<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 1995
REGISTRATION NO. 33-58169
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
THE LIPOSOME COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-2370691
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
ONE RESEARCH WAY
PRINCETON FORRESTAL CENTER
PRINCETON, NEW JERSEY 08540
(609) 452-7060
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
CHARLES A. BAKER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
THE LIPOSOME COMPANY, INC.
ONE RESEARCH WAY
PRINCETON FORRESTAL CENTER
PRINCETON, NEW JERSEY 08540
(609) 452-7060
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES OF ALL COMMUNICATIONS TO:
MARK R. BAKER, ESQ. MARK KESSEL, ESQ.
DEWEY BALLANTINE SHEARMAN & STERLING
1301 AVENUE OF THE AMERICAS 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10019-6092 NEW YORK, NEW YORK 10022
(212) 259-8000 (212) 848-4000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable on or after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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--------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 30, 1995
PROSPECTUS
3,000,000 SHARES
[The Liposome
Company LOGO]
COMMON STOCK
All of the 3,000,000 shares of Common Stock offered hereby are being sold by
the Company. The Company's Common Stock is quoted on the Nasdaq National Market
under the symbol LIPO. On March 29, 1995, the last reported sale price for the
Common Stock was $10.875 per share. See "Price Range of Common Stock and
Dividend Policy."
--------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................... $ $ $
--------------------------------------------------------------------------------
Total (3).................................... $ $ $
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(1)See "Underwriting" for indemnification arrangements with the Underwriters.
(2)Before deducting expenses payable by the Company estimated at $417,500.
(3)The Company has granted to the Underwriters a 30-day option to purchase up
to 450,000 additional shares of Common Stock solely to cover over-allotments,
if any. If all such shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the Underwriters subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be made
available for delivery on or about , 1995, at the office of the agent of
Hambrecht & Quist Incorporated in New York, New York.
HAMBRECHT & QUIST UBS SECURITIES INC.
INCORPORATED
, 1995
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
following Regional Offices: Suite 1400, Northwest Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661; and 13th Floor, Seven World Trade
Center, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
Additional information regarding the Company and the shares offered hereby is
contained in the Registration Statement on Form S-3 and the exhibits thereto
filed with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). For further information pertaining to the Company and the
shares, reference is made to the Registration Statement and the exhibits
thereto, which may be inspected without charge at, and copies thereof may be
obtained at prescribed rates from, the office of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Company's Common
Stock is quoted on the Nasdaq National Market, and such reports, proxy
statements and other information can also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994 filed by the Company with the Commission is hereby incorporated by
reference in this Prospectus. All documents filed by the Company with the
Commission pursuant to section 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this Prospectus and prior to the termination of the offering
of the shares offered hereby shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as
modified or superseded, to constitute a part of this Prospectus. The Company
will provide without charge to each person, including any beneficial owner, to
whom this Prospectus is delivered, upon written or oral request of such person,
a copy of any and all of the documents that have been or may be incorporated by
reference herein (other than exhibits to such documents which are not
specifically incorporated by reference into such documents). Such requests
should be directed to Carol J. Gillespie, Vice President, General Counsel and
Secretary, at the Company's principal executive offices at One Research Way,
Princeton Forrestal Center, Princeton, New Jersey 08540 (telephone (609) 452-
7060).
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK AND DEPOSITARY SHARES OF THE COMPANY ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND DEPOSITARY SHARES OF THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
THE COMPANY
The Liposome Company, Inc. (the "Company") is a leading biotechnology company
engaged in the discovery, development and, recently, the commercialization of
proprietary lipid and liposome-based pharmaceuticals for the treatment,
prevention and diagnosis of inadequately treated, life-threatening illnesses.
The Company is currently launching its first product, amphotericin B lipid
complex (ABLC(R) or, in Europe, Abelcet (TM)), which has been approved for
marketing for certain indications in the United Kingdom and is the subject of
marketing application filings in seventeen other countries. The Company expects
to file a new drug application ("NDA") for ABLC(R) in the United States during
1995. In addition to ABLC(R)/Abelcet (TM), the Company's other lead products
are TLC D-99 and TLC C-53. TLC D-99, liposomal doxorubicin, is being developed
in conjunction with Pfizer Inc. ("Pfizer") primarily as a first line treatment
of metastatic breast cancer, and is undergoing Phase III clinical testing in
the United States. The Company has completed a Phase II clinical trial for TLC
C-53, liposomal prostaglandin E/1/, for the treatment of acute respiratory
distress syndrome ("ARDS") and is preparing a protocol for a pivotal clinical
trial of TLC C-53 for ARDS. In January, 1995, the Company commenced a Phase II
clinical trial of TLC C-53 for the treatment of acute myocardial infarction
("AMI"), or heart attack. The Company also has a continuing discovery research
program which concentrates primarily on the treatment of cancer and
inflammatory conditions.
ABLC(R)/ABELCET (TM), amphotericin B lipid complex, is for the treatment of
systemic fungal infections, primarily in immunocompromised patients such as
cancer chemotherapy patients, organ and bone marrow transplant recipients and
people with AIDS. In February, 1995, the Company received approval from the
Medicines Control Agency of the United Kingdom to market Abelcet (TM) as a
first line treatment of cryptococcal meningitis and systemic cryptococcosis in
patients with AIDS and for the treatment of severe systemic fungal infections
in patients who have not responded to conventional amphotericin B, or to other
systemic antifungal agents, or who have renal impairment or other
contraindications to conventional amphotericin B. Over 1,300 patients worldwide
had been treated with ABLC(R)/Abelcet(TM) through December, 1994. The Company
expects to file its first NDA, for ABLC(R), for the second line treatment of
aspergillosis (a severe systemic fungal infection) in the United States during
1995. There can be no assurance that any NDA filing by the Company will
ultimately be approved by the U.S. Food and Drug Administration ("FDA"). See
"Risk Factors--Early Stage of Commercialization" and "--Regulation."
TLC D-99, liposomal doxorubicin, is targeted for the treatment of a variety
of solid tumors, most importantly metastatic breast cancer. TLC D-99 is being
jointly developed by the Company and Pfizer pursuant to an agreement entered
into in 1990. The Company has completed three Phase II clinical trials testing
TLC D-99 as a first line treatment of metastatic breast cancer. Two Phase III
clinical trials commenced in December, 1994. In November, 1994, researchers
from the M.D. Anderson Cancer Center presented results of one of the Phase II
studies, where TLC D-99 was given in combination with cyclophosphamide and 5-
fluorouracil to metastatic breast cancer patients. The researchers reported
that, of the 41 patients in the trial, 29 were evaluable at that time. Of those
29 patients, there was an overall response rate of 69% (20 patients). Of these,
18 patients demonstrated a partial response (defined to include a reduction in
tumor size of 50% or more), and two patients demonstrated a complete response.
TLC C-53, liposomal prostaglandin E/1/ ("PGE/1/"), is for the treatment of
severe acute inflammatory and vaso-occlusive conditions, including ARDS and
AMI. Preclinical trials have shown favorable results with TLC C-53 in models of
AMI and in models of systemic inflammatory response syndrome ("SIRS"),
including endotoxemia and ARDS. The Company has completed a Phase II study of
TLC C-53 for the treatment of ARDS and plans to initiate a pivotal study
following discussions with the FDA. In January, 1995, the Company commenced a
Phase II clinical trial of TLC C-53 versus a placebo, each in conjunction with
t-PA, heparin and aspirin, for the treatment of heart attacks.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered............................. 3,000,000 shares
Common Stock to be outstanding after the
offering........................................ 26,982,849 shares (1)
Use of proceeds.................................. Commercialization of
ABLC(R)/Abelcet(TM), in-
cluding expansion of manu-
facturing, marketing and
distribution capabilities,
the refitting of the
Company's Indianapolis man-
ufacturing facility and on-
going clinical testing of
ABLC(R)/Abelcet(TM); the
development and clinical
testing of TLC C-53 and the
Company's other products;
research activities; and
other general corporate
purposes.
Nasdaq National Market symbol.................... LIPO
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share figures)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1994 1993 1992 1991 1990
STATEMENTS OF OPERATIONS DATA: -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total revenues................. $ 10,440 $ 13,042 $10,889 $ 8,832 $ 7,071
Net loss....................... (33,653) (22,477) (9,675) (4,086) (5,005)
Preferred Stock dividends...... (5,348) (5,348) -- -- --
Net loss applicable to Common
Stock......................... $(39,001) $(27,825) $(9,675) $(4,086) $(5,005)
Net loss per share applicable
to Common Stock............... $ (1.64) $ (1.18) $ (.43) $ (.22) $ (.35)
Weighted average number of com-
mon shares outstanding........ 23,850 23,536 22,384 18,221 14,226
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------------------------
ACTUAL AS ADJUSTED (2)
BALANCE SHEET DATA: --------- --------------
<S> <C> <C> <C> <C> <C>
Cash and marketable securities......... $ 72,157 $102,407
Working capital........................ 51,746 81,996
Total assets........................... 93,196 123,446
Total long-term liabilities............ 5,917 5,917
Accumulated deficit.................... (108,859) (108,859)
Total stockholders' equity............. 78,353 108,603
</TABLE>
--------
(1) Based on the number of shares outstanding at December 31, 1994. Excludes
5,671,913 shares of Common Stock reserved as of December 31, 1994 for
issuance under the Company's stock option plans, of which 4,226,105 were
reserved for options currently outstanding. Also excludes 5,369,580 shares of
Common Stock reserved for issuance upon conversion of the Company's Series A
Cumulative Convertible Exchangeable Preferred Stock.
(2) Adjusted to give effect to the receipt of the net proceeds from the sale of
3,000,000 shares of Common Stock offered by the Company hereby, at an assumed
public offering price of $10.875 per share.
--------
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option and does not include shares
of Common Stock reserved for issuance under the Company's stock option plans or
issuable upon conversion of the Company's Series A Cumulative Convertible
Exchangeable Preferred Stock. See "Underwriting."
4
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in this Prospectus before purchasing the Common
Stock offered hereby:
Early Stage of Commercialization. The Company has not generated any
significant revenues from the sale of its products. None of the Company's
products is yet approved for sale in the United States, and the sale of
Abelcet (TM) has just commenced in the United Kingdom. Each product must be
clinically tested, approved for use by appropriate government agencies and
manufactured in commercial quantities before marketing can begin. While the
Company has filed marketing applications in various foreign countries with
respect to Abelcet (TM), there can be no assurance that such applications will
be accepted or, if approved, that there will not be burdensome restrictions
which might lead the Company to refrain from selling Abelcet (TM) in some or
all of these jurisdictions. In a significant European country in which a
marketing application for Abelcet (TM) was filed, the Company anticipates that,
in response to preliminary regulatory indications, it will resubmit the
application with such additional information as may be required as a condition
of approval.
The Company's long-term viability and growth will depend on successful
commercialization of products resulting from its research activities. No
assurance can be given that any of the Company's products under development
will be successfully commercialized or that required regulatory approvals will
be obtained. In addition, if the Company's revenues fail to grow at a rate
sufficient to absorb the increased expenses associated with the
commercialization of its products, or if it is unable to add or assimilate
qualified personnel needed for such commercialization, its results could be
adversely affected. See "Business--Product Development," "--Manufacturing" and
"--Marketing Strategy."
History of Operating Losses and Accumulated Deficit. The Company has incurred
losses in each year since its inception and anticipates that operating losses
will continue for at least two years. The Company's accumulated deficit at
December 31, 1994 was approximately $108,859,000. The Company will need to
commit significant financial and other resources to clinical trials of its
self-funded products and to the preparation for commercial marketing of ABLC(R)
in the United States should approval be received from the FDA. See "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Need for Additional Financing and Uncertain Access to Capital Funding. The
Company's capital requirements depend upon numerous factors, including the
progress of the Company's product development programs; the time required to
obtain regulatory approvals; the resources that the Company devotes to the
development, manufacturing and marketing of self-funded products; and the
demand for its products if and when approved. It is possible that the Company
may require additional financing to complete the clinical testing and to
manufacture and to market its self-funded products. There can be no assurance
that such financing will be available or will be available on acceptable terms.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Limited Manufacturing Capabilities. The Company currently intends to
manufacture its self-funded products. TLC D-99, being developed by the Company
under a licensing and development agreement with Pfizer, may be manufactured by
the Company or Pfizer, at Pfizer's option. In order to be successful, the
Company's products must be manufactured in commercial quantities, in compliance
with regulatory requirements, at an acceptable cost and with sufficient
stability. The Company believes that its current facilities and staff are
adequate for the manufacture of preclinical and clinical supplies of its
products, and for the production of Abelcet (TM) to satisfy initial commercial
demand, but may not be capable of producing quantities of product sufficient to
satisfy demand when ABLC(R)/Abelcet (TM) is fully commercialized. The Company
owns a manufacturing facility in
5
<PAGE>
Indianapolis, Indiana for the manufacture of its commercial products on a scale
the Company believes to be sufficient to meet worldwide demand and has begun
the refitting of this facility to manufacture ABLC(R)/Abelcet (TM). However,
substantial expenditures will be required to complete the refitting of the
facility and to install and validate the processing and other equipment
necessary for the manufacture of the Company's products in this facility and to
hire and train new employees to operate the facility. See "Business--
Manufacturing."
Limited Marketing Capabilities. Although the Company intends to market
certain of its products in the United States and certain other countries
through its own sales force if and when regulatory approval for those products
is obtained, it currently has limited marketing and sales staff, and
significant additional expenditures, management resources and time would be
required to develop such sales forces. There can be no assurance that the
Company will be able to establish such sales forces or be successful in gaining
market acceptance for its products. To the extent that the Company determines
not to, or is unable to, establish such sales forces, it will be dependent on
third parties for the marketing and distribution of its products. See
"Business--Marketing Strategy."
Technological Change; Competition. The biopharmaceutical industry is
characterized by extensive research and development efforts, and is subject to
rapid and significant technological change. The Company has numerous
competitors, including major pharmaceutical and chemical companies, specialized
biotechnology firms, other companies developing liposomes or other lipid-based
products, universities and other research institutions. New developments in
lipid and liposome research as well as new pharmaceutical products and other
drug-delivery systems are expected to continue at a rapid pace. Competitors may
succeed in developing technologies and products that are more effective than
any that are being developed by the Company or that would render the Company's
technology and products non-competitive. Many of these competitors have
substantially greater financial and technical resources and production and
marketing capabilities than the Company. In addition, many of the Company's
competitors have significantly greater experience than the Company in
preclinical testing and human clinical trials of new or improved pharmaceutical
products and in obtaining FDA and other regulatory approvals on products for
use in health care. The Company is aware of various products under development
or manufactured by competitors that are used for the prevention, diagnosis or
treatment of certain diseases the Company has targeted for product development,
some of which use therapeutic approaches that compete directly with certain of
the Company's product candidates. The Company's competitors may succeed in
obtaining FDA approval for products more rapidly than the Company, which could
adversely affect the Company's ability to develop and market its products. If
the Company commences significant commercial sales of its products, it will
also be competing with respect to manufacturing efficiency and marketing
capabilities, areas in which the Company has limited or no experience. See
"Business--Competition."
Regulation. Human therapeutic products, vaccines and in vivo diagnostic
products are subject to rigorous preclinical and clinical testing and approval
by the FDA and comparable agencies in other countries and, to a lesser extent,
by state regulatory authorities prior to marketing. The process of obtaining
such approvals, especially for human therapeutic products, is likely to take a
number of years and will involve the expenditure of substantial resources. If
the FDA requests additional data, these time periods can be materially
increased. Even after such additional data is submitted, there can be no
assurance of obtaining FDA approval. In addition, product approvals may be
withdrawn or limited for noncompliance with regulatory standards or the
occurrence of unforeseen problems following initial marketing. The Company has
not sought or received regulatory approval in the United States for the
commercial sale of any of its principal products or for any manufacturing
processes or facilities. The Company and its licensees may encounter
significant delays or excessive costs in their respective efforts to secure
necessary approvals or
6
<PAGE>
licenses. Future federal, state, local or foreign legislative or administrative
acts could also prevent or delay regulatory approval of the Company's or its
licensees' products. There can be no assurance that the Company or its
collaborative partners will be able to obtain the necessary approvals for
manufacturing or marketing of the Company's products or that the clinical data
they obtain in clinical studies will be sufficient to establish the safety and
effectiveness of the products. Failure to obtain or maintain requisite
governmental approvals, or failure to obtain approvals of the clinical intended
uses requested, could delay or preclude the Company or its licensees from
further developing particular products or from marketing their products, or
limit the commercial use of the products and thereby have a material adverse
effect on the Company's liquidity and financial condition. The Company has
limited experience in conducting and managing clinical testing and in preparing
applications necessary to gain governmental approvals. The Company has not yet
submitted an NDA in the United States, and no assurance can be given with
respect to any NDA submitted to the FDA by the Company that such NDA will be
accepted for consideration, that it will be promptly reviewed, that the FDA
will find the data submitted adequate or that such NDA will ultimately be
approved.
Many products for the treatment of conditions such as systemic fungal
infections, ARDS, sepsis, heart attack and cancer which have been tested in
clinical trials have failed to meet the standards of the FDA. To the knowledge
of the Company, the FDA has not yet granted marketing approval for any human
pharmaceutical product based on lipid or liposome technologies of the types
employed by the Company. In addition, no therapeutic products based upon these
technologies are commercially available in the United States. Consequently, the
ability to secure regulatory approvals for the Company's products and the
ultimate commercial potential of these products cannot currently be assured.
