<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1996
REGISTRATION NO. 333-1775
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ADVANCED MAGNETICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 4-2742593
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
725 CONCORD AVENUE
CAMBRIDGE, MASSACHUSETTS 02138
(617) 354-3929
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JEROME GOLDSTEIN
CHAIRMAN OF THE BOARD, PRESIDENT AND TREASURER
ADVANCED MAGNETICS, INC.
725 CONCORD AVENUE
CAMBRIDGE, MASSACHUSETTS 02138
(617) 354-3929
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
<TABLE>
COPIES TO:
<S> <C>
LESLIE E. DAVIS, ESQ. DAVID J. BEVERIDGE, ESQ.
TESTA, HURWITZ & THIBEAULT SHEARMAN & STERLING
HIGH STREET TOWER 599 LEXINGTON AVENUE
125 HIGH STREET NEW YORK, NEW YORK 10022
BOSTON, MASSACHUSETTS 02110 (212) 848-4000
(617) 248-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
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: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / / 33-
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / / 33-
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please 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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 25, 1996
1,350,000 SHARES
[LOGO] ADVANCED MAGNETICS, INC.
COMMON STOCK
------------------------
Of the 1,350,000 shares of Common Stock offered hereby, 1,100,000 shares
are being offered by Advanced Magnetics, Inc. and 250,000 shares are being
offered by certain stockholders of the Company (the "Selling Stockholders"). The
Company will not receive any proceeds from the sale of shares by the Selling
Stockholders. See "Principal and Selling Stockholders."
The Common Stock is traded on the American Stock Exchange under the symbol
AVM. On March 21, 1996, the closing sale price of the Common Stock was $22.125
per share. See "Price Range of Common Stock and Dividend Policy."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" AT PAGE
7.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
================================================================================================
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
- ------------------------------------------------------------------------------------------------
Total............................... $ $ $ $
- ------------------------------------------------------------------------------------------------
Total Assuming Full Exercise of
Over-Allotment Option(3).......... $ $ $ $
================================================================================================
<FN>
(1) See "Underwriting."
(2) Before deducting expenses estimated at $450,000, which are payable by the
Company.
(3) Assuming exercise in full of a 30-day option granted by the Company to the
Underwriters to purchase up to 202,500 additional shares of Common Stock, on
the same terms, solely to cover over-allotments. See "Underwriting."
</TABLE>
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made in New York City on or about March ,
1996.
------------------------
PAINEWEBBER INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
OPPENHEIMER & CO., INC.
TUCKER ANTHONY
INCORPORATED
------------------------
THE DATE OF THIS PROSPECTUS IS MARCH , 1996.
<PAGE> 3
[PICTURE] Fifty year old male with hepatocellular carcinoma.
MRI cross-sectional scan of abdomen without Feridex I.V. (top).
After administration of Feridex I.V. (bottom), the normal liver
appears dark while an approximately 15mm lesion
appears bright.
[PICTURE] A [PICTURE] B
Forty-three year old female with cancer of the external auditory canal and
suspected metastasis to the lymph nodes. MRI cross-sectional study of the neck
without Combidex (A) shows a large lymph node. MRI scan of the same neck
cross-section 24 hours after administration of Combidex (B) indicates a
metastatic tumor. Post-surgery analysis confirmed the presence of
metastatic disease.
---------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 4
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 and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Reports, proxy
and information statements filed by the Company with the Commission pursuant to
the informational requirements of the Exchange Act may be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can also be obtained from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street N.W., Washington, D.C. 20549 at prescribed rates. In addition,
reports, proxy statements and other information concerning the Company (symbol:
AVM) can be inspected and copied at the American Stock Exchange, 86 Trinity
Place, New York, New York 10006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto), under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. Copies of the Registration Statement, including all exhibits
thereto, may be obtained from the Commission's principal office in Washington
D.C. upon payment of the fees prescribed by the Commission or may be examined
without charge at the offices of the Commission as described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, heretofore filed by the Company with the
Commission pursuant to the Exchange Act, are incorporated by reference in this
Prospectus:
(i) Annual Report on Form 10-K for the fiscal year ended September 30,
1995;
(ii) Proxy Statement of the Company dated December 28, 1995 for its Annual
Meeting of Stockholders held on February 6, 1996;
(iii) Quarterly Report on Form 10-Q for the fiscal quarter ended December
31, 1995; and
(iv) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A.
Each document filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act prior to the termination of the offering of the shares
of Common Stock shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such documents.
The Company will provide without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus is delivered, upon the written or oral
request of any such person, a copy of any document (other than exhibits).
Requests for such copies should be directed to Marlene Goldstein, Advanced
Magnetics, Inc., 61 Mooney Street, Cambridge, MA 02138; telephone (617)
497-2070.
Any statement contained herein or in a document incorporated or deemed to
be incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document that is incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Feridex I.V.[Trademark] and Combidex[Trademark] are trademarks of the
Company. GastroMARK[Registered Trademark] is a registered trademark of
Mallinckrodt Medical, Inc. Endorem[Trademark], Sinerem[Trademark] and
Lumirem[Trademark] are trademarks of Guerbet, S.A. and are registered in France
and other jurisdictions. This Prospectus also includes trade names, trademarks
and registered trademarks of other companies.
3
<PAGE> 5
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised. Investors should
carefully consider the information set forth under the heading "Risk Factors."
Certain of the information contained in this summary and elsewhere in this
Prospectus are forward-looking statements which involve risks and uncertainties.
The Company's actual results may differ significantly from the results discussed
in the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed under "Risk Factors."
THE COMPANY
Advanced Magnetics develops, manufactures and markets organ-specific
contrast agents to improve the diagnostic capabilities of soft tissue magnetic
resonance imaging ("MRI") scans and is developing a drug delivery platform that
targets therapeutics to the liver for the treatment of certain liver diseases.
The Company is a leader in the development of organ-specific superparamagnetic
MRI contrast agents, including Feridex I.V. for the liver, GastroMARK for the
gastrointestinal system, and Combidex for the liver, spleen, lymphatic system
and blood flow. Sales of Feridex I.V. have commenced in Europe, and the Company
recently received an approvable letter from the U.S. Food and Drug
Administration ("FDA") for this product. GastroMARK has been approved for
marketing in several European countries and Canada, and a New Drug Application
("NDA") for this product was submitted to the FDA in November 1993. With respect
to Combidex, the Company and its collaborative partner in Europe, Guerbet, S.A.
("Guerbet"), have completed Phase II clinical trials in both the United States
and Europe for several indications. The Company has completed patient enrollment
for Phase III trials for Combidex in the United States for imaging liver lesions
and expects to begin separate Phase III trials in 1996 for Combidex as a blood
flow contrast agent in magnetic resonance angiography ("MRA"), a form of MRI
that assesses blood flow obstructions or constrictions. In 1996, the Company and
Guerbet expect to begin Phase III trials for Combidex in the United States and
Europe for imaging of lymph nodes. In addition to these contrast agents,
Advanced Magnetics is applying its organ-specific technology and expertise to
the development of a drug delivery platform targeting therapeutics to the liver
and expects to commence clinical trials in Europe for a treatment of hepatitis B
in 1996.
MRI is a diagnostic imaging technique that is used to identify internal
abnormalities and changes in structure. Contrast agents increase the usefulness
of MRI by allowing radiologists to differentiate structures and organs with
greater diagnostic confidence. The Company believes that MRI scans produced with
contrast agents are clearer and permit the identification of smaller
abnormalities than images produced by MRI without contrast agents or contrast
enhanced computerized tomography ("CECT"). MRI contrast agents frequently allow
for more accurate diagnosis and monitoring of treatment results and may be a
cost-effective way to optimize medical treatments and to improve patient
outcomes. Currently, the primary use of MRI is for studies of the central
nervous system, which accounted for approximately 74% of the estimated 7.4
million MRI studies performed in the United States in 1994. Approximately 29% of
these MRI studies were contrast enhanced at a cost to payors of approximately
$145 million for contrast agents. The Company believes that the development of
effective contrast agents will increase the use of MRI as a diagnostic imaging
technique and will allow MRI to be used for a wider range of applications, in
turn generating additional demand for MRI contrast agents.
No MRI contrast agents designed specifically for the liver or the lymphatic
system are currently being marketed anywhere in the world, except for the
Company's Feridex I.V. liver agent, which is being sold in Europe. The liver and
the lymphatic system are among the principal sites for metastasis of many common
cancers (including colon, prostate and breast cancer) originating in other parts
of the body. CECT is currently the primary imaging technique used to confirm a
preliminary or suspected diagnosis of liver cancer. With respect to the
lymphatic system, there currently are no effective imaging techniques. An MRI
contrast agent that localizes to and causes contrast enhancement of the lymph
nodes, such as Combidex, could allow for more accurate disease diagnosis and
monitoring of treatment results. The Company believes that Gas-
- ------------------------------------------------------------------------------
4
<PAGE> 6
- -------------------------------------------------------------------------------
troMARK, because it enhances the contrast between the bowel and other abdominal
structures, will increase the use of MRI as an imaging technology for the
abdomen. In light of these potential applications of MRI contrast agents, the
Company believes that it is well positioned to benefit from the expected demand
for such agents and to capture a portion of the over $3 billion worldwide market
for imaging agents, approximately $294 million of which was associated with MRI
in 1995.
In order to facilitate the marketing and distribution of its contrast
agents, the Company has entered into strategic relationships with certain
established pharmaceutical companies. These relationships, both in the United
States and abroad, include: (i) Guerbet, a leading European producer of contrast
agents, in Western Europe and Brazil; (ii) Eiken Chemical Co., Ltd. ("Eiken"),
one of Japan's leading medical diagnostics manufacturers, in Japan; (iii) Berlex
Laboratories, Inc., a division of Schering AG ("Berlex"), the leading marketer
in the United States of MRI contrast agents, in the United States; and (iv)
Mallinckrodt Medical, Inc. ("Mallinckrodt"), a leading manufacturer in the
United States of contrast agents, in the United States, Canada and Mexico.
The Company's expertise in organ-specific technology provides it with
biopharmaceutical opportunities beyond its core MRI contrast agent products.
Advanced Magnetics is developing a drug delivery platform that targets
therapeutics to the liver. The Company believes that arabinogalactan, a
naturally occurring polysaccharide that binds to the asialoglycoprotein ("ASG")
receptor found in abundance on hepatocytes, the principal cells comprising the
liver, has commercial promise in drug delivery. Arabinogalactan was initially
developed by the Company as a delivery agent for targeting contrast agents to
the liver because of its high specificity, low cost and lack of toxicity. The
Company is currently focusing on the development of a product for the treatment
of hepatitis B consisting of a conjugate of arabinogalactan and vidarabine
monophosphate ("AraAMP"). Vidarabine ("AraA") is an existing therapeutic agent
that has shown efficacy in the treatment of hepatitis B, but is unacceptably
toxic when used in an unconjugated form. Clinical trials for this product
candidate are expected to begin in 1996 in Europe. Advanced Magnetics intends to
study the efficacy of other therapeutic agents combined with arabinogalactan for
the treatment of hepatitis C, hepatitis D and liver cancer.
The Company was incorporated in Delaware in 1981. The Company's principal
executive offices are located at 725 Concord Avenue, Cambridge, Massachusetts
02138, and its telephone number is (617) 354-3929.
<TABLE>
THE OFFERING
<S> <C>
Common Stock Offered by the Company.... 1,100,000 shares of Common Stock, par value $.01 per share
(the "Common Stock")
Common Stock Offered by the Selling
Stockholders......................... 250,000 shares
Common Stock to be Outstanding after
the Offering......................... 7,866,642 shares(1)
Use of Proceeds........................ To fund research and development, clinical trials, working
capital, potential acquisitions and for general corporate
purposes. See "Use of Proceeds."
American Stock Exchange symbol......... AVM
<FN>
- ---------------
(1) Based on the number of shares outstanding at March 21, 1996. Excludes an
aggregate of 416,250 shares of Common Stock issuable pursuant to outstanding
stock options on that date.
</TABLE>
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5
<PAGE> 7
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<TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31,
---------------------------------- --------------------
1993 1994 1995 1994 1995
------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees.......................................... $ 1,010 $5,505 $ 5,000 $ -- $ --
Royalties............................................. 906 16 189 -- 75
Product sales......................................... 3,836 281 2,120 55 --
Contract research and development..................... 403 -- -- -- --
Interest, dividends and net gains and losses on sales
of securities....................................... 2,823 1,845 2,287 682 452
------- ------ ------- ------ -------
Total revenues(1)................................... 8,978 7,647 9,596 737 527
Costs and expenses:
Cost of product sales................................. 1,526 55 425 11 --
Contract research and development expenses............ 193 -- -- -- --
Company-sponsored research and development expenses... 6,863 6,622 8,602 1,598 2,161
Charge (credit) for purchase of in-process research
and development(2).................................. -- 760 (380) (380) --
Selling, general and administrative expenses.......... 2,778 1,964 1,759 316 291
------- ------ ------- ------ -------
Total costs and expenses............................ 11,360 9,401 10,406 1,545 2,452
Other income:
Gain on sale of in vitro product line(1).............. -- 2,650 3,405 -- --
------- ------ ------- ------ -------
Income (loss) before provision for income taxes and
cumulative effect of accounting change................ (2,382) 896 2,595 (808) (1,925)
Income tax provision.................................... -- 8 400 -- --
------- ------ ------- ------ -------
Income (loss) before cumulative effect of accounting
change................................................ (2,382) 888 2,195 (808) (1,925)
Cumulative effect of accounting change(3)............... -- -- 118 118 --
------- ------ ------- ------ -------
Net income (loss)....................................... $(2,382) $ 888 $ 2,313 $ (690) $(1,925)
======= ====== ======= ====== =======
Net income (loss) per share before cumulative effect of
accounting change..................................... $ (0.36) $ 0.13 $ 0.32 $(0.12) $ (0.28)
Cumulative effect of accounting change(3)............... -- -- 0.02 0.02 --
------- ------ ------- ------ -------
Income (loss) per share................................. $ (0.36) $ 0.13 $ 0.34 $(0.10) $ (0.28)
======= ====== ======= ====== =======
Weighted average number of common and common equivalent
shares................................................ 6,651 6,807 6,871 6,718 6,756
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 2,526 $24,953
Marketable securities................................................................. 37,691 37,691
Working capital....................................................................... 40,386 62,813
Total assets.......................................................................... 48,715 71,142
Stockholders' equity.................................................................. 47,390 69,817
<FN>
- ---------------
(1) On October 15, 1993, the Company sold its in vitro product line to
PerSeptive Biosystems, Inc. and recorded a $2,650,000 gain on the sale. The
sale also included a contingent earn-out based on 1995 revenues which
resulted in a $3,405,000 gain in 1995. Exclusive of the in vitro product
line revenues, 1993 total revenues would have been $3,961,000 consisting of
license fees of $1,000,000, contract research and development revenues of
$138,000, and total interest, dividends and net gains and losses on sales of
securities of $2,823,000.
(2) In August 1994, the Company reacquired the development and marketing rights
to the MRI contrast agent Combidex previously licensed to Squibb
Diagnostics, a division of Bristol-Myers Squibb Co., and recorded a related
$760,000 charge for the purchase of in-process research and development. In
the first fiscal quarter of 1995, a credit for $380,000 was recorded to the
purchase of in-process research and development as a result of an amendment
of the agreement between the Company and Squibb. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and the Company's financial statements and notes thereto appearing elsewhere
in this Prospectus.
(3) In the first quarter of fiscal 1995, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," which requires that marketable securities
classified as available for sale be recorded at fair market value, and
recorded a cumulative change of $118,000.
(4) Adjusted to reflect the sale by the Company of 1,100,000 shares of Common
Stock offered hereby, at an assumed offering price of $22.125 per share (the
closing price on March 21, 1996) and the application of the net proceeds
therefrom. See "Use of Proceeds."
</TABLE>
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6
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should consider carefully the following risk factors in evaluating the
Company and its business before purchasing shares of the Common Stock offered
hereby.
EARLY STAGE OF PRODUCT COMMERCIALIZATION; UNCERTAINTY OF PRODUCT DEVELOPMENT
The Company has not generated significant revenues from the sale of its
products. None of the Company's products have been approved for sale in the
United States, and the sale of Feridex I.V. and GastroMARK has only recently
begun in certain European countries. While the Company is conducting human
clinical testing of Combidex, this product and the Company's other product
candidates, in particular its targeted therapeutic products, will require
significant additional research and development efforts, including extensive
human clinical testing, prior to submission of any regulatory application for
commercial sale of such products. Such products are not expected to be
commercially available for several years, if at all. The development of new
pharmaceutical products is highly uncertain and no assurance can be given that
any of the Company's development programs will be completed successfully, that
required regulatory approvals will be obtained on a timely basis, if at all, or
that any product, including Feridex I.V., will be commercially successful.
The Company's long-term viability and growth will depend on the successful
commercialization of products resulting from its research activities. If any of
the Company's development programs are not completed successfully, required
regulatory approvals are not obtained or products for which approvals are
obtained are not commercially successful, the Company's business, financial
condition and results of operations could be materially adversely affected. See
"Business -- Products under Development."
NEED FOR FUTURE FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL
The Company has expended and will continue to expend substantial funds to
complete the research, development, clinical trials, regulatory approvals and
other activities through final commercialization of its products. The Company's
future capital requirements will depend on many factors, including market
acceptance of the Company's products, continued scientific progress in its
research and development programs, the magnitude of these programs, progress
with preclinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patent claims, competing technological and market developments, the
cost of commercialization activities and arrangements and the cost of product
in-licensing and any possible acquisitions. It is possible that the Company may
need additional financing to satisfy its capital and operating requirements
relating to the development, manufacturing and marketing of its contrast agents.
If the Company were to incur the costs associated with research, development,
clinical trials, regulatory approvals and other activities through final
commercialization of the Company's targeted therapeutic products, it would
require additional outside funding. The Company may seek such financing through
arrangements with collaborative partners and through public or private sales of
the Company's securities, including equity securities. No assurance can be given
that such financing will be available to the Company on acceptable terms, if at
all. Any additional equity financings could be dilutive to the Company's
stockholders. If adequate additional funds are not available, the Company may be
required to curtail significantly one or more of its research and development
programs or obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
products and product candidates on terms that it might otherwise find
unacceptable. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The Company's research and preclinical testing and clinical trials of its
product candidates and the manufacturing and marketing of its products are
subject to extensive and rigorous regulation by numerous governmental
authorities in the United States and in other countries where the Company
intends to test and
7
<PAGE> 9
market its product candidates and products. Prior to marketing, any product
candidate must undergo an extensive regulatory approval process, which includes
preclinical testing and clinical trials of such product candidate to demonstrate
safety and efficacy. This regulatory process can require many years and the
expenditure of substantial resources. Data obtained from preclinical testing and
clinical trials are subject to varying interpretations, which can delay, limit
or prevent FDA approval. In addition, changes in FDA approval policies or
requirements may occur or new regulations may be promulgated which may result in
delay or failure to receive FDA approval. Similar delays or failures may be
encountered in foreign countries. Delays and related costs in obtaining
regulatory approvals could have a material adverse effect on the Company's
business, financial condition and results of operations. Although the Company
has received an approvable letter from the FDA for Feridex I.V. and has received
regulatory approval in certain foreign countries for the marketing of Feridex
I.V. and GastroMARK, there can be no assurance that further regulatory approvals
will be obtained for any products developed by the Company. Failure to obtain
requisite governmental approvals or failure to obtain approvals of the scope
requested could delay and may preclude the Company or its licensees or other
collaborators from marketing the Company's products or limit the commercial use
of the products and could have a material adverse effect on the Company's
business, financial condition and results of operations.
Regulatory approvals may entail limitations on the indicated uses of such
products and impose labeling requirements which may adversely impact the
Company's ability to market its products. Even if regulatory approval is
obtained, a marketed product and its manufacturer are subject to continuing
regulatory review. Consequently, discovery of previously unknown problems with a
product or manufacturer may have certain adverse effects, including withdrawal
of the product from the market. Noncompliance with regulatory requirements of
the approval process at any stage, including preclinical testing and clinical
trials, or post-approval, may result in various adverse consequences, including
the FDA's delay in approving or its refusal to approve a product, withdrawal of
an approved product from the market or, under certain circumstances, the
imposition of criminal penalties. Any such adverse consequences could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation and
Reimbursement."
UNCERTAINTIES RELATING TO CLINICAL TRIALS; TECHNOLOGICAL UNCERTAINTY
Before obtaining regulatory approvals for the commercial sale of any of its
contrast agents or other product candidates, the Company must demonstrate
through extensive preclinical testing and human clinical trials that the product
is safe and efficacious. In addition to ongoing clinical trials of Combidex, the
Company intends to commence clinical trials in humans of its targeted
therapeutic product for the treatment of hepatitis B in 1996. The results from
preclinical testing and early clinical trials of these and other products under
development by the Company may not be predictive of results obtained in
subsequent clinical trials. A number of companies in the pharmaceutical and
biopharmaceutical industries have suffered significant setbacks in advanced
clinical trials, even after obtaining promising results in earlier trials. In
addition, clinical trials are often conducted with patients in the most advanced
stages of disease. During the course of treatment, these patients can die or
suffer adverse medical effects for reasons that may not be related to the
product being tested, but which can nevertheless adversely affect clinical trial
results or approvals by the FDA. Clinical testing of a pharmaceutical product is
itself subject to approvals by various governmental regulatory authorities.
There can be no assurance that Advanced Magnetics will be permitted by
regulatory authorities to commence or continue clinical trials or if such trials
are conducted, that any of the Company's potential products will prove safe and
efficacious or will receive regulatory approvals in the United States or abroad.
Any delays in or termination of the Company's clinical trial efforts could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation and
Reimbursement."
Many of the Company's products are subject to technological uncertainty.
The FDA has not approved any of the Company's products for sale in the United
States and has not approved any contrast agent based on magnetic particles
developed by any party. Furthermore, the FDA has neither approved the use of
AraA or AraAMP for the treatment of hepatitis B nor has it approved the use of
arabinogalactan as a delivery agent.
8
<PAGE> 10
There can be no assurance that the combination will receive regulatory approval
for the treatment of hepatitis B or any other condition or disease. In addition,
obtaining regulatory approval for products consisting of arabinogalactan
connected to AraAMP or any other therapeutic compound may be more difficult than
obtaining approval for a single compound because it could be more difficult to
determine the safety and efficacy of the two compounds together. Furthermore,
AraA has demonstrated unacceptable levels of toxicity when used in an
unconjugated form in clinical trials for the treatment of hepatitis. The
Company's MRI contrast agents may cause adverse reactions, including death, in
certain persons under certain conditions. There can be no assurances that these
factors will not adversely affect the development or commercialization of the
Company's products. See "Business -- Products under Development."
DEPENDENCE ON COLLABORATIVE RELATIONSHIPS
The Company's strategy for the development and commercialization of its
contrast agent product candidates is to enter into strategic alliances with
various corporate partners, licensees and other collaborators. In some cases,
the Company is dependent upon these collaborators to conduct preclinical and
clinical testing, to obtain regulatory approvals and to manufacture and market
products. The amount and timing of resources that the collaborators devote to
these activities is not within the control of the Company, and certain of the
Company's corporate partners are developing products which, if commercialized,
would compete with the Company's products and product candidates. There can be
no assurance that any revenues or profits will be derived from such
relationships, that any of the Company's current collaborative relationships
will be continued or that the Company will be able to enter into future
collaborative relationships. If any of the Company's collaborators breaches its
agreement with the Company or otherwise fails to perform, such event could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Licensing and Marketing Arrangements."
COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE
The pharmaceutical and biopharmaceutical industries are subject to intense
competition and rapid technological change. The Company has many competitors,
including pharmaceutical, biotechnology and chemical companies, a number of
which, including certain of its corporate partners, are actively developing and
marketing products that if commercialized would compete with the Company's
products and product candidates. Many of these competitors have substantially
greater capital and other resources than the Company and represent significant
competition for Advanced Magnetics. Such companies may succeed in developing
technologies and products that are more effective or less costly than any that
may be developed by the Company, and such companies may be more successful than
the Company in developing, manufacturing and marketing products. In addition,
the Company's MRI contrast agents represent a new approach to imaging certain
organs, and market acceptance of both MRI as an appropriate imaging technique
for such organs and the Company's products is critical to the Company's ability
to compete successfully. There can be no assurance that the Company will be able
to compete successfully in the future or that developments by others will not
render the Company's products or product candidates or technologies obsolete or
noncompetitive or that the Company's collaborators or customers will not choose
to use competing technologies or products. See "Business -- Competition."
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success will be dependent, in part, on its ability to obtain
patent protection for its product candidates, maintain trade secret protection,
prevent third parties from infringing upon its proprietary rights and operate
without infringing upon the proprietary rights of others, both in the United
States and abroad.
The patent positions of pharmaceutical and biopharmaceutical firms,
including Advanced Magnetics, are generally uncertain and involve complex legal
and factual questions. Because of the substantial length of time and expense
associated with bringing new products through development and regulatory
approval to the marketplace, the pharmaceutical and biopharmaceutical industries
place considerable importance on obtaining patent and trade secret protection
for new technologies, products and processes. There can be no assurance as to
the success or timeliness in obtaining any such patents, that the breadth of the
claims obtained
9
<PAGE> 11
will provide any significant protection of the Company's technology, or that the
degree of protection afforded by patents for licensed technologies or for future
discoveries will be adequate to protect the Company's proprietary technology.
Moreover, no assurance can be given that patents issued to Advanced Magnetics
will not be contested, invalidated or circumvented. One of the Company's MRI
patents is the subject of two interference proceedings in the U.S. Patent
Office. The Company has a non-exclusive license to the patent applications
involved in one of these interference proceedings, which applications are owned
by Nycomed Imaging A.S. of Oslo, Norway ("Nycomed") and Schering AG
("Schering"). Because the Company does not currently have rights in all the
patents and patent applications which are the subject of the other interference,
there can be no assurance that the outcome of that interference will not have an
outcome with a material adverse effect on the Company. There can be no assurance
that future patent interferences involving patents of either the Company or its
licensors will not have a material adverse effect on the Company's business.
Moreover, there can be no assurance that claims of infringement or violation of
the proprietary rights of others will not be asserted against the Company. If
Advanced Magnetics is required to defend against such claims or to protect its
own proprietary rights against others, the Company may incur substantial costs
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
In the future, Advanced Magnetics may be required to obtain additional
licenses to patents or other proprietary rights of others. There can be no
assurance that any such licenses will be available on acceptable terms, if at
all. The failure to obtain such licenses could result in delays in marketing the
Company's products or the inability to proceed with the development,
manufacturing or sale of product candidates requiring such licenses. In
addition, the termination of any of the Company's existing licensing
arrangements could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with its corporate partners, collaborators, employees
and consultants. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any such breach or
that the Company's trade secrets will not otherwise become known or be
independently discovered by its competitors. In addition, the Company cannot be
certain that others will not independently develop substantially equivalent or
superseding proprietary technology, or that an equivalent product will not be
marketed in competition with the Company's products, thereby substantially
reducing the value of the Company's proprietary rights. See "Business -- Patents
and Trade Secrets."
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT
In both the United States and foreign markets, the Company's ability to
commercialize 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
insurers and other third-party payors. In the United States, there has been, and
the Company expects that there will continue to be, a number of federal and
state proposals to reform the health care system. In addition, an increasing
emphasis on managed care in the United States has and will continue to put
pressure on pharmaceutical pricing. Such initiatives and proposals, if adopted,
could decrease the price that the Company receives for its existing products, as
well as any products it may develop and sell in the future. Significant
uncertainty exists as to the reimbursement status of both newly approved health
care products and products used for indications not approved by the FDA. If
adequate reimbursement levels are not maintained by government and other third-
party payors for the Company's products and related treatments, the Company's
business, financial condition and results of operations may be materially
adversely affected. See "Business -- Government Regulation and Reimbursement."
