Exercise of stock options and warrants
(unaudited)............................. 108,000 1,000 843,000
Issuance of stock in connection with
purchased technology (unaudited)........ 50,000 750,000
Net unrealized gain on available-for-sale
securities (unaudited).................. 38,000
Dividends on preferred stock
(unaudited)............................. (375,000)
Net loss (unaudited)..................... (14,331,000)
--------- ----------- --------- --------- ----------- ------------- ------------
Balances at December 31, 1995
(unaudited)............................. 1,500,000 $ 15,000 24,917,000 $ 249,000 $240,505,000 $(203,766,000)
--------- ----------- --------- --------- ----------- ------------- ------------
--------- ----------- --------- --------- ----------- ------------- ------------
</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,
------------------------------------- ------------------------
1993 1994 1995 1994 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss.................................... $(26,380,000) $(36,946,000) $(29,123,000) $(15,149,000) $(14,331,000)
----------- ----------- ----------- ----------- -----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 2,633,000 3,073,000 2,859,000 1,458,000 1,520,000
Non-cash compensation -- net.............. 388,000 215,000 150,000 163,000
Acquired research and development......... 1,686,000 1,686,000 757,000
Changes in operating assets and
liabilities:
Research revenue receivable............. (3,100,000) 40,000
Inventories and other................... (1,628,000) 1,331,000 (2,728,000) (281,000) 172,000
Accounts payable and accrued expenses
and other.............................. 330,000 285,000 1,459,000 722,000 (434,000)
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities......... (24,657,000) (32,042,000) (25,697,000) (14,664,000) (12,113,000)
----------- ----------- ----------- ----------- -----------
Financing activities:
Issuance of common and preferred stock and
warrants................................... 450,000 15,450,000 29,557,000 14,859,000 675,000
Proceeds from long-term debt................ 2,208,000
Payments on long-term debt.................. (149,000) (3,000) (212,000)
Restricted cash............................. 17,000
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities..... 318,000 15,447,000 29,557,000 14,859,000 2,671,000
----------- ----------- ----------- ----------- -----------
Investing activities:
Short-term investments...................... 16,727,000 15,072,000 8,045,000 4,300,000 3,042,000
Property, plant and equipment (2,539,000) (1,891,000) (1,288,000) (451,000) (1,356,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by investing activities..... 14,188,000 13,181,000 6,757,000 3,849,000 1,686,000
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents.................................. (10,151,000) (3,414,000) 10,617,000 4,044,000 (7,756,000)
Cash and cash equivalents at beginning of
period....................................... 15,467,000 5,316,000 1,902,000 1,902,000 12,519,000
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period.... $ 5,316,000 $ 1,902,000 $12,519,000 $ 5,946,000 $ 4,763,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental disclosure of non-cash investing
and financing activities:
Preferred stock dividend.................... $ 594,000 $ 219,000 $ 375,000
Common stock issued for BioPulmonics, Inc.
installment payment........................ $ 877,000 $ 922,000 $ 1,000,000
Issuance of warrants in connection with
acquisition of product rights.............. $ 1,840,000
</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, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Alliance Pharmaceutical Corp. ("Alliance") and its subsidiaries
(collectively, the "Company") are engaged in identifying, designing, and
developing novel medical and pharmaceutical products.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Alliance, its
wholly owned subsidiaries, BioPulmonics, Inc. ("BioPulmonics") and Rosanin
Corporation, and its majority-owned subsidiaries, Astral, Inc., Talco
Pharmaceutical, Inc., and Applications et Transferts de Technologies Avancees.
All significant intercompany accounts and transactions have been eliminated.
Certain amounts in 1993, 1994, and 1995 have been reclassified to conform to the
current period's presentation.
CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
Effective July 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 ("FAS No. 115"), ACCOUNTING FOR CERTAIN INVESTMENTS
IN DEBT AND EQUITY SECURITIES. Cash, cash equivalents, and short-term
investments consist of highly liquid debt instruments. The Company considers
instruments purchased with an original maturity of three months or less to be
cash equivalents. Management has classified the Company's cash equivalents and
short-term investments as available-for-sale securities in the accompanying
financial statements. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported as a component of
stockholders' equity.