See "Business--Governmental Regulation."
Patents and Proprietary Technology. The Company has a number of United States
and foreign patents and patent applications relating to various aspects of
lipid and liposome technologies. The patent position of biopharmaceutical
companies generally is highly uncertain and involves complex legal and factual
questions. The Company currently holds 54 United States patents and may be
issued additional patents in the future. There can be no assurance that any
patents will afford the Company commercially significant protection for its
proprietary technology or have commercial application, and litigation may be
necessary to determine the validity and scope of the Company's proprietary
rights. Moreover, the patent laws of foreign countries and the enforcement of
such laws may afford less protection than comparable U.S. laws. The Company may
not have adequate funds to defend or prosecute the patents in question.
Other public and private concerns, including universities, may have filed
applications for, or have been issued, patents with respect to technology
potentially useful or necessary to the Company. If any of the Company's
proprietary technology in these areas were to conflict with the rights of
others, the Company's ability to commercialize products using such technologies
could be materially and adversely affected. The scope and validity of such
patents, the extent to which the Company may wish or need to acquire licenses
under such patents, and the cost or availability of such licenses, are
currently unknown.
In addition, the Company relies on unpatented proprietary know-how, and there
can be no assurance that others will not obtain access to or independently
develop such know-how. Although employees, corporate sponsors, research
partners and consultants are not given access to proprietary know-how of the
Company until they have executed confidentiality agreements, these agreements
may not provide meaningful protection for the Company's proprietary know-how in
the event of any unauthorized use or disclosure of such know-how. See
"Business--Patents and Proprietary Technology."
7
<PAGE>
Product Liability. The testing, manufacturing and marketing of the Company's
products entail an inherent risk of adverse events that could expose the
Company to product liability claims. The Company has obtained insurance of
$10,000,000 against the risk of product liability claims. However, there is no
guarantee that this insurance will be adequate, that the amount of this
insurance can be increased, or that the policy can be renewed. Moreover, the
amount and scope of any coverage obtained may be inadequate to protect the
Company in the event of a successful product liability claim. See "Business--
Product Liability."
Dependence on Key Personnel and Consultants. The Company's ability to
successfully develop marketable products and to maintain a competitive position
will depend in large part on its ability to attract and retain highly qualified
scientific and management personnel and to develop and maintain relationships
with leading research institutions and consultants. Competition for such
personnel and relationships is intense, and there can be no assurance that the
Company will be able to continue to attract and retain such personnel. See
"Business--Human Resources" and "--Competition."
Dependence on Corporate Sponsors. The Company's revenues to date have been
primarily generated by payments under collaborative research and development
contracts and from interest on invested cash. Two of the Company's
collaborative agreements were recently terminated by the Company's corporate
sponsors. In March, 1995, Wyeth-Ayerst Laboratories, a division of American
Home Products Corporation ("Wyeth-Ayerst"), to whom the Company had licensed
the use of TLC A-60 as an adjuvant for an influenza vaccine, advised the
Company that it intended to return its rights to TLC A-60 to the Company. Also
in March, 1995, Schering AG, Berlin ("Schering AG"), with whom the Company had
entered into a collaborative research and development agreement with respect to
TLC I-16, a non-ionic contrast agent for use in connection with CT scanning of
the liver, advised the Company that it intended to terminate this agreement.
The Company could be adversely affected if Pfizer, its corporate sponsor for
TLC D-99, also exercised its right to terminate its agreement. In such event,
the Company might be required to seek alternate financing in order to continue
the development and testing of TLC D-99. If the Company's working capital or
alternate financing were inadequate to fund further development or testing,
then development of TLC D-99 might be delayed or cancelled. Assuming the
Company and Pfizer are able to develop successfully TLC D-99, the Company's
revenues from sales of TLC D-99 will depend in large part upon the efforts and
abilities of Pfizer to perform clinical testing, to obtain regulatory approvals
and to market and manufacture TLC D-99. The amount and timing of resources
devoted to these activities will not be completely within the Company's
control. Pfizer will have certain discretion in deciding whether or not to
commercialize TLC D-99, and may develop or market products competitive with
those of the Company. While the Company believes Pfizer has or will have an
economic motivation to succeed in performing its obligations under its
agreement, there can be no assurance that the corporate interests and
motivations of Pfizer will remain consistent with those of the Company. If and
when sales of TLC D-99 commence, the Company's revenues with respect to TLC D-
99 will be limited to royalties based on product sales and, at Pfizer's option,
revenues from manufacturing. Revenues from sales of products developed with
future corporate sponsors, if any, may be similarly limited. See "Business--
Product Development."
Uncertainty of Health Care Reimbursement. The Company's ability to earn
sufficient returns on its products may depend in part on the extent to which
reimbursement for the costs of such products and related treatments will be
available from government health administration authorities, private health
coverage insurers and other organizations. If purchasers or users of the
Company's products are not entitled to adequate reimbursement for the cost of
using such products, they may forego or reduce such use. Significant
uncertainty exists as to the reimbursement status of
8
<PAGE>
newly approved health care products, and there can be no assurance that
adequate third party coverage will be available.
Dependence Upon Suppliers. The Company currently relies on a limited number
of suppliers to provide the materials used to manufacture its products, certain
of which materials are purchased only from one supplier. Although the Company
believes that it can obtain adequate commercial quantities of necessary
materials and that it could develop alternative sources of supply for most or
all of the materials used to manufacture its products, there can be no
assurance that the Company would be able to access such sources within a
reasonable period of time or at commercially reasonable rates. In particular,
the Company presently acquires amphotericin B, a principal ingredient in
ABLC(R)/Abelcet (TM), from one supplier on what the Company believes are
favorable terms. The loss of this supplier could have a material adverse effect
on the Company, either because of a delay or inability in obtaining an
alternate supplier or because of the impact of obtaining the product at a
significantly higher cost. Regulatory requirements applicable to pharmaceutical
products tend to make the substitution of suppliers more costly and time-
consuming. The unavailability of adequate commercial quantities, the inability
to develop alternative sources, a reduction or interruption in supply or a
significant increase in the price of materials could have a material adverse
effect on the Company's ability to manufacture and market its products.
International Sales. The Company believes that sales outside of the United
States will initially represent a significant portion of the Company's business
if marketing approvals are received from countries outside the United States
more quickly than approvals from the FDA. There are significant challenges and
risks to the Company associated with conducting business in some foreign
countries, including, but not limited to, disparate governmental regulation of
pharmaceutical products and uncertain intellectual property protections.
Although the Company has established an office in London, England, it does not
have extensive experience in international sales. The Company's international
business and financial performance could also be adversely affected by such
matters as fluctuations in currency exchange rates, currency controls, tariff
regulations, foreign duties and taxes, pricing controls and regulations and
difficulties in obtaining export licenses.
Volatility of Stock Price. There has been a history of significant volatility
in the market prices for shares of companies in a similar stage of development
to that of the Company, and the market price of the shares of the Company's
Common Stock has been volatile. Factors such as announcements of technological
innovations or new commercial products by the Company or its competitors,
governmental regulation, decisions made by corporate sponsors under
collaborative research and development agreements regarding product development
activities, developments relating to regulatory approvals, developments or
disputes relating to patent or proprietary rights, as well as period-to-period
fluctuations in revenues and financial results, may have a significant impact
on the market price of the Company's Common Stock. See "Price Range of Common
Stock and Dividend Policy."
Dilution. Purchasers of shares of Common Stock in this offering will
experience immediate and substantial dilution of net tangible book value per
share. Additional dilution will occur upon the exercise of outstanding stock
options.
THE COMPANY
The Company's principal executive offices are located at One Research Way,
Princeton Forrestal Center, Princeton, New Jersey 08540 and its telephone
number is (609) 452-7060. Unless the context otherwise requires, the "Company"
refers to The Liposome Company, Inc. and its wholly-owned subsidiaries.
9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $10.875 per share are estimated to be $30,250,000 ($34,850,125 if the
Underwriters' over-allotment option is exercised in full).
The Company anticipates that the proceeds of this offering, in conjunction
with the Company's current working capital, will be used for (i) the
commercialization of ABLC(R)/Abelcet (TM), including the expansion of
manufacturing, marketing and distribution capabilities, the refitting of the
Company's manufacturing facility in Indianapolis, Indiana for the manufacture
of ABLC(R) and the on-going clinical testing of ABLC(R), (ii) the development
and clinical testing of TLC C-53 and the Company's other self-funded products,
(iii) research activities and (iv) other general corporate purposes. The
Company is unable to specify the amount that it will spend on such programs
because such amounts will vary depending on numerous factors, including the
progress of the Company's development efforts and regulatory approvals. Such
expenditures are likely to be extensive and may exceed the amount of proceeds
available from this offering. The Company has begun to refit its manufacturing
facility in Indianapolis and expects that this facility will become operational
in 1996. The initial plan of activity includes design work and construction of
improvements to the facility necessary for a modern manufacturing facility,
renovation and validation of critical building systems, purchase and
installation of product specific processing equipment for the manufacture of
ABLC(R), and training and hiring of employees. The Company anticipates that
this phase of construction and validation work and related start-up
expenditures will cost approximately $11,000,000 to $13,000,000. Additional
costs would have to be incurred for the product specific processing equipment
necessary for the production of the Company's other products if and when
decisions are made to proceed with such commercial manufacturing.
The Company has considered in the past, and is continuing to consider,
alternative sources of financing, including financing specific to a particular
development project or projects. If such financing involves one of the
Company's lead products, the Company will use the portion of the proceeds of
this offering that would otherwise have funded such product for other purposes
described above. Pending such uses, the net proceeds will be invested in
investment grade interest-bearing securities.
10
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq National Market System
under the symbol LIPO. The following table sets forth for the periods indicated
the high and low sale price for the Common Stock:
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
1995
1st Quarter (through March 29, 1995).................... $13.375 $7.875
1994
4th Quarter............................................. 10.750 6.375
3rd Quarter............................................. 8.125 4.750
2nd Quarter............................................. 6.500 4.875
1st Quarter............................................. 7.750 5.875
1993
4th Quarter............................................. 8.875 5.625
3rd Quarter............................................. 7.625 5.125
2nd Quarter............................................. 9.500 6.500
1st Quarter............................................. 12.500 7.500
</TABLE>
On March 29, 1995, the closing sale price of the Company's Common Stock was
$10.875 per share.
The Company has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future. As of January 31, 1995, there were approximately
1,480 stockholders of record of Common Stock.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
31, 1994, and as adjusted to give effect to the receipt by the Company of the
net proceeds from the sale of 3,000,000 shares of Common Stock offered hereby
at an assumed offering price of $10.875 per share:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------
AS
ACTUAL ADJUSTED (1)
--------- ------------
(in thousands)
<S> <C> <C>
Long-term obligations under capital leases............. $ 4,126 $ 4,126
Long-term obligations under note payable............... 1,791 1,791
Stockholders' equity:
Preferred Stock, par value $.01; 2,400,000 shares au-
thorized; Series A Cumulative Convertible Exchange-
able Preferred Stock, 276,000 shares issued; actual
and as adjusted (liquidation preference of
$69,000,000)......................................... 3 3
Common Stock, par value $.01; 60,000,000 shares autho-
rized; 23,982,849 and 26,982,849 shares issued; ac-
tual and as adjusted, respectively(2)................ 240 270
Additional paid-in capital............................. 192,003 222,223
Foreign currency translation adjustment................ (1) (1)
Net unrealized investment loss......................... (5,033) (5,033)
Accumulated deficit.................................... (108,859) (108,859)
--------- ---------
Total stockholders' equity.......................... 78,353 108,603
--------- ---------
Total capitalization.............................. $ 84,270 $ 114,520
========= =========
</TABLE>
--------
(1) Assumes net proceeds to the Company of $30,250,000 from this offering, as
if this offering had closed on December 31, 1994.
(2) Excludes 5,671,913 shares of Common Stock reserved as of December 31, 1994
for issuance under the Company's stock option plans, of which 4,226,105
were reserved for options currently outstanding. Also excludes 5,369,580
shares of Common Stock reserved for issuance upon conversion of the
Company's Series A Cumulative Convertible Exchangeable Preferred Stock.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for and as of the
end of each of the years in the five-year period ended December 31, 1994 have
been derived from the consolidated financial statements of the Company that
have been audited by Coopers & Lybrand L.L.P., independent accountants. This
data should be read in conjunction with the consolidated financial statements,
related notes and other financial information appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1994 1993 1992 1991 1990
-------- -------- ------- ------- -------
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA: (in thousands, except per share figures)
<S> <C> <C> <C> <C> <C>
Collaborative research and
development revenues............ $ 5,831 $ 4,877 $ 5,767 $ 5,938 $ 3,734
Licensing and other fees......... 50 541 312 319 2,668
Interest and investment income,
net............................. 4,559 7,624 4,810 2,575 669
-------- -------- ------- ------- -------
Total revenues.................. 10,440 13,042 10,889 8,832 7,071
-------- -------- ------- ------- -------
Research and development
expenses........................ 31,713 25,072 15,000 9,326 8,598
General and administrative
expenses........................ 12,072 10,193 5,488 3,586 3,164
Interest expense................. 308 254 76 6 14
Other expenses................... -- -- -- -- 300
-------- -------- ------- ------- -------
Total expenses.................. 44,093 35,519 20,564 12,918 12,076
-------- -------- ------- ------- -------
Net loss......................... (33,653) (22,477) (9,675) (4,086) (5,005)
Preferred Stock dividends........ (5,348) (5,348) -- -- --
-------- -------- ------- ------- -------
Net loss applicable to Common $(39,001) $(27,825) $(9,675) $(4,086) $(5,005)
Stock........................... ======== ======== ======= ======= =======
Net loss per share applicable to
Common Stock.................... $ (1.64) $ (1.18) $ (.43) $ (.22) $ (.35)
======== ======== ======= ======= =======
Weighted average number of common 23,850 23,536 22,384 18,221 14,226
shares outstanding.............. ======== ======== ======= ======= =======
<CAPTION>
DECEMBER 31,
---------------------------------------------
1994 1993 1992 1991 1990
-------- -------- ------- ------- -------
CONSOLIDATED BALANCE SHEET DATA: (in thousands)
<S> <C> <C> <C> <C> <C>
Cash and marketable
securities(1)................... $ 72,157 $119,743 $76,399 $45,678 $ 7,668
Working capital.................. 51,746 102,139 71,910 43,604 5,306
Total assets..................... 93,196 139,632 92,756 50,803 11,007
Total long-term liabilities...... 5,917 7,696 2,986 607 658
Accumulated deficit.............. (108,859) (75,206) (52,729) (43,054) (38,968)
Total stockholders' equity(2).... $ 78,353 $122,347 $83,200 $46,861 $ 7,435
</TABLE>
--------
(1) Includes restricted cash of $4,880 and $4,748 in 1994 and 1993,
respectively. See Note 1 of Notes to Consolidated Financial Statements.
(2) In 1993, the Company adopted the provisions of Financial Accounting
Standard 115 "Accounting for Certain Investments in Debt and Equity
Securities." The effect of this adoption was to increase Total stockholders'
equity by $650 in 1993 and reduce Total stockholders' equity by $5,033 in
1994.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is a leading biotechnology company engaged in the discovery,
development and, recently, the commercialization of proprietary lipid and
liposome-based pharmaceuticals for the treatment, prevention and diagnosis of
inadequately treated, life-threatening illnesses. The Company is currently
launching its first product, amphotericin B lipid complex (ABLC(R) or, in
Europe, Abelcet(TM)), which has been approved for marketing for certain
indications in the United Kingdom and is the subject of marketing application
filings in seventeen other countries. The Company expects to file an NDA for
ABLC(R) in the United States during 1995. In addition to ABLC(R)/Abelcet(TM),
the Company's other lead products are TLC D-99 and TLC C-53. TLC D-99,
liposomal doxorubicin, is being developed in conjunction with Pfizer primarily
as a first line treatment of metastatic breast cancer, and is undergoing Phase
III clinical testing in the United States. The Company has completed a Phase
II clinical trial for TLC C-53 for the treatment of ARDS and is preparing a
protocol for a pivotal clinical trial of TLC C-53, liposomal prostaglandin
E/1/, for ARDS. In January, 1995, the Company commenced a Phase II clinical
trial of TLC C-53 for the treatment of AMI, or heart attack. The Company also
has a continuing discovery research program which concentrates primarily on
the treatment of cancer and inflammatory conditions.
RESULTS OF OPERATIONS
Revenues
Total revenues for the year ended December 31, 1994 were $10,440,000, a
decrease of $2,602,000 or 20.0% as compared to the year ended December 31,
1993. Revenues in 1993 were $13,042,000, an increase of $2,153,000 or 19.8%
compared to the 1992 level. The primary components of revenues for the Company
are collaborative research and development activities, interest and investment
income, and licensing and other fees. These components can increase or
decrease significantly based on the number and amount of research
collaborations, including the achievement of developmental milestones, the
initiation of new licensing agreements and, in the case of interest and
investment income, the level of cash balances available for investment and the
rate of interest earned on such investments.