LIMITED MANUFACTURING EXPERIENCE AND CAPACITY
Advanced Magnetics has no experience in manufacturing targeted therapeutic
products and limited experience in manufacturing contrast agents in commercial
quantities. Currently, the Company manufactures bulk Feridex I.V. product for
sale by Guerbet, and has developed the necessary capabilities to manufacture
10
<PAGE> 12
Feridex I.V. finished product and GastroMARK bulk product in its Massachusetts
facilities. These facilities are subject to current Good Manufacturing Practices
("GMP") regulations prescribed by the FDA. There can be no assurance that the
Company will be able to continue to operate at commercial scale in compliance
with the GMP regulations. Failure to operate in compliance with such GMP
regulations and other applicable manufacturing requirements of various
regulatory agencies could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Government Regulation and Reimbursement." In addition, the Company is dependent
on contract manufacturers for the production of certain of its product
candidates. In the event that the Company is unable to obtain or retain
manufacturing for its product candidates, it will not be able to develop and
commercialize its products as planned. There can be no assurance that the
Company will be able to enter into agreements for the manufacture of future
products with manufacturers whose facilities and procedures comply with GMP and
other regulatory requirements or that such manufacturer will be able to deliver
required quantities of product that conform to specifications in a timely
manner. See "Business -- Manufacturing."
LACK OF MARKETING AND SALES HISTORY
Advanced Magnetics has no experience in marketing and selling its current
products and product candidates and relies on its corporate partners to market
and sell certain products. In order to achieve commercial success for any
product candidate approved by the FDA for which the Company does not have a
marketing partner, Advanced Magnetics may have to enlarge and expand its
marketing and sales force or enter into arrangements with others to market and
sell its products. There can be no assurance that Advanced Magnetics will be
successful in attracting and retaining qualified marketing and sales personnel
or that it will be able to enter into marketing and sales agreements with others
on acceptable terms, if at all. Furthermore, there can be no assurance that
Advanced Magnetics or its corporate partners will be successful in marketing and
selling the Company's products. See "Business -- Licensing and Marketing
Arrangements."
POTENTIAL PRODUCT LIABILITY; UNCERTAINTIES RELATED TO INSURANCE
The use of any of the Company's product candidates in clinical trials and
the sale of any approved products may expose the Company to liability claims
resulting from the use of products or product candidates. These claims might be
made directly by customers (including corporate partners), clinical trial
subjects, patients, pharmaceutical companies or others. The Company maintains
product liability insurance coverage for claims arising from the use of its
products in clinical trials. However, coverage is becoming increasingly
expensive and no assurance can be given that the Company will be able to
maintain insurance at a reasonable cost. Furthermore, there can be no assurance
that the Company's insurance will provide sufficient amounts to protect the
Company against losses due to liability that could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company does not presently maintain product liability insurance covering the
sale of its products and there can be no assurance that the Company will be able
to obtain commercially reasonable product liability insurance for any product
presently being marketed or for any product approved for marketing in the future
or that insurance coverage and the resources of the Company would be sufficient
to satisfy any liability resulting from product liability claims. A product
liability claim or series of claims brought against the Company could have a
material adverse effect on its business, financial condition and results of
operations, whether or not the plaintiffs in such claims ultimately prevail. See
"Business -- Product Liability Insurance."
ATTRACTION AND RETENTION OF KEY EMPLOYEES
Because of the specialized nature of its business, Advanced Magnetics is
highly dependent on its ability to attract and retain qualified scientific and
technical personnel for the research and development activities conducted or
sponsored by the Company. Recruiting and retaining qualified scientific and
technical personnel to perform research and development work is critical to the
Company's success. In addition, the Company is substantially dependent upon
Jerome Goldstein, its Chairman of the Board, Chief Executive Officer and
President. The loss of Mr. Goldstein or other certain key executive officers
would be detrimental to the Company. Furthermore, the Company's anticipated
growth and expansion into areas and activities requiring additional expertise,
such as clinical testing, regulatory compliance, manufacturing and marketing,
will require the addition of new management personnel and the development of
additional expertise by existing
11
<PAGE> 13
management personnel. There is intense competition for qualified personnel in
the areas of the Company's activities, and there can be no assurance that the
Company will be able to continue to attract and retain the qualified personnel
necessary for the development of its business. The failure to attract and retain
such personnel or to develop such expertise could adversely affect the Company's
business, financial condition and results of operations.
HAZARDOUS MATERIALS
The Company's manufacturing and research and development activities involve
the controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for handling
and disposing of hazardous materials comply with the standards prescribed by
state and federal regulations, the risk of accidental contamination or injury
from these materials cannot be completely eliminated. In the event of an
accident, the Company could be held liable for any resulting damages or fines
and such liability could have a material adverse effect on the Company's
business, financial condition and results of operations.
CONCENTRATION OF OWNERSHIP
Following completion of the Offering, directors, executive officers and
principal stockholders of the Company, and certain of their affiliates, will
beneficially own approximately 31% of the Company's outstanding Common Stock.
Accordingly, these stockholders, individually and as a group, may be able to
determine the outcome of stockholder votes, including votes concerning the
election of directors, the adoption or amendment of provisions in the Company's
Certificate of Incorporation or By-laws, and the approval of certain mergers and
other significant corporate transactions. Such control by existing stockholders
could have the effect of delaying, deferring or preventing a change in control
of the Company. There can be no assurance that these individuals' ability to
prevent or cause a change in control of the Company will not have a material
adverse effect on the market price of the Common Stock.
FUTURE SALES OF COMMON STOCK BY CERTAIN STOCKHOLDERS; POTENTIAL ADVERSE EFFECT
ON MARKET PRICE OF COMMON STOCK
As of March 21, 1996, 229,450 shares of Common Stock were issuable upon the
exercise of vested outstanding stock options. Following completion of the
Offering, the executive officers and directors of the Company, who together own
or have the right to acquire an aggregate of 2,126,009 shares of Common Stock,
have agreed that they will not (1) offer to sell, contract to sell, sell, or
otherwise dispose of any shares of Common Stock or rights to acquire shares of
Common Stock (other than pursuant to employee stock option plans or in
connection with other employee incentive compensation arrangements) or (2) enter
into any swap or similar agreement that transfers, in whole or in part, any of
the economic consequences of the ownership of shares of Common Stock during the
90 day period following the date of this Prospectus without the prior written
consent of PaineWebber Incorporated. The issuance of Common Stock upon the
exercise of such stock options, as well as future sales of such Common Stock or
of shares of Common Stock by existing stockholders, or the perception that such
sales could occur could adversely affect the market price of the Common Stock.
VOLATILITY OF COMMON STOCK PRICE
The market prices for securities of biopharmaceutical and pharmaceutical
companies, including the Company, have historically been highly volatile.
Variations in revenues and expenses resulting from clinical trials, additional
licensing arrangements and timing of regulatory approvals and royalty payments
may continue to cause fluctuations in the Company's financial performance from
period to period. Such fluctuations in operating results may cause the market
price of the Company's Common Stock to be volatile. In addition, the market
prices for securities of biopharmaceutical and pharmaceutical companies have
from time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of such companies. Various factors and
events, including announcements by the Company or its competitors concerning
technological innovations, new products, clinical trial results, agreements with
collaborators, governmental regulations, developments in patent or other
proprietary rights, public concern regarding the safety of drugs developed by
the Company or others, may have a significant impact on the market price of the
Company's Common Stock and dividend policy. See "Price Range of Common Stock and
Dividend Policy."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of Common
Stock offered hereby (the "Offering") are estimated to be approximately
$22,427,000 ($26,639,000 if the Underwriters' over-allotment option is exercised
in full) assuming a public offering price of $22 1/8 per share and after
deducting estimated underwriting discounts and commissions and offering
expenses. The net proceeds of the Offering, together with the Company's existing
funds and cash generated from operations, are expected to be used for the
following purposes: (i) increased research and development; (ii) clinical trials
for its targeted therapeutic products; and (iii) working capital and general
corporate purposes. In addition, a portion of the proceeds may be used to
acquire companies and products that complement the business of the Company. No
such transactions are currently planned by the Company. The Company has in the
past and may in the future repurchase its securities in the open market although
it has no current plans to do so.
The amounts actually expended for each of the above-referenced purposes
could vary significantly depending upon numerous factors, including the status
of the Company's research and development programs, clinical trials, regulatory
approvals, technological advances, determinations as to commercial potential,
any collaborative agreements entered into by the Company and competitive
developments. In addition, the Company's research and development expenditures
will vary as projects are added, extended or abandoned and as a result of
variations in funding from existing or future third party collaborators. Until
applied to any of the foregoing uses, the net proceeds of the Offering will be
invested by the Company in investment grade, interest bearing obligations.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders. See "Principal and Selling Stockholders."
13
<PAGE> 15
<TABLE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock trades on the American Stock Exchange under the symbol
AVM. The following table sets forth for the periods indicated the high and low
sale prices for the Common Stock as reported by the American Stock Exchange.
<CAPTION>
HIGH LOW
--- ---
<S> <C> <C>
1994
First Quarter............................................................... $14 1/8 $10 3/8
Second Quarter.............................................................. 15 7/8 12
Third Quarter............................................................... 15 11 1/2
Fourth Quarter.............................................................. 17 1/2 12 1/4
1995
First Quarter............................................................... 16 3/4 13 1/4
Second Quarter.............................................................. 19 1/4 14 1/4
Third Quarter............................................................... 23 3/8 17 1/2
Fourth Quarter.............................................................. 29 21
1996
First Quarter (through March 21, 1996)...................................... 30 22 1/4
</TABLE>
On March 21, 1996, the last reported sale price of the Common Stock on the
American Stock Exchange was $22 1/8 per share. As of March 21, 1996, there were
approximately 302 holders of record of the Common Stock.
The Company has not declared any dividends on the Common Stock and does not
intend to declare any cash dividends on its Common Stock in the foreseeable
future. The Company currently intends to retain future earnings to fund the
development and growth of its business.
14
<PAGE> 16
<TABLE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1995 and as adjusted to reflect the sale of the 1,100,000 shares of
Common Stock offered hereby and the application of net proceeds of approximately
$22,427,000. See "Use of Proceeds." This table should be read in conjunction
with the Company's audited financial statements and notes thereto appearing
elsewhere or incorporated by reference in this Prospectus.
<CAPTION>
DECEMBER 31, 1995
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt......................................................... $ -- $ --
Stockholders' equity(1):
Preferred Stock, $.01 par value per share; 2,000,000 shares
authorized, none issued and outstanding........................... -- --
Common Stock, $.01 par value per share; 15,000,000 shares authorized,
6,762,226 shares issued and outstanding, 7,862,226 shares issued
and outstanding as adjusted(1).................................... 68 79
Additional paid-in-capital........................................... 45,164 67,580
Retained earnings.................................................... 1,112 1,112
Unrealized gain on marketable securities............................. 1,046 1,046
------- -------
Total stockholders' equity........................................ 47,390 69,817
------- -------
Total capitalization............................................ $47,390 $69,817
======= =======
<FN>
- ---------------
(1) Excludes 418,175 shares of Common Stock issuable upon the exercise of
options outstanding at December 31, 1995, of which options to purchase
230,465 shares were then exercisable. See Note I of notes to the Company's
financial statements appearing elsewhere in this Prospectus for a
description of the Company's stock option plans.
</TABLE>
15
<PAGE> 17
<TABLE>
SELECTED FINANCIAL DATA
The following table contains certain selected financial data of the Company
and is qualified by the more detailed financial statements and notes thereto
included elsewhere in this Prospectus. The selected financial data presented
below as of September 30, 1994 and 1995, and for each of the three years in the
period ended September 30, 1995, have been derived from the Company's financial
statements, which have been audited by Coopers & Lybrand L.L.P., independent
accountants, and are included elsewhere and incorporated by reference in this
Prospectus. The selected financial data presented below as of September 30,
1993, 1992 and 1991, and for each of the two years in the period ended September
30, 1992, are derived from the Company's audited financial statements, which
financial statements are not included or incorporated by reference in this
Prospectus. The selected financial data presented below for the three months
ended December 31, 1994 and 1995 have been derived from unaudited financial
statements of the Company and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the quarterly selected financial information. The results for the
three months ended December 31, 1995 are not necessarily indicative of the
results of operations for the entire fiscal year or any other period. The
information set forth below should be read in conjunction with the Company's
financial statements and notes thereto appearing elsewhere or incorporated by
reference in this Prospectus.
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------- -----------------
1991 1992 1993 1994 1995 1994 1995
------- ------- ------- ------ ------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees...................... $ 4,000 $ 1,550 $ 1,010 $5,505 $ 5,000 $ -- $ --
Royalties......................... 1,005 1,314 906 16 189 -- 75
Product sales..................... 3,836 4,062 3,836 281 2,120 55 --
Contract research and
development..................... 2,051 811 403 -- -- -- --
Interest, dividends and net gains
and losses on sales of
securities...................... 1,296 2,513 2,823 1,845 2,287 682 452
------- ------- ------- ------ ------- ------ -------
Total revenues(1)............ 12,188 10,250 8,978 7,647 9,596 737 527
Costs and expenses:
Cost of product sales............. 1,705 1,737 1,526 55 425 11 --
Contract research and development
expenses........................ 708 607 193 -- -- -- --
Company-sponsored research and
development expenses............ 4,935 5,432 6,863 6,622 8,602 1,598 2,161
Charge (credit) for purchase of
in-process research and
development(2).................. 6,250 -- -- 760 (380) (380) --
Selling, general and
administrative expenses......... 2,593 2,202 2,778 1,964 1,759 316 291
------- ------- ------- ------ ------- ------ -------
Total costs and expenses.......... 16,191 9,978 11,360 9,401 10,406 1,545 2,452
Other income:
Gain on sale of in vitro product
line(1)......................... -- -- -- 2,650 3,405 -- --
------- ------- ------- ------ ------- ------ -------
Income (loss) before provision for
income taxes and cumulative
effect of accounting change..... (4,003) 272 (2,382) 896 2,595 (808) (1,925)
Income tax provision.............. (413) -- -- 8 400 -- --
------- ------- ------- ------ ------- ------ -------
Income (loss) before cumulative
effect of accounting change..... (3,590) 272 (2,382) 888 2,195 (808) (1,925)
Cumulative effect of accounting
change(3)....................... -- -- -- -- 118 118 --
------- ------- ------- ------ ------- ------ -------
Net income (loss)................. $(3,590) $ 272 $(2,382) $ 888 $ 2,313 $ (690) $(1,925)
======= ======= ======= ====== ======= ====== =======
Net income (loss) per share....... $ (0.70) $ 0.04 $ (0.36) $ 0.13 $ 0.34 $(0.10) $ (0.28)
======= ======= ======= ====== ======= ====== =======
Weighted average number of common
and common equivalent shares.... 5,141 6,760 6,651 6,807 6,871 6,718 6,756
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1994 1995
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $17,278 $30,804 $25,838 $ 6,462 $ 1,066 $ 4,385 $ 2,526
Marketable securities............. 691 8,675 10,905 33,199 36,561 33,266 37,691
Working capital................... 19,242 40,912 37,547 38,891 41,985 37,615 40,386
Total assets...................... 25,763 48,128 45,878 46,673 50,843 45,428 48,715
Total stockholders' equity........ 24,460 47,086 44,654 45,451 49,071 44,438 47,390
<FN>
- ---------------
(1) On October 15, 1993, the Company sold its in vitro product line to
PerSeptive Biosystems, Inc. and recorded a $2,650,000 gain on the sale. The
sale also included a contingent earn-out based on 1995 revenues which
resulted in a $3,405,000 gain in 1995. Exclusive of the in vitro product
line revenues, 1993 total revenues would have been $3,961,000 consisting of
license fees of $1,000,000, contract research and development of $138,000
and interest, dividends and net gains and losses on sales of securities of
$2,823,000.
(2) In August 1994, the Company reacquired the development and marketing rights
to the MRI contrast agent Combidex previously licensed to Squibb
Diagnostics, a division of Bristol-Myers Squibb Co., and recorded a related
$760,000 charge for the purchase of in-process research and development. In
the first fiscal quarter of 1995, a credit for $380,000 was recorded to the
purchase of in-process research and development as a result of an amendment
of the agreement between the Company and Squibb. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and the Company's financial statements and notes thereto appearing elsewhere
in this Prospectus.
(3) In the first quarter of fiscal 1995, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," which requires that marketable securities
classified as available for sale be recorded at fair market value, and
recorded a cumulative change of $118,000.
</TABLE>
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<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Since its inception in November 1981, the Company has focused its efforts
on developing its core superparamagnetic iron oxide particle technology. In
recent years, the Company's efforts have been focused primarily on the
development of MRI contrast agents and, to a lesser extent, on the development
of a drug delivery platform that targets therapeutics to the liver. The Company
has funded its operations with cash from license fees, royalties, sales of its
products, the proceeds of financings, income earned on invested cash and fees
from contract research performed for third parties. The Company's long-term
viability and growth will depend on the successful commercialization of products
resulting from its research activities. Among other things, successful
commercialization of the Company's products will require obtaining necessary
governmental approvals in a timely manner, attracting and retaining key
employees and responding to technological changes in the marketplace.
The Company's operating results may continue to vary significantly from
quarter to quarter or from year to year depending on a number of factors,
including: (i) the timing of payments from corporate partners; (ii) the
introduction of new products; (iii) the timing and size of orders from
customers; and (iv) the general level of acceptance of the Company's products.
Profits may vary significantly from quarter to quarter or year to year based on
the timing of revenue and expense. Revenue or profits in any period will not
necessarily be indicative of results in subsequent periods and there can be no
assurance that the Company will achieve consistent profitability or that revenue
growth will occur in the future.
A substantial portion of the Company's expenses consists of research and
development expenses. The Company expects its research and development expenses
to increase as it funds additional clinical trials and associated toxicology and
pharmacology studies and devotes resources to developing additional contrast
agents and hepatic drug product candidates.
On October 15, 1993, the Company sold its in vitro product line to
PerSeptive Biosystems, Inc. ("PerSeptive") for $4,156,674 in PerSeptive common
stock plus an earn-out (the "Earn-Out") based on PerSeptive's 1995 in vitro
product line revenues. The Company recognized a pretax gain of $2,649,580 for
the fiscal year ended September 30, 1994. In the fourth fiscal quarter of 1995,
the Earn-Out value was determined to be $3,404,527. As a result, the Company
recorded a pretax gain of $3,404,527 and recorded an account receivable for such
amount in the fourth fiscal quarter of 1995. In the first fiscal quarter of
1996, the Company received 378,080 additional shares of PerSeptive common stock
as payment of the Earn-Out, which shares were included as part of the Company's
marketable securities at December 31, 1995.
In August 1994, the Company signed an agreement with Bristol-Myers Squibb
Co. ("Bristol-Myers") to reacquire the development and marketing rights to
Combidex, which had been held by Squibb Diagnostics, a division of Bristol-Myers
(the "Combidex Transaction"). As part of this transaction, the Company agreed to
pay Bristol-Myers $1,000,000 in cash, of which $500,000 was paid upon execution
of the agreement (the "Bristol-Myers Agreement") and $500,000 was to be paid
upon acceptance by the Company of 1,200 vials of Combidex from Bristol-Myers
acceptable for use in worldwide preclinical and clinical studies. In addition,
Bristol-Myers returned to the Company a warrant, which was valued at $240,000,
to purchase 600,000 shares of Common Stock (the "Bristol-Myers Warrant"). The
Company also agreed to pay up to $2,750,000 to Bristol-Myers for royalties on
future sales by the Company of Combidex. As a result of the Combidex
Transaction, the Company recorded a $760,000 charge in the fiscal year ended
September 30, 1994 for the purchase of in-process research and development.
In the first fiscal quarter ended December 31, 1994, the Company and
Bristol-Myers amended the Bristol-Myers Agreement. As a result of this
amendment, the Company was relieved of its obligation to pay $500,000 to
Bristol-Myers, and Bristol-Myers was relieved of its obligation to deliver
Combidex to the Company for clinical trials. Accordingly, in the first fiscal
quarter ended December 31, 1994, the Company recorded a credit for $380,000 to
the purchase of in-process research and development and adjusted the value of
the warrant downward by $120,000.
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In the fiscal quarter ended December 31, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investment in Debt and Equity Securities" ("SFAS 115"), which requires that
marketable securities classified as available for sale be recorded at fair
market value. The adoption of SFAS 115 resulted in a cumulative effect of
accounting change of $117,540 in the first fiscal quarter ended December 31,
1994.
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
Total revenues for the fiscal quarter ended December 31, 1995 decreased 29%
to $526,859 from $737,245 for the fiscal quarter ended December 31, 1994. The
decrease in revenues compared to the fiscal quarter ended December 31, 1994
resulted primarily from the absence of product sales and a reduction in interest
and dividend income earned on investments. This decrease was partially offset by
an increase in revenue from royalties.
Royalties for the fiscal quarter ended December 31, 1995 were $75,000 and
were paid by Guerbet on European product sales of Feridex I.V. and GastroMARK.
There were no royalties for the fiscal quarter ended December 31, 1994. There
were no product sales during the fiscal quarter ended December 31, 1995 compared
to $55,259 of product sales in the comparable prior fiscal year period.
Interest, dividends and gains and losses on sales of securities resulted in
revenues of $451,859 for the fiscal quarter ended December 31, 1995 compared to
$681,986 for the fiscal quarter ended December 31, 1994. Interest income for the
fiscal quarter ended December 31, 1995 was $80,163 less than the fiscal quarter
ended December 31, 1994 primarily due to a reduction of funds invested in money
market accounts. Dividend income for the fiscal quarter ended December 31, 1995
was $135,263 less than the fiscal quarter ended December 31, 1994 primarily due
to a reduction of funds invested in dividend paying preferred stocks.
Research and development expenses for the fiscal quarter ended December 31,
1995 increased 35% to $2,160,560 from $1,597,847 for the fiscal quarter ended
December 31, 1994. The increase is primarily a result of costs associated with
Phase II and Phase III human clinical trials for Combidex. The fiscal quarter
ended December 31, 1994 reflected a $380,000 credit as a result of the amendment
of the Bristol-Myers Agreement that was entered into in connection with the
Combidex Transaction. Selling, general and administrative expenses decreased 8%
to $290,984 for the first fiscal quarter ended December 31, 1995 from $315,890
for the first fiscal quarter ended December 31, 1994. The decrease was primarily
due to a decrease in litigation-related legal and consulting fees.
The Company incurred no costs of product sold for the fiscal quarter ended
December 31, 1995 compared to $11,050 for the first fiscal quarter ended
December 31, 1994.
For the reasons stated above, there was a net loss of $1,924,685, or $0.28
per share, for the fiscal quarter ended December 31, 1995 compared to a net loss
of $807,542 or $0.12 per share, for the fiscal quarter ended December 31, 1994
before the cumulative effect of the accounting change resulting from the
adoption of SFAS 115. Including the cumulative effect of the accounting change
of $117,540, net loss and net loss per share for the fiscal quarter ended
December 31, 1994 were $690,002 and $0.10 per share, respectively.
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
Total revenues for the fiscal year ended September 30, 1995 increased 26%
to $9,597,261 from $7,646,904 for the fiscal year ended September 30, 1994.
License fee revenues for the fiscal year ended September 30, 1995 were
$5,000,000 compared to $5,505,000 for fiscal year ended September 30, 1994. The
Company received a nonrefundable $5,000,000 license fee on February 1, 1995 from
Berlex under an agreement granting Berlex a product license and exclusive
marketing rights to Feridex I.V. in the United States. License fee revenues for
the fiscal year ended September 30, 1994 included a nonrefundable license fee of
$3,000,000 paid by Squibb Diagnostics, a division of Bristol-Myers, for the
right to market Combidex (which was paid prior to the Combidex Transaction) and
a nonrefundable milestone license fee of $2,500,000 paid by Sterling Winthrop,
Inc., a subsidiary of Eastman Kodak Company ("Sterling"), for the Company's
filing of an NDA for Feridex I.V. On October 6, 1994, the
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Company terminated its marketing and distribution agreement with Sterling for
Feridex I.V. as a direct result of the sale by Sterling of its prescription
pharmaceuticals business. The agreement with Sterling was not assignable without
the Company's consent, which was not granted.
Product sales for the fiscal year ended September 30, 1995 were $2,120,457
compared to $280,975 for the fiscal year ended September 30, 1994. Product sales
increased as a result of $2,013,869 of Feridex I.V. sales to Guerbet. Product
sales of $280,975 for the fiscal year ended September 30, 1994 were primarily
attributable to the sale of GastroMARK to Guerbet.
Royalties for the fiscal year ended September 30, 1995 were $189,493
compared to $15,924 for the fiscal year ended September 30, 1994. The royalties
were earned on sales to Guerbet of Feridex I.V. and GastroMARK.
Interest, dividends and gains and losses on sales of securities resulted in
revenues of $2,287,311 in the fiscal year ended September 30, 1995 compared to
revenues of $1,845,005 in the fiscal year ended September 30, 1994. These
amounts include interest and dividends of $2,232,345 for the fiscal year ended
September 30, 1995 compared to $1,801,436 for the fiscal year ended September
30, 1994. The increase was primarily a result of an increase in interest revenue
from United States treasury notes. Net gains from the sale of marketable
securities were $54,966 for the fiscal year ended September 30, 1995 compared to
a net gain of $161,109 in the fiscal year ended September 30, 1994. There were
net unrealized losses of $117,540 resulting from an adjustment to the carrying
value of marketable securities from cost to market during fiscal 1994, which
were reversed in connection with the adoption of SFAS 115 in the fiscal quarter
ended December 31, 1994. As a result of the adoption of SFAS 115, the Company
recorded a cumulative effect of the accounting change of $117,540.
The cost of product sales for the fiscal year ended September 30, 1995 was
$425,187 compared to $54,983 for the fiscal year ended September 30, 1994. The
cost of product sales was 20% of sales for both fiscal years. Research and
development expenses for the fiscal year ended September 30, 1995 increased 30%
to $8,601,791 from $6,621,929 for the fiscal year ended September 30, 1994. The
increase in research and development expenses was primarily due to expenditures
for the clinical trials of Combidex and pre-clinical development of the
Company's targeted drug delivery program. In the fiscal year ended September 30,
1995, the Company recorded a $380,000 credit as a result of the amendment to the
Bristol-Myers Agreement that was entered into in connection with the Combidex
Transaction. Selling, general and administrative expenses for the fiscal year
ended September 30, 1995 were $1,759,348, a decrease of 10% from $1,963,480 for
the fiscal year ended September 30, 1994. The decrease was primarily due to a
decrease in litigation-related legal and consulting fees.
On October 15, 1993, the Company sold its in vitro product line to
PerSeptive and recognized a pretax gain of $2,649,580 for the fiscal year ended
September 30, 1994. In the fourth fiscal quarter of 1995, the Company recognized
a pretax gain of $3,404,527 from the Earn-Out, which was based on PerSeptive's
1995 in vitro product line revenues.
In the fiscal year ended September 30, 1995, the Company recorded a net
profit of $2,195,462, or $0.32 per share, before the cumulative effect of an
accounting change resulting from the adoption of SFAS 115. Including the
cumulative effect of an accounting change of $117,540, or $0.02 per share, net
income was $2,313,002, or $0.34 per share, for the fiscal year ended September
30, 1995 compared to net income of $888,092, or $0.13 per share, for the fiscal
year ended September 30, 1994.