INVENTORIES
Inventories, which consist primarily of raw materials, are stated at the
lower of cost (first-in, first-out basis) or market.
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 to maintain safety and liquidity. These
guidelines are reviewed periodically and modified to take advantage of trends in
yields and interest rates. The Company has not experienced any material losses
on 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.
Technology and patent rights are amortized using the straight-line method over 5
to 20 years.
PURCHASED TECHNOLOGY
The purchased technology was primarily 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 it 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-TM-
(temporary blood substitute) and LIQUIVENT-REGISTERED TRADEMARK- (intrapulmonary
oxygen carrier) products. Purchased technology also includes $2.0 million for
technology capitalized as a result of the acquisition of BioPulmonics in
December 1991. Since the acquisition, an alternative future use
F-8
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of the acquired technology has been pursued by the Company. An intrapulmonary
drug delivery system using the PFC-based liquid as a carrier (or dispersing
agent) is being developed by Alliance from the liquid ventilation technology.
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 $6,193,000, $7,355,000, and $7,936,000 at June 30, 1994 and
1995 and December 31, 1995, respectively. The technology acquired from
BioPulmonics is being amortized over five to seven years, and accumulated
amortization was $357,000, $500,000, and $671,000 at June 30, 1994 and 1995 and
December 31, 1995, 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.
OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenditures are charged to expense as incurred.
NET LOSS PER COMMON SHARE
Net loss per common share is based on the weighted average number of common
shares outstanding during the respective periods and does not include common
stock equivalents since their effect on the net loss per common share would be
anti-dilutive.
2. FINANCIAL STATEMENT DETAILS
PROPERTY, PLANT, AND EQUIPMENT -- NET
Property, plant, and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------- DECEMBER 31,
1994 1995 1995
------------- ------------- -------------
<S> <C> <C> <C>
Land...................................................... $ 225,000 $ 225,000 $ 225,000
Buildings................................................. 300,000 300,000 300,000
Building improvements..................................... 1,561,000 1,574,000 1,574,000
Furniture, fixtures, and equipment........................ 9,467,000 10,419,000 10,741,000
Leasehold improvements 3,356,000 3,678,000 4,713,000
------------- ------------- -------------
14,909,000 16,196,000 17,553,000
Less accumulated depreciation and amortization............ (4,744,000) (6,250,000) (7,011,000)
------------- ------------- -------------
$ 10,165,000 $ 9,946,000 $ 10,542,000
------------- ------------- -------------
</TABLE>
F-9
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
2. FINANCIAL STATEMENT DETAILS (CONTINUED)
INVENTORIES AND OTHER CURRENT ASSETS
Inventories and other current assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------- DECEMBER 31,
1994 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Inventories.................................................. $ 384,000 $ 1,323,000 $1,289,000
Loan receivable.............................................. 197,000 127,000 247,000
Interest receivable.......................................... 362,000 231,000 187,000
Deferred financing costs..................................... 126,000 -- --
Other........................................................ 280,000 232,000 55,000
------------ ------------ ------------
$ 1,349,000 $ 1,913,000 $1,778,000
------------ ------------ ------------
</TABLE>
Inventories include amounts related to certain raw materials reimbursable
under a license agreement.
ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------- DECEMBER 31,
1994 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Payroll and related expenses................................. $ 1,398,000 $ 1,736,000 $2,135,000
Rent and related operating expenses.......................... 323,000 206,000 206,000
Other........................................................ 164,000 659,000 532,000
------------ ------------ ------------
$ 1,885,000 $ 2,601,000 $2,873,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
3. INVESTMENTS
The following is a summary of available-for-sale securities at June 30,
1995:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
U.S. Government Securities...................... $ 5,049,000 $ 1,000 $ (108,000) $ 4,942,000
Corporate Securities............................ 8,029,000 6,000 (44,000) 7,991,000
------------- ----------- ----------- -------------
$ 13,078,000 $ 7,000 $ (152,000) $ 12,933,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
The gross realized losses on sales of available-for-sale securities totaled
$104,000 in 1995. The net unrealized losses of $145,000 in 1995 are recorded as
a component of additional paid-in capital. The unrealized losses had no cash
effect and therefore are not reflected in the consolidated statement of cash
flows.