Collaborative research and development revenues were $5,831,000 for 1994,
which was $954,000 or 19.6% higher than 1993 revenues. Collaborative research
and development revenues were $4,877,000 for 1993, which was $890,000 or 15.4%
lower than 1992. The Company earned substantially all of its collaborative
research and development revenues from two corporate sponsors in 1994 and 1993
and three sponsors in 1992. In January, 1993, the Company reacquired the
worldwide rights to ABLC(R) from Bristol-Myers Squibb ("BMS"), a former
corporate sponsor. The Company assumed the responsibilities and funding for
clinical development, manufacturing and marketing of ABLC(R). The financial
impact of the reacquisition was the absence of research and development
reimbursements from BMS in 1993 and 1994. The Company began filing marketing
applications for ABLC(R)/Abelcet(TM) in December, 1993, and currently has
marketing applications pending in seventeen foreign countries. In June, 1994,
the Company began Phase III clinical trials in the United States for the drug.
During February, 1995, the Company received approval to market Abelcet(TM) in
the United Kingdom for certain indications. During 1992, the Company completed
work under a research agreement related to a certain diagnostic product with
Schering AG; additional work under an amended research agreement with Schering
AG began in the third quarter of 1993 and continued through 1994. This
agreement was terminated on March 29, 1995.
Licensing and other fees were $50,000, $541,000 and $312,000 for 1994, 1993
and 1992, respectively. The change in this category from 1992 to 1994 was
directly related to an agreement
14
<PAGE>
with Wyeth-Ayerst for TLC A-60, a liposomal vaccine adjuvant which required
payments as follows: $250,000 in 1992, $500,000 in 1993 with no payment being
scheduled in 1994. Wyeth-Ayerst recently advised the Company that it is no
longer pursuing development of TLC A-60 and that it intends to return all
rights to the Company.
Interest and investment income for the years ended December 31, 1994, 1993,
and 1992 was $4,559,000, $7,624,000, and $4,810,000, respectively. Interest and
investment income in 1994 decreased by $3,065,000 or 40.2% from 1993. Interest
and investment income in 1993 was $2,814,000 or 58.5% greater than that in
1992. During the first quarter of each of 1993 and 1992 the Company raised
capital through the sale of equity securities. Net proceeds to the Company from
these sales were $65,735,000 and $44,603,000, respectively. No significant
amounts of capital were raised during 1994. Fluctuations in interest and
investment income are primarily due to the significant changes in the level of
cash balances the Company has available for investment as a result of these
financings. The Company expects that interest and investment income in 1995
will be substantially less than that reported in 1994 due to the anticipated
lower level of cash and securities in its portfolio.
Expenses
Total expenses for 1994 of $44,093,000 increased $8,574,000 or 24.1% compared
to 1993. Total expenses of $35,519,000 for 1993 increased $14,955,000 or 72.7%
compared to 1992. The increase in expenses for each year reflects the greater
funding required to support the clinical study programs of its lead proprietary
products as these products progress through late-stage trials, and the
expansion of the Company's research and development efforts.
Research and development expenses accounted for 71.0% of the expense increase
from 1992 to 1994, while general and administrative and interest expenses
accounted for the remainder. At year-end 1992, the Company's efforts were
focused on research and pharmaceutical development using a small organization
to support early stage clinical trial activities. During 1993, the Company
significantly expanded its capability to design and monitor clinical trials,
both in the U.S. and internationally and also added internal capabilities in
biostatistics and regulatory affairs. During 1994, the Company continued to
strengthen these activities and developed an internal manufacturing
organization capable of producing clinical and commercial material and began to
establish an international sales and marketing organization.
Research and development expenses of $31,713,000 for 1994 increased
$6,641,000 or 26.5% over 1993. The primary components of this increase were the
costs related to ABLC(R)/Abelcet (TM), TLC C-53 and TLC D-99, reflecting higher
expenditures associated with the Company's products progressing to late stages
of development; increased staffing levels to support the new manufacturing
facility located in Princeton, which began operations in early 1994; and the
expansion of the Company's medical, regulatory, and biostatistical departments
to develop and conduct increased clinical trial activity. As in prior years,
costs associated with the development of TLC D-99 were reimbursed by Pfizer
under the terms of a licensing agreement, signed in 1990. In February, 1994,
the Company announced that it had suspended further development of Maitec(R),
its liposomal gentamicin product, in order to focus its resources on its other
products.
Research and development expenses of $25,072,000 for 1993 increased
$10,072,000 or 67.1% over 1992. The significant part of the increase was
related to assuming the on-going development costs of ABLC(R) that were
previously incurred by BMS. All rights to ABLC(R) were reacquired from BMS in
January 1993. The 1993 increase also included the expansion of preclinical
studies for TLC C-53 and clinical study programs of Maitec(R), TLC C-53, and
TLC D-99. The Company also increased research and development staff including
medical, regulatory, biostatistical, manufacturing and scientific personnel to
support the preclinical and clinical study programs.
15
<PAGE>
General and administrative expenses in 1994 were $12,072,000, an increase of
$1,879,000 or 18.4% over 1993. The primary component of the increase was costs
associated with the start up of the international sales and marketing
operations in anticipation of launching the Company's first product,
amphotericin B lipid complex, using the trademark Abelcet(TM). By year-end
1994, the Company had filed applications to market Abelcet(TM) in seventeen
countries, and approval to market in the United Kingdom was received in
February, 1995.
General and administrative expenses in 1993 were $10,193,000, an increase of
$4,705,000 or 85.7% over 1992. The main reason for the increase was the cost
associated with litigation brought by the Company for patent infringement. The
court found in favor of the defendant, and the Company has decided not to
appeal. The balance of the increase was due to the expansion of various
administrative functions consistent with the growth of the Company.
The Company expects both its research and development expenses and its
general and administrative expenses to continue to increase as it pursues the
clinical development of its products, launches Abelcet(TM) in the United
Kingdom and prepares for future potential marketing approvals in other European
countries.
Interest expense for 1994 was $308,000 compared to $254,000 for 1993. The
increase of $54,000 in interest expense was primarily due to a sale-leaseback
agreement that funded machinery and construction costs within the Princeton
manufacturing facility. This capital lease arrangement was initiated in 1993
and completed in early 1994. The increase in 1993 versus 1992 of $178,000 was
due to the 1992 acquisition of a 55,000 square foot manufacturing facility in
Indianapolis, Indiana, which was partially funded by a mortgage-backed note
payable.
Preferred Stock Dividends
In January 1993, the Company completed the issuance of 2,760,000 Depositary
Shares representing 276,000 shares of Series A Cumulative Convertible
Exchangeable Preferred Stock with a cumulative dividend of 7.75%. The Company
has declared and paid dividends of $5,348,000 on such Preferred Stock annually
during 1993 and 1994. These dividends are included as part of the Company's net
loss applicable to Common Stock and net loss per share of Common Stock.
Net Loss, Net Loss Applicable to Common Stock and Net Loss Per Share of Common
Stock
The net loss of $33,653,000 for 1994 increased by $11,176,000 or 49.7%
compared to 1993. This increase in net loss was due to the increase in total
expenses of $8,574,000, in conjunction with a decrease in total revenues of
$2,602,000. The net loss applicable to Common Stock was $39,001,000 in 1994 and
$27,825,000 in 1993 as a result of the operational factors discussed above and
the declaration of $5,348,000 of Preferred Stock dividends in each year. The
net loss per common share increased by $.46 per share to $1.64 per share for
1994. The total loss per share of $1.64 comprises $.23 for Preferred Stock
dividends and the remainder, $1.41, for the current year net loss.
The net loss of $22,477,000 for 1993 increased by $12,802,000 or 132%
compared to 1992. This increase in net loss was due to the increase in total
expenses of $14,955,000, partially offset by an increase in total revenues of
$2,153,000. The net loss applicable to Common Stock was $27,825,000 in 1993
compared to $9,675,000 in 1992. The increase was due to the operational factors
discussed above and inclusion in 1993 of $5,348,000 in Preferred Stock
dividends. The 1993 net loss per common share increased by $.75 per share to
$1.18 per share. The increase is attributable to the $5,348,000 of Preferred
Stock dividends, or $.23 per share, and the balance is due to the increase in
net loss of $.52 per share.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had $72,157,000 in cash reserves as of December 31, 1994. The
cash reserves include cash and cash equivalents of $2,369,000, short-term
investments of $55,487,000, long-term investments of $9,421,000 and restricted
cash of $4,880,000. The cash reserves decreased $47,586,000 from 1993 due to
the use of funds for operations, capital acquisitions, Preferred Stock dividend
payments and a current market value adjustment to investments to comply with
the Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting
for Certain Investments in Debt and Equity Securities. The cumulative effect at
December 31, 1994 of SFAS No. 115 was a net unrealized loss of $5,033,000. In
connection with certain financing arrangements, the Company is required to
maintain minimum cash balances, of which the largest requirement is
$20,000,000. The Company invests its excess cash in a diversified portfolio of
high-grade marketable and United States Government-backed securities.
During 1994, cash used by operations increased to $32,407,000 as compared to
$18,948,000 in 1993. The 1994 change in cash used was primarily due to the
increase in net loss versus 1993 combined with the increase in other current
assets and the reduction in accounts payable. This was partially offset by
increases in depreciation and amortization, along with accrued expenses.
Funding required for operating activities during 1994 was derived from existing
cash balances and the sales of investments as well as from corporate sponsors,
interest income, and the exercise of stock options. Plant acquisitions
decreased in 1994 compared to 1993, reflecting the completion of the expansion
of the clinical research and manufacturing facilities begun in 1993. The
Company expects to make renovations costing between approximately $11,000,000
to $13,000,000 at the Indianapolis facility.
At December 31, 1994, the Company had approximately $101,412,000 of operating
loss carryforwards, $2,860,000 of research and development credit carryforwards
and $45,000 of investment tax credit carryforwards. These carryforwards expire
in the years 1996 through 2009. The timing and manner in which these losses are
used may be limited as a result of certain ownership changes that occurred
pursuant to Internal Revenue Service regulations under Section 382.
The Company expects to finance its operations from, among other things, the
proceeds received from payments under research and development agreements,
interest earned on investments, liquidation of certain investments, product
sales and proceeds from this offering. Funds may also be provided to the
Company by leasing arrangements for capital expenditures and from the licensing
of its products. The Company expects to fund Preferred Stock dividends from
existing cash reserves. The Company believes that its available cash and
marketable securities, revenues from research and development contracts and
interest income will be sufficient to meet its expected operating and capital
cash flow requirements for the intermediate term.
17
<PAGE>
BUSINESS
OVERVIEW
The Liposome Company, Inc. is a leading biotechnology company engaged in the
discovery, development and, recently, the commercialization of proprietary
lipid and liposome-based pharmaceuticals for the treatment, prevention and
diagnosis of inadequately treated, life-threatening illnesses. The Company is
currently launching its first product, amphotericin B lipid complex (ABLC(R)
or, in Europe, Abelcet(TM)), which has been approved for marketing for certain
indications in the United Kingdom and is the subject of marketing application
filings in seventeen other countries. The Company expects to file an NDA for
ABLC(R) in the United States during 1995. In addition to ABLC(R)/Abelcet(TM),
the Company's other lead products are TLC D-99 and TLC C-53. TLC D-99,
liposomal doxorubicin, is being developed in conjunction with Pfizer primarily
as a first line treatment of metastatic breast cancer, and is undergoing Phase
III clinical testing in the United States. The Company has completed a Phase
II clinical trial for TLC C-53, liposomal PGE/1/, for the treatment of ARDS
and is preparing a protocol for a pivotal clinical trial of TLC C-53 for ARDS.
In January, 1995, the Company commenced a Phase II clinical trial of TLC C-53
for the treatment of AMI, or heart attack. The Company also has a continuing
discovery research program which concentrates primarily on the treatment of
cancer and inflammatory conditions.
ABLC(R)/ABELCET(TM), amphotericin B lipid complex, is for the treatment of
systemic fungal infections, primarily in immunocompromised patients such as
cancer chemotherapy patients, organ and bone marrow transplant recipients and
people with AIDS. In February, 1995, the Company received approval from the
Medicines Control Agency of the United Kingdom to market Abelcet(TM) as a
first line treatment of cryptococcal meningitis and systemic cryptococcosis in
patients with AIDS and for the treatment of severe systemic fungal infections
in patients who have not responded to conventional amphotericin B, or to other
systemic antifungal agents, or who have renal impairment or other
contraindications to conventional amphotericin B. Over 1,300 patients
worldwide had been treated with ABLC(R)/Abelcet (TM) through December, 1994.
The Company expects to file its first NDA, for ABLC(R), for the second line
treatment of aspergillosis (a severe systemic fungal infection) in the United
States during 1995. There can be no assurance that any NDA filing by the
Company will ultimately be approved by the FDA. See "Risk Factors--Early Stage
of Commercialization" and "-- Regulation."
TLC D-99, liposomal doxorubicin, is targeted for the treatment of a variety
of solid tumors, most importantly metastatic breast cancer. TLC D-99 is being
jointly developed by the Company and Pfizer pursuant to an agreement entered
into in 1990. The Company has completed three Phase II clinical trials testing
TLC D-99 as a first line treatment of metastatic breast cancer. Two Phase III
clinical trials commenced in December, 1994. In November, 1994, researchers
from the M.D. Anderson Cancer Center presented results of one of the Phase II
studies, where TLC D-99 was given in combination with cyclophosphamide and 5-
fluorouracil to metastatic breast cancer patients. The researchers reported
that, of the 41 patients in the trial, 29 were evaluable at that time. Of
those 29 patients, there was an overall response rate of 69% (20 patients). Of
these, 18 patients demonstrated a partial response (defined to include a
reduction in tumor size of 50% or more), and two patients demonstrated a
complete response.
TLC C-53, liposomal PGE/1/, is for the treatment of severe acute
inflammatory and vaso-occlusive conditions, including ARDS and AMI.
Preclinical trials have shown favorable results with TLC C-53 in models of AMI
and in models of SIRS, including endotoxemia and ARDS. The Company has
completed a Phase II study of TLC C-53 for the treatment of ARDS and plans to
initiate a pivotal study following discussions with the FDA. In January, 1995,
the Company commenced a Phase II clinical trial of TLC C-53 versus a placebo,
each in conjunction with t-PA, heparin and aspirin, for the treatment of heart
attacks.
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PRODUCT DEVELOPMENT
The following table summarizes the principal product development activities
of the Company:
<TABLE>
<CAPTION>
WORLDWIDE
MARKETING
PRODUCT USE STATUS(1) RIGHTS
------- --- --------- ---------
<S> <C> <C> <C>
ANTI-INFECTIVE
ABLC(R)/Abelcet(TM) Systemic Fungal United Kingdom-- The Liposome Co.
Infections Marketing approval
received(2)
17 other countries--
Marketing
applications filed
U.S.-- Expect to file
NDA during 1995
CANCER
TLC D-99 Metastatic Breast Phase III ongoing; Pfizer(3)
Cancer High dose Phase II
ongoing
Kaposi's Sarcoma Phase II ongoing Pfizer(3)
INFLAMMATION
TLC C-53 ARDS Phase II completed; The Liposome Co.
Pivotal clinical
trial being planned
Sepsis/SIRS Phase I completed; The Liposome Co.
Phase II to be
initiated in 1995
TLC C-54 Inflammatory Preclinical The Liposome Co.
Conditions including development
Rheumatoid Arthritis
and Systemic Lupus
Erythematosus
CARDIOPULMONARY
TLC C-53 AMI Phase II ongoing The Liposome Co.
</TABLE>
--------
(1) Preclinical development denotes work to refine product performance
characteristics and studies relating to product composition, stability,
scale-up, toxicity and efficacy to create a prototype formulation in
preparation for the filing of an IND application with the FDA for authority
to commence testing in humans (clinical studies).
Phase I-III clinical trials denote safety and efficacy tests in human
patients in accordance with FDA guidelines as follows:
Phase I: Dosage and tolerance studies.
Phase II: Detailed evaluations of safety and efficacy.
Phase III: Larger scale evaluation of safety and efficacy potentially
requiring larger patient numbers, depending on the clinical indication for
which marketing approval is sought.
See "Governmental Regulation."
(2) Marketing approval in the United Kingdom has been received for Abelcet(TM)
as a first line treatment of cryptococcal meningitis and systemic
cryptococcosis in patients with AIDS, for the treatment of severe systemic
fungal infections in patients who have not responded to conventional
amphotericin B or other systemic antifungal agents, and for patients who
have renal impairment or other contraindications to conventional
amphotericin B.
(3) The Company has marketing rights in Japan.
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TECHNOLOGY
The Company's products are based on its proprietary technology which employs
liposomes or lipid complexes as either a vehicle to deliver an active
therapeutic ingredient or as an active component of a drug. Liposomes are
microscopic man-made spheres composed of lipids that can be engineered to
entrap drugs or other biologically active molecules. In many cases, liposomal
pharmaceuticals can provide better efficacy and less toxicity than might
otherwise result from alternative therapies. In addition, the Company believes
that it is developing the first product, TLC C-53, in which liposomes comprise
active components of a pharmaceutical. It is anticipated that the Company's
products will be administered through intravenous injection.
PRODUCTS IN CLINICAL TRIALS
The Company has three products in various stages of human clinical trials for
multiple indications: ABLC(R)/Abelcet(TM), TLC D-99 and TLC C-53.