YEARS ENDED SEPTEMBER 30, 1994 AND 1993
Total revenues of the Company decreased 15% to $7,646,904 in the fiscal
year ended September 30, 1994 compared to $8,978,451 in the fiscal year ended
September 30, 1993. Fiscal year 1993 included $5,017,000 of revenues from the
Company's in vitro product line that was sold to PerSeptive on October 15, 1993.
License fee revenues for the fiscal year ended September 30, 1994 were
$5,505,000 compared to $1,010,000 for the fiscal year ended September 30, 1993.
License fee revenue for fiscal 1994 included a nonrefundable license fee of
$2,500,000 paid by Sterling. The fee was a milestone payment for the Company's
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filing of an NDA with the FDA for Feridex I.V. Also included in fiscal 1994
license fee revenue was a nonrefundable license fee of $3,000,000 paid by Squibb
Diagnostics, a division of Bristol-Myers, for the right to market Combidex. In
August 1994, the Company reacquired from Bristol-Myers the development and
marketing rights to Combidex in the Combidex Transaction. License fee revenue
for fiscal 1993 included a nonrefundable $1,000,000 license fee paid by Sterling
in September 1993 upon the signing of a license agreement for a product license
and exclusive marketing rights to Feridex I.V. in the United States, Canada,
Mexico and Australia.
Royalties for the fiscal year ended September 30, 1994 were $15,924
compared to $906,138 for the fiscal year ended September 30, 1993. The royalty
revenues for fiscal 1993 were attributable to the in vitro license agreements
which were included as a part of the October 1993 sale of the in vitro product
line.
Product sales of $280,975 for the fiscal year ended September 30, 1994 were
primarily attributable to the European launch of GastroMARK. Product sales for
the fiscal year ended September 30, 1993 were $3,836,300 for the in vitro
products which were included as part of the sale to PerSeptive.
There were no fees from contract research and development for the fiscal
year ended September 30, 1994 compared to $402,911 for the fiscal year ended
September 30, 1993. Included in the contract research and development revenues
for the fiscal year ended September 30, 1993 was $205,581 of fees for several
research projects with one party for the development of specific in vitro
products that were completed in fiscal 1993.
Interest, dividends and gains and losses on sales of securities resulted in
revenues of $1,845,005 in the fiscal year ended September 30, 1994 compared to
revenues of $2,823,102 in the fiscal year ended September 30, 1993. These
amounts include interest and dividends of $1,801,436 for the fiscal year ended
September 30, 1994 compared to $1,791,676 for the fiscal year ended September
30, 1993. Net gain from sales of marketable securities was $161,109 in the
fiscal year ended September 30, 1994 compared to a net gain of $1,031,426 for
the fiscal year ended September 30, 1993. There were net unrealized losses of
$117,540 resulting from an adjustment to the carrying value of marketable
securities from cost to market during fiscal 1994. No similar adjustment was
required at the end of fiscal 1993.
The cost of product sales for the fiscal year ended September 30, 1994 was
related to the sale of contrast agents. Due to the sale of the in vitro product
line to PerSeptive, there were no in vitro production costs for the fiscal year
ended September 30, 1994. There were no contract research and development
expenses in the fiscal year ended September 30, 1994 due to the absence of such
contracts. For the fiscal year ended September 30, 1993, contract research and
development expenses were $193,391. Company-sponsored research and development
expenses for the fiscal year ended September 30, 1994 were $6,621,929, a
decrease of 4% compared to $6,863,229 for the fiscal year ended September 30,
1993. The decrease in research and development expenses for the fiscal year
ended September 30, 1994 was primarily due to the absence of research and
development activity for the in vitro product line offset by increases in the in
vivo research and development expenses. In the fiscal year ended September 30,
1994, the Company recorded a $760,000 charge for the purchase of in-process
research and development as a result of the Combidex Transaction. Selling,
general and administrative expenses decreased from $2,777,840 in the fiscal year
ended September 30, 1993 to $1,963,480 in the fiscal year ended September 30,
1994. The decrease was primarily due to the absence of selling, general and
administrative expenses associated with the in vitro product line which was sold
to PerSeptive.
On October 15, 1993, the Company sold its in vitro product line to
PerSeptive and recognized a pretax gain of $2,649,580 for the fiscal year ended
September 30, 1994. Revenue and pretax income from the in vitro product line for
the fiscal year ended September 30, 1994 reflected 15 days of revenue and income
which were immaterial.
In the fiscal year ended September 30, 1994, the Company recorded a net
profit of $888,092, or $0.13 per share, compared to a net loss of $2,381,573, or
$0.36 per share, in the fiscal year ended September 30, 1993.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company's cash and cash equivalents totaled
$2,525,965, representing an increase of $1,459,546 from cash and cash
equivalents at September 30, 1995. In addition, the Company had
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marketable securities of $37,690,764 at December 31, 1995 as compared to
marketable securities of $36,561,263 at September 30, 1995. Included in the
Company's marketable securities at December 31, 1995 are the 378,080 shares of
PerSeptive common stock received in such quarter from the Earn-Out due to the
Company as a result of the sale of the in vitro product line to PerSeptive.
Net cash used in operating activities was $429,932 in the first fiscal
quarter ended December 31, 1995 compared to net cash used in operating
activities of $1,200,231 in the first fiscal quarter ended December 31, 1994.
Cash used in operating activities for the first fiscal quarter ended December
31, 1995 was less than the cash used in operating activities for the first
fiscal quarter ended December 31, 1994 due primarily to a reduction in accounts
receivable of $1,150,328, offset by an increase in the net loss for the quarter.
Cash provided by investing activities was $1,818,801 for the first fiscal
quarter ended December 31, 1995 compared to $947,303 used in investing
activities in the first fiscal quarter ended December 31, 1994. Cash provided by
investing activities in the first fiscal quarter ended December 31, 1995
included the proceeds of $2,450,534 from the sale of marketable securities and
proceeds from a $1,000,000 matured United States treasury note. Offsetting these
proceeds was the purchase of marketable securities of $1,450,162 in the first
fiscal quarter ended December 31, 1995. Cash provided by financing activities
for the first fiscal quarter ended December 31, 1995 and 1994 was $70,677 and
$70,054 respectively, which resulted from the issuance of common stock.
Capital expenditures in the first fiscal quarter ended December 31, 1995
were $181,571 compared to $495,300 in the first fiscal quarter ended December
31, 1994. Capital expenditures in the first fiscal quarter ended December 31,
1994 included an upgrade to the Company's magnetic resonance imaging equipment
and furnishings and equipment associated with the establishment of the Clinical
Development Group in the Company's Princeton, New Jersey office. The Company has
no current commitment for any significant expenditures on property, plant and
equipment. The Company expects that expenditures for research and development
for the remainder of fiscal 1996 will continue to increase due to human clinical
trials for the Company's development stage contrast agents and antiviral
hepatitis therapeutics.
The Company anticipates that the net proceeds of the Offering and interest
earned thereon, together with existing funds, will be sufficient to satisfy its
operating expenses and capital requirements through at least the end of 1997.
The Company will likely need significant additional funding in order to continue
its research and product development programs and the preclinical testing and
clinical trials of its targeted therapeutic product candidates.
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BUSINESS
COMPANY OVERVIEW
Advanced Magnetics develops, manufactures and markets organ-specific
contrast agents to improve the diagnostic capabilities of soft tissue MRI scans
and is developing a drug delivery platform that targets therapeutics to the
liver for the treatment of certain liver diseases. The Company is a leader in
the development of organ-specific superparamagnetic MRI contrast agents,
including Feridex I.V. for the liver, GastroMARK for the gastrointestinal
system, and Combidex for the liver, spleen, lymphatic system and blood flow.
Sales of Feridex I.V. have commenced in Europe, and the Company recently
received an approvable letter from the FDA for this product. GastroMARK has been
approved for marketing in several European countries and Canada, and an NDA for
this product was submitted to the FDA in November 1993. With respect to
Combidex, the Company and Guerbet have completed Phase II clinical trials in
both the United States and Europe for several indications. The Company has
completed patient enrollment for Phase III trials for Combidex in the United
States for imaging liver lesions and expects to begin separate Phase III trials
in 1996 for Combidex as a blood flow contrast agent in MRA. In 1996, the Company
and Guerbet expect to begin Phase III trials for Combidex in the United States
and Europe for imaging of lymph nodes. In addition to these contrast agents,
Advanced Magnetics is applying its organ-specific technology and expertise to
the development of a drug delivery platform targeting therapeutics to the liver
and expects to commence clinical trials in Europe for a treatment of hepatitis B
in 1996.
MRI is a diagnostic imaging technique that is used to identify internal
abnormalities and changes in structure. Contrast agents increase the usefulness
of MRI by allowing radiologists to differentiate structures and organs with
greater diagnostic confidence. The Company believes that MRI studies produced
with contrast agents are clearer and permit the identification of smaller
abnormalities than images produced by MRI without contrast agents or CECT. MRI
contrast agents frequently allow for more accurate diagnosis and monitoring of
treatment results and may be a cost-effective way to optimize medical treatments
and to improve patient outcomes. Currently, the primary use of MRI is for
studies of the central nervous system, which accounted for approximately 74% of
the estimated 7.4 million MRI studies performed in the United States in 1994.
Approximately 29% of these MRI studies were contrast enhanced at a cost to
payors of approximately $145 million for contrast agents. The Company believes
that the development of effective contrast agents will increase the use of MRI
as a diagnostic imaging technique and will allow MRI to be used for a wider
range of applications, in turn generating additional demand for MRI contrast
agents.
No MRI contrast agents designed specifically for the liver or the lymphatic
system are currently being marketed anywhere in the world, except for the
Company's Feridex I.V. liver agent, which is being sold in Europe. The liver and
the lymphatic system are among the principal sites for metastasis of many common
cancers (including colon, prostate and breast cancer). CECT is currently the
primary imaging technique used to confirm a preliminary or suspected diagnosis
of liver cancer. With respect to the lymphatic system, there currently are no
effective imaging techniques. An MRI contrast agent that localizes to and causes
contrast enhancement of the lymph nodes, such as Combidex, could allow for more
accurate disease diagnosis and monitoring of treatment results. The Company
believes that GastroMARK, because it enhances the contrast between the bowel and
other abdominal structures, will increase the use of MRI as an imaging
technology for the abdomen. In light of these potential applications of MRI
contrast agents, the Company believes that it is well positioned to benefit from
the expected demand for such agents and to capture a portion of the over $3
billion worldwide market for imaging agents, approximately $294 million of which
was associated with MRI in 1995.
In order to facilitate the marketing and distribution of its contrast
agents, the Company has entered into strategic relationships with certain
established pharmaceutical companies. These relationships, both in the United
States and abroad, include: (i) Guerbet, a leading European producer of contrast
agents, in Western Europe and Brazil; (ii) Eiken, one of Japan's leading medical
diagnostics manufacturers, in Japan; (iii) Berlex, the leading marketer in the
United States of MRI contrast agents, in the United States; and (iv)
Mallinckrodt, a leading manufacturer in the United States of contrast agents, in
the United States, Canada and Mexico.
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The Company's expertise in organ-specific technology provides it with
biopharmaceutical opportunities beyond its core MRI contrast agent products.
Advanced Magnetics is developing a drug delivery platform that targets
therapeutics to the liver. The Company believes that arabinogalactan, a
naturally occurring polysaccharide that binds to the ASG receptor found in
abundance on hepatocytes, the principal cells comprising the liver, has
commercial promise in drug delivery. Arabinogalactan was initially developed by
the Company as a delivery agent for targeting contrast agents to the liver
because of its high specificity, low cost and lack of toxicity. The Company is
currently focusing on the development of a product for the treatment of
hepatitis B consisting of a conjugate of arabinogalactan and AraAMP. AraA is an
existing therapeutic agent that has shown efficacy in the treatment of hepatitis
B, but is unacceptably toxic when used in an unconjugated form. Phase I clinical
trials for this product candidate are expected to begin in 1996 in Europe.
Advanced Magnetics intends to study the efficacy of other therapeutic agents
combined with arabinogalactan for the treatment of hepatitis C, hepatitis D and
liver cancer.
MRI CONTRAST AGENTS
OVERVIEW
Diagnostic Imaging. Diagnostic imaging is generally a non-invasive method
to visualize internal structures, abnormalities or anatomical changes in order
to diagnose disease and injury. Today, the most widely accepted imaging
techniques include x-ray (including x-ray angiography), ultrasound, nuclear
medicine, CT and MRI. Since the introduction of x-ray, the need for increasingly
accurate and detailed non-invasive visualization of soft tissue has increased.
For example, diagnostic imaging frequently is used to determine whether a cancer
has metastasized to other organs and to assist physicians in determining whether
a treated cancer has recurred or the location of additional tumors. In addition,
diagnostic imaging is used in the diagnosis of disease and injury conditions
affecting the cardiovascular and central nervous systems and certain joints,
such as the knee and shoulder. In 1994, over 76 million soft tissue and organ
imaging procedures were performed in the United States. The choice of diagnostic
imaging technique to be used in any particular circumstance depends upon a
variety of factors, including the particular disease or condition to be studied,
image quality, availability of imaging machines, availability of contrast agents
and cost. There is no imaging technique that is considered superior to all
others for most or all applications.
Contrast agents play a significant role in improving the quality of
diagnostic images by increasing contrast between different internal structures
or types of tissues. The availability of an effective contrast agent often
determines the choice of imaging technique for a particular procedure.
Consequently, contrast agents, which are administered intravenously or orally,
are widely used when available. In 1994, approximately 31 million diagnostic
imaging procedures using contrast agents were performed in the United States.
The cost to payors of the contrast agents used in these procedures was
approximately $1.3 billion. Currently available imaging techniques can be of
limited usefulness in visualizing certain soft-tissue structures. For example,
clinically useful diagnostic imaging of small lesions in lymph nodes, a common
site of metastasis for some frequently occurring cancers such as breast cancer,
is not currently available because, the Company believes, there are no effective
contrast agents for imaging lymph nodes.
Magnetic Resonance Imaging. Introduced in the 1980's, MRI is the
diagnostic imaging technique of choice for the central nervous system and is
widely used for the imaging of ligaments and tendons. MRI, which represents the
first major advance in imaging since the advent of CT scanning, provides
high-quality spatial resolution and does not use radiation. In MRI procedures,
the patient is placed within the core of a large magnet where radio frequency
signals are transmitted into the patient's body. The interaction of the radio
frequency signal with the patient's body produces signals that are processed by
a computer to create cross-sectional images.
MRI contrast agents currently marketed in the United States are used
primarily in imaging the central nervous system. In 1994, there were
approximately 7.4 million MRI scans performed in the United States, of which
approximately 2.2 million were performed with a contrast agent. The worldwide
market for MRI contrast agents in 1994 was approximately $250 million, and the
United States market was approximately $145 million.
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MRI Contrast Agent Market Opportunity. The Company believes that there is
a significant market opportunity for its organ-specific contrast agents for the
following reasons:
- The Company believes that its contrast agents for imaging the liver,
spleen, lymphatic system, blood flow and gastrointestinal system will
have a strong competitive position because the Company believes that they
either (i) permit more diagnostically useful images than images produced
by CECT, the current diagnostic imaging technique of choice, or (ii) meet
a perceived need for visualization of structures which existing imaging
techniques do not adequately image, such as tumors in lymph nodes.
- Existing MRI equipment is often not fully utilized. The Company believes
that its contrast agents will encourage greater utilization of equipment
with relatively little increase in marginal cost to imaging centers and
the health care system.
- MRI with the Company's contrast agents may detect smaller tumors than
CECT, potentially resulting in earlier or more confident disease
diagnoses.
- The Company believes that the use of its contrast agents may result in an
overall reduction in costs to the health care system, even though
contrast enhanced MRI studies cost more than CECT studies, because MRI
with the Company's contrast agents is likely to reduce incorrect
diagnoses, increase diagnostic confidence and reduce unnecessary surgery.
- In keeping with both good medical practice and the health care system
pressure to lower costs, health care providers and payors often prefer
the use of non-invasive means of diagnosis. Consequently, the Company
believes that Combidex, its intravenous contrast agent under development
for use in MRA, could be widely adopted to replace x-ray angiography,
which uses catheters threaded through veins.
The Company has developed two MRI contrast agents, Feridex I.V. for imaging
of the liver and GastroMARK for imaging of the gastrointestinal tract, and is
also developing a third product, Combidex, for imaging of the liver, spleen and
lymphatic system and blood flow in MRA. No MRI contrast agents designed
specifically for imaging the liver or blood flow in MRA are currently being
marketed anywhere in the world, except for the Company's Feridex I.V. liver
agent in Europe. No contrast agents for any imaging technique are marketed
anywhere in the world for the spleen or the lymphatic system.
TECHNOLOGY
Advanced Magnetics' core imaging agent technology is based on the design
and manufacture of extremely small, polysaccharide-coated superparamagnetic iron
oxide particles of controlled sizes. The superparamagnetic particles range in
size from approximately one-thousandth to approximately one-twentieth the size
of a normal red blood cell. When placed in a magnetic field, superparamagnetic
iron oxide particles become strongly magnetic, but do not retain their magnetism
once the field is removed. The powerful magnetic properties of the Company's
iron oxide particles result in images that show greater contrast to increase the
information available to the reviewing radiologist. The Company's technology and
expertise enable it to synthesize, sterilize and stabilize superparamagnetic
particles in a manner necessary for their use in pharmaceutical products as MRI
contrast agents to aid in the diagnosis of cancer and other diseases.
Feridex I.V., which is composed of dextran-coated superparamagnetic iron
oxide particles, is administered by intravenous injection. This MRI contrast
agent has a relatively short blood circulating half-life and is primarily taken
up by the Kupffer cells of the liver. The highly differentiated Kupffer cells,
which are evenly distributed and comprise about 5% of total cells in normal
liver tissue, remove foreign materials from the blood stream. Feridex I.V. is
not absorbed by tumors in the liver, thereby dramatically enhancing the contrast
between healthy and cancerous liver tissue.
Combidex, which is composed of smaller dextran-coated superparamagnetic
iron oxide particles, has a relatively long blood circulating half-life. The
long circulating half-life of Combidex will permit it to be used in analyzing
various soft tissues and organs. When initially injected, Combidex is designed
to be used in analyzing blood flow. The Company believes that Combidex will be
used in MRA for analyzing tissues such as the heart and brain and that it can be
used to delineate tissue damaged as a result of decreased blood flow
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caused by heart attacks and strokes. The Company also believes that Combidex can
be used to identify tumors in the liver and spleen because tumors have different
vascularity than the surrounding tissues. Approximately 24 hours after
injection, an adequate amount of Combidex accumulates in normal lymph node
tissue to permit differentiation from tumor-infiltrated lymph nodes.
GastroMARK, which is composed of silicone-coated superparamagnetic iron
oxide particles, is an oral MRI contrast agent designed to improve imaging of
abdominal organs by distinguishing between the loops of the bowel and other
abdominal organs and structures. When ingested, GastroMARK flows through and
darkens the bowel and causes it to appear darker on images than adjacent tissue.
By more clearly identifying the intestinal loops, GastroMARK improves
visualization of adjacent abdominal tissues, including the pancreas and pelvis.
The Company's rights to its contrast agent technology are derived from and
protected by license agreements, patents, patent applications and trade secrets.
See "Patents and Trade Secrets."
TARGETED DRUG DELIVERY PLATFORM
OVERVIEW
The liver is the largest organ in the human body and is essential to many
critical functions, including processing of nutrients and producing many
necessary plasma proteins. Common diseases of the liver include hepatitis,
cancer and cirrhosis. Effective treatment of liver diseases is often limited by
the inability to deliver sufficient quantities of therapeutic pharmaceuticals to
the liver without creating unacceptable levels of toxicity in the rest of the
body. The Company believes the treatment of liver disease would be significantly
improved by delivering therapeutics to the liver while limiting the exposure of
the rest of the body to the drug. The Company discovered that arabinogalactan, a
compound it studied to target contrast agents to the liver, could be useful in
delivering therapeutic agents to hepatocytes, cells which comprise approximately
95% of the liver but do not exist in the rest of the body. The Company's first
therapeutic product under development is a conjugate of arabinogalactan and
AraAMP for the treatment of hepatitis B.
Worldwide, chronic infection with hepatitis B is a major cause of morbidity
and mortality. Hepatitis B infects approximately 300 million persons worldwide.
During 1993, there were approximately 250,000 new infections in the United
States. Up to 1% of American adults are chronic carriers of hepatitis B.
However, in the Far East and in some tropical countries, prevalence rates for
hepatitis B range from 5% to 20%. Most people infected with hepatitis B develop
symptoms including malaise, anorexia, nausea, vomiting, dark urine, liver pain
and fever as well as signs of jaundice. Approximately 7% of people infected with
hepatitis B develop progressive liver damage that may result in portal fibrosis,
cirrhosis or liver cancer. Approximately 5% of people infected with hepatitis B
develop hepatitis D, a more virulent form of the disease that often results in
serious secondary liver damage and disease.
TECHNOLOGY
The Company's drug delivery platform technology includes joining a
therapeutic agent to a targeting agent, which binds specifically with certain
receptors on the surface of cells. Receptors are specialized protein structures
that will only bind with specific molecules. Certain receptors are prevalent
only or primarily on specific kinds of cells. For example, the ASG receptor
exists primarily in hepatocytes. After binding with the receptor, the targeting
agent and an attached pharmaceutical are transported into the cell, where the
pharmaceutical causes a therapeutic effect. The Company believes that targeted
drug delivery based on the binding action of targeting agents with receptors
offers the possibility of delivering effective therapeutic doses to affected
cells without general distribution of toxic agents throughout the body.
In its first targeted drug delivery project, the Company has completed
preclinical testing of a potential therapeutic product for hepatitis B composed
of AraAMP and arabinogalactan. AraA, an antiviral agent which is used in the
United States and abroad for the treatment of herpes simplex, has not been
approved for the treatment of hepatitis B in the United States because, although
it is an effective agent against the hepatitis virus, when administered
systemically in an unconjugated form, is often toxic to the bone marrow, blood
cells
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and peripheral nervous system at the dosage necessary to treat the hepatitis B
virus. AraA and other nucleoside products must be phosphorylated with three
phosphate ions in order to have a therapeutic effect. When AraA is injected
directly, however, most molecules of AraA do not become phosphorylated. The
Company believes that much of the toxicity associated with AraA results from
toxic compounds created when the drug breaks down in the body. The Company has
discovered that AraA, when phosphorylated with one phosphate (monophosphate) and
chemically linked with arabinogalactan prior to injection, shows far greater
therapeutic effect in animals and reduced toxicity. Toxicity is reduced because
(i) less therapeutic compound is needed since AraAMP is directed by the
arabinogalactan to hepatocytes through the ASG receptor, (ii) the probability of
successful triphosphorylation is increased by the targeted delivery of the
monophosphate to the cell and (iii) the arabinogalactan-AraAMP conjugate does
not, the Company believes, metabolize into any toxic product during its short
blood half-life.
The Company believes that the delivery and use enhancements seen when
AraAMP is attached to arabinogalactan may be obtained with other therapeutic
agents. The attachment of a variety of therapeutic agents to arabinogalactan,
such as ribavirin and acyclovir, is an active area of research for Advanced
Magnetics and may lead to a series of arabinogalactan-delivered pharmaceuticals
for the treatment of such liver diseases as hepatitis B, hepatitis C, hepatitis
D and liver cancer.
The Company holds two United States patents and a notice of allowance for a
European patent covering the delivery of therapeutic agents with
arabinogalactan. A third patent covering the use of arabinogalactan with
radiotherapy has been issued in the United States. The Company has also
developed a proprietary purification scheme for purifying arabinogalactan that
enables it to manufacture a pharmaceutical grade of arabinogalactan suitable for
use in the Company's therapeutic products. See "Patents and Trade Secrets."
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PRODUCTS UNDER DEVELOPMENT
This section contains certain forward-looking statements relating to the
timing of clinical trials and regulatory approvals and the expected use of the
Company's products. These statements should be considered in connection with the
risks set forth in "Risk Factors -- Early Stage of Product Commercialization;
Uncertainty of Product Development," "-- Government Regulation; No Assurance of
Regulatory Approval" and "-- Uncertainties Relating to Clinical Trials;
Technological Uncertainty."
<TABLE>
The following table summarizes potential applications, marketing partners
and current United States and foreign status for each of the Company's products.
- --------------------------------------------------------------------------------
ADVANCED MAGNETICS PRODUCTS UNDER DEVELOPMENT
<CAPTION>
MARKETING UNITED STATES FOREIGN
PRODUCT APPLICATIONS PARTNERS STATUS STATUS
------- ------------ --------- ------------- -------
<S> <C> <C> <C> <C>
CONTRAST AGENTS
Feridex I.V. Diagnosis of liver Berlex (United Approvable letter Approved and
lesions States), Eiken received in marketed in most
(Japan), Guerbet February 1996. EU countries.
(Western Europe Japanese NDA filed
and Brazil) in March 1994.
Combidex Diagnosis of Guerbet (Western Phase III liver Phase III clinical
lesions of the Europe and trial patient trials for
liver, spleen and Brazil), Eiken enrollment lymphatic imaging
lymphatic system, (Japan) completed in early expected to
as well as blood 1996. Phase III commence in Europe
flow in MRA clinical trials in 1996. Phase I
for blood flow and testing expected
lymphatic imaging to begin in Japan
expected to in 1996.
commence in 1996.
GastroMARK Marking of the Guerbet (Western NDA submitted in Approved and
bowel in abdominal Europe and November 1993. marketed in
imaging Brazil), several European
Mallinckrodt countries,
(United States, including France.
Canada and Mexico) Approved in
Canada.
TARGETED DRUG DELIVERY PRODUCTS
AraAMP- Therapeutic for -- Preclinical Clinical trials
arabinogalactan hepatitis B research expected to begin
conjugate completed. in 1996.
Ribavirin- Therapeutic for -- Preclinical --
arabinogalactan hepatitis C research in
conjugate process.
</TABLE>
- --------------------------------------------------------------------------------
CONTRAST AGENTS
FERIDEX I.V. The liver is a principal site for metastasis of primary
cancer originating in other parts of the body, particularly cancer of the colon,
a common cancer in the United States. Diagnosis of metastasis at an early stage
can be difficult because small tumors are frequently not accompanied by
detectable physical symptoms. Identification of metastatic tumors in the liver
has a significant impact on physicians' treatment plans for cancer. The Company
believes that Feridex I.V. will allow for MRI scans of liver tumors that may not
be visible with CT scanning, the most widely used technique for liver imaging.
The Company also believes that if an effective MRI contrast agent were available
for imaging the liver, a substantial number of liver scans now done using CT
scanning and other imaging techniques would instead, or also, use MRI.
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The Company received an approvable letter from the FDA for Feridex I.V. in
February 1996. After resolving the questions raised by the FDA, the Company must
negotiate final labeling as the last critical step prior to approval for
marketing the product. There can be no assurance that the Company will be able
to satisfactorily resolve the labeling issues raised by the FDA in its
approvable letter. Any failure to satisfactorily resolve labeling issues could
delay FDA approval for marketing Feridex I.V. or could adversely impact the
ability of the Company to market Feridex I.V. Feridex I.V. was approved in
September 1994 by the EU's Committee for Proprietary Medicinal Products and most
of the member states of the EU have issued local approvals to market the
product. Marketing of the product has begun by Guerbet in Europe. Eiken filed an
application for Japanese regulatory approval in March 1994 and expects to
receive an approval for marketing in 1996. Berlex is the Company's exclusive
marketing partner for Feridex I.V. in the United States. See "Licensing and
Marketing Arrangements."