F-10
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of available-for-sale debt
securities at June 30, 1995, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because the issuers of the
securities may have the right to prepay obligations.
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
------------- -------------
<S> <C> <C>
Due in one year or less.................................................. $ 7,565,000 $ 7,539,000
Due in one year through three years...................................... 5,513,000 5,394,000
------------- -------------
$ 13,078,000 $ 12,933,000
------------- -------------
------------- -------------
</TABLE>
As of June 30, 1995, $1,969,000 of the available-for-sale securities were
classified as cash equivalents.
The following is a summary of available-for-sale securities at December 31,
1995:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
U.S. Government Securities...................... $ 5,592,000 $ 2,000 $ (77,000) $ 5,517,000
Corporate Securities............................ 5,386,000 (32,000) 5,354,000
------------- ----------- ----------- -------------
$ 10,978,000 $ 2,000 $ (109,000) $ 10,871,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
There were no realized losses on sales of available-for-sale securities for
the six months ended December 31, 1995. The net unrealized losses of $107,000 at
December 31, 1995 are recorded as a component of additional paid-in capital. The
unrealized losses had no cash effect and therefore are not reflected in the
consolidated statement of cash flows.
The amortized cost and estimated fair value of available-for-sale debt
securities at December 31, 1995, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because the issuers
of the securities may have the right to prepay obligations.
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
------------- -------------
<S> <C> <C>
Due in one year or less.................................................. $ 6,099,000 $ 6,088,000
Due in one year through three years...................................... 4,879,000 4,783,000
------------- -------------
$ 10,978,000 $ 10,871,000
------------- -------------
------------- -------------
</TABLE>
As of December 31, 1995, $2,912,000 of the available-for-sale securities
were classified as cash equivalents.
4. STOCKHOLDERS' EQUITY
In April 1995, the Company completed offerings of 3.2 million shares of
newly issued common stock. Net proceeds to the Company from such offerings were
approximately $14.3 million.
STOCK OPTION PLANS
The Company has a 1983 Incentive Stock Option Plan (the "1983 Plan"), a 1983
Non-Qualified Stock Option Program (the "1983 Program"), and a 1991 Stock Option
Plan which provides for both incentive and non-qualified stock options (the
"1991 Plan"). These plans provide for the granting of options to purchase shares
of the Company's common stock (up to an aggregate of 500,000, 2,500,000, and
3,200,000 shares
F-11
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
4. STOCKHOLDERS' EQUITY (CONTINUED)
under the 1983 Plan, 1983 Program, and 1991 Plan, as amended and approved in
November 1995, respectively) to directors, officers, employees, and consultants.
The optionees, date of grant, option price (which cannot be less than 100% and
80% of the fair market value of the common stock on the date of grant for
incentive stock options and non-qualified stock options, respectively), vesting
schedule, and term of options, which cannot exceed ten years (five years under
the 1983 Plan), are determined by the Stock Option Committee of the Board of
Directors. The 1983 Plan has expired and no additional options may be granted
under such plan.
The following table summarizes stock option activity through December 31,
1995:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE PRICE
---------- -------------
<S> <C> <C>
Balance at June 30, 1992..................................................... 1,548,974 $ 9.87
Granted.................................................................... 408,210 $ 12.04
Exercised.................................................................. (102,941) $ 5.50
Terminated/Expired......................................................... (44,340) $ 22.77
----------
Balance at June 30, 1993..................................................... 1,809,903 $ 10.43
Granted.................................................................... 564,550 $ 9.42
Exercised.................................................................. (74,666) $ 2.81
Terminated/Expired......................................................... (51,215) $ 11.57
----------
Balance at June 30, 1994..................................................... 2,248,572 $ 10.42
Granted.................................................................... 967,050 $ 5.50
Exercised.................................................................. (56,103) $ 3.98
Terminated/Expired......................................................... (115,531) $ 11.14
----------
Balance at June 30, 1995..................................................... 3,043,988 $ 9.02
Granted.................................................................... 161,900 $ 10.94
Exercised.................................................................. (132,220) $ 6.38
Terminated/Expired......................................................... (75,452) $ 13.99
----------
Balance at December 31, 1995................................................. 2,998,216 $ 9.12
----------
Available for future grant under the 1983 Program............................ 26,260
----------
Available for future grant under the 1991 Plan............................... 1,156,125
----------
</TABLE>
As of December 31, 1995, the Company had recorded as a liability dividends
payable totalling $969,000 on the Series A Preferred Stock.