ABLC(R) (Abelcet(TM) in Europe)--Amphotericin B Lipid Complex
Systemic fungal infections are a major threat to those patients whose immune
systems are compromised, such as cancer chemotherapy patients, organ and bone
marrow transplant recipients and people with AIDS. The Company is developing
ABLC(R) as a treatment for these fungal infections. Over 1,300 patients
worldwide were treated with ABLC(R) in comparative and open-label clinical
trials as well as in emergency use protocols through December, 1994.
Amphotericin B is a broad spectrum polyene antifungal agent, which has been
marketed for many years as a treatment for many systemic fungal infections,
including candidiasis, cryptococcosis, aspergillosis and other yeast or mold
infections. However, the utility of amphotericin B has been limited by its
propensity to cause serious side effects, particularly to the kidney. The
Company is developing ABLC(R), which consists of amphotericin B in a lipid
complex and is designed to reduce the risk of toxicities associated with
amphotericin B while maintaining at least equivalent efficacy.
In June, 1994, the Company commenced two Phase III clinical trials for
ABLC(R) in the U.S. The first trial is testing ABLC(R) as a treatment for
patients with aspergillosis who are either refractory to or intolerant of
conventional amphotericin B or who have renal impairment that precludes
treatment with amphotericin B. The second is a randomized trial comparing
ABLC(R) to conventional amphotericin B in the empiric treatment of presumed
fungal infections in neutropenic patients.
In October, 1994, investigators from the National Cancer Institute ("NCI"),
the M.D. Anderson Cancer Center, the Children's National Medical Center and the
H. Lee Moffitt Cancer Center, in a poster presentation at the 34th Interscience
Conference on Antimicrobial Agents and Chemotherapy, showed encouraging results
in patients with systemic fungal infections receiving ABLC(R) who previously
did not respond to, or who were intolerant of, existing antifungal therapy. In
addition, patients who had suffered nephrotoxicity resulting from prior
treatment with amphotericin B or who had preexisting renal impairment showed a
statistically significant improvement in kidney function when placed on
ABLC(R). The researchers concluded that ABLC(R) provided effective therapy in
patients with invasive mycoses unresponsive to or intolerant of previous
antifungal therapy, that ABLC(R) was well tolerated and that ABLC(R) was not
associated with dose-limiting nephrotoxicity.
The Company began filing applications to market ABLC(R)/Abelcet(TM) in
December, 1993, and currently has marketing applications pending in seventeen
foreign countries. In addition, in February, 1995, the Company received
approval to market amphotericin B lipid complex under the trademark Abelcet(TM)
from the Medicines Control Agency of the United Kingdom. The
20
<PAGE>
indications for which Abelcet(TM) was approved were as a first line treatment
of cryptococcal meningitis and systemic cryptococcosis in patients with AIDS
and for the treatment of severe systemic fungal infections in patients who have
not responded to conventional amphotericin B or to other systemic antifungal
agents or who have renal impairment or other contraindications to conventional
amphotericin B. The Company believes it may receive marketing approvals in
additional countries during 1995 and in later years. In a significant European
country in which a marketing application for Abelcet (TM) was filed, the
Company anticipates that, in response to preliminary regulatory indications, it
will resubmit the application with such additional information as may be
required as a condition of approval.
The Company expects to file an NDA for ABLC(R) for the second line treatment
of aspergillosis in the United States during 1995. The Company has not yet
submitted an NDA in the United States, and no assurance can be given that with
respect to the Company's NDA for ABLC(R) that it will be accepted for
consideration, that it will be promptly reviewed, that the FDA will find the
data submitted adequate or that it will ultimately be approved.
The Company owns worldwide rights to manufacture and market ABLC(R). In 1985,
the Company entered into a licensing and development agreement for ABLC(R) with
the E.R. Squibb & Sons Company, now BMS. As of January 1, 1993, the Company
reacquired these rights from BMS and assumed all financial responsibility for
the development of ABLC(R). The Company has agreed to pay BMS a royalty on
worldwide sales of ABLC(R)/Abelcet(TM). The Company has also entered into a
supply agreement with BMS for amphotericin B raw material, but is free to
access alternate suppliers of such raw material, subject to regulatory
constraints.
TLC D-99
The Company and Pfizer are jointly developing TLC D-99, a liposomal
doxorubicin, for the treatment of a variety of solid tumors. The primary
emphasis of the program has been to develop the drug as a first line treatment
of metastatic breast cancer. Over 400 patients were enrolled in TLC D-99
clinical trials through December, 1994.
One of the most widely-used chemotherapeutic drugs is doxorubicin, which is
used in the treatment of many solid tumors, leukemias and lymphomas.
Doxorubicin, in addition to the acute toxicities typical of chemotherapeutic
drugs, can cause irreversible cardiac damage which is often the cumulative
dose-limiting factor for anthracycline chemotherapeutic agents like
doxorubicin. Virtually all anticancer drugs in typical doses can cause side
effects such as emesis (vomiting), alopecia (hair loss), mucositis
(inflammation of the mucous membranes) and myelosuppression (depletion of blood
cells). The individual maximum dosage given to a patient is limited by these
and other toxic side effects. One of the serious toxicities associated with
doxorubicin is the necrosis (open sores and tissue damage) that will occur when
free doxorubicin is accidentally injected into subcutaneous tissue rather than
the vein (an extravasation event). During Phase I trials with TLC D-99, three
episodes of extravasation took place, and no necrosis was observed.
Preclinical studies indicate that, as compared to free doxorubicin, TLC D-99
has greatly reduced toxicity, including cardiotoxicity and mucositis. In a
preclinical model, TLC D-99 was shown to deliver, at comparable doses, two to
three times as much drug to the site of the tumor as compared to free
doxorubicin. In addition, preclinical studies in standard tumor models
comparing the use of TLC D-99 and free doxorubicin to treat leukemia and
several solid tumors show a better tumor response and an increase in the
survival period of the test animals receiving TLC D-99 as compared to free
doxorubicin.
The Company conducted Phase I human clinical testing of 38 patients at
Roswell Park Memorial Institute, in Buffalo, New York. In this trial, TLC D-99
was less acutely toxic to the patients than would be expected with free
doxorubicin at comparable doses.
21
<PAGE>
In December, 1992 and May, 1993, the Company completed patient accruals for
two Phase II trials in patients with metastatic breast cancer; one was
conducted at four hospitals associated with McGill University Hospital in
Montreal, Canada and one was conducted at multiple sites in the United States.
Data from these trials is being compiled and evaluated. In November, 1994,
researchers from the M.D. Anderson Cancer Center presented results of a third
Phase II study of TLC D-99 given in combination with cyclophosphamide, an anti-
neoplastic agent, and 5-fluorouracil to metastatic breast cancer patients. The
researchers reported that, of the 41 patients in the trial, 29 were evaluable
at that time. Of those 29 patients, there was an overall response rate of 69%
(20 patients). Of these, 18 patients demonstrated a partial response (defined
to include a reduction in tumor size of 50% or more), and two patients
demonstrated a complete response. The researchers also concluded that the
encapsulation of doxorubicin appears to permit higher cumulative doses than
would be expected with conventional doxorubicin because of the diminished
cardiotoxicity.
In December, 1994, two Phase III trials were commenced by Pfizer to test TLC
D-99 as a first line treatment for patients with metastatic breast cancer. One
trial compares TLC D-99 with conventional doxorubicin while the other compares
a combination of TLC D-99 and cyclophosphamide, with doxorubicin and
cyclophosphamide. The objective of each study is to show that TLC D-99, alone
or in combination with cyclophosphamide, is as effective as conventional
doxorubicin alone or in combination with cyclophosphamide, but that TLC D-99 is
significantly safer, particularly with regard to cardiotoxicity. Each trial is
expected to be conducted at twenty or more sites.
The Company and Pfizer are also conducting trials using very high doses of
TLC D-99 in combination with granulocyte colony--stimulating factor ("G-CSF").
As part of this program, the Company and the NCI have been conducting a Phase I
trial at Dana-Farber Cancer Institute, in Boston, Massachusetts to test the
safety and efficacy of increasing doses of TLC D-99 in combination with G-CSF.
Preliminary results of this study were presented at the Seventh World
Conference on Lung Cancer in June, 1994. Although the trial was primarily
designed to test the safety of TLC D-99 in high doses, partial clinical
responses (tumor reduction exceeding 50 percent) were recorded in three of
twelve patients with non-small cell lung cancer, two of two patients with
mesothelioma and three of four patients with small cell lung cancer. Non-small
cell lung cancer and mesothelioma historically have a very low response rate to
chemotherapy.
In 1994, the Company commenced a Phase II clinical trial to test high doses
of TLC D-99 as a treatment for metastatic breast cancer. The trial objective is
to demonstrate superior efficacy and acceptable safety of very high doses of
TLC D-99 as compared to what could be expected with conventional doxorubicin.
Patients are currently being accrued in this trial. If results of this trial
are positive, the Company expects to conduct a Phase III clinical trial of high
doses of TLC D-99 to treat metastatic breast cancer. Additionally, a Phase II
clinical trial to test TLC D-99 as a treatment for Kaposi's Sarcoma is ongoing.
In November, 1990, the Company entered into a development and license
agreement for TLC D-99 with Pfizer. Pfizer is funding the development and
clinical trials of the product. The Company received a payment upon signing the
agreement with Pfizer and is entitled to be reimbursed quarterly in advance of
expenditures, based on an agreed-upon annual budget, for virtually all of its
costs to be incurred in connection with product development and clinical
testing, to receive payments upon reaching certain milestones, to receive
royalty payments with respect to product sales and, at Pfizer's option, to
receive revenues from manufacturing. The agreement has no fixed term and is
terminable at any time upon notice by Pfizer, in which event Pfizer would be
responsible for reimbursement of the Company's expenses for up to a six-month
period following termination and all rights to the product would return to the
Company. The Company has all rights to market TLC D-99 in Japan.
22
<PAGE>
TLC C-53
The Company is developing TLC C-53, liposomal PGE/1/, for the treatment of a
variety of severe acute inflammatory conditions and vaso-occlusive diseases.
TLC C-53 is the first product known to the Company in which liposomes comprise
active components of a pharmaceutical.
Anti-inflammatory Applications. Many disease conditions are believed to be
the result of a complex cascade of events leading to the uncontrolled
activation of certain cells in the body: neutrophils, platelets and
endothelial cells. These cells, once activated, adhere to each other and to
certain other cells, thus perpetuating, and in some instances leading to, a
pathological enhancement of the inflammatory response.
When the body receives an insult, such as infection, massive trauma or heart
attack, cells can release into the blood a variety of chemical agents or
mediators including interleukin-1 ("IL-1"), tumor necrosis factor ("TNF"), and
others. When any of these mediators encounters certain types of cells in the
body such as neutrophils (cells that circulate in the bloodstream) or
endothelial cells (cells that form the lining of the blood vessels), these
cells may become activated. When neutrophils and endothelial cells are
activated they can then adhere to each other as part of the normal
inflammatory response. In some patients, the normal process of activation
continues unchecked and an inflammatory condition known as SIRS, including
ARDS and sepsis, may result.
SIRS is an often fatal condition that includes subsets of conditions such as
ARDS and sepsis. It stems from a variety of severe insults including trauma,
burns, aspiration and hyperoxia. Clinically, patients exhibit abnormalities in
body temperature, heart and respiratory rate and white blood cell count. The
condition is often associated with development of failure of several body
organs. In ARDS the organ which fails is the lung. Clinically, white opacities
are seen in the lung fields on radiological examination, reflecting the
congestion of the lung air spaces with fluid that has leaked through
capillaries that had been damaged by mediators of inflammation released by the
activated neutrophils. Forty to sixty percent of the approximately 150,000
patients in the United States annually afflicted with ARDS die because the
lungs become so full of fluid that oxygen can no longer be transported with
efficiency into the blood. There is currently no satisfactory therapy for
ARDS.
Sepsis is the systemic response to infection. In sepsis, a somewhat similar
if not identical process of abnormal activation of neutrophils and other cells
which circulate in the bloodstream occurs. This process is responsible for the
failure of a number of body organs including the lungs, the kidneys, the liver
and the brain, often resulting in death.
TLC C-53 appears to function as a unique "universal off-switch" that not
only prevents neutrophils from being activated by IL-1, TNF, and other
factors, but also may deactivate these cells even after they have been
activated. By inhibiting neutrophils in this way, TLC C-53 is believed to
prevent abnormal cellular adhesion which in turn prevents the release of the
mediators of inflammation, such as oxygen free radicals and lysosomal enzymes.
In 1990, the Company commenced preclinical development of TLC C-53,
including efficacy tests with TLC C-53 in preclinical models of ARDS and AMI.
In two animal models of ARDS tested at The Webb-Waring Lung Institute, one of
the leading ARDS research centers in the United States, it was shown that TLC
C-53 could significantly prevent the leakage of fluid into the lung. In 1992,
the Company filed an IND with the FDA and started Phase I safety trials in
healthy volunteers in the United States and in Europe.
During 1994, the Company conducted a Phase II trial of TLC C-53 as a
treatment for ARDS. Results of the 25 patient randomized, placebo controlled
trial were presented at the Society of Critical Care Medicine's 24th
Educational and Scientific Symposium in February, 1995. The
investigators concluded that in patients with ARDS, TLC C-53 was associated
with statistically
23
<PAGE>
significant improvement in oxygenation (the ability of the lungs to transmit
oxygen into the bloodstream) at three days, increased lung compliance (an
indirect measure of lung function), and decreased dependency of patients on
mechanical ventilation. The investigators also concluded that TLC C-53 was
well tolerated.
Cardiovascular Applications. The factors discussed above that activate
neutrophils and endothelial cells also activate platelets, a type of blood
cell that, among other functions, plays a key role in blood clotting.
Platelets are also activated when they contact the cells that line the
arteries, which can often occur during coronary angioplasty. Once activated,
platelets adhere to each other (called aggregation) as well as to endothelial
cells and the extracellular matrix. In some patients, myocardial wall damage
may occur after the coronary arteries have been opened by the infusion of t-
PA. This so-called "reperfusion injury" is believed to be initiated by
activation of neutrophils.
TLC C-53, in addition to inhibiting neutrophils, is believed to inhibit
platelet aggregation. This combination of drug effect may hold promise for
more patients with AMI to achieve complete patency (reopening of the coronary
arteries) following treatment with t-PA and may also allow a faster clot to
lysis time. It also holds the potential for reducing reperfusion injury and
subsequent cardiac damage.
In November, 1994, the Journal of the American College of Cardiology
published results from preclinical studies of TLC C-53 conducted by Dr.
Richard Smalling, Professor and Co-Director of the University of Texas Medical
School's Division of Cardiology. In a canine model of heart attack, Dr.
Smalling showed that treatment with TLC C-53 just prior to administration of
the clot-dissolving agents streptokinase and heparin, resulted in faster
reopening of the blocked blood vessels that caused the attack. Additionally,
the arteries opened more fully, blood flow to heart tissue was improved, and
there was less damage to the heart when TLC C-53 was given, compared with
placebo.
At year-end 1994, the Company started a Phase II randomized, placebo
controlled trial to evaluate TLC C-53 as an adjunct to t-PA in the treatment
of heart attacks. In the trial, patients will receive either TLC C-53 or a
placebo in addition to t-PA, heparin and aspirin. The first patient was
enrolled in January, 1995 at the Hermann Hospital and the Texas Medical Center
in Houston, Texas.
OTHER PRODUCTS UNDER DEVELOPMENT
The Company is also developing other liposome based products that are in
earlier stages of development. These include:
TLC C-54
The Company is developing TLC C-54, a liposomal PGE/1/ distinct and
different from TLC C-53, for use in the treatment of auto-immune diseases such
as rheumatoid arthritis and systemic lupus erythematosus. TLC C-54 is
currently undergoing preclinical testing.
TLC A-60
TLC A-60 is a unique, patented liposomal vaccine adjuvant designed to boost
the protective effect of vaccines against various diseases. In January, 1992,
Wyeth-Ayerst and the Company signed an agreement under which Wyeth-Ayerst
began the development of a liposomal influenza vaccine with TLC A-60. During
1994, Wyeth-Ayerst conducted Phase I and Phase II clinical trials of the
vaccine. In March, 1995, Wyeth-Ayerst advised the Company that it intended to
return its rights to TLC A-60 to the Company. The Company has not yet reviewed
the results from Wyeth-Ayerst's Phase II trials, but, based on its current
understanding, will consider seeking another corporate
24
<PAGE>
sponsor to develop TLC A-60 as an adjuvant for an influenza vaccine. No
assurance can be given that such a corporate sponsor relationship will be
entered into.
TLC I-16
The Company has conducted basic research on an innovative technology for
making liposomes called interdigitation fusion. The first product produced by
this new process is a liposome-encapsulated non-ionic iodine-based contrast
agent, TLC I-16. TLC I-16 contains a high concentration of the contrast agent,
allowing it to be effectively used for CT scanning of the liver and may provide
a more sensitive technique for the detection of tumor metastases. The Company
was developing TLC I-16 under a collaborative agreement with Schering AG until
March 29, 1995 when Schering AG terminated this agreement. The Company, based
on its understanding of preclinical studies of TLC I-16, will consider seeking
another corporate sponsor to continue development of TLC I-16. No assurance can
be given that such a corporate sponsor relationship will be entered into.