COMBIDEX. The Company believes that Combidex will be useful in diagnostic
imaging of the liver, spleen and lymphatic system and blood flow in MRA. Lymph
nodes are frequently sites for metastases of different types of cancer,
particularly breast cancer and prostate cancer, and efficient imaging of lymph
nodes could play a major role in determining courses of treatment. There are
currently no available non-invasive methods for distinguishing between lymph
nodes enlarged by tumorous infiltration as opposed to inflammation. Since CT,
the only modality currently used for imaging lymph nodes, cannot distinguish
between enlarged nodes and cancerous nodes, the current practice is to assume
that enlarged nodes are cancerous and to perform a biopsy to establish their
true status. The Company believes that Combidex will enable doctors using MRI to
distinguish between cancerous and noncancerous enlarged lymph nodes because its
accumulation in normal lymph node tissue permits differentiation between normal
and tumor-infiltrated nodes.
The long circulating half-life of Combidex may also permit its use in
analyzing the perfusion, or blood flow, in tissues such as the heart and brain.
Heart attacks and strokes decrease blood flow in damaged tissue, and the Company
believes that Combidex may be useful in delineating the areas of decreased blood
flow or visualizing areas of vascular constriction. The Company also believes
that Combidex can be used to identify tumors in the liver and spleen because
tumors generally have different vascularity than the surrounding tissues.
The Company and Guerbet have completed Phase II clinical trials for the
product in both the United States and Europe for several indications. The
Company has completed patient enrollment for Phase III trials for the product in
the United States for imaging liver lesions and expects to begin separate Phase
III trials for Combidex as a blood flow contrast agent in MRA in 1996. In 1996,
the Company and Guerbet expect to begin Phase III trials for Combidex in the
United States and Europe for imaging of lymph nodes. Phase I trials of Combidex
are scheduled to begin in Japan in 1996.
One of the approximately 475 patients and subjects who were administered
Combidex during its product development suffered an allergic reaction and died
in January 1996. There can be no assurance that this death or any subsequent
death that may occur during the clinical trials for this product would not have
an adverse effect on the Company's ability to continue clinical trials or obtain
regulatory approvals for Combidex or otherwise have a material adverse effect on
the Company's business, financial condition and results of operations. See "Risk
Factors -- Government Regulation; No Assurance of Regulatory Approval," "--
Uncertainties Relating to Clinical Trials; Technological Uncertainty."
The Company has granted exclusive rights to manufacture, market and sell
Combidex in Japan to Eiken and an exclusive right to market and sell Combidex in
Western Europe and Brazil to Guerbet. See "Licensing and Marketing
Arrangements."
GASTROMARK. MRI imaging of organs and tissues in the abdomen without
contrast agents is difficult because these organs and tissues cannot be easily
distinguished from the loops of the bowel. GastroMARK, the Company's oral
contrast agent for marking of the bowel, when ingested, flows through and
darkens the bowel. By more clearly identifying the intestinal loops, GastroMARK
improves visualization of adjacent abdominal tissues, including the pancreas and
pelvis.
The Company submitted an NDA for GastroMARK with the FDA in November 1993,
which is currently under review by the agency. The Company expects an FDA action
letter during 1996. The Company
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has granted Mallinckrodt the exclusive right to co-market GastroMARK in the
United States, Canada and Mexico. The Company has licensed the manufacturing and
marketing rights to GastroMARK on an exclusive basis to Guerbet in Western
Europe and Brazil. During fiscal 1993, Guerbet received marketing approval for
the product in several European countries including France, and marketing of the
product in Europe has begun. In addition, GastroMARK was approved for marketing
in Canada in 1996. See "Licensing and Marketing Arrangements."
OTHER CONTRAST AGENTS UNDER DEVELOPMENT. The Company is developing
additional contrast agents. The Company believes that a variety of peptides,
antibodies, proteins and polysaccharides may be used to coat its
superparamagnetic iron oxide particles and to target them to specific receptors,
and the Company is currently researching the use of these substances in new
contrast agents. In May 1995, the Company entered into a sponsored research and
license agreement with the General Hospital Corporation, a not-for-profit
Massachusetts corporation doing business as Massachusetts General Hospital
("MGH"). The agreement covers organ-specific, receptor-directed, ultrasmall
superparamagnetic iron oxides for use as MRI contrast agents. The target organ
for the initial collaboration is the pancreas. The Company agreed to pay MGH
$300,000, but payments could exceed this amount depending on milestone
achievements and royalties on future product sales.
TARGETED DRUG DELIVERY PRODUCTS
The Company believes that arabinogalactan will prove useful in delivering
therapeutic pharmaceuticals to the liver because of its lack of toxicity and
high specificity for hepatocytes. The Company expects to begin clinical trials
for the AraAMP conjugate in Europe in 1996. The Company currently expects that
both the manufacturing and clinical testing of the Company's AraAMP conjugate
will initially be performed outside of the United States.
The Company believes that the delivery and use enhancements seen when
AraAMP is attached to arabinogalactan may be obtainable with other therapeutic
agents. The attachment of a variety of therapeutic agents to arabinogalactan,
such as ribavirin and acyclovir, is an active area of research for Advanced
Magnetics and may lead to a series of arabinogalactan-based pharmaceuticals for
the treatment of such liver diseases as hepatitis B, hepatitis C, hepatitis D
and liver cancer.
The Company believes it has a strong intellectual property position
regarding arabinogalactan for use in targeting therapeutic compounds. It has two
United States patents and a notice of allowance for a European patent covering
the delivery of therapeutic agents with arabinogalactan. A third patent covering
the use of arabinogalactan with radiotherapy has issued in the United States.
See "Patents and Trade Secrets."
LICENSING AND MARKETING RELATIONSHIPS
The Company's strategy is to enter into corporate alliances to facilitate
the development, marketing and distribution of its contrast agents. These
agreements generally provide for the payment of license fees upon execution and,
in some cases, when the Company or the licensee achieves specified regulatory
milestones. The agreements also provide for royalties based on the licensee's
sales. In certain cases, the Company sells active ingredients or finished
contrast agents to its licensees for payments based on a percentage of sales.
BERLEX. In February 1995, the Company entered into a license and marketing
agreement and supply agreement with Berlex, granting Berlex exclusive marketing
rights to Feridex I.V. in the United States. The Company is responsible for
performing all work necessary to obtain FDA approval for commercial marketing of
Feridex I.V. in the United States. Under the terms of the agreements, Berlex
paid a $5,000,000 license fee upon execution of the agreements and agreed to pay
an additional $5,000,000 license fee upon the delivery of FDA-approved product
to Berlex. In addition, the Company will receive payments for manufacturing the
agent and royalties on future sales of the agent. These agreements expire in
2010 but are terminable earlier upon specified events such as the determination
by Berlex that the agent is commercially unmarketable due to adverse labeling
requirements imposed by the FDA.
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GUERBET. In 1987, the Company entered into a supply and distribution
agreement with Guerbet. Under this agreement, Guerbet has been appointed the
exclusive distributor of Feridex I.V. in Western Europe (under the tradename
Endorem) and Brazil. Guerbet is responsible for conducting clinical trials and
securing the necessary regulatory approvals in the countries in its territory.
Guerbet paid the Company license fees of $250,000 in 1987 and $250,000 in 1988
and is required to pay royalties based on sales. The Company is entitled to
receive an additional percentage of Guerbet's sales in return for selling to
Guerbet its requirements for the active ingredient used in the liver contrast
agent. The agreement terminates on the later of (i) the expiration of the last
to expire technology patent or (ii) ten years after the date all necessary
approvals are obtained in France.
In 1989, the Company entered into a second supply and distribution
agreement with Guerbet granting Guerbet an exclusive right in Western Europe
(under the tradename Lumirem) and Brazil to manufacture and sell GastroMARK and
any future Advanced Magnetics MRI contrast agents that Guerbet decides to
market, including Combidex. Under the terms of this second distribution
agreement, Guerbet paid the Company a license fee of $700,000 in 1989. In
addition, Guerbet will pay the Company royalties as a percentage of net sales,
as the purchase price for the active ingredient. The Company is required to sell
to Guerbet its requirements for the active ingredient used in the contrast
agents. The agreement is perpetual but terminable upon specified events such as
non-performance, insolvency or assignment without consent. Also in 1989, Guerbet
purchased 150,000 shares of the Company's common stock at $12.00 per share.
MALLINCKRODT. In 1990, the Company entered into a manufacturing and
distribution agreement for GastroMARK with Mallinckrodt. Under this agreement,
Mallinckrodt received the exclusive right to manufacture and co-market
GastroMARK in the United States, Canada and Mexico. The Company may also sell
the product through its own direct sales personnel. Mallinckrodt has paid
$1,350,000 under the contract and has agreed to pay $500,000 on FDA approval of
the NDA. Additionally, the Company will receive royalties based on
Mallinckrodt's sales. The Company is required to sell to Mallinckrodt its
requirements of the active ingredient of GastroMARK. The agreement is perpetual
but terminable upon specified events such as non-performance, insolvency or
assignment without consent.
EIKEN. In 1990, the Company entered into a manufacturing and distribution
agreement with Eiken (the "Eiken Agreement"), granting Eiken the exclusive right
in Japan to manufacture and distribute GastroMARK and Combidex. In addition, for
a period of 180 days after the Company files an NDA for any future Advanced
Magnetics MRI contrast agents, Eiken has the right of first refusal to
manufacture and distribute such product in Japan. Upon execution of this
agreement, Eiken paid the Company a license fee of $1,000,000. Additionally,
Eiken agreed to pay the Company royalties on sales of all products by Eiken
under the agreement. The agreement is perpetual but terminable upon specified
events such as non-performance, insolvency or assignment without consent. Also
in 1990, Eiken purchased 375,000 shares of the Company's common stock for $13.33
per share. Due to market conditions in Japan, Eiken has decided not to market
GastroMARK.
In 1988, the Company entered into a manufacturing and distribution
agreement with Eiken, granting Eiken the exclusive right to manufacture and
distribute Feridex I.V. in Japan. Eiken is responsible for conducting clinical
trials and securing the necessary regulatory approval in Japan. Under the terms
of the agreement as amended, Eiken paid the Company license fees of $750,000 in
1988, $200,000 in 1989 and $550,000 in 1990. In addition, Eiken is required to
pay royalties based upon sales. The agreement terminates on the later of (i) the
expiration of the last to expire technology patent or (ii) ten years after the
date all necessary approvals are obtained.
SQUIBB DIAGNOSTICS. In 1991, the Company entered into agreements with
Squibb Diagnostics, covering certain technology and the manufacturing and
marketing of certain contrast agents including Combidex, which agreements have
been terminated. Under certain circumstances, the Company is obligated to pay
Squibb Diagnostics up to a maximum of $2,000,000 and $2,750,000 in royalties in
connection with product sales of an arabinogalactan receptor-mediated contrast
agent and Combidex, respectively.
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MANUFACTURING AND SUPPLY ARRANGEMENTS
The Company's Cambridge, Massachusetts facility is registered with the FDA
and is subject to GMP as prescribed by the FDA. The Company currently
manufactures bulk Feridex I.V. product for sale to Guerbet and has developed the
necessary capabilities to manufacture Feridex I.V. finished product for sale to
Berlex and GastroMARK bulk product for sale to Guerbet and Mallinckrodt. The
Company also manufactures Combidex for preclinical and clinical testing by
Guerbet. The Company also expects to utilize contract manufacturers from time to
time if appropriate.
The Company has entered into a manufacturing and supply agreement with
Abbott Laboratories, Inc. ("Abbott"), under which Abbott will manufacture
commercial quantities of Combidex for the Company and Guerbet. The agreement
expires either five years after the Company receives approval to market Combidex
in the United States or if such approval is not obtained in the United States,
the agreement shall terminate in November 2005. Unless terminated earlier by
either party, the agreement automatically renews for five year terms. Either
party may terminate the agreement after the initial five year term upon not less
than two years notice, or on sixty days notice upon bankruptcy or insolvency or
a material breach of the agreement.
Pursuant to the Eiken Agreement, Eiken has the exclusive right in Japan to
manufacture GastroMARK and any of the Company's future contrast agents that it
decides to market pursuant to the Eiken Agreement.
The manufacture of the Company's antiviral therapeutic products will
require the continuous availability of commercial grade arabinogalactan, a
naturally occurring polysaccharide that is commercially available, which the
Company will purify at its Cambridge facility.
PATENTS AND TRADE SECRETS
The Company considers the protection of its technology to be material to
its business. The Company's policy is to aggressively protect its competitive
technology position by a variety of means, including applying for patents in the
United States and in appropriate foreign countries. The Company has been granted
21 United States patents and has pending several United States patent
applications covering various aspects of the production of magnetic colloids and
particles, the composition of particles, the formulation of colloids and certain
applications of these colloids and particles. The Company has filed counterpart
patent applications in several foreign countries. In addition, the Company is a
party to various license agreements, including non-exclusive cross-licensing
arrangements covering MRI imaging technology with Nycomed and Schering. The
Company's proprietary position depends in part on these licenses, and
termination of the licenses for any reason could have a material adverse effect
on the Company by limiting or prohibiting the commercial sale of its products.
Although the Company believes that further patents will be issued on pending
applications, no assurance to this effect can be given.
The patent positions of pharmaceutical and biopharmaceutical firms,
including Advanced Magnetics, are generally uncertain and involve complex legal
and factual questions. There can be no assurance that any claims which are
included in pending or future patent applications will be issued, that any
issued patents will provide the Company with competitive advantages or will not
be challenged by others, or that the existing or future patents of third parties
will not be have an adverse effect on the ability of the Company to
commercialize its products.
One of the Company's MRI patents is the subject of two interference
proceedings in the U.S. Patent Office. The Company has a non-exclusive license
to the patent applications involved in one of these interference proceedings,
which applications are owned by Nycomed and Schering. Because the Company does
not currently have rights in all the patents and patent applications which are
the subject of the other interference, there can be no assurance that the
outcome of that interference will not have an outcome with a material adverse
effect on the Company. There can be no assurance that future patent
interferences involving patents of either the Company or its licensors will not
have a material adverse effect on the Company's business. Moreover, there can be
no assurance that claims of infringement or violation of the proprietary rights
of others will not be asserted against the Company. If Advanced Magnetics is
required to defend against such
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<PAGE> 34
claims or to protect its own proprietary rights against others, the Company may
incur substantial costs which could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company believes it has a strong intellectual property position
regarding arabinogalactan for use in targeting therapeutic compounds. It has two
U.S. patents and a notice of allowance for a European patent covering the
delivery of therapeutic agents with arabinogalactan. A third patent covering the
use of arabinogalactan with radiotherapy has issued in the United States.
Additional therapeutic applications are pending, but there is no assurance that
any additional patents will issue to the Company.
The Company also intends to rely on its trade secrets, know-how, continuing
technological innovations and licensing opportunities to maintain and develop
its competitive position. Although the Company seeks to protect its proprietary
information, there can be no assurance that others will not independently
develop the same or similar information, design around the patents, obtain
unauthorized access to the Company's proprietary information or misuse
information to which the Company has granted access. Litigation may be necessary
to enforce any patents issued to the Company or to determine the scope of other
person's proprietary rights in court or administrative proceedings. Any
litigation or administrative proceeding could result in substantial costs to the
Company and distraction of the Company's management. An adverse ruling in any
litigation or administrative proceeding could have a material adverse effect on
the Company's business, financial condition and results of operations.
COMPETITION
The pharmaceutical and biopharmaceutical industries are subject to intense
competition and rapid technological change. While there are currently no MRI
contrast agents designed for organ-specific applications marketed in the United
States other than chelated gadolinium compounds for imaging the central nervous
system, the Company expects competition in the development of new MRI contrast
agents to increase substantially. Certain companies, including the Company's
collaborators, which have greater human and financial resources dedicated to
product development and clinical testing than the Company, are developing MRI
contrast agents. The Company's collaborators are not restricted from developing
and marketing competing products and as a result of certain cross license
agreements among the Company and certain of its competitors (including some of
its collaborators), the Company's competitors will be able to utilize certain of
the Company's technology in the development of competing products. There can be
no assurance that the Company will be able to compete successfully with these
companies.
The Company believes that its ability to compete successfully in the MRI
contrast agent market will depend on a number of factors including the
development of efficacious products, timely receipt of regulatory approvals and
product manufacturing at commercially acceptable costs. In addition, the
Company's MRI contrast agents represent a new approach to imaging certain organs
and market acceptance of both MRI as an appropriate technique for such organs
and the Company's products is critical to the success of its contrast agent
products. Although the Company believes that its contrast agents will offer
advantages over competing MRI, CT or X-ray contrast agents, there can be no
assurance that there will be greater acceptance of its products over other
contrast agents. In addition, to the extent that other diagnostic techniques
such as CT and X-ray may be perceived as providing greater value than MRI, any
corresponding decrease in the use of MRI would have an adverse effect on the
demand for the Company's contrast agent products. There can be no assurance that
the Company will be able to successfully develop efficacious products, obtain
timely regulatory approvals, manufacture products at commercially acceptable
costs, gain satisfactory market acceptance or otherwise successfully compete in
the future.
There are several MRI contrast agents for imaging lesions of the liver in
various phases of human testing in the United States and abroad. Schering has
two products in development, Resovist, a carboxydextran superparamagnetic iron
oxide formulation, and Eovist, a chelated gadolinium compound. The Company
believes that Resovist is in Phase III trials in Europe and Japan and that
Eovist has completed Phase II trials in Europe. Nycomed has filed an NDA for its
MnDPDP product in the United States and Europe for MRI of liver lesions. The
Company believes that Bracco S.p.A. is conducting Phase II trials in Europe for
Gadolinium BOPTA, another chelated gadolinium compound. In the area of oral
contrast agents, Pharmacyclics, Inc. filed
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<PAGE> 35
an NDA in late 1995 for GADOLITE, its gadolinium-based product candidate, and
Bracco S.p.A. has filed an NDA in the United States for Lumenhance, its
liposomal encapsulated oral manganese compound. The Company believes that
Feridex I.V. and GastroMARK are more advanced in the clinical approval process
than these competitive products and believes that being first to market with a
safe and effective product is a major competitive advantage. There can be no
assurance, however, that these competitive products or new products developed by
the Company's competitors will not be more effective than any products developed
by the Company or render the Company's technology obsolete.
Many companies, including large pharmaceutical, chemical and biotechnology
companies, and academic and research institutions are engaged in developing
vaccines and products for therapeutic use for treatment of hepatitis B and C.
Both Hoffman-LaRoche and Schering-Plough have interferon products approved in
the United States and elsewhere for use against hepatitis B. Glaxo Wellcome's
Lamivudine, already approved for use in AIDS patients, is in Phase III trials
for hepatitis B around the world, and SciClone Pharmaceuticals is conducting
Phase III trials for Zadaxin in Taiwan for hepatitis B. Other competitors
developing hepatitis B therapeutics include Biogen, SmithKline Beecham, Gilead
Sciences and ICN Pharmaceuticals. Therapeutic candidates for hepatitis C are
being developed by Hoffman-LaRoche, Schering-Plough, ICN Pharmaceuticals, Biogen
and Agouron.
Many of these companies have substantially greater capital, research and
development, manufacturing and marketing resources and experience than the
Company and represent significant competition for Advanced Magnetics. Such
companies may succeed in developing technologies and products that are more
effective or less costly than any that may be developed by the Company and may
also prove to be more successful than the Company in production and marketing.
There can be no assurance that Advanced Magnetics will successfully develop its
proposed drug delivery products, obtain required regulatory approvals or gain
satisfactory market acceptance for such products. Furthermore, there can be no
assurance that these products or new products developed by the Company's
competitors will not be more effective than any products developed by the
Company or render the Company's technology obsolete. The Company believes,
however, that no one therapeutic will be effective for all patients and that low
production costs will be a significant determinant of future success in the
worldwide marketplace.
GOVERNMENT REGULATION AND REIMBURSEMENT
The production and marketing of the Company's products and its ongoing
research and development activities are subject to regulation for safety,
efficacy and quality by numerous governmental authorities in the United States
and other countries. Pharmaceutical products intended for therapeutic use in
humans are principally governed by FDA regulations in the United States and by
comparable government regulations in foreign countries. Various federal, state
and local statutes and regulations also govern or influence the research and
development, manufacturing, safety, labeling, storage, recordkeeping,
distribution and marketing of such products. The process of completing
preclinical and clinical testing and obtaining the approval of the FDA and
similar health authorities in foreign countries to market a new drug product
requires a significant number of years and the expenditure of substantial
resources. To date, no contrast agent based on magnetic particles has been
approved by the FDA, although the Company has received an approvable letter for
Feridex I.V. Failure to obtain requisite governmental approvals or failure to
obtain approvals of the scope requested will delay or preclude the Company or
its licensees or collaborators from marketing the Company's products or limit
the commercial use of the products and will have a material adverse effect on
the Company's business, financial condition and results of operations.
The steps required by the FDA before a new human pharmaceutical product,
including a contrast agent or therapeutic drug, may be marketed in the United
States include: (a) preclinical laboratory tests, in vivo preclinical studies
and formulation studies; (b) the submission to the FDA of a request for
authorization to conduct clinical trials subject to an Investigational New Drug
("IND") exemption, to which the FDA must not object, before human clinical
trials may commence; (c) adequate and well-controlled human clinical trials to
establish the safety and efficacy of the drug for its intended use; (d)
submission to the FDA of an NDA; (e) approval and validation of manufacturing
facilities and production uses of the pharmaceutical; and
34
<PAGE> 36
(f) review and approval of the NDA by the FDA before the drug product may be
shipped or sold commercially.
Preclinical tests include the laboratory evaluation of product chemistry
and formulation, as well as animal studies to assess the potential safety and
efficacy of the product. Preclinical test results are submitted to the FDA as a
part of the IND. Clinical trials are typically conducted in three sequential
phases, although the phases may overlap. Phase I involves the initial
administration of the drug to a small group of humans, either healthy volunteers
or patients, to test for safety, dosage tolerance, absorption, distribution,
metabolism, excretion and clinical pharmacology and, if possible, early
indications of effectiveness. Phase II involves studies in a small sample of the
actual intended patient population to assess the preliminary efficacy of the
investigational drug for a specific clinical indication, to ascertain dose
tolerance and the optimal dose range and to collect additional clinical
information relating to safety and potential adverse effects. Once an
investigational drug is found to have some efficacy and an acceptable clinical
safety profile in the targeted patient population, Phase III studies can be
initiated to further establish safety and efficacy of the investigational drug
in a broader sample of the target patient population. The results of the
clinical trials together with the results of the preclinical tests and complete
manufacturing information are submitted in an NDA to the FDA for approval. The
FDA may suspend clinical trials at any point in this process if it concludes
that patients are being exposed to an unacceptable health risk.
If an NDA is submitted to the FDA, there can be no assurance that such
application will be reviewed and approved by the FDA in a timely manner, if at
all. Even after initial FDA approval has been obtained, further studies,
including post-market studies, may be required to provide additional
information. Results of such post-market programs may limit or expand the
further marketing of the product. Even if initial marketing approval is granted,
such approval may entail limitations on the indicated uses for which a product
may be used and impose labeling requirements which may adversely impact the
Company's ability to market its products. Finally, product approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur following initial marketing.
Among the conditions for NDA approval is the requirement that a prospective
manufacturer's manufacturing procedures conform to GMP requirements, which must
be followed at all times. In complying with those requirements, manufacturers
(including a drug sponsor's third-party contract manufacturers) must continue to
expend time, money and effort in the area of production and quality control to
ensure compliance. Domestic manufacturing establishments are subject to periodic
inspections by the FDA in order to assess, among other things, GMP compliance.
To supply product for use in the United States, foreign manufacturing
establishments must comply with GMP and are subject to periodic inspection by
the FDA or by regulatory authorities in certain of such countries under
reciprocal agreements with the FDA. Failure to maintain compliance with GMP
regulations and other applicable manufacturing requirements of various
regulatory agencies could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company is also subject to foreign regulatory requirements governing
development, manufacturing and sales of pharmaceutical products that vary widely
from country to country. Approval of a drug by applicable regulatory agencies of
foreign countries must be secured prior to the marketing of such drug in those
countries. The regulatory approval process may be more or less rigorous from
country to country and the time required for approval may be longer or shorter
than that required in the United States.
The Company is and may be subject to regulation under local, state and
Federal law regarding occupational safety, laboratory practices, handling of
chemicals, environmental protection and hazardous substances control. The
Company possesses a By-product Materials License from the Nuclear Regulatory
Commission ("NRC") for receipt, possession, manufacturing and distribution of
radioactive materials. The Company holds Registration Certificates from the
United States Drug Enforcement Administration and the Commonwealth of
Massachusetts Department of Public Health for handling controlled substances.
The Company is registered with the United States Environmental Protection Agency
("EPA") as a generator of hazardous waste. All hazardous waste disposal must be
made in accordance with EPA and NRC require-
35
<PAGE> 37
ments. The Company is subject to the regulations of the Occupational Safety and
Health Act and has in effect a safety program to assure compliance with these
regulations.
In both the United States and foreign markets, the Company's ability to
commercialize its products successfully also depends 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
insurers and other third-party payors. In the United States, there has been, and
the Company expects that there will continue to be, a number of federal and
state proposals to reform the health care system. In addition, an increasing
emphasis on managed care in the United States has and will continue to put
pressure on pharmaceutical pricing. Such initiatives and proposals, if adopted,
could decrease the price that the Company receives for its existing products, as
well as any products it may develop and sell in the future. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products and products used for indications not approved by the FDA. If adequate
reimbursement levels are not maintained by government and other third-party
payors for the Company's products and related treatments, the Company's
business, financial condition and results of operations may be materially
adversely affected.
EMPLOYEES
As of February 9, 1996, the Company had approximately 64 full-time
employees, 53 of whom were engaged in research and development. The Company's
success depends in part on its ability to recruit and retain talented and
trained scientific personnel. The Company has been successful to date in
obtaining such personnel, but there can be no assurance that such success will
continue.
PRODUCT LIABILITY INSURANCE
The use of any of the Company's potential products in clinical trials and
the sale of any approved products may expose the Company to liability claims
resulting from the use of products or product candidates. These claims might be
made by customers (including corporate partners), clinical trial subjects,
patients, pharmaceutical companies or others. The Company maintains product
liability insurance coverage for claims arising from the use of its products in
clinical trials. However, coverage is becoming increasingly expensive and no
assurance can be given that the Company will be able to maintain insurance at a
reasonable cost. There can be no assurance that the Company's insurance will
provide sufficient amounts to protect the Company against losses due to
liability that could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not presently
maintain product liability insurance covering the sale of its products approved
for commercial marketing and there can be no assurance that the Company will be
able to obtain commercially reasonable product liability insurance for any
product presently being marketed or for any product approved for marketing in
the future or that insurance coverage and the resources of the Company would be
sufficient to satisfy any liability resulting from product liability claims. A
product liability claim or series of claims brought against the Company could
have a material adverse effect on its business, financial condition and results
of operations, whether or not the plaintiffs in such claims ultimately prevail.
See "Risk Factors -- Potential Product Liability; Uncertainties Related to
Insurance."