At June 30, 1995, 1,773,902 options were vested and exercisable.
At December 31, 1995, 1,781,460 options were vested and exercisable.
WARRANTS
In December 1993, the Company issued a warrant to purchase 500,000 shares of
the Company's common stock through December 2000 at $12 per share. The warrant
was issued to a former corporate partner in exchange for certain marketing and
manufacturing rights which were re-acquired by the Company. In August 1994, the
Company issued a warrant to purchase 300,000 shares of common stock through
August 1997 at an exercise price of $15 per share. The warrant was issued in
conjunction with the license agreement discussed in Note 5. In July 1995, the
Company issued a warrant to purchase 100,000 shares of
F-12
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
4. STOCKHOLDERS' EQUITY (CONTINUED)
common stock through June 2000 at an exercise price of $10.00 per share. The
warrant was issued in exchange for certain patents, patent rights, and related
documents. At December 31, 1995, the Company had warrants outstanding to
purchase 1,082,289 shares of common stock at prices ranging from $6.95 to $15.96
per share. The warrants expire on various dates from August 1997 through
December 2000.
PREFERRED STOCK
In fiscal 1995, in conjunction with a license agreement (see Note 5),
Johnson & Johnson Development Corp. purchased 1.5 million shares of Alliance
convertible preferred stock for $15.0 million. On or before 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 cash dividend of $0.50
per share. As of December 31, 1995, the Company had recorded as a liability
dividends payable totalling $969,000 on the Series A Preferred Stock.
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.
In June 1995, the Company made the final $1,000,000 payment to the former
BioPulmonics' stockholders to complete the acquisition, substantially all of
which was made in the Company's common stock. Since the acquisition of
BioPulmonics, an alternative future use of the acquired technology has been
pursued by the Company. An intrapulmonary drug delivery system using the
PFC-based liquid as a carrier (or dispersing agent) is being developed by
Alliance from the liquid ventilation technology. Accordingly, the Company has
capitalized purchased technology of $1,000,000.
5. LICENSE AGREEMENT
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 emulsions capable of transporting oxygen
for therapeutic use. Ortho will pay to Alliance a royalty based upon its sales
of the products after commercialization. In addition, Ortho paid to Alliance an
initial license fee of $4.0 million and will make other payments based on the
achievement of certain milestones. Ortho will also be responsible for
substantially all the remaining costs of developing the products. Through
December 31, 1995, the Company earned research revenue of $11.1 million from
Ortho, of which $2.0 million was included in accounts receivable. In conjunction
with the license agreement, Johnson & Johnson Development Corp. 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.
F-13
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
6. INCOME TAXES
Significant components of the Company's deferred tax assets as of June 30,
1994, and 1995 are shown below. A valuation allowance of $70,601,000 has been
recognized to offset the deferred tax assets as of June 30, 1995 as realization
of such assets is uncertain.
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
1994 1995
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................................... $ 48,686,000 $ 56,752,000
Research and development credits...................................... 6,236,000 8,133,000
Capitalized research expense.......................................... 3,372,000 5,470,000
Other -- net.......................................................... (121,000) 246,000
-------------- --------------
Total deferred tax assets............................................. 58,173,000 70,601,000
Valuation allowance for deferred tax assets........................... (58,173,000) (70,601,000)
-------------- --------------
Net deferred tax assets............................................... $ 0 $ 0
-------------- --------------
</TABLE>
Approximately $1,740,000 of the valuation allowance for deferred tax assets
relates to stock option deductions for 1995 which, when recognized, will be
allocated to contributed capital.
At June 30, 1995, the Company had federal and various state net operating
loss carryforwards of approximately $156,000,000 and $33,517,000, 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 $6,996,000 and $1,748,000, respectively, for 1995, which will
begin expiring in fiscal 1998 unless previously utilized.