RESEARCH PROGRAMS
The Company is conducting research in the areas of cancer and inflammation
and has an in vitro and in vivo screening facility, including cell lines and a
mouse xenograft capability to support its cancer research. Its inflammation
research is directed towards the discovery and development of new and improved
anti-inflammatory agents. The Company is also conducting research on liposomal
prostaglandins for other indications.
MANUFACTURING
The Company has constructed and validated a multiproduct manufacturing
facility at its Princeton site. This facility has been designed to have the
capacity to manufacture supplies for the ABLC(R), TLC D-99, and TLC C-53
clinical trial programs and for future products using similar manufacturing
processes. The Company also expects to use this facility to manufacture initial
commercial supplies of ABLC(R). This facility has been approved by the
Medicines Control Agency of the United Kingdom for the manufacture of
Abelcet (TM) for sale in that country. This approval is also acceptable to
regulatory authorities in other European Union ("EU") countries. However,
approval by the FDA of the manufacture of products in the Princeton facility
will be required prior to commercial sales in the United States.
In July, 1992, the Company purchased a manufacturing facility in
Indianapolis, Indiana, for the commercial production of certain of the
Company's products and has begun the renovation of this facility. The refitting
of this facility and the purchase, installation and validation of substantial
additional processing equipment at an aggregate cost of approximately
$11,000,000 to $13,000,000 will be necessary before any production can
commence. Approval by the FDA in the United States, or regulators in other
countries in which sales are to be made, of the manufacture of products in the
Indianapolis facility will be required prior to commercial sales.
The Company also has a validated, sterile liposome manufacturing pilot plant
at its headquarters. The Company believes that its current facilities and staff
are adequate for the manufacture of preclinical and clinical supplies of its
products, and for the production of quantities of Abelcet (TM) to satisfy
initial commercial demand, but may not be capable of producing quantities of
product sufficient to satisfy demand when ABLC(R) is fully commercialized.
The Company has several patented or proprietary processes for the
manufacture, handling, loading and drying of liposomes.
25
<PAGE>
MARKETING STRATEGY
The Company has established an office in London, England with a small sales
force which the Company believes is appropriate for the marketing and sale of
Abelcet(TM) in the United Kingdom. The Company may collaborate with third
parties in the marketing, sales and distribution of its products in some or all
of the European markets. The Company intends to develop its own sales and
marketing capabilities in the United States to market ABLC(R) and certain other
of the Company's products if and when approved by the FDA.
HUMAN RESOURCES
At December 31, 1994, the Company had 217 full-time employees, 30 of whom
hold Ph.D. degrees and four of whom hold M.D. degrees or foreign equivalent. Of
these employees, 159 are engaged in research, development, clinical development
and manufacturing activities and 58 in marketing and administration.
The Company considers its relations with its employees to be excellent. None
of its employees is covered by a collective bargaining agreement. The Company
attempts to offer competitive compensation and fringe benefits programs.
PRODUCT LIABILITY
The testing, manufacturing and marketing of the Company's proposed products
will entail risk of product liability claims. Such risks exist with respect to
products being tested in human clinical trials, as well as products that may be
tested, manufactured or marketed. The Company has obtained insurance of
$10,000,000 against the risk of product liability. However, there can be no
assurance that such coverage will be adequate to cover claims, that the Company
will be able to maintain or increase its current insurance coverage or that
adequate insurance will be available on acceptable terms. Although the Company
has obtained, and will continue to seek to obtain, indemnification agreements
from pharmaceutical companies that may commercialize products based on the
Company's technologies, there can be no assurance that current or future
corporate sponsors, if any, would be willing fully to indemnify the Company, or
would be sufficiently insured.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's policy is to protect aggressively its proprietary technology,
and the Company considers the protection of such rights to be important to its
business. In addition to seeking United States patent protection for many of
its inventions, the Company files patent applications in Canada, Japan, Western
European countries and additional foreign countries on a selective basis in
order to protect the inventions deemed to be important to the development of
its foreign business. As of December 31, 1994, the Company had 54 United States
patents as well as 372 foreign counterpart patents, and currently has 62 United
States patent applications and 734 foreign counterpart patent applications
(including designated countries filed under patent treaties) pending. Patents
issued and applied for cover inventions including new types of liposomes and
their preparation, processes for the therapeutic application of liposomes,
lipid purification, lipid based delivery systems and product compositions. The
Company has acquired and licensed proprietary technology from universities,
research organizations and other companies in return for payments and
continuing royalty obligations. The Company has obtained patents in the United
States for inventions which may be employed with respect to ABLC(R), TLC D-99
and TLC C-53 and has patent applications pending in Europe and Japan for such
inventions. The Company has been awarded patents and has patent applications
pending for inventions which may be employed with respect to these and other
products in various selected countries, as well.
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On June 23, 1992, the Company filed suit against Vestar, Inc. ("Vestar"), in
the United States District Court for the District of Delaware, alleging that
Vestar violated United States Patent number 4,229,360 (the "360 Patent")
covering the dehydration of liposomes, which the Company acquired from the
Battelle Institute. The Company asserted that Vestar's product AmBisome
infringed claims of the 360 Patent. Vestar counterclaimed, alleging that the
360 Patent was invalid and that there was no infringement. In December, 1994,
judgment was entered in favor of Vestar, and the Company has determined not to
pursue an appeal from that judgment. The Company does not rely on the 360
Patent as the primary means of protection for any of its products currently in
development.
On May 17, 1993, Vestar filed suit against the Company in the United States
District Court for the District of Delaware, seeking a declaratory judgment
that one of the Company's patents (U.S. Patent No. 4,880,635, the "635 Patent")
was invalid, unenforceable and not infringed by Vestar's AmBisome product. The
Company filed a request for reexamination of the 635 Patent in July, 1993, and
requested a stay of Vestar's suit pending completion of the reexamination
process. The court granted a stay, which remains in force, as the reexamination
proceeds. The Company does not intend to rely on the 635 Patent as the primary
means of protection for any of its products currently in development.
Other public and private institutions, including universities, may have filed
applications for, or have been issued, patents with respect to technology
potentially useful or necessary to the Company. The scope and validity of such
patents, the extent to which the Company may wish or need to acquire licenses
under such patents, and the cost or availability of such licenses, are
currently unknown.
The Company also intends to rely on unpatented trade secrets and proprietary
know-how and continuing technological innovation to maintain and develop its
commercial position. The Company has entered into confidentiality agreements
with its employees, consultants and advisors, and corporate sponsors.
GOVERNMENTAL REGULATION
Regulation by governmental authorities in the United States and other
countries is a significant factor in the production and marketing of the
Company's products and in its ongoing research and development activities. In
order to test clinically, to produce and to market products for human
therapeutic use, mandatory procedures and safety standards established by the
FDA and comparable agencies in foreign countries must be followed.
The standard process required by the FDA before a pharmaceutical agent may be
marketed in the United States includes (i) preclinical tests, (ii) submission
to the FDA of an application for an IND which must become effective before
human clinical trials may commence, (iii) adequate and well-controlled human
clinical trials to establish the safety and efficacy of the drug in its
intended application, (iv) submission to the FDA of an NDA with respect to
drugs or a Product License Application ("PLA") with respect to biologics, which
applications are not automatically accepted by the FDA for consideration, and
(v) FDA approval of the NDA or PLA prior to any commercial sale or shipment of
the drug or biologic. In addition to obtaining FDA approval for each product,
each domestic drug manufacturing establishment must be registered or licensed
by the FDA. Domestic manufacturing establishments are subject to inspections by
the FDA and by other Federal, state and local agencies and must comply with
Good Manufacturing Practice as appropriate for production.
27
<PAGE>
The Company has as yet not submitted an NDA in the United States, and no
assurance can be given that with respect to the Company's NDA for ABLC(R) that
it will be accepted for consideration, that it will be promptly reviewed, that
the FDA will find the data submitted adequate or that it will ultimately be
approved.
Clinical trials are typically conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug to humans,
the drug is tested for dosage and tolerance. Phase II involves detailed
evaluation of safety and efficacy. Phase III trials consist of larger scale
evaluation of safety and efficacy and may require larger patient numbers,
depending on the clinical indication for which marketing approval is sought.
The process of completing clinical testing and obtaining FDA approval for a
new product is likely to take a number of years and require the expenditure of
substantial resources. The FDA may grant an unconditional approval of a drug
for a particular indication or may grant approval conditioned on further
postmarketing testing. Even after initial FDA approval has been obtained,
further studies may be required to provide additional data on safety or to gain
approval for the use of a product as a treatment for clinical indications other
than those for which the product was initially approved. Also, the FDA may
require postmarketing testing and surveillance programs to monitor the drug's
efficacy and side effects. Results of these postmarketing programs may prevent
or limit the further marketing of the products.
Sales of pharmaceutical products outside of the United States are subject to
regulatory requirements that vary widely from country to country. In the EU,
the general trend has been toward coordination of common standards for clinical
testing of new drugs, leading to changes in various requirements imposed by
each EU country. Generally, the level of regulation in the EU and other foreign
jurisdictions is somewhat less comprehensive and burdensome than regulation in
the United States, but there are differences and, in some respects, foreign
regulations may be more burdensome than FDA requirements. The time required to
obtain regulatory approval from the comparable regulatory agencies in each
foreign country may be longer or shorter than that required for FDA approval.
In addition, the Company is and may be subject to regulation under state and
federal law regarding occupational safety, laboratory practices, the use and
handling of radioisotopes, environmental protection and hazardous substance
control and to other present and possible future local, state, federal and
foreign regulation.
COMPETITION
Competition in the pharmaceutical field generally, and in the liposome and
lipid industries in particular, is intense and is based on such factors as
product performance, safety, patient compliance, ease of use, price, physician
acceptance, marketing, distribution and adaptability to various modes of
administration. Technological competition may be based on the development of
alternative products and approaches aimed at the treatment, diagnoses or
prevention of the same diseases as the Company's products.
Competition from other companies will be based on scientific and
technological factors, the availability of patent protection, the ability to
commercialize technological developments, the ability to obtain government
approval for testing, manufacturing and marketing and the economic factors
resulting from the use of those products, including their price. There are many
companies,
28
<PAGE>
both public and private, including well-known pharmaceutical and chemical
companies, many of which have greater capital resources than the Company, which
are seeking to develop lipid and liposome based products as well as products
based on other drug-delivery technologies for therapeutic, diagnostic and
vaccine applications.
The Company is aware that other companies are developing lipid based or
liposomal amphotericin B products. One such company has been selling a
liposomal amphotericin B in certain European countries, including the United
Kingdom, for approximately four years. Another has received approval during
1994 to market its product, and its licensee is currently marketing such
product, in the United Kingdom and in the Republic of Ireland. No approvals
have been granted to market any such liposomal amphotericin B products in the
United States.
Another company is developing a liposomal doxorubicin product for the
treatment of Kaposi's Sarcoma and certain types of cancer. An advisory
committee of the FDA has voted to recommend that the FDA grant accelerated
approval, with certain qualifications, for this product for treatment of
Kaposi's sarcoma where other agents have failed. No approvals have yet been
granted for this product in the United States.
Other groups active in the field include colleges, universities, and public
and private research institutions which are becoming more active in seeking
patent protection. These institutions have also become increasingly competitive
in recruiting personnel from a limited number of scientists and technicians.
FACILITIES
The Company leases space in all of one and a portion of two other facilities
in Princeton, New Jersey and owns a manufacturing facility in Indiana.
The Company currently leases a building of approximately 50,000 square feet
that houses its scientific laboratories, manufacturing facilities and certain
offices in the Princeton Forrestal Center located near Princeton, New Jersey.
During 1994, the Company renegotiated the lease to provide for a longer initial
term, together with certain renewal options, a reduced initial lease rate, and
a change in structure to a triple net lease in exchange for the Company
granting to the lessor a Letter of Credit for $1,000,000. The new lease, with
an initial term of twelve years, commenced January 1, 1995, and the Company has
options to renew for up to an additional ten years. Lease payments for the year
ended December 31, 1994 totaled approximately $828,000. Future lease payments
are subject to certain contractual escalations. The Company also leases
approximately 23,500 square feet of office space also located in the Princeton
Forrestal Center. This lease commenced March 1, 1993, with an initial lease
term of ten years. The Company may terminate this lease at the end of the fifth
year. Lease payments for this lease for the year ended December 31, 1994
totaled approximately $486,000. In January, 1995, the Company entered into a
three year lease for approximately 13,200 square feet of office/warehouse space
near its corporate offices. The Company also rents office space in London,
England.
In July, 1992, the Company purchased a pharmaceutical manufacturing facility
of approximately 55,000 square feet located on 26 acres of land located in
Indianapolis, Indiana. The Company has begun to refurbish and equip certain
portions of the facility. See "Manufacturing" and "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources."
29
<PAGE>
SCIENTIFIC ADVISORY BOARDS
The Company has two scientific advisory boards consisting of prominent
scientists who are experts in the fields of cancer, inflammation or cell
adhesion and who the Company believes may make a contribution to the
development of the Company's business in those areas. The scientific advisory
boards review and monitor the Company's research and technical progress, advise
the Company of advances in their fields, assist in identifying specific product
opportunities and aid in recruiting personnel and procuring research contracts.
Members of the scientific advisory boards meet individually and as a group with
management of the Company periodically.
CANCER SCIENTIFIC ADVISORY BOARD
<TABLE>
<CAPTION>
NAME POSITION/AFFILIATION
---- --------------------
<C> <S>
Gerald Weissmann, M.D. (Chairman). Professor of Medicine, Division of
Rheumatology of the Department of Medicine,
New York University Medical Center
Joseph R. Bertino, M.D. .......... American Cancer Society Professor of
Medicine and Pharmacology and Head, Program
of Molecular Pharmacology and Therapeutics;
Memorial Sloan-Kettering Cancer Center
Emil Frei, III, M.D. ............. Physician-in-Chief, Emeritus and Harvard
Medical School, Richard and Susan Smith
Professor of Medicine, Dana Farber Cancer
Institute
Enrico Mihich, M.D. .............. Director, Grace Cancer Drug Center and
Associate Director for Sponsored Programs,
Roswell Park Cancer Institute
Alan C. Sartorelli, Ph.D. ........ Alfred Gilman Professor of Pharmacology and
Epidemiology, Yale University School of
Medicine
John N. Weinstein, M.D. .......... Senior Research Investigator, LMP, DCT,
DTP, National Cancer Institute
</TABLE>
CELL ADHESION SCIENTIFIC ADVISORY BOARD
<TABLE>
<CAPTION>
NAME POSITION/AFFILIATION
---- --------------------
<C> <S>
Gerald Weissmann, M.D. (Chairman). Professor of Medicine, Division of
Rheumatology of the Department of Medicine,
New York University Medical Center
Ralph L. Nachman, M.D. ........... Chairman, Department of Medicine, The E.
Hugh Luckey Distinguished Professor in
Medicine, Cornell University Medical
College; Physician in Chief, The New York
Hospital
John E. Repine, M.D. ............. President and Director; Webb-Waring
Institute for Biomedical Research,
University of Colorado
Bengt Samuelsson, M.D., Ph.D. .... President and Professor of Physiological
Chemistry, Karolinska Institute; Nobel
Laureat; Chairman, Nobel Foundation
James T. Willerson, M.D. ......... Professor and Chairman, Department of In-
ternal Medicine; University of Texas Medi-
cal School at Houston
</TABLE>
30
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the directors and executive officers of the
Company furnished by them is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Charles A. Baker(1).............. 62 Chairman of the Board, President, Chief
Executive Officer and Director
Edward G. Silverman.............. 41 Executive Vice President and Chief
Operating Officer
James A. Boyle, M.D., Ph.D. ..... 58 Senior Vice President, Medical and
Regulatory Affairs
Brooks Boveroux.................. 51 Vice President, Finance, Chief
Financial Officer and Treasurer
Ralph del Campo................... 44 Vice President, Manufacturing
Operations
Carol J. Gillespie............... 49 Vice President, General Counsel and
Secretary
David S. Gordon, M.D. ........... 53 Vice President, U.S. Clinical Research
Andrew S. Janoff, Ph.D. ......... 46 Vice President, Research
George G. Renton................. 42 Vice President, Human Resources
Spiro G. Rombotis................ 36 Vice President, International
Operations
Donald D. Yarson................. 41 Vice President, Sales and Marketing
James G. Andress(2).............. 55 Director
Morton Collins, Ph.D.(l)(2)...... 58 Director
Stuart F. Feiner(l)(3)........... 46 Director
Robert F. Hendrickson(3)......... 61 Director
Bengt Samuelsson, M.D., Ph.D. ... 60 Director
Joseph T. Stewart, Jr. .......... 65 Director
Gerald Weissmann, M.D.(2)........ 64 Director
Horst Witzel, Dr. -Ing(3)........ 67 Director
</TABLE>
--------
(1) Executive Committee member
(2) Audit Committee member
(3) Compensation Committee member
All directors hold office until the next annual meeting of stockholders and
until their successors have been elected and qualified. Officers are appointed
to serve, subject to the discretion of the Board of Directors, until their
successors are appointed. There are no family relationships among executive
officers or directors of the Company.