FACILITIES
The Company's principal pharmaceutical manufacturing and research and
development operations are located in a modern Company-owned building of
approximately 25,000 square feet in Cambridge, Massachusetts, which includes a
recently completed 3,800 square-feet expansion. The Company has leased two
additional premises in Cambridge of approximately 18,000 total square feet to be
used for manufacturing, warehousing and executive office space. One lease
expires on October 31, 1997 and the other lease expires on December 31, 1997. In
addition, the Company has leased premises of approximately 5,200 square feet in
Princeton, New Jersey used by the Company's clinical development group as a
general business, sales and administrative office. This lease expires on
September 30, 1996 but includes two one year extension options. The Company
believes these facilities are adequate for its current and anticipated
short-term needs and that it will be able to enter into lease extensions or to
lease comparable space, if necessary. However, the acquisition and required
regulatory approvals for additional pharmaceutical manufacturing space can be
time consuming
36
<PAGE> 38
and expensive. There is no assurance that if the Company desires to expand its
manufacturing capacity it would be able to do so on a timely basis, if at all.
LEGAL PROCEEDINGS
The Company and certain of its officers were sued in an action entitled
David D. Stark, M.D. v. Advanced Magnetics, Inc., Jerome Goldstein, Ernest V.
Groman, and Lee Josephson, Civil Action No. 92-12157-WGY, in the United States
District Court for the District of Massachusetts on September 3, 1992. The
plaintiff, a former consultant to the Company, claims that he was incorrectly
omitted as an inventor or joint inventor on certain of the Company's patents and
on pending applications, and seeks injunctive relief and unspecified damages. In
addition, the complaint also alleges state law claims for breach of contract,
breach of good faith and fair dealing, breach of implied contract,
misappropriation of trade secrets, conversion, negligent misrepresentation,
misrepresentation, unjust enrichment and unfair trade practices. The District
Court has held that the plaintiff cannot succeed on both his claims to correct
inventorship under federal law and his state law claims as these claims are
mutually exclusive. The plaintiff recently appealed the District Court's
analysis of the federal law to the United States Court of Appeals for the
Federal Circuit. While the outcome of the action cannot be determined, the
Company believes the action is without merit and intends to defend the action
vigorously if it is reopened. There can be no assurance, however, that the
Company will be able to successfully defend this action, and failure by the
Company to prevail for any reason could have an adverse effect on the Company's
future business, financial condition and results of operations.
The Company and certain of its officers were sued in David D. Stark v.
Advanced Magnetics, Inc., Jerome Goldstein, Ernest V. Groman and Lee Josephson,
Civil Action No. 93-02846-C, in the Superior Court Department of the
Massachusetts Trial Court for Middlesex County. This case involves claims of
breach of contract, breach of good faith and fair dealing, breach of implied
contract, unjust enrichment and unfair trade practices that were originally
dismissed by, but later remanded to, the Federal Court in the above-mentioned
action, as well as a new count alleging tortious interference with contractual
or advantageous relations. The Superior Court granted partial summary judgment
in the Company's favor and dismissed the unfair trade practices and tort counts.
The Superior Court has stayed the action until May 17, 1996. While the outcome
of the action cannot be determined, the Company believes the action is without
merit and intends to defend the action vigorously. There can be no assurance,
however, that the Company will be able to successfully defend this action, and
failure by the Company to prevail for any reason could have an adverse effect on
the Company's future business, financial condition and results of operations.
37
<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
The directors and executive officers of the Company are as follows (1):
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jerome Goldstein..................... 56 Chairman of the Board of Directors, Chief
Executive Officer, President and
Treasurer(2)
Lee Josephson, Ph.D.................. 50 Senior Vice President -- Research
Leonard M. Baum...................... 42 Senior Vice President
Anthony P. Annese.................... 66 Vice President -- Finance
Paula M. Jacobs, Ph.D................ 51 Vice President -- Development
Jerome M. Lewis, Ph.D................ 47 Vice President -- Scientific Operations
Mark C. Roessel...................... 45 Vice President -- Regulatory Affairs
Thomas Coor, Ph.D.................... 73 Director
Leslie Goldstein..................... 61 Director
Richard L. McIntire.................. 61 Director
Edward B. Roberts, Ph.D.............. 60 Director(2)
Roger E. Travis...................... 58 Director(2)
George M. Whitesides, Ph.D........... 56 Director
[/FN]
- ---------------
(1) The Board of Directors is responsible for establishing and administering the
Company's executive compensation programs.
(2) Member of Audit Committee.
</TABLE>
Jerome Goldstein is a founder of the Company and has been Chairman of the
Board of Directors, Chief Executive Officer, President and Treasurer since the
Company's organization in November 1981.
Lee Josephson, Ph.D. is a founder of the Company and has been Senior Vice
President -- Research since November 1990.
Leonard M. Baum joined the Company in October 1994 as a Senior Vice
President. From 1986 to 1994, Mr. Baum was Senior Director, Worldwide Regulatory
Affairs/Drug Safety at Squibb Diagnostics.
Anthony P. Annese joined the Company in December 1987 as Vice
President -- Finance.
Paula M. Jacobs, Ph.D. joined the Company in January 1986 as Vice
President -- Development.
Jerome M. Lewis, Ph.D. joined the Company in April 1986 as a Senior
Scientist and has been Vice President -- Scientific Operations since February
1991.
Mark C. Roessel joined the Company in January 1982 as a Director of
Regulatory Affairs and has been Vice President -- Regulatory Affairs since
January 1995.
Thomas Coor, Ph.D. has been a director of the Company since 1983. Dr. Coor
is currently a consultant. Dr. Coor is also a director of Aston, Inc., a
developer of specialty biochemicals.
Leslie Goldstein has been a director of the Company since 1981. Mr.
Goldstein has been an associate of SRG Associates, a division of Fahnestock &
Co., Inc., since 1977. Mr. Goldstein is the brother of Jerome Goldstein.
Richard L. McIntire has been a director of the Company since 1982. Mr.
McIntire is Chairman of the Board of Marketing Information Services, Inc., a
developer of computer software, and has been the Chairman of Vantage Capital
Group, an investment and consulting firm, since 1990.
38
<PAGE> 40
Edward B. Roberts, Ph.D. has been a director of the Company since 1982.
Professor Roberts has been Professor at the Sloan School at MIT since 1961. He
is a co-founder and was Chairman of Pugh-Roberts Associates, Inc., a management
consulting firm that is now a division of PA Consulting Group, Inc. Professor
Roberts is also a general partner of Zero Stage Capital Management, L.P., a
venture capital limited partnership.
Roger E. Travis has been a director of the Company since its organization
in 1981. He is currently President of Roger E. Travis Associates, a small
business consulting firm founded by him in 1978.
George M. Whitesides, Ph.D. has been a director of the Company since 1981.
Professor Whitesides has been a Professor of Chemistry at Harvard University
since 1982. He is a director of Dexter Corporation, a manufacturer of specialty
material products.
Officers and directors are elected on an annual basis. The present term of
office for each director will expire at the next annual meeting of the Company's
stockholders or at such time as his successor is duly elected. Officers serve at
the discretion of the Board of Directors.
39
<PAGE> 41
PRINCIPAL AND SELLING STOCKHOLDERS
<TABLE>
The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock as of March 21, 1996 and as adjusted to
reflect the Offering, by (i) each person known by the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, (ii) each
director of the Company, (iii) all officers and directors as a group and (iv)
the Selling Stockholders. Unless otherwise indicated below, to the knowledge of
the Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law.
<CAPTION>
SHARES TO BE
SHARES BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) NUMBER OF OFFERING(1)(2)
------------------- SHARES -------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
--------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS, OFFICERS AND 5% STOCKHOLDERS:
Jerome Goldstein(3)(4)(5)....................... 689,422 10.2% 50,000 639,422 8.1%
Marlene Kaplan Goldstein(3)(5).................. 683,137 10.1% 62,017 621,120 7.9%
Eiken Chemical Co., Ltd. ....................... 375,000 5.5% -- 375,000 4.8%
1-33-8 Hongo
Bunkyo-Ku
Tokyo, Japan
Lee Josephson, Ph.D.(6)......................... 158,128 2.3% 24,483 133,645 1.7%
Paula M. Jacobs, Ph.D.(7)....................... 23,518 * 3,000 20,518 *
Jerome M. Lewis, Ph.D.(8)....................... 13,135 * 3,000 10,135 *
Leonard M. Baum(9).............................. 5,000 * -- 5,000 *
Leslie Goldstein(10)............................ 330,250 4.9% 27,500 302,750 3.8%
SRG Associates
805 Third Avenue
New York, New York
Thomas Coor, Ph.D.(11).......................... 27,000 * -- 27,000 *
Richard L. McIntire(11)(12)..................... 110,500 1.6% -- 110,500 1.4%
Edward B. Roberts, Ph.D.(11)(13)................ 109,500 1.6% -- 109,500 1.4%
Roger E. Travis(14)............................. 32,361 * -- 32,361 *
George M. Whitesides, Ph.D.(11)................. 74,500 1.1% -- 74,500 *
All executive officers and directors as a group
(14 persons)(15).............................. 2,296,009 33.2% 170,000 2,126,009 26.5%
OTHER SELLING STOCKHOLDERS:
Ernest V. Groman, Ph.D.(16) .................... 125,000 1.8% 25,000 100,000 1.5%
Rachel Goldstein................................ 62,865 * 15,000 47,865 *
Lisa Goldstein.................................. 62,865 * 15,000 47,865 *
Guerbet, S.A. .................................. 150,000 2.2% 25,000 125,000 1.6%
Boite Postale 50400
95543 Roissy C6G
Codex - France
<FN>
- ---------------
* Less than 1% of the outstanding Common Stock.
(1) The number of shares of Common Stock deemed outstanding includes 6,766,642
shares of Common Stock outstanding as of March 21, 1996. The number of
shares of Common Stock deemed outstanding after the Offering includes an
additional 1,100,000 shares of Common Stock being offered for sale by the
Company in the Offering. Each person has sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned,
except as otherwise indicated.
(2) The number of shares of Common Stock offered and the number of shares of
Common Stock beneficially owned after the Offering do not give effect to
the Underwriters' over-allotment option. All of
</TABLE>
40
<PAGE> 42
the shares of Common Stock to be sold pursuant to the over-allotment option
will be sold by the Company.
(3) Jerome Goldstein and Marlene Kaplan Goldstein are husband and wife but each
disclaims control or beneficial ownership of shares held by the other. The
address of each is c/o Advanced Magnetics, Inc., 725 Concord Avenue,
Cambridge, Massachusetts 02138.
(4) Includes 7,500 shares issuable to Jerome Goldstein pursuant to options
exercisable on or before May 20, 1996 and 13,500 shares held by the Kaplan
Goldstein Family Foundation, a charitable foundation whose trustees are
Jerome Goldstein, Marlene Kaplan Goldstein and their two adult children.
(5) Excludes 125,730 shares held by the children of Jerome Goldstein and
Marlene Kaplan Goldstein, as to which shares each of Jerome Goldstein and
Marlene Kaplan Goldstein disclaims beneficial ownership.
(6) Includes 7,500 shares issuable to Dr. Josephson pursuant to options
exercisable on or before May 20, 1996. Includes 15,074 shares, as to which
shares Dr. Josephson disclaims beneficial ownership, held by the children
of Dr. Josephson.
(7) Includes 12,750 shares issuable to Dr. Jacobs pursuant to options
exercisable on or before May 20, 1996 and 1,843 shares held in custodial
accounts for her children. The shares being offered include 1,610 shares
held in joint tenancy with Dr. Jacobs' husband.
(8) Includes 9,500 shares issuable to Dr. Lewis pursuant to options exercisable
on or before May 20, 1996. All of the shares offered are held in joint
tenancy with Dr. Lewis' wife.
(9) Includes 5,000 shares issuable to Mr. Baum pursuant to options exercisable
on or before May 20, 1996.
(10) Includes 21,750 shares held by Leslie Goldstein for the following
charitable foundation and trusts: 3,750 shares held by him as Trustee of
the Allan Goldstein Children's Trust, 3,000 shares held by him as Trustee
for his children and 15,000 shares held by him as Trustee of the Leslie and
Roslyn Goldstein Foundation. Includes 1,500 shares, as to which Mr.
Goldstein disclaims beneficial ownership, owned by Mr. Goldstein's wife.
Does not include 191,206 shares held in certain investment accounts over
which Mr. Goldstein exercises limited investment discretion. Mr. Goldstein
has relinquished any rights to exercise investment discretion over such
shares and accordingly disclaims beneficial ownership of such shares.
(11) Includes 14,500 shares issuable under currently exercisable options granted
to each non-employee director.
(12) Includes 50,600 shares held in joint tenancy with Mr. McIntire's wife.
(13) Includes 34,500 shares held by Dr. Roberts as trustee for his children.
(14) Includes 8,000 shares, as to which Mr. Travis disclaims beneficial
ownership of 3,000 shares, held by Mr. Travis as custodian for his
children, and includes 7,000 shares issuable under currently exercisable
options granted to Mr. Travis in his capacity as a non-employee director.
(15) Includes 79,593 shares held in family trusts and custodial accounts for
various directors' and officers' children and 148,440 shares issuable under
options exercisable on or before May 20, 1996.
(16) All of the shares offered are held in joint tenancy with Dr. Groman's wife.
41
<PAGE> 43
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 15,000,000 shares of
Common Stock and 2,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock").
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders. Holders of Common Stock do not have cumulative
voting rights, which means that the holders of more than half of the shares can
elect all the directors and, in that event, the holders of the remaining shares
cannot elect any directors. Holders of Common Stock are entitled to receive
dividends when and as declared by the Board of Directors and to share ratably in
the assets of the Company legally available for distribution to stockholders in
the Company. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. All outstanding shares of Common Stock are, and
the shares to be sold in the Offering, upon issuance and payment therefor, will
be, validly issued, fully paid and nonassessable.
As of March 21, 1996, there were 6,766,642 shares of Common Stock
outstanding, held by approximately 302 stockholders of record.
PREFERRED STOCK
The Board of Directors is authorized to issue the Preferred Stock in
different series and classes and to fix the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), liquidation preferences and other rights and
preferences of the Preferred Stock not in conflict with the Company's
Certificate of Incorporation. There are currently no shares of Preferred Stock
outstanding. The Board of Directors, without stockholder approval, can issue
Preferred Stock with voting and conversion rights that could adversely affect
the voting power of holders of Common Stock. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plans to issue any shares of Preferred
Stock.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of Delaware General
Corporation Law. That section generally provides, with certain exceptions, that
a Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate, or associate of such person, who is an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless the transaction is approved in a
prescribed manner. An "interested stockholder" is defined as any person that is
(i) the owner of 15% or more of the outstanding voting stock of the corporation
or (ii) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
The Company's Certificate of Incorporation contains certain provisions
permitted under the Delaware General Corporation Law relating to the liability
of directors. The provisions eliminated the directors' liability for monetary
damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, including the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violation of
a law. The Company's Certificate of Incorporation also contains provisions to
indemnify its directors and officers to the fullest extent permitted by the
Delaware General Corporation Law. The Company believes that these provisions
will assist the Company in attracting or retaining qualified individuals to
serve as directors.
TRANSFER AGENT
The Transfer Agent and the Registrar for shares of the Company's Common
Stock is Boston Equiserve, L.P., 100 Federal Street, Boston, Massachusetts
02110.
42
<PAGE> 44
UNDERWRITING
<TABLE>
Upon the terms and subject to the conditions of the Underwriting Agreement
(the "Underwriting Agreement") among the Company and PaineWebber Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation, Oppenheimer & Co., Inc. and
Tucker Anthony Incorporated (the "Underwriters"), the Underwriters severally
have agreed to purchase from the Company and the Selling Stockholders, and the
Company and the Selling Stockholders have agreed to sell to the Underwriters
severally, 1,350,000 shares of Common Stock, which in the aggregate equal the
number of shares set forth opposite the names of such Underwriters below:
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
PaineWebber Incorporated.............................................
Donaldson, Lufkin & Jenrette Securities Corporation..................
Oppenheimer & Co., Inc. .............................................
Tucker Anthony Incorporated..........................................
---------
Total...................................................... 1,350,000
=========
</TABLE>
Pursuant to the Underwriting Agreement, the several Underwriters have
agreed, subject to certain conditions, to purchase all of the shares of Common
Stock being sold pursuant to such Agreement (other than those covered by the
over-allotment option described below), if any are purchased. The Underwriting
Agreement provides that, in the event of a default by an Underwriter, in certain
circumstances, the purchase commitments of non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
The Company has been advised that the Underwriters propose to offer the
shares of Common Stock in part to the public at the price to the public set
forth on the cover page of this Prospectus, and in part to certain securities
dealers (who may include the Underwriters) at such price less a concession not
in excess of $ per share; and that the Underwriters and such dealers
may reallow a discount not in excess of $ per share of other dealers,
including the Underwriters. After the commencement of the public offering, the
public offering price, the concession to selected dealers and the discounts to
other dealers may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable during
the 30 day period after the date of this Prospectus, under which the
Underwriters may purchase up to 202,500 additional shares of Common Stock from
the Company at the price to the public set forth on the cover page of this
Prospectus, less the underwriting discounts and commissions. The Underwriters
may exercise the option solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the Shares. To the extent that such
option is exercised, each of the Underwriters will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as it was obligated to purchase pursuant to
the Underwriting Agreement.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
The Company, the Selling Stockholders and certain other stockholders of the
Company, including the officers and directors who are not Selling Stockholders,
have agreed not to (1) offer to sell, sell, contract to sell or otherwise
dispose of any shares of Common Stock or rights to acquire shares of Common
Stock or (2) enter into any swap or similar agreement that transfers, in whole
or in part, any of the economic consequences of the ownership of shares of
Common Stock during the 90 day period following the date of this Prospectus,
without in each case the prior written consent of PaineWebber Incorporated,
other than (i) shares to be sold to the Underwriters in the Offering, (ii)
shares of Common Stock to be issued upon the exercise of outstanding options or
otherwise under employee benefit plans, including under incentive stock and
option plans of the Company, (iii) shares of Common Stock to be issued upon the
exercise of outstanding warrants,
43
<PAGE> 45
and (iv) shares of Common Stock issuable in connection with acquisitions by the
Company provided that such shares are not eligible for resale during the 90 day
period following the date of this Prospectus.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Testa, Hurwitz & Thibeault, Boston, Massachusetts.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The balance sheets as of September 30, 1994 and 1995 and the related
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended September 30, 1995 of the Company
included and incorporated by reference in this Prospectus and the Registration
Statement, have been included and incorporated herein in reliance on the reports
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
44
<PAGE> 46
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Balance Sheets as of September 30, 1994 and 1995...................................... F-3
Statements of Operations for the years ended September 30, 1993, 1994, and 1995....... F-4
Statements of Stockholders' Equity for the years ended September 30, 1993, 1994, and
1995................................................................................ F-5
Statements of Cash Flows for the years ended September 30, 1993, 1994, and 1995....... F-6
Reconciliation of Net Income to Net Cash Provided by Operating Activities for the
years ended September 30, 1993, 1994, and 1995...................................... F-7
Notes to Financial Statements......................................................... F-8
</TABLE>
F-1
<PAGE> 47
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholders of Advanced Magnetics, Inc.:
We have audited the accompanying balance sheets of Advanced Magnetics, Inc.
as of September 30, 1994 and 1995 and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended September 30, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
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 financial position of Advanced Magnetics, Inc. as
of September 30, 1994 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note A to the financial statements, effective October 1,
1994, Advanced Magnetics, Inc. adopted the Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
Boston, Massachusetts
November 8, 1995
F-2
<PAGE> 48
<TABLE>
ADVANCED MAGNETICS, INC.
BALANCE SHEETS
<CAPTION>
SEPTEMBER 30,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................... $ 6,462,193 $ 1,066,419
Marketable securities (Note C).................................... 33,199,085 36,561,263
Accounts receivable............................................... 248,390 5,884,542
Recoverable income taxes (Note G)................................. 90,117 90,117
Inventories (Note D).............................................. -- 55,567
Prepaid expenses.................................................. 112,846 99,342
----------- -----------
Total current assets.................................... 40,112,631 43,757,250
----------- -----------
Property, plant and equipment:
Land.............................................................. 360,000 360,000
Buildings......................................................... 4,316,706 4,320,766
Laboratory equipment.............................................. 5,598,456 6,886,813
Furniture and fixtures............................................ 324,453 516,418
----------- -----------
10,599,615 12,083,997
Less -- accumulated depreciation and amortization................. 4,136,092 5,143,097
----------- -----------
Net property, plant and equipment................................. 6,463,523 6,940,900
----------- -----------
Other assets...................................................... 96,546 145,072
----------- -----------
Total assets............................................ $46,672,700 $50,843,222
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................. $ 273,385 $ 407,998
Accrued expenses (Note F)......................................... 947,840 1,214,152
Income taxes payable (Note G)..................................... -- 150,000
----------- -----------
Total current liabilities............................... 1,221,225 1,772,150
----------- -----------
Commitments and Contingencies (Notes E, N and O)
Stockholders' equity (Notes C, H, I, K and L):
Preferred stock, par value $.01 per share, authorized 2,000,000
shares; none issued............................................. -- --
Common stock, par value $.01 per share, authorized 15,000,000
shares; issued and outstanding 6,712,572 shares in 1994 and
6,753,413 shares in 1995........................................ 67,126 67,534
Additional paid-in capital........................................ 44,660,834 45,093,972
Retained earnings................................................. 723,515 3,036,517
Net unrealized gain on marketable securities...................... -- 873,049
----------- -----------
Total stockholders' equity........................................ 45,451,475 49,071,072
----------- -----------
Total liabilities and stockholders' equity.............. $46,672,700 $50,843,222
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 49
<TABLE>
ADVANCED MAGNETICS, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1993 1994 1995
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
License fees.......................................... $ 1,010,000 $5,505,000 $5,000,000
Royalties............................................. 906,138 15,924 189,493
Product sales......................................... 3,836,300 280,975 2,120,457
Contract research and development..................... 402,911 -- --
Interest, dividends and net gains and losses on sales
of securities....................................... 2,823,102 1,845,005 2,287,311
----------- ---------- ----------
Total revenues.............................. 8,978,451 7,646,904 9,597,261
Costs and Expenses:
Cost of product sales................................. 1,525,564 54,983 425,187
Contract research and development expenses............ 193,391 -- --
Company-sponsored research and development expenses... 6,863,229 6,621,929 8,601,791
Charge (credit) for purchase of in-process research
and development (Note O)............................ -- 760,000 (380,000)
Selling, general and administrative expenses.......... 2,777,840 1,963,480 1,759,348
----------- ---------- ----------
Total costs and expenses.................... 11,360,024 9,400,392 10,406,326
Other income:
Gain on sale of in vitro product line (Note B)........ -- 2,649,580 3,404,527
----------- ---------- ----------
Income (loss) before provision for income taxes and
cumulative effect of accounting change.............. (2,381,573) 896,092 2,595,462
Income tax provision.................................. -- 8,000 400,000
----------- ---------- ----------
Income (loss) before cumulative effect of accounting
change.............................................. (2,381,573) 888,092 2,195,462
Cumulative effect of accounting change (Note C)....... -- -- 117,540
----------- ---------- ----------
Net income (loss)..................................... $(2,381,573) $ 888,092 $2,313,002
=========== ========== ==========
Net income (loss) per share before cumulative effect
of accounting change................................ $ (0.36) $ 0.13 $ 0.32
Cumulative effect of accounting change................ -- -- 0.02
----------- ---------- ----------
Income (loss) per share............................... $ (0.36) $ 0.13 $ 0.34
=========== ========== ==========
Weighted average number of common and common
equivalent shares (Note A).......................... 6,651,061 6,806,525 6,870,839
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 50
<TABLE>
ADVANCED MAGNETICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994, 1995
<CAPTION>
NET
UNREALIZED
COMMON STOCK ADDITIONAL RETAINED GAIN ON TOTAL
------------------- PAID-IN EARNINGS MARKETABLE STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) SECURITIES EQUITY
--------- ------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1992............... 6,648,599 $66,486 $44,802,242 $ 2,216,996 $ -- $47,085,724
Shares issued in connection with the
exercise of stock options................. 20,046 201 73,773 -- -- 73,974
Shares surrendered in connection with the
exercise of stock options................. (3,481) (35) (43,708) -- -- (43,743)
Shares issued in connection with employee
stock purchase plan (Note H).............. 13,298 133 162,369 -- -- 162,502
Common shares repurchased (Note K).......... (18,000) (180) (242,276) -- -- (242,456)
Net loss.................................... -- -- -- (2,381,573) -- (2,381,573)
--------- ------- ----------- ----------- -------- -----------
Balance at September 30, 1993............... 6,660,462 66,605 44,752,400 (164,577) -- 44,654,428
Shares issued in connection with the
exercise of stock options................. 70,648 706 417,406 -- -- 418,112
Shares surrendered in connection with the
exercise of stock options................. (4,193) (42) (58,147) -- -- (58,189)
Shares issued in connection with employee
stock purchase plan (Note H).............. 10,355 104 105,517 -- -- 105,621
Common shares repurchased (Note K).......... (24,700) (247) (316,342) -- -- (316,589)
Repurchase of warrants (Note K)............. -- -- (240,000) -- -- (240,000)
Net profit.................................. -- -- -- 888,092 -- 888,092
--------- ------- ----------- ----------- -------- -----------
Balance at September 30, 1994............... 6,712,572 67,126 44,660,834 723,515 -- 45,451,475
Shares issued in connection with the
exercise of stock options................. 29,494 295 207,060 -- -- 207,355
Shares surrendered in connection with the
exercise of stock options................. (1,476) (15) (24,588) -- -- (24,603)
Shares issued in connection with employee
stock purchase plan (Note H).............. 12,823 128 130,666 -- -- 130,794
Repurchase of warrants (Note K)............. -- -- 120,000 -- -- 120,000
Net unrealized gain on marketable
securities................................ -- -- -- -- 873,049 873,049
Net profit.................................. -- -- -- 2,313,002 -- 2,313,002
--------- ------- ----------- ----------- -------- -----------
Balance at September 30, 1995............... 6,753,413 $67,534 $45,093,972 $ 3,036,517 $873,049 $49,071,072
========= ======= =========== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 51
<TABLE>
ADVANCED MAGNETICS, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------------------
1993 1994 1995
------------ ------------ -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers...................... $ 6,714,827 $ 5,864,116 $ 5,380,513
Cash paid to suppliers and employees.............. (10,185,682) (8,112,462) (8,920,459)
Cash paid for purchase of in-process research and
development (Note O)............................ -- (260,000) --
Dividends and interest received................... 1,769,625 1,716,811 1,876,214
Income taxes paid................................. (124,087) (205,067) (250,000)
Income tax refund................................. 212,136 622,849 --
Net realized gains on sales of marketable
securities...................................... 1,031,426 161,109 54,966
------------ ------------ -----------
Net cash (used in) operating activities........... (581,755) (212,644) (1,858,766)
------------ ------------ -----------
Cash Flows from Investing Activities:
Proceeds from sales of marketable securities...... 24,725,632 6,863,154 1,385,830
Proceeds from notes and bonds maturing............ 150,000 -- 3,000,000
Purchase of marketable securities................. (27,105,583) (25,117,742) (6,703,475)
Capital expenditures.............................. (2,304,771) (780,586) (1,484,382)
(Increase) decrease in other assets and
deposits........................................ 200,447 (36,853) (48,526)
------------ ------------ -----------
Net cash (used in) investing activities........... (4,334,275) (19,072,027) (3,850,553)
------------ ------------ -----------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock............ 192,733 465,544 313,545
Purchase of treasury stock........................ (242,456) (316,589) --
Purchase of warrants.............................. -- (240,000) --
------------ ------------ -----------
Net cash provided by (used in) financing
activities...................................... (49,723) (91,045) 313,545
------------ ------------ -----------
Net (decrease) in cash and cash equivalents....... (4,965,753) (19,375,716) (5,395,774)
Cash and cash equivalents at beginning of year.... 30,803,662 25,837,909 6,462,193
------------ ------------ -----------
Cash and cash equivalents at end of year.......... $ 25,837,909 $ 6,462,193 $ 1,066,419
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 52
<TABLE>
ADVANCED MAGNETICS, INC.