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,
1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30,
- ---------------------------------------------------------------------
<S> <C>
1996................................................................. $ 1,837,000
1997................................................................. 1,863,000
1998................................................................. 1,908,000
1999................................................................. 1,962,000
2000................................................................. 948,000
Thereafter........................................................... 1,523,000
-------------
Total.............................................................. $ 10,041,000
-------------
-------------
</TABLE>
F-14
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JUNE 30, 1995, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1994 AND 1995, IS UNAUDITED.)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense for fiscal 1995, 1994, 1993, and the six months ended December
31, 1994 and 1995 was $2,043,000, $2,286,000, $1,886,000, $978,000, and
$1,044,000, respectively.
The Company entered into a loan and security agreement in August 1995 under
which the Company received $2.2 million. Amounts borrowed under the agreement
are secured by fixed assets and will be repaid over three years commencing in
September 1995. If certain financial covenants are not satisfied, the note may
become due and payable.
In December 1993, in order to obtain a commitment for a long-term supply of
raw material for both clinical trials and anticipated future commercial
production requirements, the Company entered into an agreement with a supplier
under which the Company was obligated to make payments to the vendor through May
1997 based, in part, upon the achievement of certain milestones. The Company's
total minimum future commitment at June 30, 1995 and December 31, 1995 was
approximately $3.0 and $2.2 million, respectively, some or all of which may be
reimbursed to the Company by existing and future collaborative partners.
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 were 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. In May 1995, the U.S.
District Court for the Southern District of California granted summary judgment
in favor of the Company, dismissing the lawsuit in its entirety. The plaintiffs
have filed a notice of intent to appeal the dismissal. 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 (UNAUDITED)
In February 1996, the Company entered into a license agreement (the "HMRI
License Agreement") with Hoechst Marion Roussel, Inc. ("HMRI"), which provides
HMRI with worldwide marketing rights to LIQUIVENT. The product will be jointly
developed by Alliance and HMRI with HMRI responsible for substantially all of
the remaining costs of development after March 31, 1996. HMRI will pay Alliance
royalties based on sales of the product after commercialization. In conjunction
with the HMRI License Agreement, HMRI purchased 750,000 shares of the Company's
Series B Preferred Stock and 200,000 shares of its Series C Preferred Stock for
an aggregate of $22.0 million. HMRI also received a five-year warrant to acquire
300,000 shares of the Company's common stock at $20.00 per share. The Series B
Preferred Stock is convertible into shares of the Company's common stock upon
the earliest of: (i) the Company's common stock closing at a price per share of
at least $20.00 for twenty consecutive days; (ii) termination of the HMRI
License Agreement; or (iii) February 28, 2001. Each share of Series B Preferred
Stock will be converted into a number of shares of the Company's common stock
based upon the lower of the average closing price of the Company's common stock
over the twenty trading days preceding the time of conversion or $20.00 per
share. The Series C Preferred Stock converts automatically on June 30, 1997 into
a number of shares of the Company's common stock obtained by dividing the
average closing price of the Company's common stock over the twenty trading days
preceding January 14, 1997 into $5.0 million. Prior to June 29, 1997, HMRI may,
if the HMRI License Agreement is terminated, redeem the Series C Preferred Stock
for $15.0 million, payable in cash or the Company's common stock at Alliance's
election, any time on or before the expiration of five years following the
redemption date. In addition, HMRI paid Alliance an initial license fee and will
make other payments upon the achievement of certain milestones.
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 OF THE UNDERWRITERS. 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............................................................ 6
Use of Proceeds......................................................... 10
Dilution................................................................ 10
Capitalization.......................................................... 11
Price Range of Common Stock............................................. 12
Dividend Policy......................................................... 12
Selected Consolidated Financial Data.................................... 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 14
Business................................................................ 18
Management.............................................................. 26
Underwriting............................................................ 29
Legal Matters........................................................... 30
Experts................................................................. 30
Index to Consolidated Financial Statements.............................. F-1
</TABLE>
2,500,000 SHARES
[LOGO]
COMMON STOCK
----------------
PROSPECTUS
APRIL 2, 1996
---------------------
LEHMAN BROTHERS
COWEN & COMPANY
OPPENHEIMER & CO., INC.
- --------------------------------------------------------------------------------
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