CHARLES A. BAKER was named Chairman of the Board, President and Chief
Executive Officer of the Company in December, 1989. Just prior to joining the
Company he was a business development and licensing advisor to several small
biotechnology companies. Mr. Baker served in several capacities in senior
management at Squibb Corporation (now Bristol-Myers Squibb Company), including
the positions of Group Vice President, Squibb Corporation and President, Squibb
International. He also held various senior executive positions at Abbott
Laboratories and Pfizer Inc. Mr. Baker received an undergraduate degree from
Swarthmore College and a J.D. degree from Columbia University. Mr. Baker also
serves as a director of Regeneron Pharmaceuticals, Inc., a neuroscience
Company.
EDWARD G. SILVERMAN was named Executive Vice President and Chief Operating
Officer in November, 1993. Since joining the Company in September, 1989, he has
held various positions in the Company, including Senior Vice President,
Strategic Operations, Vice President, Strategic Planning and Business
Development and Executive Director, Marketing and Sales. Prior to joining the
31
<PAGE>
Company, Mr. Silverman was Product Director, Gastrointestinal Products at Smith
Kline & French Laboratories. From 1976 to 1987, he held a variety of sales,
marketing and strategic planning positions at G. D. Searle & Co., Ciba-Geigy
and Adria Laboratories. Mr. Silverman holds a B.A. degree in biology from the
University of Pennsylvania (1974).
JAMES A. (TONY) BOYLE, M.D., Ph.D., joined the Company as Senior Vice
President, Medical and Regulatory Affairs in August, 1994. Prior to joining the
Company, Dr. Boyle was employed by G.D. Searle and Co. from 1986 to 1994 where
he held several positions including Vice President, Medical Relations and Vice
President, Corporate Medical and Scientific Affairs. Previously, he held senior
clinical research positions at Serono Laboratories, Warner Lambert and Pfizer.
Dr. Boyle received his M.D. degree (U.K. equivalent) from Glasgow University in
1960 and his Ph.D. degree (U.K. equivalent) in Medicine in 1967. He is Board
Certified (U.K. equivalent) in Internal Medicine and Endocrinology.
BROOKS BOVEROUX joined the Company as Vice President, Finance, Chief
Financial Officer and Treasurer in September, 1993. Prior to joining the
Company, Mr. Boveroux was Chief Financial Officer at ImClone Systems, Inc.
(1992-1993) and Bio-Technology General Corp. (1990-1992). From 1986 to 1990, he
was the Chief Financial Officer of Biogen, Inc. In addition, he has held a
variety of management positions at Allied-Signal Inc., PepsiCo, Inc. and
Citibank, N.A. Mr. Boveroux holds an A.B. degree from Hamilton College (1965)
and an M.B.A. from the Wharton Graduate Division of the University of
Pennsylvania (1967).
RALPH DEL CAMPO joined the Company in March 1994 as Vice President,
Manufacturing Operations. Between 1993 and 1994, he was Senior Vice President,
Operations of Melville Biologics, a subsidiary of The New York Blood Center.
His prior experience includes positions at Schering Plough Corporation and,
from 1977 to 1993, Bristol-Myers Squibb where he had several positions of
increasing responsibility including Senior Director, Pharmaceutical Operations
and Vice President, Facilities Administration. Mr. del Campo received a B.S.
degree in Chemical Engineering from Newark College and an MBA in Pharmaceutical
Marketing from Farleigh Dickinson University.
CAROL J. GILLESPIE joined the Company as Vice President, General Counsel and
Secretary in February, 1995. From 1983 until joining the Company, she held
several positions at Syntex Corporation, most recently as its Vice President,
Secretary and Associate General Counsel. Prior to joining Syntex, she was
associated with MSI Data Corporation, a data processing company, ITT
Corporation and Gibson, Dunn & Crutcher, a Los Angeles law firm. Ms. Gillespie
received an A.B. degree in Political Science from the University of California,
Berkeley (1967), a Master of International Affairs from Columbia University
School of International Affairs (1969) and a J.D. degree from the University of
California School of Law, Berkeley (1972).
DAVID S. GORDON, M.D., joined the Company as Vice President, U.S. Clinical
Research in March, 1993. From November, 1990 until joining the Company, Dr.
Gordon was director of Biotech Clinical Research-Hematology/Oncology at R.W.
Johnson Pharmaceutical Research Institute. He held a variety of professorships
at Emory University School of Medicine, including Professor of Medicine
Hematology/Oncology. Dr. Gordon also was employed at the Centers for Disease
Control, last serving as Director of the Immunology Division. Dr. Gordon
received his BSE in Chemical Engineering from Princeton University in 1963 and
his M.D. from the University of Colorado School of Medicine in 1967. He also
was a Fellow in Medical Oncology at Stanford University. Dr. Gordon is board
certified in internal medicine and oncology.
ANDREW S. JANOFF, Ph.D., joined the Company in 1981 and has been Vice
President, Research since January, 1993. Prior to joining the Company, Dr.
Janoff held joint appointments as Research Fellow in Pharmacology at Harvard
Medical School and Research Fellow in Anesthesia at the
32
<PAGE>
Massachusetts General Hospital. Dr. Janoff holds a B.S. degree in biology from
The American University, Washington, D.C. (1971) and M.S. and Ph.D. degrees in
biophysics from Michigan State University (1977 and 1980, respectively).
GEORGE G. RENTON joined the Company in August, 1994 as Vice President, Human
Resources. From 1985 until joining the Company, he was employed by the American
Cyanamid Company in several positions, including Director, Personnel, Research
and Development of the Lederle Laboratories Division. Earlier, he held several
positions at New York University Medical Center. Mr. Renton was awarded a B.S.
degree in Education from the State University of New York at Cortland (1975)
and an M.S. degree in Industrial/Labor Relations from Cornell University and
Baruch College (1985).
SPIRO G. ROMBOTIS joined the Company as Vice President, International
Operations in May, 1993. Since 1988, Mr. Rombotis held a variety of business
and marketing positions at Bristol-Myers Squibb Company, most recently as Vice
President of Operations, Pharmaceuticals, Central & Eastern Europe. From 1985
to 1988, he served as Marketing Manager, Europe at Centocor, Inc. Mr. Rombotis
received a B.A. from Williams College in 1981 and an M.B.A. from Northwestern
University in 1985.
DONALD D. YARSON joined the Company as Vice President, Marketing and Sales in
March, 1995. From 1993 until 1995, he was President of TriGenix, Inc., a
contract sales, marketing and reimbursement organization. He was Director of
Marketing for Genzyme Corporation from 1991 to 1993, and before that he was
with Genentech Inc. for over four years, serving most recently as Senior
Product Manager for Protropin (human growth hormone). He has also held sales
and marketing positions with Ciba Geigy. Mr. Yarson received a B.S. degree from
Sacred Heart University in 1975.
JAMES G. ANDRESS has been a director since September, 1990. Mr. Andress is a
former Chairman of the Pharmaceuticals Group, Beecham Group, plc and the former
President and Chief Operating Officer of Sterling Drug, Inc. He currently
serves as President, Chief Executive Officer and director of Information
Resources, Inc., a decision support software and consumer packaged goods
research company. Mr. Andress is a director of Genelabs Technologies, Inc.,
Genetics Institute, Inc. and NeoRx, Inc., which are all biotechnology
companies. He also serves as a director of Sepracor, Inc., a separations
technology company, O.P.T.I.O.N. Care, Inc., a home health care company,
America OnLine, Inc., a computer database service company, Allstate Insurance
Company, and Walsh International, Inc., a prescription tracking service
company.
MORTON COLLINS, Ph.D., has been a director since November, 1982. Dr. Collins
has been a General Partner of DSV Partners III, a venture capital limited
partnership, since 1981 and a General Partner of DSV Management, Ltd., since
1982. Since 1985, DSV Management, Ltd. has been a General Partner of DSV
Partners IV, a venture capital limited partnership. Dr. Collins served as
Chairman of the Board and Chief Executive Officer of the Company from June to
December, 1989. He is also a director of Tandem Computers Inc., a computer
company, ThermoTrex Corporation, a laser and optics electronics company, and
Kopin Corporation, a manufacturing company.
STUART F. FEINER has been a director since February, 1984. Mr. Feiner has
been Executive Vice President, General Counsel and Secretary of Inco Limited,
an international mining and metals company, since August, 1993 and served as
Vice President, General Counsel and Secretary from April, 1992 to August, 1993.
Mr. Feiner was President of Inco Venture Capital Management, the venture
capital unit of Inco Limited, from January, 1984 to April, 1992. Mr. Feiner is
also a director of ImmunoGen, Inc., a biotechnology company.
33
<PAGE>
ROBERT F. HENDRICKSON has been a director of the Company since March, 1992.
Mr. Hendrickson was Senior Vice President, Manufacturing and Technology for
Merck & Co., Inc., a pharmaceutical company, from 1985 to 1990. Since 1990, Mr.
Hendrickson has been a manufacturing consultant with a number of biotechnology
and pharmaceutical companies among his clients. He is currently Chairman of the
Board of Envirogen Inc., an environmental biotechnology company, and was a
director of Synergen, Inc., a biotechnology company, through December, 1994.
BENGT SAMUELSSON, M.D., has been a director of the Company since January,
1994. Dr. Samuelsson is President of the Karolinska Institutet in Stockholm,
Sweden, where he is also Professor of Physiological Chemistry, a position which
he has held since 1972. He was one of three recipients who shared the 1982
Nobel Prize in medicine for their work on prostaglandins, specifically the
discovery of prostanoids and leukotrienes. In addition to the Nobel Prize, he
has received a number of other prestigious awards. He has been a member of the
Company's Cell Adhesion Scientific Advisory Board since May, 1991. Dr.
Samuelsson is Chairman of the Nobel Foundation, a member of the Supervisory
Board of Schering AG, Berlin, Germany, a pharmaceutical company, and a member
of the Board of Directors of Pharmacia AB, a pharmaceutical company.
JOSEPH T. STEWART, Jr., has been a director of the Company since January,
1995. Mr. Stewart is currently an Executive Consultant to the Vice Chairman of
Johnson & Johnson. Until 1989, he was associated for twenty-two years with
Squibb Corporation, where he held several positions of increasing
responsibility, including most recently Senior Vice President, Corporate
Affairs and previously Vice President, Finance and Planning. He also served as
a member of the Board of Directors of Squibb Corporation. He is currently a
director of General American Investors Company, Inc., and a trustee of the
Foundation of the University of Medicine and Dentistry of New Jersey and the
New School for Social Research.
GERALD WEISSMANN, M.D., has been a director of the Company since 1981. Dr.
Weissmann has been a Professor of Medicine at, the Division of Rheumatology of
the Department of Medicine at New York University Medical Center since 1973.
Dr. Weissmann is Chairman of the Company's Cell Adhesion Scientific Advisory
Board and the Company's Cancer Scientific Advisory Board He is also on the
Board of Trustees of the Marine Biological Laboratory, Woods Hole,
Massachusetts, a not-for-profit research organization.
DR. HORST WITZEL has been a director of the Company since July, 1990. Dr.
Witzel is the former Chairman of the Board of Executive Directors of Schering
AG, Berlin, Germany. He is a director of Cephalon, Inc., a neuroscience
company, and Aastrom Biosciences, Inc., a cellular therapy medical products
company.
34
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of January 31, 1995 or the most
recent practicable date by (i) each director, the Chief Executive Officer and
the four other most highly compensated individuals who served as officers of
the Company as of December 31, 1994 (such officers, together with the Chief
Executive Officer, are referred to as the "Named Executive Officers"), of the
Company, (ii) each stockholder known by the Company to own more than five
percent of the outstanding Common Stock, and (iii) all directors and executive
officers, including the Named Executive Officers, as a group. Except as
otherwise indicated, the Company believes that the beneficial owners of the
securities listed below, based on information furnished by such owners, have
sole investment and voting power with respect to the shares of Common Stock
shown as being beneficially owned by them.
<TABLE>
<CAPTION>
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF TOTAL
---------------- ---------------- ----------------
<S> <C> <C>
Ardsley Advisory Partners(1)................ 3,100,500 12.9
450 Park Avenue
New York, NY 10022
Amerindo Investment Advisors................ 1,531,500 6.4
388 Market Street
San Francisco, CA 94111
DSV Management, Ltd.(2)(3).................. 65,000 *
221 Nassau Street
Princeton, NJ 08542
Charles A. Baker(3)(4)...................... 659,612 2.7
James G. Andress(3)......................... 35,000 *
Morton Collins, Ph.D.(2)(3)................. 65,000 *
Stuart F. Feiner(3)......................... 15,000 *
Robert F. Hendrickson(3).................... 24,000 *
Bengt Samuelsson, M.D(3). .................. 12,000 *
Joseph T. Stewart, Jr....................... -- *
Gerald Weissmann, M.D.(3)(5)................ 85,790 *
Horst Witzel, Dr.-Ing(3).................... 55,000 *
Brooks Boveroux(3)(4)....................... 28,695 *
David S. Gordon, M.D.(3)(4) ................ 40,509 *
Guenter E. Ksionski, M.D.(3)(4) ............ 20,264 *
Edward G. Silverman(3)(4)................... 96,415 *
All directors and executive officers as a
group
(19 persons) (2)(3)(4)(5).................. 1,211,118 4.8
</TABLE>
--------
* Less than one percent.
(1) Ardsley Advisory Partners holds the Company's Common Stock in
discretionary accounts and investment partnerships which are managed by it
and its affiliates.
(2) Dr. Morton Collins, a Director of the Company, is also a General Partner
of DSV Management, Ltd. ("DSV") and may be deemed to be the beneficial
owner of the shares held by DSV by virtue of his power to vote the shares
held by it. Dr. Collins disclaims the beneficial ownership of the 50,000
shares and the 15,000 exercisable stock options held by DSV, although such
shares are shown on the above table as being beneficially owned by him.
(3) Includes shares of Common Stock issuable upon the exercise of outstanding
options granted under the Company's stock option plans which become
exercisable within 60 days after January 31, 1995, as follows: Mr. Baker,
657,000; Mr. Andress, 35,000; Dr. Collins, 15,000 (see note 2 above); Mr.
Feiner, 15,000; Mr. Hendrickson, 24,000; Dr. Samuelsson, 12,000; Dr.
Weissman, 30,000; Dr. Witzel, 55,000; Mr. Boveroux, 27,983; Dr. Gordon,
37,962; Dr. Ksionski, 19,292; Mr. Silverman, 83,168; and all directors and
executive officers as a group, 1,126,810.
(4) Includes shares held by Chemical Bank as trustee of the Company's 401(k)
plan in the following amounts: Mr. Baker, 1,612; Mr. Boveroux, 712, Dr.
Gordon, 1,047; Dr. Ksionski, 972; Mr. Silverman, 1,247; and all directors
and executive officers as a group, 9,484.
(5) Dr. Gerald Weissman, a Director of the Company, disclaims beneficial
ownership of 5,790 shares held in trust for the estate of his father-in-
law, for which Dr. Weissman's wife serves as trustee.
35
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 60,000,000 shares of Common Stock, $.01
par value per share, and 2,400,000 shares of Serial Preferred Stock, $.01 par
value per share. As of January 31, 1995, there were 24,018,309 shares of Common
Stock outstanding held of record by approximately 1,480 stockholders. As of
January 31, 1995, there were 2,760,000 Depositary Shares ("Depositary Shares")
outstanding, each of which represents one-tenth of a share of Series A
Cumulative Convertible Exchangeable Preferred Stock (the "Series A Preferred
Stock").
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on any matters voted upon by stockholders.
Subject to preferences that may be applicable to any outstanding preferred
stock, holders of Common Stock are entitled to receive ratably such dividends
as may be declared by the Board of Directors out of funds legally available
therefore. See "Price Range of Common Stock and Dividend Policy." Upon the
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to receive all assets remaining after payment of liabilities and
the liquidation preferences of any outstanding preferred stock. The shares of
Common Stock have no conversion, preemptive or other rights to subscribe for
additional shares and are not subject to redemption or sinking fund provisions.
Outstanding shares of Common Stock are, and the shares of Common Stock offered
by the Company hereunder when issued will be, fully paid and nonassessable.
PREFERRED STOCK AND DEPOSITARY SHARES
The Certificate of Incorporation of the Company provides that the Board of
Directors of the Company has the authority, without further action of
stockholders, to issue up to 2,400,000 shares of its Serial Preferred Stock in
one or more series, and to fix the designations, rights, preferences, and
restrictions and the number of shares constituting any series. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of holders of any Serial Preferred Stock that may be issued in
the future. The issuance of shares of Serial Preferred Stock could have the
effect of delaying, deferring additional or preventing a change in control of
the Company. The Company has no current plans to issue any shares of Serial
Preferred Stock.