RECONCILIATION OF NET INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss)................................... $(2,381,573) $ 888,092 $ 2,313,002
----------- ----------- -----------
Adjustments to Reconcile Net Income to Net Cash Used
in Operating Activities, net of assets disposed
of:
Depreciation and amortization....................... 821,246 877,803 1,007,005
Decrease in deferred income tax asset............... 349,948 -- --
Net unrealized loss on market value of securities... -- 117,540 --
Cumulative effect of accounting change.............. -- -- (117,540)
Accretion of U.S. Treasury Notes discount........... -- -- (53,943)
(Increase) decrease in accounts receivable.......... 537,427 (22,332) (2,231,625)
(Increase) decrease in inventories.................. 155,125 -- (55,567)
(Increase) decrease in prepaid expenses............. (149,088) 134,063 13,504
(Increase) decrease in recoverable income taxes..... (95,948) 259,831 --
(Decrease) increase in accounts payable and accrued
expenses.......................................... 181,108 (318,061) 900,925
Increase in income taxes payable.................... -- -- 150,000
Gain on sale of in vitro product line (Note B)...... -- (2,649,580) (3,404,527)
Accrual (credit) for the purchase of in-process
research and development (Note O)................. -- 500,000 (380,000)
----------- ----------- -----------
Total adjustments......................... 1,799,818 (1,100,736) (4,171,768)
----------- ----------- -----------
Net cash provided by (used in) operating
activities........................................ $ (581,755) $ (212,644) $(1,858,766)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 53
ADVANCED MAGNETICS, INC.
NOTES TO FINANCIAL STATEMENTS
A. SUMMARY OF ACCOUNTING POLICIES:
Business
Founded in November 1981, Advanced Magnetics Inc., a Delaware Corporation
(the "Company"), is a biopharmaceutical company engaged in the development and
manufacture of compounds utilizing the Company's core proprietary colloidal
superparamagnetic particle technology for magnetic resonance imaging ("MRI") and
for polysaccharide directed, receptor-mediated drug delivery systems. The
initial products developed by the Company are diagnostic imaging agents for use
in conjunction with MRI to aid in the diagnosis of cancer and other diseases. In
therapeutics, the Company is developing antiviral products, for the treatment of
hepatitis.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, money market funds and
marketable securities having a maturity of less than three months at the date
acquired. Approximately 55% of the cash and cash equivalents are held in two
money-market accounts.
Marketable Securities
In its first fiscal quarter ended December 31, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Prior period financial statements
have not been restated. The Company's current portfolio consists of securities
classified as available-for-sale which are recorded at fair market value. The
fair values of marketable securities are based on quoted market prices. Net
unrealized gains or losses on marketable securities are recorded as a separate
component of equity. Interest income is accrued as earned. Dividend income is
accrued on the ex-dividend date, and net realized gains and losses are computed
on the basis of average cost and are recognized when realized.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The cost of additions and
improvements is charged to the property accounts while maintenance and repairs
are expenses as incurred. Upon sale or other disposition of property and
equipment, the cost and related depreciation are removed from the accounts and
any resulting gain or loss is reflected in income.
Depreciation and Amortization
Depreciation and amortization are recorded on the straight line method
based on rates sufficient to provide for retirement over estimated useful lives
as follows: buildings -- 40 years; laboratory equipment and furniture and
fixtures -- 5 years; and leasehold improvements -- over the life of the lease.
Revenue Recognition
Revenue is recognized when products are shipped, when contract objectives
are achieved or when research activities are performed. License and royalty
revenues are accrued as earned.
F-8
<PAGE> 54
ADVANCED MAGNETICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The provision for income taxes includes federal and state income taxes
currently payable and deferred income taxes arising from the recognition of
certain income and expenses in different periods for financial and tax reporting
purposes.
Income (Loss) per Share
Income per share is computed on the basis of the weighted average number of
common and common share equivalents outstanding during each period. Loss per
share is computed on the weighted average number of shares outstanding during
the period.
B. SALE OF IN VITRO PRODUCT LINE:
On October 15, 1993, the Company sold its in vitro product line to
PerSeptive Biosystems, Inc. ("PerSeptive") for 151,759 shares of PerSeptive
common stock which was worth $4,156,674 as of that date, plus an additional
earn-out amount based on the results of fiscal 1995. The earn-out included a
percentage of PerSeptive's royalty derived from the in vitro product line for
the fiscal year ended September 30, 1995 as well as a percentage of 1993 product
line sales. The Company recognized pre-tax gains on this sale of $3,404,527 and
$2,649,580 in fiscal 1995 and 1994, respectively. PerSeptive has elected to
satisfy the 1995 earn-out amount with shares of PerSeptive common stock of
equivalent value. The number of shares to be issued for the earn-out will be
determined when PerSeptive files a registration statement for these shares with
the Securities and Exchange Commission. PerSeptive is required to file this
statement no later than September 30, 1996, and interest will accrue if payment
is received after December 15, 1995. The in vitro product line generated
revenues of $5,017,000 and pre-tax income of $1,635,000 for the fiscal year
ended September 30, 1993. Net assets included in the sale of the in vitro
product line were $1,592,000 at October 15, 1993. This amount consisted of
current assets and property and equipment, net of current liabilities.
C. MARKETABLE SECURITIES:
<TABLE>
The cost and fair value of the marketable securities portfolio at September
30, 1995 are as follows:
<CAPTION>
COST FAIR VALUE
----------- -----------
<S> <C> <C>
U.S. government securities
Due in one year or less................................. $ 9,501,365 $ 9,476,430
Due after one through five years........................ 14,869,406 14,737,500
Corporate debt
Due after five through ten years........................ 1,980,040 2,002,500
Preferred stock........................................... 6,116,668 5,740,023
Common stock.............................................. 3,220,735 4,604,810
----------- -----------
$35,688,214 $36,561,263
=========== ===========
</TABLE>
At September 30, 1994, the aggregate cost and fair value of the marketable
securities portfolio were $33,316,625 and $33,199,085, respectively.
At September 30, 1995, gross unrealized holding gains and gross unrealized
holding losses were $1,722,965 and $849,916, respectively, resulting in a net
unrealized holding gain of $873,049 which was recorded as a separate component
of equity. At September 30, 1994, the Company recorded a $117,540 unrealized net
loss on the fair value of securities. In the first fiscal quarter ended December
31, 1994, the Company recorded a cumulative effect of the accounting change of
$117,540 including the reversal of the reserve for the carrying value of the
marketable securities.
F-9
<PAGE> 55
ADVANCED MAGNETICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During the year ended September 30, 1995, gross realized gains and gross
realized losses on the sale of marketable securities were $57,394 and $2,428,
respectively, resulting in a net realized gain of $54,966. Proceeds relating to
the gross realized gains and gross realized losses were $693,224 and $747,572,
respectively. Proceeds from U.S. treasury bonds maturing were $3,000,000.
<TABLE>
Interest, dividends and net gains (losses) on sales of securities consist
of the following:
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest income................................ $1,259,960 $1,135,614 $1,644,329
Dividend income................................ 531,716 665,822 588,016
Net gains on sales of securities............... 1,031,426 161,109 54,966
Unrealized loss included in the determination
of income.................................... -- (117,540) --
---------- ---------- ----------
$2,823,102 $1,845,005 $2,287,311
========== ========== ==========
</TABLE>
D. INVENTORIES:
At September 30, 1994, there were no inventories as the Company's products
were predominately in the research and development stages and the Company
produced products for sale on a made-to-order basis only. In the fourth fiscal
quarter ended September 30, 1995, the Company began to accumulate production
costs for its products for future sale resulting in an ending inventory of
$55,567 of raw materials.
E. COMMITMENTS:
The Company leases laboratory, office and warehouse space under various
agreements. Rental expenses for the years ended September 30, 1993, 1994, and
1995 amounted to $237,755, $38,017, and $320,920, respectively. Future minimum
lease payments for fiscal 1996, 1997 and 1998 amount to $336,368, $216,331 and
$35,233, respectively.
F. ACCRUED EXPENSES:
<TABLE>
Accrued expenses consist of the following at September 30:
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Salaries and other compensation.............................. $190,497 $ 194,881
Professional fees............................................ 119,925 154,668
Other........................................................ 137,418 348,856
Accrual for payment due Bristol-Myers Squibb Co. for purchase
of in-process research and development..................... 500,000 --
Payable for the purchase of marketable securities............ -- 515,747
-------- ----------
$947,840 $1,214,152
======== ==========
</TABLE>
G. INCOME TAXES:
Deferred tax assets and deferred tax liabilities are recognized based on
temporary differences between the financial reporting and tax basis of assets
and liabilities using statutory rates. A valuation allowance is recorded against
deferred tax assets if it is more likely than not that some or all of the
deferred tax assets will not be realized.
F-10
<PAGE> 56
ADVANCED MAGNETICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
The income tax provision consists of the following:
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------
1993 1994 1995
--------- ------ --------
<S> <C> <C> <C>
Currently payable:
Federal........................................... $(349,948) $ -- $385,000
State............................................. -- 8,000 15,000
--------- ------ --------
(349,948) 8,000 400,000
--------- ------ --------
Deferred:
Federal........................................... 349,948 -- --
State............................................. -- -- --
--------- ------ --------
349,948 -- --
--------- ------ --------
$ -- $8,000 $400,000
========= ====== ========
</TABLE>
<TABLE>
The provisions for income taxes were at different rates than the U.S.
statutory rates for the following reasons:
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
U.S. Federal statutory tax (benefit) rate............... (34.0)% 34.0% 34.0%
Dividends received deductions........................... (5.3) (17.7) (5.2)
Other, including a prior year tax adjustment............ 1.6 1.7 1.0
Losses without tax benefit.............................. 37.7 -- --
Tax benefit of temporary differences.................... -- (17.1) (14.4)
----- ----- -----
--% 0.9% 15.4%
===== ===== =====
</TABLE>
<TABLE>
The components of the deferred tax assets and liabilities at September 30,
were as follows:
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Assets
Net operating loss carryforwards........................ $ 847,811 $ 460,506
Research and experimentation tax credit carryforward.... 1,331,147 1,656,069
Deductible intangibles.................................. 1,492,948 911,066
Other................................................... 224,697 630,670
Liabilities
Property, plant and equipment depreciation.............. (646,623) (249,373)
Other................................................... (63,199) (96,598)
----------- -----------
3,186,781 3,312,340
Valuation allowance....................................... (3,186,781) (3,312,340)
----------- -----------
Net deferred taxes........................................ $ -- $ --
=========== ===========
</TABLE>
Due to the uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its otherwise recognizable net deferred tax assets. Realization of
favorable tax attributes is, therefore, reflected as a tax benefit in the
provision for income taxes.
F-11
<PAGE> 57
ADVANCED MAGNETICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
The net tax effects of temporary differences on the provision for income
taxes were as follows:
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Tax benefit of temporary differences for financial
reporting purposes............................... $ -- $407,787 $220,831
Tax benefit of net operating loss for income tax
purposes......................................... 349,948 -- --
-------- -------- --------
$349,948 $407,787 $220,831
======== ======== ========
</TABLE>
At September 30, 1995, the recoverable income taxes result from carryback
of losses for federal income tax purposes to amounts paid for income taxes in
prior years.
At September 30, 1995, the Company had unused net operating loss (NOL)
carryforwards for federal income tax purposes of approximately $830,000 which
expire in fiscal 2010. The Company also has federal research and experimentation
credits of approximately $1,500,000 which expire in fiscal 2010.
H. EMPLOYEE STOCK PURCHASE PLAN:
The Company's 1992 Employee Stock Purchase Plan (the "Purchase Plan")
provides for the issuance of up to 150,000 shares of common stock to employees
of the Company. Under the terms of the Purchase Plan, eligible employees may
purchase shares in five annual offerings ending 1997, through payroll deductions
of up to a maximum of 10% of the employee's earnings, at a price equal to the
lower of 85% of the fair market value of the stock on the applicable annual
offering commencement date of June 1 or termination date of May 31. The third
offering under the Purchase Plan ended on May 31, 1995 and 12,823 shares of
common stock were purchased by eligible employees at a price of approximately
$10.20 per share. As of September 30, 1995, 36,476 shares have been issued under
the Purchase Plan.
I. STOCK OPTION PLAN:
The Company's 1993 Stock Option Plan (the "1993 Stock Plan") provides for
the grant of options to the Company's directors, officers, employees and
consultants to purchase up to an aggregate of 500,000 shares of common stock at
a price equal to the fair market value of the stock at the date of grant. The
maximum term of the options under the 1993 Stock Plan is ten years. The number
of shares available for future grants at September 30, 1995 was 289,800.
The Company's 1983 Stock Option Plan (the "Plan") does not allow for option
grants after June 1993. The Plan provided for the grant of options to purchase
up to 900,000 shares of common stock at a price equal to the fair market value
of the stock at the date of grant to the Company's employees and mandatory
grants to outside directors upon initial election to the Board of Directors. The
maximum terms of incentive stock options and non-statutory options under the
Plan are ten years and ten years plus thirty days, respectively.
The Company has also granted to certain scientific advisors nonstatutory
options to purchase a total of 29,625 shares of common stock at a price equal to
fair market value at the date of grant. All options have been exercised.
F-12
<PAGE> 58
ADVANCED MAGNETICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
The table below summarizes stock option activity during the past three
fiscal years for the Company's 1993 and 1983 Stock Option Plans:
<CAPTION>
NUMBER
OF SHARES OPTION PRICE
--------- ----------------
<S> <C> <C>
Options outstanding at September 30, 1992................ 282,032 $ 1.33 to $11.88
Granted................................................ 35,100 13.00 to 15.00
Exercised.............................................. (20,046) 1.00 to 11.00
Expired................................................ (4,927) 7.00 to 15.00
-------
Options outstanding at September 30, 1993................ 292,159 1.00 to 15.00
Granted................................................ 126,500 12.00 to 16.00
Exercised.............................................. (70,648) 1.00 to 12.00
Expired................................................ (40,752) 7.00 to 15.00
-------
Options outstanding at September 30, 1994................ 307,259 1.00 to 16.00
Granted................................................ 86,200 15.00 to 22.00
Exercised.............................................. (29,494) 1.00 to 15.00
Expired................................................ (4,775) 12.00 to 15.00
-------
Options outstanding at September 30, 1995
(177,140 shares exercisable)........................... 359,190 1.33 to 22.00
</TABLE>
On November 5, 1991, the Company's Board of Directors adopted the 1992
Non-Employee Director Stock Option Plan which the Stockholders approved. This
plan provides for the grant to each non-employee director on November 5, 1991,
and each fifth anniversary thereafter, an option to purchase 5,000 shares of
common stock up to an aggregate of 100,000 shares at a price equal to the fair
market value of the stock at the date of the grant, vesting over a five year
period. Under this plan, options to purchase 30,000 shares of common stock at a
price of $21.00 per share were granted, none of which have been exercised. No
grants may be made under this plan after November 4, 2001.
On November 10, 1992, the Company's Board of Directors adopted the 1993
Non-Employee Director Stock Option Plan which the Stockholders approved. This
plan provides for the grant to each non-employee director on November 10, 1992,
and each sixth anniversary thereafter, an option to purchase 5,000 shares of
common stock up to an aggregate of 100,000 shares at a price equal to the fair
market value of the stock at the date of the grant, vesting over a five year
period. Under this plan, options to purchase 30,000 shares of common stock at a
price of $14.50 per share were granted, none of which have been exercised. No
grants may be made under this plan after November 10, 2002.
J. EMPLOYEE'S SAVING PLAN:
The Company provides a 401(k) Plan to employees of the Company by which
they may defer compensation for income tax purposes under Section 401(k) of the
Internal Revenue Code. Each employee may elect to defer a percentage of his or
her salary on a pre-tax basis up to a specified maximum percentage. The Company
matches every dollar each employee contributes to the 401(k) Plan up to six
percent of each employee's salary to a maximum of $2,000 annually per employee.
Salary deferred by employees and contributions by the Company to the 401(k) Plan
are not taxable to employees until withdrawn from the 401(k) Plan and
contributions are deductible by the Company when made. The amount of the
Company's matching contribution for the 401(k) Plan was $114,789, $79,851, and
$99,751 for 1993, 1994 and 1995, respectively.
F-13
<PAGE> 59
ADVANCED MAGNETICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
K. COMMON STOCK TRANSACTIONS:
On February 11, 1991, Squibb Diagnostics, a division of Bristol-Myers
Squibb Co., purchased for $950,000 a warrant covering 600,000 shares of common
stock exercisable at $10.92 per share and escalating in exercise price in
subsequent years. On August 30, 1994, the Company signed an agreement to
reacquire the development and marketing rights to the MRI contrast agent
Combidex. As part of the transaction, Bristol-Myers Squibb Co. returned the
warrant which was valued at $240,000 to the Company. In the first quarter of
fiscal 1995, the Company and Bristol-Myers Squibb Co. agreed to modify the
agreement. As a result, payments to be made under the agreement were modified
(See Note O). Accordingly, the Company adjusted the value of the warrant to
purchase 600,000 shares of the Company's common stock by $120,000 in the first
quarter of fiscal 1995.
In November 1993, the Board of Directors authorized the purchase of 350,000
shares of the Company's common stock on the open market. Through September 30,
1995, the Company purchased 24,700 shares for $316,589 and the shares have been
retired. The Board had previously authorized the purchase of 500,000 shares of
which 170,100 were retired through fiscal 1993.
L. PREFERRED STOCK:
The preferred stock may be issued from time to time in one or more series.
The rights, preferences, restrictions, qualifications and limitations of such
stock shall be determined by the Board of Directors.
M. BUSINESS SEGMENTS AND CUSTOMERS:
The Company's operations are located solely within the United States. The
Company is focused principally on developing and manufacturing MRI contrast
agents and therapeutic drug delivery systems. Prior to fiscal 1994, the Company
was also engaged in developing, producing and marketing in vitro medical
diagnostic products for research and clinical laboratories, hospitals, and other
manufacturers of diagnostics products. Accordingly, its revenues are
attributable to one principal business segment. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
Two customers accounted for 52% and 23% respectively of the Company's revenues
in fiscal 1995. Two customers accounted for 39% and 33% respectively of the
Company's revenues in fiscal 1994 and three customers accounted for 11%, 9% and
5% respectively of the Company's revenues in fiscal 1993.
Revenues in fiscal 1993, 1994 and 1995 from customers and licensees outside
of the United States, principally in Europe and Japan, amounted to 16%, 3% and
23%, respectively.
N. LEGAL PROCEEDINGS:
The Company and certain of its officers were sued in an action in the
United States District Court for the District of Massachusetts on September 3,
1992. The plaintiff, a former consultant to the Company, claims that he was
incorrectly omitted as an inventor or joint inventor on certain of the Company's
patents and on pending applications, and seeks injunctive relief and unspecified
monetary damages. In April 1993, the plaintiff's federal court claims were
dismissed, and the plaintiff appealed. The Appeals Court vacated the judgment
and remanded the case to the U.S. District Court. The plaintiff filed a related
case in the Superior Court of the Commonwealth of Massachusetts. The Superior
Court has dismissed most of the related tort claims on summary judgment. While
the final outcome of these actions cannot be determined, the Company believes
that the plaintiff's claims are without merit and intends to defend the actions
vigorously. There can be no assurance, however, that the Company will be able to
successfully defend this action and the failure by the Company to prevail for
any reason could have an adverse effect on the Company's future business,
financial condition and results of operations.
O. AGREEMENTS:
In fiscal 1993, the Company entered into an agreement with Sterling
Winthrop, Inc. ("Sterling") for a product license and exclusive marketing rights
to Advanced Magnetics' Feridex I.V. MRI liver imaging
F-14
<PAGE> 60
ADVANCED MAGNETICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
contrast agent in the United States, Canada, Mexico and Australia. Under the
agreement, Sterling would have paid up to $7,750,000 in license fees based on
achieving certain milestones, of which $1,000,000 was received and recognized in
license revenues in fiscal 1993.
In fiscal 1994, Sterling paid a $2,500,000 non-refundable milestone payment
for the Company's filing of a New Drug Application ("NDA") with the U.S. Food
and Drug Administration ("FDA") for Feridex I.V. On October 6, 1994, the Company
terminated its marketing and distribution agreement with Sterling as a direct
result of the sale by Sterling of its prescription pharmaceutical business. The
agreement with Sterling was not assignable without the Company's consent, which
was not sought by Sterling nor given by the Company.
In fiscal 1991, the Company entered into agreements with Squibb Diagnostics
granting exclusive worldwide rights (except for Japan, Western Europe and
Brazil) to manufacture and sell two MRI products, AMI-HS and Combidex. In
addition, Squibb Diagnostics received the right to use the Company's core
technology in its own development of other MRI contrast agents. The Company was
to receive up to $10,000,000 in licensing fees, of which $4,000,000 was received
and recognized in license revenues when the agreements were signed in fiscal
1991 and $1,000,000 was received in fiscal 1992 when the Company filed an
Investigational New Drug ("IND") exemption with the FDA for Combidex.
The Company and Squibb Diagnostics amended their agreement regarding
Combidex in fiscal 1994 for which the Company received a non-refundable license
fee of $1,000,000. Also in fiscal 1994, the Company and Squibb Diagnostics
terminated their agreement with respect to the AMI-HS product and Squibb
Diagnostics paid a $2,000,000 license fee milestone payment for Combidex. On
August 30, 1994, the Company signed an agreement to reacquire the development
and marketing rights to Combidex previously licensed to Squibb Diagnostics. The
Company agreed to pay Bristol-Myers Squibb Co. $1,000,000 in two cash payments,
of which $500,000 was paid on August 30, 1994 and $500,000 was to be paid upon
acceptance of Combidex product suitable for use in worldwide preclinical and
clinical studies. Furthermore, the Company is required to pay up to $2,750,000
in future royalties based on the Company's sale of Combidex. As part of the
transaction, Bristol-Myers Squibb Co. returned to the Company a warrant to
purchase 600,000 shares of the Company's Common Stock, valued at $240,000. The
Company recorded a $760,000 expense which represented the value of in-process
research and development reacquired. In the first quarter of fiscal 1995, the
Company and Bristol-Myers Squibb Co. agreed that the 1,200 vials of Combidex
delivered to the Company were not acceptable. In addition, they modified their
prior agreement whereby Bristol-Myers Squibb Co. was relieved of its obligation
to deliver Combidex to the Company for clinical trials and the Company was
relieved of its obligation to pay $500,000 to Bristol-Myers Squibb Co.
Accordingly, the Company recorded a credit for $380,000 to the purchase of
in-process research and development and adjusted the value of the warrant
downward by $120,000 in the first quarter of fiscal 1995.
On February 1, 1995, the Company entered into an agreement with Berlex
Laboratories, Inc. ("Berlex") granting Berlex a product license and exclusive
marketing rights to Feridex I.V. in the United States and Canada. Under the
terms of the agreement, Berlex paid a $5,000,000 non-refundable license fee and
will pay an additional $5,000,000 license fee when the product has been approved
for commercial marketing in the United States by the FDA. In addition, the
Company will receive payments for manufacturing the product and royalties on
future sales. The Company submitted an NDA for Feridex I.V. to the FDA in
February 1994.
On May 9, 1995, the Company entered into a Research and License Agreement
with the General Hospital Corporation, a not-for-profit Massachusetts
Corporation doing business as Massachusetts General Hospital ("MGH"). The
agreement covers organ-specific, receptor-directed, ultrasmall superparamagnetic
iron oxide for use as MRI contrast agents. The target organ for the initial
collaboration is the pancreas. Under the agreement, the Company agreed to pay
MGH $300,000, of which $150,000 was paid in fiscal year ended December 31, 1995,
with the remainder to be paid in fiscal 1996. However, payments could exceed
this amount depending on milestone achievements and product sales.
F-15
<PAGE> 61
ADVANCED MAGNETICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
P. RELATED PARTY TRANSACTIONS:
During the fiscal years ended September 30, 1993, 1994, and 1995, the
Company paid approximately $52,000, $19,650 and $7,050, respectively, to
Fahnestock & Co. Inc. as commissions in transactions involving its investments
in securities. Mr. Leslie Goldstein, a Stockholder and member of the Company's
Board of Directors and the brother of Jerome Goldstein, Chairman of the Board,
President and Treasurer of the Company, is employed by SRG Associates, a
division of Fahnestock & Co. Inc., as an investment analyst and advisor.
<TABLE>
Q. QUARTERLY FINANCIAL DATA -- UNAUDITED:
The following table provides quarterly data for the fiscal years ended
September 30, 1994 and 1995.
<CAPTION>
FISCAL 1995 QUARTERS ENDED
----------------------------------------------------------
DEC. 31, 1994 MARCH 31 JUNE 30 SEPTEMBER 30
------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
License fees.............................. $ -- $5,000,000 $ -- $ --
Royalties................................. -- -- 38,366 151,127
Product sales............................. 55,259 789,026 1,276,172 --
Interests, dividends and net gains and
losses on sales of securities........... 681,986 438,669 575,172 591,484
---------- ---------- ----------- ----------
Total revenues.................. 737,245 6,227,695 1,889,710 742,611
Cost of product sales..................... 11,050 157,804 256,333 --
Operating expenses........................ 1,533,737 2,440,599 3,090,004 2,916,799
Gain on sale of in vitro product line
(Note B)................................ -- -- -- 3,404,527
Net income (loss) before cumulative
effect of accounting change............. (807,542) 3,254,292 (1,278,127) 1,026,839
Cumulative effect of account change
(Note C)................................ 117,540
Net income (loss)......................... $ (690,002) $3,254,292 $(1,278,127) $1,026,839
Net income (loss) per share before
cumulative effect of account change..... $ (0.12) $ 0.48 $ (0.19) $ 0.15
Cumulative effect of account change....... .02 -- -- --
---------- ---------- ----------- ----------
Income (loss) per share................... $ (0.10) $ 0.48 $ (0.19) $ 0.15
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1994 QUARTERS ENDED
----------------------------------------------------------
DEC. 31, 1993 MARCH 31 JUNE 30 SEPTEMBER 30
------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
License fees.............................. $1,005,000 $2,000,000 $2,500,000 $ --
Royalties................................. 13,461 -- -- 2,463
Product sales............................. 61,600 138,950 25,665 54,760
Interest, dividends and net gains and
losses on sales of securities........... 409,167 476,985 535,896 422,957
---------- ---------- ---------- -----------
Total revenues.................. 1,489,228 2,615,935 3,061,561 480,180
Cost of product sales..................... 12,300 26,600 5,133 10,950
Operating expenses........................ 2,092,298 2,201,177 2,247,376 2,804,558
Gain on sale of in vitro product line
(Note B)................................ 2,649,580 -- -- --
Net income (loss)......................... $1,948,710 $ 371,658 $ 905,552 $(2,337,828)
Net income (loss) per share............... $ 0.28 $ 0.05 $ 0.13 $ (0.35)
</TABLE>
F-16
<PAGE> 62
===============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL.