Each Depositary Share is convertible at the option of the holder at any time
into shares of Common Stock at an initial conversion price of $12.85 per share
of Common Stock, which is equivalent to a conversion rate of 1.9455 shares of
Common Stock for each Depositary Share, subject to adjustment in certain
events. Dividends on the Series A Preferred Stock are cumulative from the date
of original issue at an annual rate of 7 3/4% per share (equivalent to $1.9375
per annum per Depositary Share) and its liquidation preference is $25.00 per
Depositary Share, plus accrued and unpaid dividends. The Series A Preferred
Stock may not be redeemed prior to January 15, 1996. On or after such date, the
Series A Preferred Stock may be redeemed initially at an amount equivalent to
$26.40 per Depositary Share and thereafter at prices declining to an amount
equivalent to $25.00 per Depositary Share on and after January 15, 2003, plus,
in each case, all accrued and unpaid dividends. The Series A Preferred Stock is
exchangeable in whole, but not in part, at the option of the Company on any
dividend payment date beginning on January 15, 1996, for the Company's Series A
Convertible Subordinated Debentures due 2003 (the "Debentures") at the rate of
$250.00 principal amount of Debentures for each share of Series A Preferred
Stock, provided that all accrued and unpaid dividends, if any, on the Series A
Preferred Stock have been paid. Upon certain corporate changes or ownership
changes of the Company, holders of the Series A Preferred Stock will have
special rights to convert their shares, subject to cash redemption at the
option of the Company. Except as required by law or with respect to the
creation or amendment of senior classes of preferred stock, the holders of
Series A Preferred Stock are not entitled to any
36
<PAGE>
voting rights unless the equivalent of six quarterly dividend payments thereon
are in arrears, in which case the number of directors of the Company will be
increased by two and the holders of Series A Preferred Stock, voting separately
as a class with the holders of shares of any other series of parity preferred
stock upon which like voting rights have been conferred and are exercisable,
will be entitled to elect two directors until the dividend arrearage has been
paid.
TRANSFER AGENT AND REGISTRAR
Midlantic Bank acts as transfer agent and registrar for the Common Stock.
37
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Hambrecht
& Quist Incorporated and UBS Securities Inc. (the "Underwriters") have agreed
to purchase from the Company the following respective number of shares of
Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Hambrecht & Quist Incorporated.................................... 1,500,000
UBS Securities Inc. .............................................. 1,500,000
---------
Total........................................................... 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel. The nature
of the Underwriters' obligation is such that they are committed to purchase all
shares of Common Stock offered hereby if any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the offering price set forth on the cover of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow and such dealers may reallow a concession not
in excess of $ per share to certain other dealers. After the public offering
of the shares of Common Stock, the offering price and other selling terms may
be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters
will have a firm commitment to purchase approximately the same percentage
thereof which the number of shares of Common Stock to be purchased by it shown
in the above table bears to the total number of shares of Common Stock offered
hereby. The Company will be obligated, pursuant to the option, to sell such
shares to the Underwriters to the extent the option is exercised. 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.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act and to contribute
to payments the Underwriters may be required to make in respect thereof.
Certain officers of the Company, who own approximately 68% of the shares of
Common Stock held by the executive officers and directors of the Company, have
agreed that they will not, without Hambrecht & Quist's prior written consent,
offer, sell, or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock owned by them for a period of 90 days
following the commencement of the offering. The Company has agreed that it will
not, without Hambrecht & Quist's prior written consent, offer, sell or
otherwise dispose of any shares of Common Stock,
38
<PAGE>
options or warrants to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock for a period of 90
days following the commencement of the offering, except that the Company may
issue shares, options or warrants to (i) consultants and grantors of licensing
rights and (ii) directors, officers and employees in accordance with the
Company's customary practices.
In general, the rules of the Commission will prohibit the underwriters from
making a market in the Company's Common Stock during the "cooling off" period
immediately preceding the commencement of sales in the offering. The Commission
has, however, adopted exemptions from these rules that permit passive market
making under certain conditions. These rules permit an underwriter to continue
to make a market subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with the offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, the Underwriters, selling group members (if any)
or their respective affiliates may engage in passive market making in the
Company's Common Stock and the Depositary Shares representing Series A
Preferred Stock during the cooling off period.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company by Dewey Ballantine, 1301 Avenue of the Americas, New York, New
York 10019 and for the Underwriters by Shearman & Sterling, 599 Lexington
Avenue, New York, New York 10022.
EXPERTS
The consolidated balance sheets as of December 31, 1994 and 1993 and the
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1994, included in this
prospectus, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
Statements in this Prospectus under the captions "Risk Factors--Patents and
Proprietary Technology" and "Business--Patents and Proprietary Technology"
insofar as such statements constitute a summary of the law or documents
referred to therein have been reviewed by Dechert Price & Rhoads, special
patent counsel to the Company, and are included herein in reliance upon their
opinion as experts in such matters that such statements accurately summarize
the matters described therein. Allen Bloom, a partner of Dechert Price &
Rhoads, owns or has vested options to purchase 134,783 shares of Common Stock.
39
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of independent accountants......................................... F-2
Consolidated balance sheets at December 31, 1994 and 1993................. F-3
Consolidated statements of operations for each of the three years in the
period ended December 31, 1994........................................... F-4
Consolidated statements of stockholders' equity for each of the three
years in the period ended December 31, 1994.............................. F-5
Consolidated statements of cash flows for each of the three years in the
period ended December 31, 1994........................................... F-6
Notes to consolidated financial statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of The Liposome Company, Inc.:
We have audited the consolidated balance sheets of The Liposome Company, Inc.
and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Liposome
Company, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993 the
Company changed its method of accounting for certain investments in debt and
equity securities.
Coopers & Lybrand L.L.P.
Princeton, New Jersey
February 2, 1995
F-2
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,369 $ 4,670
Short-term investments.................................... 55,487 105,531
Accounts receivable....................................... 1,618 635
Inventories............................................... 748 214
Prepaid expenses.......................................... 419 657
Other current assets...................................... 31 21
-------- --------
Total current assets..................................... 60,672 111,728
Long-term investments...................................... 9,421 4,794
Plant and equipment, net................................... 17,686 17,767
Restricted cash............................................ 4,880 4,748
Intangibles, net........................................... 537 595
-------- --------
Total assets............................................. $ 93,196 $139,632
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,112 $ 3,197
Accrued expenses and other current liabilities............ 4,698 3,131
Current obligations under capital leases.................. 1,476 1,444
Current obligations under note payable.................... 303 303
Preferred Stock dividends payable......................... 1,337 1,337
Unearned contract income and other fees................... -- 177
-------- --------
Total current liabilities................................ 8,926 9,589
Long-term obligations under capital leases................. 4,126 5,602
Long-term obligations under note payable................... 1,791 2,094
-------- --------
Total liabilities........................................ 14,843 17,285
-------- --------
Stockholders' equity:
Capital stock:
Preferred Stock, par value $.01; 2,400,000 authorized;
276,000 shares of Series A Cumulative Convertible
Exchangeable Preferred Stock outstanding (liquidation
preference of $69,000,000).............................. 3 3
Common Stock, par value $.01; 60,000,000 shares
authorized; 23,982,849 and 23,705,434 shares issued and
outstanding............................................. 240 237
Additional paid-in capital................................. 192,003 196,655
Net unrealized investment (loss)/gain...................... (5,033) 650
Foreign currency translation adjustment.................... (1) 8
Accumulated deficit........................................ (108,859) (75,206)
-------- --------
Total stockholders' equity........................... 78,353 122,347
-------- --------
Total liabilities and stockholders' equity........... $ 93,196 $139,632
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Collaborative research and development revenues... $ 5,831 $ 4,877 $ 5,767
Licensing and other fees.......................... 50 541 312
Interest and investment income, net............... 4,559 7,624 4,810
-------- -------- -------
Total revenues.................................. 10,440 13,042 10,889
-------- -------- -------
Research and development expenses................. 31,713 25,072 15,000
General and administrative expenses............... 12,072 10,193 5,488
Interest expenses................................. 308 254 76
-------- -------- -------
Total expenses.................................. 44,093 35,519 20,564
-------- -------- -------
Net loss........................................ (33,653) (22,477) (9,675)
Preferred Stock dividends......................... (5,348) (5,348) --
-------- -------- -------
Net loss applicable to Common Stock............... $(39,001) $(27,825) $(9,675)
======== ======== =======
Net loss per share applicable to Common Stock..... $ (1.64) $ (1.18) $ (.43)
======== ======== =======
Weighted average number of common shares
outstanding...................................... 23,850 23,536 22,384
======== ======== =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE FIGURES)
<TABLE>
<CAPTION>
SHARES
-------------------- ADDITIONAL
PREFERRED COMMON PAR PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK VALUE CAPITAL OTHER DEFICIT EQUITY
--------- ---------- ----- ---------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 3l,
1991................... -- 19,666,023 $197 $ 89,729 $ (11) $ (43,054) $ 46,861
Issuance of stock:
For cash............... -- 3,450,000 35 44,568 -- -- 44,603
To 401K plan........... -- 6,075 -- 72 -- -- 72
For product rights..... -- 46,582 -- 600 -- -- 600
Exercise of stock
options................ -- 309,730 3 718 18 -- 739
Net loss for 1992....... -- -- -- -- -- (9,675) (9,675)
------- ---------- ---- -------- ------- --------- --------
Balance, December 3l,
1992................... -- 23,478,410 $235 $135,687 $ 7 $ (52,729) $ 83,200
======= ========== ==== ======== ======= ========= ========
Issuance of stock:
For cash............... 276,000 -- 3 65,732 -- -- 65,735
To 401K plan........... -- 24,390 -- 182 -- -- 182
Exercise of stock
options................ -- 202,634 2 402 -- -- 404
Dividends on Preferred
Stock.................. -- -- -- (5,348) -- -- (5,348)
Net unrealized
investment gain........ -- -- -- -- 650 -- 650
Foreign currency
translation adjustment. -- -- -- -- 1 -- 1
Net loss for 1993....... -- -- -- -- -- (22,477) (22,477)
------- ---------- ---- -------- ------- --------- --------
Balance, December 31,
1993................... 276,000 23,705,434 $240 $196,655 $ 658 $ (75,206) $122,347
======= ========== ==== ======== ======= ========= ========
Issuance of stock:
To 401K plan........... -- 31,254 -- 196 -- -- 196
Exercise of stock
options................ -- 246,161 3 500 -- -- 503
Dividends on Preferred
Stock.................. -- -- (5,348) -- -- (5,348)
Net unrealized
investment (loss)...... -- -- -- -- (5,683) -- (5,683)
Foreign currency
translation adjustment. -- -- -- -- (9) -- (9)
Net loss for 1994....... -- -- -- -- -- (33,653) (33,653)
------- ---------- ---- -------- ------- --------- --------
Balance, December 31,
1994................... 276,000 23,982,849 $243 $192,003 $(5,034) $(108,859) $ 78,353
======= ========== ==== ======== ======= ========= ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(33,653) $ (22,477) $ (9,675)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization................. 3,145 1,622 798
Issuance of stock for product rights.......... -- -- 600
Other......................................... 196 222 166
Changes in assets and liabilities:
Accounts receivable.......................... (983) (542) 20
Inventory.................................... (534) (170) 9
Prepaid expenses............................. 238 455 (796)
Other current assets......................... (11) 341 (1,096)
Accounts payable............................. (2,195) 880 1,452
Accrued expenses and other current
liabilities................................. 1,567 1,423 613
Unearned contract income and other fees...... (177) (702) (631)
-------- --------- --------
Net cash used by operating activities.......... (32,407) (18,948) (8,540)
-------- --------- --------
Cash flows from investing activities:
Purchases of short and long-term investments... (38,284) (205,982) (97,361)
Sales of short and long-term investments....... 78,019 170,057 69,029
Restricted cash................................ (132) (4,748) --
Purchases of property, plant and equipment..... (2,896) (7,651) (9,817)
Payments on employee receivable notes.......... -- 10 20
-------- --------- --------
Net cash provided/(used) by investing
activities................................... 36,707 (48,314) (38,129)
-------- --------- --------
Cash flows from financing activities:
Net proceeds from issuance of stock............ -- 65,735 44,603
Exercises of stock options..................... 503 404 721
Stockholder receivables........................ -- -- 18
Receipt of proceeds from note payable.......... -- -- 2,800
Principal payments under note payable.......... (303) (302) (101)
Receipt of proceeds from capital lease
obligations................................... -- 7,496 --
Principal payments under capital lease
obligations................................... (1,444) (450) (18)
Preferred Stock dividend payments.............. (5,348) (4,011) --
-------- --------- --------
Net cash (used)/provided by financing
activities................................... (6,592) 68,872 48,023
-------- --------- --------
Effects of exchange rate changes on cash........ (9) 1 --
-------- --------- --------
Net (decrease)/increase in cash and cash
equivalents.................................... (2,301) 1,611 1,354
Cash and cash equivalents at beginning of year.. 4,670 3,059 1,705
-------- --------- --------
Cash and cash equivalents at end of year........ $ 2,369 $ 4,670 $ 3,059
======== ========= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS:
The Liposome Company, Inc. (the "Company") is a leading biotechnology
company engaged in the discovery, development and, recently, the
commercialization of proprietary lipid and liposome-based pharmaceuticals for
the treatment, prevention and diagnosis of inadequately treated, life-
threatening illnesses. The Company is currently launching its first product,
amphotericin B lipid complex (ABLC(R) or, in Europe, Abelcet(TM)), which has
been approved for marketing for certain indications in the United Kingdom and
is the subject of marketing application filings in seventeen other countries.
The Company expects to file an NDA for ABLC(R) in the United States during
1995. In addition to ABLC(R)/Abelcet(TM), the Company's other lead products
are TLC D-99 and TLC C-53. TLC D-99, liposomal doxorubicin, is being developed
in conjunction with a corporate sponsor primarily as a first line treatment of
metastatic breast cancer. TLC C-53, liposomal prostaglandin E/1/, is being
developed for the treatment of acute respiratory distress syndrome and acute
myocardial infarction. The Company also has a continuing discovery research
program which concentrates primarily on the treatment of cancer and
inflammatory conditions.
CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany transactions and balances
are eliminated in consolidation.
REVENUE RECOGNITION AND UNEARNED CONTRACT INCOME:
Payments for collaborative research and development are generally received
in advance and are recognized as revenue, ratably, as the research and
development is performed. Licensing fees, royalty and hurdle payments are
recognized in the period earned.
The Company has entered into various collaborative research and development
contracts. The Company earned substantially all of its research and
development revenues from two corporate sponsors in 1994 and 1993, and three
in 1992. Corporate sponsors who contributed 10% or more of the Company's total
revenues, pursuant to collaborative agreements and licensing and other fees as
reported in the statements of operations, in any year were as follows:
<TABLE>
<CAPTION>
CORPORATE SPONSORS 1994 1993 1992
------------------ --------- --------- ----------
<S> <C> <C> <C>
A.......................................... $ -- $ -- $ 600,000
B.......................................... 4,694,000 4,497,000 4,579,000
C.......................................... 1,116,000 333,000 500,000
</TABLE>
RESEARCH AND DEVELOPMENT EXPENSES:
The research and development expenses of the Company, which are expensed as
incurred, include those efforts related to collaborative research and
development agreements, development of the Company's proprietary products and
general research. The expenses include, but are not limited to, medical,
biostatistical, regulatory, manufacturing and scientific support costs.
DEPRECIATION AND AMORTIZATION:
Building and building improvements, furniture and fixtures, automobiles, and
machinery and equipment are depreciated by the straight-line method over their
estimated useful lives ranging from three to twenty years. Leasehold
improvements and machinery and equipment under capital leases are amortized by
the straight-line method over the lesser of their estimated useful lives or
the terms of the related leases. Purchased patents are amortized by the
straight-line method over their life as determined by the country of issuance.
The Company reviews the realizability of the patents on a quarterly basis.
F-7
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CASH EQUIVALENTS:
The Company considers all highly liquid investments with maturities of three
months or less as cash equivalents.
INVESTMENTS:
Short-term investments represent marketable securities available for current
operations, all of which have been classified as available for sale, while
long-term investments represent marketable securities available for expected
capital acquisitions. These investments, which are all investment grade, are
stated at market value of the portfolio.
On December 31, 1993, the Company adopted the provisions of the Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities. This Statement requires certain
investments in debt and equity securities to be reported at current market
value. Prior to 1993 investments were carried at the lower of cost or market.
For the years ended December 31, 1994 and 1993, investment income includes
gross realized gains of $150,000 and $765,000, respectively. At December 31,
1994 and 1993, investments included gross unrealized gains of $7,000 and
$845,000 and losses of $5,040,000 and $195,000, respectively. The fair values
of debt securities maturing within one year and and after one year but less
than 5 years, amounted to $5,954,000 and $57,148,000, respectively.
RESTRICTED CASH:
The Company has entered into certain financing arrangements that require the
issuance of letters of credit that are partially secured by certain securities.
The aggregate amount of these securities are segregated and identified as
restricted cash. The Company is also required to maintain minimum cash balances
in connection with these financings.
NET LOSS PER SHARE APPLICABLE TO COMMON STOCK:
Net loss per share applicable to Common Stock is computed based on the
weighted average of the Common Stock shares outstanding. Common Stock
equivalents are not included in the computation of weighted average shares
outstanding since the effect would be anti-dilutive.
RECLASSIFICATION:
Certain reclassifications have been made to the prior year financial
statement amounts to conform with the presentation in the current year
financial statements.