------------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Available Information...................... 3
Incorporation of Certain Documents by
Reference................................ 3
Prospectus Summary......................... 4
The Company................................ 4
Risk Factors............................... 7
Use of Proceeds............................ 13
Price Range of Common Stock and Dividend
Policy................................... 14
Capitalization............................. 15
Selected Financial Data.................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 18
Business................................... 23
Management................................. 38
Principal and Selling Stockholders......... 40
Description of Capital Stock............... 42
Underwriting............................... 43
Legal Matters.............................. 44
Experts.................................... 44
Index to Financial Statements.............. F-1
</TABLE>
===============================================================================
===============================================================================
1,350,000 SHARES
[LOGO]
ADVANCED MAGNETICS, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
PAINEWEBBER INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
OPPENHEIMER & CO., INC.
TUCKER ANTHONY
INCORPORATED
------------------------
MARCH , 1996
===============================================================================
<PAGE> 63
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
<TABLE>
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Common Stock offered hereby are as
follows:
<S> <C>
Registration Fee.............................................. $ 12,715
American Stock Exchange Additional Listing Fee................ 1,000
NASD Filing Fee............................................... 4,188
Printing and Engraving Expenses............................... 80,000
Legal Fees and Expenses....................................... 175,000
Accounting Fees and Expenses.................................. 75,000
Blue Sky Fees and Expenses (including legal fees)............. 15,000
Miscellaneous................................................. 87,097
--------
Total............................................... $450,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she is or was a director, officer, employee or agent of the
corporation or another enterprise if serving at the request of the corporation.
Depending on the character of the proceeding, a corporation may indemnify
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding if the person indemnified acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action by or in the right of the corporation, no indemnification may be made in
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses that the court shall deem proper. Section 145
further provides that to the extent a director or officer of a corporation has
been successful in the defense of any action, suit or proceeding referred to
above, or in defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorney's fees) actually and reasonably
incurred by him or her in connection therewith.
The Registrant's Certificate of Incorporation provides that the
Registrant shall, to the fullest extent permitted by law, indemnify all
directors, officers, employees and agents of the company. The Certificate of
Incorporation also contains a provision eliminating the liability of directors
of the Registrant to the Registrant or its stockholders for monetary damage,
except under certain circumstances. the Certificate of Incorporation also
permits the Registrant to maintain insurance to protect itself and any director,
officer, employee or agent against any liability with respect to which the
Corporation would have the power to indemnify such persons under the Delaware
General Corporation Law. The Registrant maintains an insurance policy insuring
its directors and officers against certain liabilities.
II-1
<PAGE> 64
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement (filed herewith)
3.1(1) Certificate of Incorporation, as amended
3.2(2) By-laws, as amended
4.1(3) Specimen Certificate for Shares of Common Stock
5.1 Opinion of Testa, Hurwitz & Thibeault (filed herewith)
23.1 Consent of Coopers & Lybrand L.L.P. (filed herewith)
23.2 Consent of Testa, Hurwitz & Thibeault (included in Exhibit 5.1)
24.1 Power of Attorney (previously filed)
<FN>
- ---------------
(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-8 (File No. 33-13953).
(2) Incorporated herein by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1987.
(3) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 33-5312).
</TABLE>
ITEM 17. UNDERTAKINGS.
The registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where appropriate, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the Registration Statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in 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 of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant,
Advanced Magnetics, Inc., certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form S-3 and has duly caused
this Amendment No. 1 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Boston, Commonwealth
of Massachusetts on March 25, 1996.
ADVANCED MAGNETICS, INC.
By: /S/ JEROME GOLDSTEIN
---------------------------------
JEROME GOLDSTEIN, CHAIRMAN OF THE
BOARD OF DIRECTORS
PRESIDENT AND TREASURER
<TABLE>
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the Registration Statement has been signed below by the following persons in the
capacities and on the dated indicated.
<CAPTION>
SIGNATURE TITLE(S) DATE
- --------- -------- ----
<S> <C> <C>
/s/ JEROME GOLDSTEIN Chairman of the Board of March 25, 1996
- ------------------------- Directors, President and
JEROME GOLDSTEIN Treasurer (Principal Executive
and Financial Officer)
* Vice President--Finance March 25, 1996
- ------------------------- (Principal Accounting Officer)
ANTHONY P. ANNESE
* Director March 25, 1996
- -------------------------
THOMAS COOR
* Director March 25, 1996
- -------------------------
LESLIE GOLDSTEIN
* Director March 25, 1996
- -------------------------
RICHARD L. MCINTIRE
* Director March 25, 1996
- -------------------------
EDWARD B. ROBERTS
* Director March 25, 1996
- -------------------------
ROGER E. TRAVIS
* Director March 25, 1996
- -------------------------
GEORGE M. WHITESIDES
</TABLE>
By: /s/ JEROME GOLDSTEIN
----------------------------------
JEROME GOLDSTEIN
ATTORNEY-IN-FACT
II-3
<PAGE> 66
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBITS PAGE
- -------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement (filed herewith)............................
3.1(1) Certificate of Incorporation, as amended...................................
3.2(2) By-laws, as amended........................................................
4.1(3) Specimen Certificate for Shares of Common Stock............................
5.1 Opinion of Testa, Hurwitz and Thibeault (filed herewith)...................
23.1 Consent of Coopers & Lybrand L.L.P. (filed herewith).......................
23.2 Consent of Testa, Hurwitz & Thibeault (included in Exhibit 5.01)...........
24.1 Power of Attorney (previously filed).......................................
<FN>
---------------
(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-8 (File No. 33-13953).
(2) Incorporated herein by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1987.
(3) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 33-5312).
</TABLE>
<PAGE> 1
[S&S DRAFT
3/25/96]
1,350,000 Shares
ADVANCED MAGNETICS, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
April , 1996
---
PAINEWEBBER INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
OPPENHEIMER & CO., INC.
TUCKER ANTHONY INCORPORATED
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Advanced Magnetics, Inc., a Delaware corporation (the "Company"), and
the persons named in Schedule II hereto (collectively, the "Selling
Stockholders", and individually, a "Selling Stockholder"), propose to sell an
aggregate of 1,350,000 shares (the "Firm Shares") of the Company's Common
Stock, $.01 par value per share (the "Common Stock"), of which 1,100,000 shares
are to be issued and sold by the Company and an aggregate of 250,000 shares are
to be sold by the Selling Stockholders, to you as the several underwriters
named in Schedule I hereto (collectively, the "Underwriters"), in connection
with the offering and sale of such shares of Common Stock. The Company has also
agreed to grant to you an option (the "Option") to purchase up to 202,500
additional shares of Common Stock (the "Option Shares") on the terms and for
the purposes set forth in Section 1(b). The Firm Shares and the Option Shares
are hereinafter collectively referred to as the "Shares".
<PAGE> 2
2
The initial public offering price per share for the Shares and the
purchase price per share for the Shares to be paid by the several Underwriters
shall be agreed upon by the Company, the Attorneys (as defined below) acting on
behalf of the Selling Stockholders and the Underwriters, and such agreement
shall be set forth in a separate written instrument substantially in the form
of Exhibit A hereto (the "Price Determination Agreement"). The Price
Determination Agreement may take the form of an exchange of any standard form
of written telecommunication among the Company, the Attorneys and the
Underwriters and shall specify such applicable information as is indicated in
Exhibit A hereto. The offering of the Shares will be governed by this
Agreement, as supplemented by the Price Determination Agreement. From and after
the date of the execution and delivery of the Price Determination Agreement,
this Agreement shall be deemed to incorporate, and, unless the context
otherwise indicates, all references contained herein to "this Agreement" and to
the phrase "herein" shall be deemed to include, the Price Determination
Agreement.
Each Selling Stockholder has executed and delivered a Letter of
Transmittal and Custody Agreement (the "Custody Agreement") and a Selling
Stockholder's Irrevocable Power of Attorney (the "Power of Attorney"). Pursuant
to the Custody Agreement, each Selling Stockholder has placed his Shares in
custody with the Company, designated therein as custodian (the "Custodian"),
with authority to include such Shares among the Shares delivered to the
Underwriters on behalf of such Selling Stockholder and to take certain other
actions with respect thereto and hereto. Pursuant to the Power of Attorney,
each Selling Stockholder has appointed the persons designated therein as
attorneys-in-fact (the "Attorneys") with authority to execute and deliver this
Agreement on behalf of such Selling Stockholder and to take certain other
actions with respect thereto and hereto.
The Company and the Selling Stockholders confirm as follows their
respective agreements with the Underwriters.
1. Agreement to Sell and Purchase.
------------------------------
(a) On the basis of the respective representations, warranties and
agreements of the Company and the Selling Stockholders herein contained and
subject to all the terms and conditions of this Agreement, (i) the Company and
each of the Selling Stockholders, severally and not jointly, agree to sell to
the several Underwriters and (ii) each of the Underwriters, severally and not
jointly, agrees to purchase from the Company and the Selling Stockholders, at
the purchase price per share for the Firm Shares to be agreed upon by the
Underwriters, the Company and the Attorneys acting on behalf of the Selling
Stockholders in accordance with Section 1(c) or 1(d) hereof and set forth in
the Price Determination Agreement, the number of Firm Shares set forth opposite
the name of such Underwriter in Schedule I, plus such additional number of Firm
Shares which such Underwriter may become obligated to purchase pursuant to
Section 9 hereof. If the
<PAGE> 3
3
Company elects to rely on Rule 430A (as hereinafter defined), Schedule I may
be attached to the Price Determination Agreement.
(b) Subject to all the terms and conditions of this Agreement, the
Company grants the Option to the several Underwriters to purchase, severally
and not jointly, up to 202,500 Option Shares from the Company at the same price
per share as the Underwriters shall pay for the Firm Shares. The Option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the 30th day after the date of this Agreement (or, if
the Company has elected to rely on Rule 430A, on or before the 30th day after
the date of the Price Determination Agreement), upon written or telegraphic
notice (the "Option Shares Notice") by the Underwriters to the Company no later
than 12:00 noon, New York City time, at least two and no more than five
business days before the date specified for closing in the Option Shares Notice
(the "Option Closing Date"), setting forth the aggregate number of Option
Shares to be purchased and the time and date for such purchase.
On the Option Closing Date, and subject to this Section 1(b), the
Company will issue and sell to the Underwriters the aggregate number of Option
Shares set forth in the Option Shares Notice, and each Underwriter will
purchase such percentage of the Option Shares as is equal to the percentage of
Firm Shares that such Underwriter is purchasing, as adjusted by the
Underwriters in such manner as they deem advisable to avoid fractional shares.
(c) If the Company has elected not to rely on Rule 430A, the initial
public offering price per share for the Firm Shares and the purchase price per
share for the Firm Shares to be paid by the several Underwriters shall be
agreed upon and set forth in the Price Determination Agreement, which shall be
dated the date hereof, and an amendment to the Registration Statement (as
hereinafter defined) containing such per share price information shall be filed
before the Registration Statement becomes effective.
(d) If the Company has elected to rely on Rule 430A, the initial public
offering price per share for the Firm Shares and the purchase price per share
for the Firm Shares to be paid by the several Underwriters shall be agreed upon
and set forth in the Price Determination Agreement. In the event that the Price
Determination Agreement has not been executed by the close of business on the
fourth business day following the date on which the Registration Statement
becomes effective, this Agreement shall terminate forthwith, without liability
of any party to any other party except that Section 7 shall remain in effect.
2. DELIVERY AND PAYMENT. Delivery of certificates for the Firm Shares
shall be made to and for the accounts of the Underwriters at the office of
PaineWebber Incorporated, 265 Franklin Street, Boston, Massachusetts 02110,
against payment of the purchase price by certified or official bank checks
payable in New Clearing
<PAGE> 4
4
House (next-day) funds to the order of the Company and the Attorneys at the
office of PaineWebber Incorporated, 265 Franklin Street, Boston, Massachusetts
02110. Such payment shall be made at 10:00 a.m., New York City time, on the
third business day following the date of this Agreement or, if the Company
has elected to rely on Rule 430A, the third business day after the date on
which the first bona fide offering of the Shares to the public is made by the
Underwriters or at such time on such other date, not later than seven business
days after the date of this Agreement, as may be agreed upon by the Company and
the Underwriters (such date is hereinafter referred to as the "Closing Date").
To the extent the Option is exercised, delivery of certificates for the
Option Shares against payment by the Underwriters (in the manner specified
above) will take place at the offices specified above for the Closing Date at
the time and date (which may be the Closing Date) specified in the Option
Shares Notice.
Certificates evidencing the Shares shall be in definitive form and
shall be registered in such names and in such denominations as the Underwriters
shall request at least two business days prior to the Closing Date or the
Option Closing Date, as the case may be, by written notice to the Company. For
the purpose of expediting the checking and packaging of certificates for the
Shares, the Company agrees to make such certificates available for inspection
at least 24 hours prior to the Closing Date or the Option Closing Date, as the
case may be.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of Firm Shares and, if applicable, Option Shares, by the
Company to the respective Underwriters shall be borne by the Company. The cost
of tax stamps, if any, in connection with the sale of Firm Shares by the
Selling Stockholders to the respective Underwriters shall be borne by the
Selling Stockholders. The Company and the Selling Stockholders will severally
pay and save each Underwriter and any subsequent holder of the Shares harmless
from any and all liabilities with respect to or resulting from any failure or
delay in paying Federal and state stamp and other transfer taxes, if any, which
may be payable or determined to be payable in connection with the original
issuance or sale by such person or entity to such Underwriter of the Firm
Shares and Option Shares sold by such person.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents, warrants and covenants to each Underwriter that:
(a) The Company meets the requirements for use of Form S-3 and a
registration statement (Registration No. 333-1775) on Form S-3 relating to
the Shares, including a preliminary prospectus and such amendments to such
registration statement as may have been required to the date of this
Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the
<PAGE> 5
5
"Act"), and the rules and regulations (collectively referred to as the
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission. The
registration statement contains a form of preliminary prospectus (the
"preliminary prospectus") relating to the Shares. The term "preliminary
prospectus" as used herein means a preliminary prospectus as contemplated by
Rule 430 or Rule 430A ("Rule 430A") of the Rules and Regulations included at
any time as part of the registration statement. Copies of such registration
statement and amendments have been delivered to the Underwriters and copies
of the preliminary prospectus have been delivered to the Underwriters. If
such registration statement has not become effective, a further amendment to
such registration statement, including a form of final prospectus, necessary
to permit such registration statement to become effective will be filed
promptly by the Company with the Commission. If such registration statement
has become effective, a final prospectus containing information permitted to
be omitted at the time of effectiveness by Rule 430A will be filed by the
Company with the Commission in accordance with Rule 424(b) of the Rules and
Regulations promptly after execution and delivery of the Price Determination
Agreement. The term "Registration Statement" means the registration statement
as amended at the time it becomes or became effective (the "Effective Date"),
including financial statements and all exhibits and any information deemed to
be included by Rule 430A. Any registration statement filed pursuant to Rule
462(b) of the Rules and Regulations ("Rule 462(b)") is herein referred to as
the "Rule 462(b) Registration Statement", and after such filing the term
"Registration Statement" shall include the Rule 462(b) Registration
Statement. The term "Prospectus" means a prospectus relating to the Shares,
in the form it is first filed with the Commission pursuant to Rule 424(b) of
the Rules and Regulations or, if no such filing is required, the form of
final prospectus included in the Registration Statement at the Effective
Date. Any reference herein to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
which were filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), on or before the Effective Date or the date of such
preliminary prospectus or the Prospectus, as the case may be. For purposes of
this Agreement, all references to the Registration Statement, any preliminary
prospectus, the Prospectus or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission
pursuant to its Electronic Data Gathering, Analysis and Retrieval system
("EDGAR").
(b) On the Effective Date, the date the Prospectus is first filed with
the Commission pursuant to Rule 424(b) (if required), at all times subsequent
thereto up to and including the Closing Date and, if later, the Option
Closing Date and when any Rule 462(b) Registration Statement and any
post-effective amendment to the Registration Statement become effective or
any amendment or supplement to the
<PAGE> 6
6
Prospectus is filed with the Commission, (i) the Registration
Statement, the Rule 462(b) Registration Statement and the Prospectus (as
amended or as supplemented if the Company shall have filed with the
Commission any amendment or supplement thereto), including the financial
statements included or incorporated by reference in the Prospectus, did or
will comply with all applicable provisions of the Act, the Exchange Act, the
rules and regulations thereunder (the "Exchange Act Rules and Regulations")
and the Rules and Regulations (ii) each preliminary prospectus and the
Prospectus delivered to the Underwriters for use in connection with the
offering of Shares contemplated hereunder was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T and (iii) will contain all
statements required to be stated therein in accordance with the Act, the
Exchange Act, the Exchange Act Rules and Regulations and the Rules and
Regulations. On the Effective Date and when any Rule 462(b) Registration
Statement and any post-effective amendment to the Registration Statement
become effective, no part of the Registration Statement or any such amendment
did or will contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make
the statements therein not misleading. On the Effective Date, the date the
Prospectus or any amendment or supplement to the Prospectus is filed with the
Commission and at the Closing Date and, if later, the Option Closing Date,
the Prospectus did not or will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The foregoing representations and warranties in this Section 3(b)
do not apply to any statements or omissions made in reliance on and in
conformity with information relating to any Underwriter furnished in writing
to the Company by the Underwriters specifically for inclusion in the
Registration Statement or Prospectus or any amendment or supplement thereto.
For all purposes of this Agreement, the statements in the third paragraph set
forth under the heading "Underwriting" in the Prospectus constitute the only
information relating to any Underwriter furnished in writing to the Company
by the Underwriters specifically for inclusion in the preliminary prospectus,
the Registration Statement or the Prospectus. The Company has not distributed
any offering material in connection with the offering or sale of the Shares
other than the Registration Statement, the preliminary prospectus, the
Prospectus or any other materials, if any, permitted by the Act.
(c) The documents which are incorporated by reference in the
preliminary prospectus and the Prospectus or from which information is so
incorporated by reference, when they became effective or were filed with the
Commission, as the case may be, complied in all material respects with the
requirements of the Act or the Exchange Act, as applicable, the Exchange Act
Rules and Regulations and the Rules and Regulations; and any documents so
filed and incorporated by reference subsequent to the Effective Date shall,
when they are filed with the Commission,
<PAGE> 7
7
conform in all material respects with the requirements of the Act and
the Exchange Act, as applicable, the Exchange Act Rules and Regulations and
the Rules and Regulations.
(d) The Company is, and at the Closing Date will be, a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. The Company has, and at the Closing Date will
have, full power and authority to conduct all the activities conducted by it,
to own or lease all the assets owned or leased by it and to conduct its
business as described in the Registration Statement and the Prospectus. The
Company is, and at the Closing Date will be, duly licensed or qualified to do
business and in good standing as a foreign corporation in all jurisdictions
in which the nature of the activities conducted by it or the character of the
assets owned or leased by it makes such licensing or qualification necessary,
except in any jurisdiction where the failure to be so licensed or qualified
would not have a material and adverse effect on the Company or its business,
properties, business prospects, condition (financial or otherwise) or results
of operations. Except as disclosed in the Registration Statement and except
with respect to purchases and sales of securities included in the Company's
investment portfolio in the ordinary course of business, the Company does not
own, and at the Closing Date will not own, directly or indirectly, any shares
of stock or any other equity or long-term debt securities of any corporation
or have any equity interest in any firm, partnership, joint venture,
association or other entity. Complete and correct copies of the certificate
of incorporation and of the by-laws of the Company and all amendments thereto
have been delivered to the Underwriters and no changes therein will be made
subsequent to the date hereof and prior to the Closing Date or, if later, the
Option Closing Date.
(e) The outstanding shares of Common Stock, including the Shares sold
by the Selling Stockholders, have been, and the Shares to be issued and sold
by the Company upon such issuance will be, duly authorized, validly issued,
fully paid and nonassessable and will not be subject to any preemptive or
similar right. The description of the Common Stock in the Registration
Statement and the Prospectus is, and at the Closing Date and, if later, the
Option Closing Date, will be, complete and accurate in all respects. Except
as set forth in the Prospectus, the Company does not have outstanding, and at
the Closing Date and, if later, the Option Closing Date, will not have
outstanding, any options to purchase, or any rights or warrants to subscribe
for, or any securities or obligations convertible into, or any contracts or
commitments to issue or sell, any shares of Common Stock, any shares of
capital stock of any subsidiary or any such warrants, convertible securities
or obligations.
(f) The financial statements and schedules included or incorporated by
reference in the Registration Statement or the Prospectus present fairly the
consolidated financial condition of the Company as of the respective dates
thereof and
<PAGE> 8
8
the consolidated results of operations and cash flows of the Company
for the respective periods covered thereby, all in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
entire period involved, except as otherwise disclosed in the Prospectus. No
other financial statements or schedules of the Company are required by the
Act, the Exchange Act or the Rules and Regulations to be included in the
Registration Statement or the Prospectus. To the knowledge of the Company,
Coopers & Lybrand L.L.P. (the "Accountants"), who have reported on such
financial statements and schedules, are independent accountants with respect
to the Company as required by the Act and the Rules and Regulations.
(g) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences, in each case to the full extent required by Section 13(b)(2) of
the Exchange Act.
(h) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus and prior to the Closing
Date and, if later, the Option Closing Date, except as set forth in or
contemplated by the Registration Statement and the Prospectus, (i) there has
not been and will not have been any material change in the capitalization of
the Company (except upon exercise of outstanding options and warrants with
respect to which the Company will promptly notify the Underwriters), or in
the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company, arising for any reason
whatsoever, (ii) the Company has not incurred nor will it incur any material
liabilities or obligations, direct or contingent, nor has it entered into nor
will it enter into any material transactions other than pursuant to this
Agreement and the transactions referred to herein and (iii) the Company has
not and will not have paid or declared any dividends or other distributions
of any kind on any class of its capital stock.
(i) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended.
<PAGE> 9
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(j) Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or to the
Company's knowledge, threatened against or affecting the Company, before or
by any Federal or state court, commission, regulatory body, administrative
agency or other governmental body, domestic or foreign, wherein an
unfavorable ruling, decision or finding might materially and adversely affect
the Company or its business, properties, business prospects, condition
(financial or otherwise) or results of operations.
(k) The Company has, and at the Closing Date will have, (i) all
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to carry on its business as contemplated in the
Prospectus, (ii) complied in all respects with all laws, regulations and
orders applicable to it or its business and (iii) performed all its
obligations required to be performed by it, and is not, and at the Closing
Date will not be, in default, under any indenture, mortgage, deed of trust,
voting trust agreement, loan agreement, bond, debenture, note agreement,
lease, contract or other agreement or instrument (collectively, a "contract
or any other agreement") to which it is a party or by which its property is
bound or affected, except to the extent that the failure so to have, comply
or perform would not, individually or in the aggregate, have a material and
adverse effect on the Company or its business, properties, business
prospects, condition (financial or otherwise) or results of operations. To
the best knowledge of the Company, no other party under any contract or other
agreement to which it is a party is in default in any material respect
thereunder. The Company is not, nor at the Closing Date will be, in violation
of any provision of its certificate of incorporation or by-laws.
(l) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for
the consummation by the Company of the transactions on its part contemplated
herein, except such as have been obtained under the Act or the Rules and
Regulations and such as may be required under state or foreign securities or
Blue Sky laws or the by-laws and rules of the National Association of
Securities Dealers, Inc. (the "NASD") in connection with the purchase and
distribution by the Underwriters of the Shares to be sold by the Company.
(m) The Company has full corporate power and authority to enter into
this Agreement. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company and is enforceable against the Company in accordance with the terms
hereof and thereof. The performance of this Agreement and the consummation of
the transactions contemplated hereby and thereby will not result in the
creation or imposition of any lien, charge or encumbrance upon any of the
assets of the Company pursuant to the terms or provisions of, or result in a
breach or violation of any of the terms or
<PAGE> 10
10
provisions of, or constitute a default under, or give any other party a
right to terminate any of its obligations under, or result in the
acceleration of any obligation under, the certificate of incorporation or
by-laws of the Company, any contract or other agreement to which the Company
is a party or by which the Company or any of its properties is bound or
affected, or violate or conflict with any judgment, ruling, decree, order,
statute, rule or regulation of any court or other governmental agency or body
applicable to the business or properties of the Company (except state or
foreign securities laws, with respect to which the Company makes no
representation).
(n) The Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all
liens, charges, encumbrances or restrictions, except such as are described in
the Prospectus or are not material to the business of the Company. The
Company has valid, subsisting and enforceable leases for the properties
described in the Prospectus as leased by it, with such exceptions as are not
material and do not materially interfere with the use made and proposed to be
made of such properties by the Company.
(o) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or filed as
required, and the descriptions of such documents or contracts are accurate
and present fairly the information required to be shown. All such contracts
to which the Company is a party have been duly authorized, executed and
delivered by the Company, constitute valid and binding agreements of the
Company and, to the Company's knowledge, the other parties thereto and are
enforceable against the Company and the other parties thereto in accordance
with the terms thereof.
(p) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to the Underwriters was or will be, when made,
inaccurate, untrue or incorrect in any material respect.
(q) Neither the Company nor, to the best of its knowledge, any of its
directors, officers or controlling persons has taken, directly or indirectly,
any action intended, or which might reasonably be expected, to cause or
result, under the Act or otherwise, in, or which has constituted,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(r) No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement that have not been duly waived.
<PAGE> 11
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(s) The Shares are duly authorized for listing, subject to official
notice of issuance, on the American Stock Exchange.
(t) The Company is not involved in any material labor dispute nor, to
the knowledge of the Company, is any such dispute threatened.
(u) Neither the Company nor, to the Company's knowledge, any employee
or agent of the Company has made any payment of funds of the Company or
received or retained any funds (i) in violation of any law, rule or
regulation that could have a material adverse effect on the Company or its
business, properties, business prospects, condition (financial or otherwise)
or results of operations or (ii) of a character required to be disclosed in
the Prospectus which has not been so disclosed.
(v) The Company owns, or possesses adequate rights to use, or believes
it can acquire on reasonable terms, all patents (or foreign equivalents),
patent rights, licenses, inventions, trade secrets, know-how, proprietary
techniques, including processes and substances, trademarks, service marks,
trade names and copyrights described or referred to in the Prospectus as
owned or used by it except as disclosed in the Prospectus, or where the
failure of which to own or to possess adequate rights to use would not have a
material adverse effect on its business, properties, business prospects,
condition (financial or otherwise) or results of operations. To the knowledge
of the Company, all such patents, patent rights, licenses, trademarks,
service marks and copyrights are (i) valid and enforceable and (ii) not being
infringed by any third parties which infringement could, whether singly or in
the aggregate, materially and adversely affect the business, properties,
business prospects, condition (financial or otherwise) or results of
operations of the Company, as presently being conducted or as proposed to be
conducted. Except as disclosed in the Prospectus, the Company has not
received any notice of any infringement of or conflict with asserted rights
of others with respect to any patents, patent rights, licenses, inventions,
trade secrets, know-how, proprietary techniques, including processes and
substances, trademarks, service marks, trade names or copyrights which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling
or finding, would materially adversely affect its business, properties,
business prospects, condition (financial or otherwise) or results of
operations, as presently being conducted or as proposed to be conducted.
(w) To the knowledge of the Company (i) the New Drug Applications
("NDAs") filed with the United States Food and Drug Administration (the
"FDA") with respect to Feridex I.V. and GastroMARK, comply in all material
respects with the rules and regulations of the FDA regarding the filings of
NDAs and all information and data submitted to the FDA as part of such NDAs
were true and accurate when so filed, (ii) the Investigational New Drug
Applications ("INDs") filed
<PAGE> 12
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with the FDA with respect to Combidex comply in all material respects with the
rules and regulations of the FDA regarding the filing of INDs and all
information and data submitted to the FDA as part of such INDs were true and
accurate when so filed.