2. STOCKHOLDERS' EQUITY:
PREFERRED STOCK:
In January 1993, the Company completed an offering of 2,760,000 Depositary
Shares, each of which represents one-tenth of a share of Series A Cumulative
Convertible Exchangeable Preferred Stock carrying a 7 3/4% dividend rate. The
liquidation value is $25.00 per Depositary Share, plus accrued and unpaid
dividends. Each Depositary Share is convertible at any time into shares of the
Company Common Stock at a conversion price of $12.85 per share of Common Stock,
which is equivalent to a conversion rate of 1.9455 shares of Common Stock for
each Depositary Share. 5,369,580 shares of Common Stock are reserved for such
conversion. The proceeds to the Company were $66,240,000 net of underwriter
fees. Additional stock issuance costs, including professional, registration,
filing and printing fees of approximately $505,000 were incurred in connection
with this offering.
F-8
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PREFERRED STOCK DIVIDENDS:
During 1994 and 1993, the Board of Directors of the Company declared the
quarterly cash dividends on the Series A Cumulative Convertible Exchangeable
Preferred Stock at a prorated dividend rate of $.484375 per Depositary Share.
Dividend payments in 1994 and 1993 totaled $5,348,000 and $4,011,000,
respectively. An additional dividend payment of $1,337,000 was paid on January
16, 1995 to stockholders of record on January 2, 1995.
COMMON STOCK:
In March 1992, the Company completed the sale of 3,450,000 shares of Common
Stock. Proceeds from the stock sale were $44,954,000 net of underwriter fees.
Additional stock issuance costs, including professional, registration, filing
and printing fees of approximately $351,000 were incurred in connection with
the sale.
3. STOCK OPTION PLANS:
The Company has several stock option plans available for the issuance of
incentive stock options and non-qualified stock options ("NQSO"). These options
are designed to attract and retain key employees, directors and consultants. As
of December 31, 1994, the Company had outstanding grants of 4,226,105 shares
and 1,455,808 shares available for grants, totaling 5,671,913 shares of Common
Stock reserved for stock option grants.
Options are granted at fair market value. These options generally become
exercisable in ratable installments over a five-year period. Options under the
1991 Non-Employee Directors NQSO Plan ("Directors' Plan") are automatically
granted upon appointment to the Board of Directors and annually on July 1 of
each year to such non-employee Directors. Such initial grants vest over a five
year period and subsequent annual grants vest in one year. Activity under all
stock option plans for 1992, 1993 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE RANGE PER
SHARES SHARE
--------- -------------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1991................... 2,737,080
Granted......................................... 705,275 $ 7.875 -- $ 22.75
Exercised....................................... (309,730) .85 -- 9.75
Forfeited....................................... (45,535) 1.25 -- 22.75
---------
Outstanding December 31, 1992................... 3,087,090
Granted......................................... 1,243,470 5.75 -- 11.75
Exercised....................................... (202,634) .75 -- 3.625
Forfeited....................................... (261,339) 1.0625 -- 16.50
---------
Outstanding December 31, 1993................... 3,866,587
Granted......................................... 1,042,320 5.75 -- 10.1875
Exercised....................................... (246,161) 2.036 -- 8.00
Forfeited....................................... (436,641) .85 -- 21.25
---------
Outstanding at December 31, 1994................ 4,226,105
=========
Exercisable at December 31, 1994................ 2,141,990 $ .85 -- $ 21.25
=========
</TABLE>
F-9
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Building and building improvements................. $ 2,778,000 $ 2,771,000
Land and land improvements......................... 423,000 423,000
Automobiles........................................ 12,000 12,000
Furniture and fixtures............................. 1,574,000 814,000
Machinery and equipment............................ 9,070,000 8,172,000
Leasehold improvements and other................... 4,597,000 3,870,000
Construction in process............................ 2,269,000 1,682,000
Machinery and equipment under capital lease........ 7,496,000 7,496,000
----------- -----------
Total property, plant and equipment................ 28,219,000 25,240,000
Less: Accumulated depreciation and amortization.... (10,533,000) (7,473,000)
----------- -----------
Net property, plant and equipment.................. $17,686,000 $17,767,000
=========== ===========
</TABLE>
5. INVENTORIES:
The components of inventory are as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Raw Materials........................................... $611,000 $214,000
Supplies................................................ 137,000 --
-------- --------
$748,000 $214,000
======== ========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
Operating Leases:
Total rental expense for property, plant and equipment was approximately
$1,618,000, $1,139,000, and $739,000 for 1994, 1993 and 1992, respectively.
The Company's future minimum lease payments under noncancelable operating
leases at December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995.............................. $1,326,000
1996.............................. 1,289,000
1997.............................. 1,252,000
1998.............................. 753,000
1999.............................. 568,000
2000 and thereafter............... 4,596,000
----------
Total........................... $9,784,000
==========
</TABLE>
CAPITAL LEASES:
On July 1, 1993 the Company entered into an agreement which provided for
equipment lease financing. As of December 31, 1994, the Company had received a
total of $7,496,000 under the lease financing agreement in sale-leaseback
refinancings outstanding against this arrangement. The sale-leaseback
refinancings are secured by $3,748,000 in standby letters of credit provided
under a letter of credit agreement which is secured by AAA rated securities
owned by the Company. The Company is required to maintain a minimum balance of
$20,000,000 in cash and marketable securities, including those securities
securing the letters of credit in connection with the lease financing.
F-10
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a schedule by year of future minimum payments under capital
leases together with the present value of the minimum lease payments and the
capital lease portion of certain classes of property as of December 31, 1994:
<TABLE>
<CAPTION>
<S> <C>
1995..................................................... $1,584,000
1996..................................................... 1,584,000
1997..................................................... 1,584,000
1998..................................................... 1,084,000
1999..................................................... --
2000 and thereafter...................................... --
----------
Total minimum lease payments................................. 5,836,000
Less: Amount representing interest........................... (234,000)
----------
Present value of minimum lease payments...................... $5,602,000
==========
</TABLE>
CLASSES OF PROPERTY:
<TABLE>
<S> <C>
Machinery.................................................... $4,205,000
Leasehold improvements....................................... 3,291,000
----------
Total machinery and leasehold improvements................... 7,496,000
Less: Accumulated amortization............................... (2,058,000)
----------
Net machinery and leasehold improvements..................... $5,438,000
==========
</TABLE>
7. LONG-TERM DEBT:
On July 24, 1992, The Liposome Manufacturing Company, Inc., a wholly-owned
subsidiary of The Liposome Company, Inc., entered into a mortgage-backed note
to partially fund the purchase of a pharmaceutical manufacturing facility in
Indianapolis, Indiana. The principal will be paid in equal installments of
$25,225 each month plus accrued interest. The note payments will be completed
on November 1, 2001. The interest rate, based on the prime rate plus 1/2%, has
a floor and ceiling of 6% and 10%, respectively. The note is guaranteed by The
Liposome Company, Inc. and the mortgage lending institution is holding a
$1,000,000 AAA rated security owned by The Liposome Company, Inc. as collateral
for the note. The Company is required to maintain a minimum balance of
$10,000,000 in cash and marketable securities, including those securities
securing the letter of credit in connection with the financing.
The Liposome Manufacturing Company's principal repayment obligations as of
December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995........................................ $ 303,000
1996........................................ 303,000
1997........................................ 303,000
1998........................................ 303,000
1999........................................ 303,000
2000 and thereafter......................... 579,000
----------
Subtotal.................................. 2,094,000
Less: Current portion....................... (303,000)
----------
Total..................................... $1,791,000
==========
</TABLE>
F-11
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. SUPPLEMENTAL INFORMATION:
ACCRUED EXPENSES:
The components of accrued expenses are as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Accrued expenses for preclinical and clinical
programs............................................ $2,068,000 $1,527,000
Accrued legal fees.................................. 344,000 235,000
Accrued wages and vacation.......................... 433,000 585,000
Other............................................... 1,853,000 784,000
---------- ----------
Total............................................. $4,698,000 $3,131,000
========== ==========
</TABLE>
STATEMENT OF CASH FLOW:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Supplemental disclosure of cash flow informa-
tion:
Cash paid during the year for interest........ $310,000 $251,000 $66,000
======== ======== =======
</TABLE>
9. INCOME TAXES:
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. The Company provides a valuation allowance against the net deferred
tax debits due to the uncertainty of realization. The increase in the valuation
allowance for the year ended December 31, 1994 was $16,050,000.
Temporary differences and carryforwards which give rise to the deferred tax
assets and liabilities at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
DEFERRED DEFERRED
TAX ASSETS TAX LIABILITIES
------------ ---------------
<S> <C> <C>
Depreciation.................................. $ 517,000 --
Net unrealized investment loss................ 1,711,000 --
State taxes (net of Federal benefit).......... 5,533,000 --
Amortization.................................. 709,000 --
Net operating losses--Federal................. 34,480,000 --
Other......................................... 355,000 --
Tax credits................................... 2,905,000 --
------------ -------
Subtotal...................................... 46,210,000 --
------------ -------
Valuation allowance--Federal.................. (40,677,000) --
Valuation allowance--State.................... (5,533,000) --
------------ -------
Total deferred taxes........................ $ 0 $ 0
============ =======
</TABLE>
At December 31, 1994, the Company had approximately $101,412,000 of net
operating loss carryforwards, $45,000 of investment tax credit carryforwards,
and $2,860,000 of research and
F-12
<PAGE>
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
development credit carryforwards. These carryforwards expire in the periods
1996 through 2009. The timing and manner in which these losses are used may be
limited as a result of certain ownership changes which occurred as provided by
IRS Regulations under Section 382.
10. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data (in thousands of dollars, except for per
share) for the years ended December 31, 1994, and 1993 is as follows:
<TABLE>
<CAPTION>
QUARTER
------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- -------- --------
1994
<S> <C> <C> <C> <C>
Total revenues........................... $ 3,036 $ 2,941 $ 2,446 $ 2,017
Total expenses........................... 9,874 11,084 11,127 12,008
------- ------- -------- --------
Net loss................................. (6,838) (8,143) (8,681) (9,991)
Preferred stock dividends................ (1,337) (1,337) (1,337) (1,337)
------- ------- -------- --------
Net loss applicable to Common Stock...... $(8,175) $(9,480) $(10,018) $(11,328)
======= ======= ======== ========
Net loss per share applicable to Common
Stock................................... $ (.34) $ (.40) $ (.42) $ (.48)
======= ======= ======== ========
<CAPTION>
QUARTER
------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- -------- --------
1993
<S> <C> <C> <C> <C>
Total revenues........................... $ 2,847 $ 3,556 $ 3,480 $ 3,159
Total expenses........................... 6,354 7,220 10,797 11,148
------- ------- -------- --------
Net loss................................. (3,507) (3,664) (7,317) (7,989)
Preferred Stock dividends................ (1,337) (1,337) (1,337) (1,337)
------- ------- -------- --------
Net loss applicable to Common Stock...... $(4,844) $(5,001) $ (8,654) $ (9,326)
======= ======= ======== ========
Net loss per share applicable to Common
Stock................................... $ (.21) $ (.21) $ (.37) $ (.39)
======= ======= ======== ========
</TABLE>
F-13
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPEC-
TUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR
THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OF-
FER TO BUY TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION WOULD BE UNLAWFUL
OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY OFFER OR
SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IM-
PLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COM-
PANY OR THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by Reference......................... 2
Prospectus Summary...................................................... 3
Risk Factors............................................................ 5
The Company............................................................. 9
Use of Proceeds......................................................... 10
Price Range of Common Stock and Dividend Policy......................... 11
Capitalization.......................................................... 12
Selected Consolidated Financial Data.................................... 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 14
Business................................................................ 18
Management.............................................................. 31
Principal Shareholders.................................................. 35
Description of Capital Stock............................................ 36
Underwriting............................................................ 38
Legal Matters........................................................... 39
Experts................................................................. 39
Index to Consolidated Financial Statements.............................. F-1
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
3,000,000 SHARES
[The Liposome
Company logo]
COMMON STOCK
-----------
PROSPECTUS
-----------
HAMBRECHT & QUIST
INCORPORATED
UBS SECURITIES INC.
, 1995
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be born by the
Company in connection with the issuance and distribution of the securities
being registered hereby other than underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC registration fee......................................... $ 12,937.50
NASD filing fee.............................................. 3,751.88
Accountants' fees and expenses*.............................. 25,000.00
Legal fees and expenses*..................................... 200,000.00
Blue Sky qualification legal fees and expenses*.............. 30,000.00
Cost of printing and engraving*.............................. 100,000.00
Miscellaneous*............................................... 45,810.62
-----------
Total...................................................... $417,500.00
===========
</TABLE>
--------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, among other things, and
subject to certain conditions, authorizes the Company to indemnify its officers
and directors against certain liabilities and expenses incurred by such persons
in connection with claims made by reason of their being such an officer or
director. The By-laws of the Company provide for indemnification of its
officers and directors to the full extent authorized by law.
The Company's Certificate of Incorporation provides that no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty or loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the Director derived any improper personal benefit. Any
repeal or modification of the foregoing amendment after its adoption by the
stockholders of the Company will not adversely affect any right or protection
of a director of the Company existing at the time of such repeal or
modification.
The Board of Directors and the Company's stockholders have approved the use
of an indemnification agreement (the "Indemnification Agreement"). The
Indemnification Agreement requires that the Company indemnify directors and
executive officers who are parties thereto in all cases to the fullest extent
permitted by applicable Delaware law. This contract right to indemnification
gives all directors and executive officers protection against a subsequent
adverse change in the Company's indemnification provisions in its By-laws on a
change of control of the Company.
The Company has obtained an insurance policy insuring its officers and
directors for certain acts in connection with their services as such.
Reference is made to the Underwriting Agreement, the proposed form of which
is filed as Exhibit 1, in which each underwriter agrees to indemnify the
directors and certain officers of the Registrant and certain other persons
against certain civil liabilities.
ITEM 16. EXHIBITS
The following exhibits are filed as part of this Registration Statement:
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
-------- -----------------------
<C> <S>
* 1 --Form of Underwriting Agreement.
4.1 --Provisions of the Articles of Incorporation of the Registrant defining
rights of holders of Common Stock of the Registrant (Exhibit 3(i)-01 to the
Company's annual report on Form 10-K for the year ended December 31, 1994,
incorporated herein by reference thereto).
4.2 --Provisions of the By-laws of the Registrant defining rights of holders of
the Common Stock of the Registrant (Exhibit 4.5 to Registration Statement
No. 33-23292, incorporated herein by reference thereto).
* 5 --Opinion of Dewey Ballantine.
*23.1 --Consent of Dewey Ballantine (included in Exhibit 5).
23.2 --Consent of Coopers & Lybrand L.L.P.
*23.3 --Consent of Dechert Price & Rhoads.
*24 --Power of Attorney.
</TABLE>
--------
* Previously filed.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant described in Item 15 or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for the indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) For purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF PLAINSBORO, STATE OF
NEW JERSEY ON THE 30TH DAY OF MARCH, 1995.
THE LIPOSOME COMPANY, INC.
/s/ Brooks Boveroux
By: ____________________________________
BROOKS BOVEROUX
VICE PRESIDENT, FINANCE, CHIEF
FINANCIAL OFFICER AND TREASURER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS ON THE 30TH DAY OF MARCH, 1995 IN THE CAPACITIES INDICATED.
* Chairman of the Board of
---------------------------------------- Directors, President, Chief
CHARLES A. BAKER Executive Officer and
Director (Principal
Executive Officer)
* Executive Vice President and
---------------------------------------- Chief Operating Officer
EDWARD G. SILVERMAN
/s/ Brooks Boveroux Vice President, Finance,
---------------------------------------- Chief Financial Officer and
BROOKS BOVEROUX Treasurer (Principal
Financial Officer)
* Controller (Principal
---------------------------------------- Accounting Officer)
DENNIS RODRIGUES
Director
----------------------------------------
JAMES G. ANDRESS
* Director
----------------------------------------
MORTON COLLINS, PH.D.
* Director
----------------------------------------
STUART F. FEINER
II-3
<PAGE>
* Director
----------------------------------------
ROBERT F. HENDRICKSON
Director
----------------------------------------
BENGT SAMUELSSON, M.D.
* Director
----------------------------------------
JOSEPH T. STEWART, JR.
Director
----------------------------------------
GERALD WEISSMANN, M.D.
* Director
----------------------------------------
HORST WITZEL, DR. - ING.
*/s/ Carol J. Gillespie
----------------------------------------
CAROL J. GILLESPIE
ATTORNEY-IN FACT
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
------- ---------------------- ----------
<S> <C> <C>
*1 --Form of Underwriting Agreement.
4.1 --Provisions of the Articles of Incorporation of the Registrant
defining rights of holders of Common Stock of the Registrant
(Exhibit 3(i)-01 to the Company's annual report on Form 10-K for
the year ended December 31, 1994, incorporated herein by reference
thereto).
4.2 --Provisions of the By-laws of the Registrant defining rights of
holders of the Common Stock of the Registrant (Exhibit 4.5 to
Registration Statement No. 33-23292, incorporated herein by
reference thereto).
*5 --Opinion of Dewey Ballantine.
*23.1 --Consent of Dewey Ballantine (included in Exhibit 5).
23.2 --Consent of Coopers & Lybrand L.L.P.
*23.3 --Consent of Dechert Price & Rhoads.
*24 --Power of Attorney
</TABLE>
* Previously filed.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-3 of our
report dated February 2, 1995, on our audits of the financial statements of The
Liposome Company, Inc. We also consent to the reference to our firm under the
captions "Selected Consolidated Financial Data" and "Experts."
Coopers & Lybrand L.L.P.
Princeton, New Jersey March 29, 1995