(x) The Company (i) has not received written notice of violation of any
applicable environmental, health or safety statute, regulation, ordinance or
decree binding upon it with respect to the premises at which the business of
the Company is conducted which it has not corrected; (ii) has been and is in
substantial compliance with all material environmental, health or safety laws
and regulations; and (iii) is not subject, as a present or past party, to any
judgment, order, writ, injunction or decree of any court, governmental
authority, agency or arbitration panel with respect to any environmental,
health or safety matter materially affecting the Company and its business. To
the knowledge of the Company (as defined below), the operations of the
Company at the premises at which it conducts its business substantially meet,
and, if operated at 1995 levels of production would meet, the requirements of
material laws, regulations and ordinances of all governmental authorities
having jurisdiction over such operations pursuant to occupational health and
safety acts and environmental laws and regulations. To the knowledge of the
Company, there has not been, and is not occurring, any "release" of any
"hazardous substance" (as defined below) on any property or interest in
property of the Company which was required to be reported to the National
Response Center pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, 42 USC ss. 9601 et seq. ("CERCLA").
To the knowledge of the Company, the Company has never sent hazardous wastes
generated in connection with the business or operations of the Company to a
site which pursuant to CERCLA or any similar state law (i) has been placed,
or is proposed to be placed, on the "national priorities list" of hazardous
waste sites or (ii) is subject to a claim, an administrative order or other
request to take "removal" or "remedial" action (as defined under CERCLA) or
to pay for any costs relating to such site. To the knowledge of the Company,
the Company has not been and is not in violation of any provision of the
Toxic Substances Control Act or regulations promulgated thereunder materially
affecting the Company and its business. Other than worker's compensation
claims, the Company is not involved as a party in any pending suit and has
not received written notice of any unresolved claims relating to personal
injuries from exposure to hazardous substances relating to its business. To
the knowledge of the Company, the business or operations of the Company have
not caused a release of any hazardous substance which has or may cause damage
or injury to the environment, whether on or off the premises at which the
business of the Company is conducted, which could have a material adverse
effect on the Company or its business. To the knowledge of the Company, the
Company has no Environmental Liability (as defined below) materially
affecting the Company and its business in connection with the operation,
ownership, control or use by the Company of any premises at which the
business of the Company is or has been conducted,
<PAGE> 13
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whether now owned or heretofore sold, transferred, exchanged or
otherwise conveyed including, but not limited to, any claim arising in
connection with the involvement of the Company in any Facility (as defined
below) where it has been alleged that the Company is obligated to remedy or
otherwise alter the status quo of the environmental condition of the property
whether by direct participation or by payment of any moneys. The term
"Facility" means (i) any building, plant, facility, structure, installation,
equipment, pipe or pipeline (including any pipe into a sewer or publicly
owned treatment works), well, pit, pond, lagoon, impoundment, ditch,
landfill, storage container, motor vehicle, rolling stock or aircraft, or
(ii) any site or area where a hazardous substance has been deposited, stored,
disposed, or placed, or otherwise come to be located, and the term
"Environmental Liability" means any liability or obligation arising from the
violation of or required by any federal, state, local or administrative
statute, code, ordinance, rule, regulation, permit, consent, approval,
license, judgment, order, writ, decree, injunction or other authorization,
including the requirement to register underground storage tanks, or relating
to emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into ambient air,
surface water, ground water, publicly owned treatment works, septic system or
land, or otherwise relating to the pollution or protection of health or the
environment. For purposes of this paragraph (x), the terms "release" and
"hazardous substance" shall have the meanings given those terms in CERCLA.
(y) There are no subsidiaries of the Company.
(z) The Commonwealth of Massachusetts and the States of Delaware and
New Jersey are the only jurisdictions in which the nature of the activities
conducted by the Company or the character of the assets owned or leased by it
render it necessary for the Company to be duly licensed or qualified to do
business pursuant to the laws of the such jurisdictions.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder, severally and not jointly, represents, warrants and
covenants to each Underwriter that:
(a) Such Selling Stockholder has full power and authority to enter into
this Agreement, the Custody Agreement and the Power of Attorney. All
authorizations and consents necessary for the execution and delivery by such
Selling Stockholder of the Custody Agreement, the Power of Attorney and for
the execution of this Agreement on behalf of such Selling Stockholder, have
been given. Each of the Custody Agreement, the Power of Attorney and this
Agreement has been duly authorized, executed and delivered by or on behalf of
such Selling Stockholder and constitutes a valid and binding agreement of
such Selling Stockholder and is
<PAGE> 14
14
enforceable against such Selling Stockholder in accordance with the terms
thereof and hereof.
(b) Such Selling Stockholder now has, and at the time of delivery
thereof hereunder will have, (i) good and marketable title to the Shares to
be sold by such Selling Stockholder hereunder, free and clear of all liens,
encumbrances and claims whatsoever (other than pursuant to the Custody
Agreement and the Power of Attorney), and (ii) full legal right and power,
and all authorizations and approvals required by law, to sell, transfer and
deliver such Shares to the Underwriters hereunder and to make the
representations, warranties and agreements made by such Selling Stockholder
herein. Upon the delivery of and payment for such Shares hereunder, such
Selling Stockholder will deliver good and marketable title thereto, free and
clear of all liens, encumbrances and claims whatsoever.
(c) On the Closing Date or the Option Closing Date, as the case may be,
all stock transfer or other taxes (other than income taxes) which are
required to be paid in connection with the sale and transfer of the Shares to
be sold by such Selling Stockholder to the several Underwriters hereunder
will have been fully paid or provided for by such Selling Stockholder and all
laws imposing such taxes will have been fully complied with.
(d) The performance of this Agreement and the consummation of the
transactions contemplated hereby and thereby will not result in the creation
or imposition of any lien, charge or encumbrance upon any of the assets of
such Selling Stockholder pursuant to the terms or provisions of, or result in
a material breach or violation of any of the terms or provisions of, or
constitute a default under, or result in the acceleration of any obligation
under, if such Selling Stockholder is a corporation or partnership, the
organizational documents of such Selling Stockholder, or, as to all such
Selling Stockholders, any contract or other agreement to which such Selling
Stockholder is a party or by which such Selling Stockholder or any of its
property is bound or affected, or under any ruling, decree, judgment, order,
statute, rule or regulation of any court or other governmental agency or body
having jurisdiction over such Selling Stockholder or the property of such
Selling Stockholder.
(e) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for
the consummation by such Selling Stockholder of the transactions on its part
contemplated herein, in the Custody Agreement and the Power of Attorney,
except such as have been obtained under the Act or the Rules and Regulations
and such as may be required under state or foreign securities or Blue Sky
laws or the by-laws and rules of the NASD in connection with the purchase and
distribution by the Underwriters of the Shares to be sold by such Selling
Stockholder.
<PAGE> 15
15
(f) Such Selling Stockholder has no actual knowledge of any material
fact or condition that now exists not set forth in the Registration Statement
or the Prospectus which has adversely affected, or may adversely affect, the
business, properties, business prospects, condition (financial or otherwise)
or results of operations of the Company, and the sale of the Shares proposed
to be sold by such Selling Stockholder is not prompted by any such knowledge.
(g) All information with respect to such Selling Stockholder contained
in the Registration Statement and the Prospectus (as amended or supplemented,
if the Company shall have filed with the Commission any amendment or
supplement thereto) does not and, for the period during which the Prospectus
is required to be delivered, all such information with respect to such
Selling Stockholder furnished in writing by or on behalf of such Selling
Stockholder and contained in the Registration Statement and the Prospectus
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading.
(h) To the best knowledge of such Selling Stockholder, the
representations and warranties of the Company contained in Section 3 are true
and correct.
(i) Other than as permitted by the Act and the Rules and Regulations,
such Selling Stockholder has not distributed and will not distribute any
preliminary prospectus, the Prospectus or any other offering material in
connection with the offering and sale of the Shares. Such Selling Stockholder
has not taken and will not take, directly or indirectly, any action designed,
or which might reasonably be expected, to cause or result in, under the Act
or otherwise, or which has caused or resulted in, stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Shares.
(j) Certificates in negotiable form for the Shares to be sold hereunder
by the Selling Stockholders have been placed in custody with the Custodian
for the purpose of making delivery of such Shares under this Agreement and
under the Custody Agreement. Such Selling Stockholders agree that the Shares
represented by the certificates held in custody for him or it under the
Custody Agreement are for the benefit of and coupled with and subject to the
interest hereunder of the Custodian, the Attorneys, the Underwriters, each
other Selling Stockholder and the Company, that the arrangements made by such
Selling Stockholders for such custody and the appointment of the Custodian
and the Attorneys by such Selling Stockholders are irrevocable, and that the
obligations of operation of law, whether by the death, disability, incapacity
or liquidation of any Selling Stockholder or the occurrence of any other
event. If any Selling Stockholder should die, become disabled or
incapacitated or be liquidated or if
<PAGE> 16
16
any other such event should occur before the completion of the
transactions pursuant to this Agreement, including the delivery of the Shares
hereunder, certificates for the Shares shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement and actions taken
by the Attorneys and the Custodian pursuant to the Custody Agreement and the
Power of Attorney shall be as valid as if such death, liquidation, incapacity
or other event had not occurred, regardless of whether or not the Custodian
or the Attorneys, or either of them, shall have received notice thereof.
5. AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDERS. The Company
(as to Sections 5(a) through (m)), and the Selling Stockholders (as to Sections
5(j) and 5(n) through (q)) agree, severally and not jointly, with the several
Underwriters as follows:
(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by a Underwriter or dealer,
file any amendment or supplement to the Registration Statement (including any
Rule 462(b) Registration Statement) or the Prospectus, unless a copy thereof
shall first have been submitted to the Underwriters within a reasonable
period of time prior to the filing thereof and the Underwriters shall not
have objected thereto in good faith.
(b) The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Underwriters promptly, and
will confirm such advice in writing, (1) when the Registration Statement has
become effective and when any post-effective amendment thereto becomes
effective, (2) of any request by the Commission for amendments or supplements
to the Registration Statement or the Prospectus or for additional
information, (3) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the initiation
of any proceedings for that purpose or the threat thereof, (4) of the
happening of any event during the period mentioned in the second sentence of
Section 5(e) that in the judgment of the Company makes any statement made in
the Registration Statement or the Prospectus untrue or that requires the
making of any changes in the Registration Statement or the Prospectus in
order to make the statements therein, in light of the circumstances in which
they are made, not misleading and (5) of receipt by the Company or any
representative or attorney of the Company of any other communication from the
Commission relating to the Company, the Registration Statement, any
preliminary prospectus or the Prospectus. If at any time the Commission shall
issue any order suspending the effectiveness of the Registration Statement,
the Company will make every reasonable effort to obtain the withdrawal of
such order at the earliest possible moment. If the Company has omitted any
information from the Registration Statement pursuant to Rule 430A, the
<PAGE> 17
17
Company will use its best efforts to comply with the provisions of and make
all requisite filings with the Commission pursuant to said Rule 430A and to
notify the Underwriters promptly of all such filings. If the Company elects
to rely on Rule 462(b), the Company shall file a registration statement with
the Commission in compliance with Rule 462(b) no later than the earlier of
(i) 10:00 p.m. Eastern time on the date hereof and (ii) the time
confirmations are sent or given, as specified by Rule 462(b)(2) under
the Rules and Regulations and shall pay the applicable fees in
accordance with Rule 111 under the Rules and Regulations.
(c) The Company will furnish to the Underwriters, without charge, two
signed copies of the Registration Statement and of any post-effective
amendment thereto, including financial statements and schedules, and all
exhibits thereto (including any document filed under the Exchange Act and
deemed to be incorporated by reference into the Prospectus). If applicable,
the copies of the Registration Statement and each amendment thereto furnished
to the Underwriters will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(d) The Company will comply with all the provisions of any undertakings
contained in the Registration Statement.
(e) On the Effective Date, and for so long as the Underwriters are
required to deliver the Prospectus in connection with the sale of the Shares,
the Company will deliver to each of the Underwriters, without charge, as many
copies of the Prospectus or any amendment or supplement thereto as the
Underwriters may reasonably request. If applicable, the Prospectus and any
amendments or supplements thereto furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation
S-T. The Company consents to the use of the Prospectus or any amendment or
supplement thereto by the several Underwriters and by all dealers to whom the
Shares may be sold, both in connection with the offering or sale of the
Shares and for any period of time thereafter during which the Prospectus is
required by law to be delivered in connection therewith. If during such
period of time any event shall occur which in the judgment of the Company or
the Underwriters (on advice of counsel) should be set forth in the Prospectus
in order to make any statement therein, in the light of the circumstances
under which it was made, not misleading, or if it is necessary to supplement
or amend the Prospectus to comply with law, the Company will forthwith
prepare and duly file with the Commission an appropriate supplement or
amendment thereto, and will deliver to each of the Underwriters, without
charge, such number of copies of such supplement or amendment to the
Prospectus as the Underwriters may reasonably request. The Company shall not
file any document under the Exchange Act before the termination
<PAGE> 18
18
of the offering of the Shares by the Underwriters if such document
would be deemed to be incorporated by reference into the Prospectus and such
document is not approved by the Underwriters after reasonable notice thereof,
which approval will not be unreasonably withheld or delayed.
(f) Prior to any public offering of the Shares, the Company will
cooperate with the Underwriters and counsel to the Underwriters in connection
with the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the Underwriters may
request; provided that in no event shall the Company be obligated to qualify
to do business in any jurisdiction where it is not now so qualified or to
take any action which would subject it to general service of process in any
jurisdiction where it is not now so subject.
(g) During the period of five years commencing on the later of the
Effective Date and the effective date of any Rule 462(b) Registration
Statement, the Company will furnish to the Underwriters copies of such
financial statements and other periodic and special reports as the Company
may from time to time distribute generally to the holders of any class of its
capital stock, and will furnish to the Underwriters who may so request a copy
of each annual or other report it shall be required to file with the
Commission.
(h) The Company will make generally available to holders of its
securities as soon as may be practicable, but in no event later than the last
day of the fifteenth full calendar month following the calendar quarter in
which the Effective Date falls, an earnings statement (which need not be
audited but shall be in reasonable detail) for a period of 12 months
commencing after the Effective Date, and satisfying the provisions of Section
11(a) of the Act (including Rule 158 of the Rules and Regulations).
(i) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay, or
reimburse if paid by the Underwriters, all costs and expenses incident to the
performance of the obligations of the Company and the Selling Stockholders
under this Agreement, including but not limited to costs and expenses of or
relating to (1) the preparation, printing and filing of the Registration
Statement and exhibits to it, each preliminary prospectus, the Prospectus and
any amendment or supplement to the Registration Statement or the Prospectus,
(2) the preparation and delivery of certificates representing the Shares, (3)
the printing of this Agreement, any Dealer Agreements, any Underwriters'
Questionnaire, the Custody Agreement and the Power of Attorney, (4)
furnishing (including costs of shipping and mailing) such copies of the
Registration Statement, the Prospectus and any preliminary prospectus, and
all amendments and supplements thereto, as may be requested for use in
connection with the offering and
<PAGE> 19
19
sale of the Shares by the Underwriters or by dealers to whom Shares may
be sold, (5) the listing of the Shares on the American Stock Exchange, (6)
any filings required to be made by the Underwriters with the NASD, and the
fees, disbursements and other charges of counsel for the Underwriters in
connection therewith, (7) the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of such jurisdictions
designated pursuant to Section 5(f), including the fees, disbursements and
other charges of counsel to the Underwriters in connection therewith, and the
preparation and printing of preliminary, supplemental and final Blue Sky
memoranda, (8) counsel to the Company and counsel to the Selling Stockholders
and (9) the transfer agent for the Shares.
(j) If this Agreement shall be terminated by the Company or any Selling
Stockholder pursuant to any of the provisions hereof or thereof (otherwise
than pursuant to Section 9 hereof) or if for any reason the Company or such
Selling Stockholder, respectively, shall be unable to perform its obligations
hereunder or thereunder, the Company or such Selling Stockholder, as the case
may be, will reimburse the several Underwriters for all out-of-pocket
expenses (including the fees, disbursements and other charges of counsel to
the Underwriters) reasonably incurred by them in connection herewith.
(k) The Company will not at any time, directly or indirectly, take any
action intended, or which might reasonably be expected, to cause or result
in, or which will constitute, stabilization of the price of the shares of
Common Stock to facilitate the sale or resale of any of the Shares.
(l) The Company will apply the net proceeds from the offering and sale
of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds".
(m) The Company will not, and will cause each of its executive
officers, directors and each beneficial owner (known by the Company on the
basis of Forms on Schedule 13-G filed with the Commission) to hold more than
5% of the outstanding shares of Common Stock to enter into agreements with
the Underwriters in the form set forth in Exhibit B to the effect that they
will not, for a period of 90 days after the Effective Date, without the prior
written consent of the Underwriters, (1) offer to sell, sell, contract to
sell or otherwise dispose of any shares of Common Stock or rights to acquire
such shares (other than pursuant to employee stock option plans or in
connection with other employee incentive compensation arrangements and
pursuant to bona fide gifts to persons who agree in writing with the
Underwriters to be bound by the provisions of this Section 5(m)) or (2) enter
into any swap or similar agreement that transfers, in whole or in part, any
of the economic consequences of the ownership of the Common Stock, whether
any such transaction described in clause (1)
<PAGE> 20
20
or (2) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, other than (a) the sale of Common Stock by
the Selling Stockholders contemplated hereby or (b) transfers of Common Stock
to the Company. Notwithstanding the foregoing, if such executive officer,
director or beneficial owner is an individual, he or she may transfer Common
Stock either during his or her lifetime or on death by gift, will or
intestacy to his or her immediate family or to a trust the beneficiaries of
which are exclusively such executive officer, director or beneficial owner
and/or a member or members of his or her immediate family; provided, however,
that in any such case it shall be a condition to the transfer that the
transferee execute an agreement stating that the transferee is receiving and
holding the Common Stock subject to the provisions of the agreement set forth
in Exhibit B, and there shall be no further transfer of such Common Stock
except in accordance therewith.
(n) The Selling Stockholders will not, for a period of 90 days after
the Effective Date, without the prior written consent of the Underwriters,
(1) offer to sell, sell, contract to sell or otherwise dispose of any shares
of Common Stock or rights to acquire such shares, other than pursuant to bona
fide gifts to persons who agree in writing with the Underwriters to be bound
by the provisions of this Section 5(n) or, to the extent applicable, pursuant
to employee stock option plans or in connection with other employee incentive
compensation arrangements or (2) enter into any swap or similar agreement
that transfers, in whole or in part, any of the economic consequences of the
ownership of the Common Stock, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise, other than (a) the sale of Common
Stock by the Selling Stockholders contemplated hereby or (b) transfers of
Common Stock to the Company. Notwithstanding the foregoing, if a Selling
Stockholder is an individual, he or she may transfer Common Stock either
during his or her lifetime or on death by gift, will or intestacy to his or
her immediate family or to a trust the beneficiaries of which are exclusively
such Selling Stockholder and/or a member or members of his or her immediate
family; provided, however, that in any such case it shall be a condition to
the transfer that the transferee execute an agreement stating that the
transferee is receiving and holding the Common Stock subject to the
provisions of the agreement set forth in Exhibit B, and there shall be no
further transfer of such Common Stock except in accordance therewith.
(o) The Selling Stockholders will not, without the prior written
consent of the Underwriters, make any bid for or purchase any shares of
Common Stock during the period during which a Prospectus is required to be
delivered by the Underwriters.
(p) As soon as any Selling Stockholder is advised thereof, such Selling
Stockholder will advise the Underwriters and confirm such advice in writing
(1) of
<PAGE> 21
21
receipt by such Selling Stockholder, or by any representative of such
Selling Stockholder, of any communication from the Commission relating to the
Registration Statement, the Prospectus or any preliminary prospectus, or any
notice or order of the Commission relating to the Company or any of the
Selling Stockholders in connection with the transactions contemplated by this
Agreement and (2) of the happening of any event during the period from and
after the Effective Date that in the judgment of such Selling Stockholder
makes any statement made in the Registration Statement or the Prospectus
untrue or that requires the making of any changes in the Registration
Statement or the Prospectus in order to make the statements therein, in light
of the circumstances in which they were made, not misleading.
(q) The Selling Stockholders will deliver to the Underwriters prior to
or on the Effective Date a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement specified
by Treasury Department regulations in lieu thereof).
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. In addition to
the execution and delivery of the Price Determination Agreement, the
obligations of each Underwriter hereunder are subject to the following
conditions:
(a) Notification that the Registration Statement has become effective
shall be received by the Underwriters not later than 5:00 p.m., New York City
time, on the date of this Agreement or at such later date and time as shall
be consented to in writing by the Underwriters and all filings required by
Rule 424 and Rule 430A of the Rules and Regulations to have been made prior
to the Closing Date shall have been made.
(b) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall be
pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the qualification or
registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such
authorities shall have been complied with to the satisfaction of the staff of
the Commission or such authorities and (iv) after the date hereof, no
amendment or supplement to the Registration Statement or the Prospectus shall
have been filed unless a copy thereof was first submitted to the Underwriters
and the Underwriters did not object thereto in good faith, and the
Underwriters shall have received certificates, dated the Closing Date, the
Option Closing Date and signed by the Chairman of the Board of Directors of
the Company and the Vice President-Finance of the Company (who may, as to
<PAGE> 22
22
proceedings threatened or contemplated, rely upon the best of their
information and belief), to the effect of clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise) or results of
operations of the Company, whether or not arising from transactions in the
ordinary course of business, in each case other than as set forth in or
contemplated by the Registration Statement and the Prospectus and (ii) the
Company shall not have sustained any material loss or interference with its
business or properties from fire, explosion, flood or other casualty, whether
or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree, which is not set
forth in the Registration Statement and the Prospectus, if in the judgment of
the Underwriters any such development makes it impracticable or inadvisable
to consummate the sale and delivery of the Shares by the Underwriters at the
initial public offering price.
(d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall not have been any
litigation or other proceeding instituted against the Company or any of its
officers or directors in their capacities as such, before or by any Federal,
state or local court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or
proceeding an unfavorable ruling, decision or finding would materially and
adversely affect the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company.
(e) Each of the representations and warranties of the Company and the
Selling Stockholders contained herein shall be true and correct in all
material respects at the Closing Date, as if made at the Closing Date and,
with respect to the Option Shares, at the Option Closing Date, as if made at
the Option Closing Date and all covenants and agreements contained herein to
be performed on the part of the Company and the Selling Stockholders and all
conditions contained herein to be fulfilled or complied with by the Company
and the Selling Stockholders at or prior to the Closing Date and, with
respect to the Option Shares, at or prior to the Option Closing Date, shall
have been duly performed, fulfilled and complied with.
(f) The Underwriters shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date,
satisfactory in form and substance to counsel for the Underwriters from
Testa, Hurwitz & Thibeault, counsel to the Company, to the effect set forth
in Exhibit C, and from Testa, Hurwitz & Thibeault, counsel to the Selling
Stockholders, to the effect set forth in Exhibit D.
<PAGE> 23
23
(g) The Underwriters shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date,
satisfactory in form and substance to counsel for the Underwriters from
Pennie & Edmonds, special patent counsel to the Company, to the effect set
forth in Exhibit E-1 and from Bromberg & Sunstein, special patent counsel to
the Company, to the effect set forth in from Exhibit E-2.
(h) The Underwriters shall have received an opinion, dated the Closing
Date the Option Closing Date, from Shearman & Sterling, counsel to the
Underwriters, with respect to the Registration Statement, the Prospectus and
this Agreement, which opinion shall be satisfactory in all respects to the
Underwriters.
(i) Concurrently with the execution and delivery of this Agreement, or,
if the Company elects to rely on Rule 430A, on the date of the Prospectus,
the Accountants shall have furnished to the Underwriters a letter, dated the
date of its delivery, addressed to the Underwriters and in form and substance
satisfactory to the Underwriters, confirming that they are independent
accountants with respect to the Company as required by the Act and the Rules
and Regulations and with respect to the financial and other statistical and
numerical information contained in the Registration Statement or incorporated
by reference therein. At the Closing Date and, as to the Option Shares, the
Option Closing Date, the Accountants shall have furnished to the Underwriters
a letter, dated the date of its delivery, which shall confirm, on the basis
of a review in accordance with the procedures set forth in the letter from
the Accountants, that nothing has come to their attention during the period
from the date of the letter referred to in the prior sentence to a date
(specified in the letter) not more than three days prior to the Closing Date,
the Option Closing Date, as the case may be, which would require any change
in their letter dated the date hereof if it were required to be dated and
delivered at the Closing Date and the Option Closing Date.
(j) Concurrently with the execution and delivery of this Agreement or,
if the Company elects to rely on Rule 430A, on the date of the Prospectus,
and at the Closing Date and, as to the Option Shares, the Option Closing
Date, there shall be furnished to the Underwriters an accurate certificate,
dated the date of its delivery, signed by each of the Chairman of the Board
of Directors and the Vice President-Finance of the Company, in form and
substance satisfactory to the Underwriters, to the effect that:
(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus including any documents filed
under the Exchange Act and deemed to be incorporated by reference into
the Prospectus) and (A) as of the date of such certificate, such
documents are true
<PAGE> 24
24
and correct in all material respects and do not omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein not untrue or misleading and (B) in the
case of the certificate delivered at the Closing Date, the Option
Closing Date, since the Effective Date or, if the Company elects to
rely on Rule 430A, since the date of the Prospectus, no event has
occurred as a result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein not untrue or
misleading in any material respect and there has been no document
required to be filed under the Exchange Act and the Exchange Act Rules
and Regulations that upon such filing would be deemed to be
incorporated by reference into the Prospectus that has not been so
filed.
(ii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the
time such certificate is delivered, true and correct in all material
respects.
(iii) Each of the covenants required to be performed by the
Company herein on or prior to the date of such certificate has been
duly, timely and fully performed and each condition herein required to
be complied with by the Company on or prior to the delivery of such
certificate has been duly, timely and fully complied with.
(k) Concurrently with the execution and delivery of this Agreement or,
if the Company elects to rely on Rule 430A, on the date of the Prospectus,
and at the Closing Date and, as to the Option Shares, the Option Closing
Date, there shall be furnished to the Underwriters an accurate certificate,
dated the date of its delivery, signed by the Vice President - Regulatory
Affairs or the President of the Company, in form satisfactory to the
Underwriters, to the effect that such officer has reviewed the statements as
to regulatory matters, the state of clinical trials and the state of FDA
filings and review contained in the sections of the Prospectus entitled
"Business -- Products Under Development", and "-- Government Regulation and
Reimbursement", and such statements are accurate and fairly present the
information required to be shown.
(l) Concurrently with the execution and delivery of this Agreement or,
if the Company elects to rely on Rule 430A, on the date of the Prospectus,
and at the Closing Date and, as to the Option Shares, the Option Closing
Date, there shall have been furnished to the Underwriters an accurate
certificate, dated the date of its delivery, signed by the Attorneys on
behalf of each of the Selling Stockholders, in form and substance
satisfactory to the Underwriters, to the effect that the representations and
warranties of each of the Selling Stockholders contained herein are true and
correct in all material respects on and as of the date of such certificate as
<PAGE> 25
25
if made on and as of the date of such certificate, and each of the covenants
and conditions required herein to be performed or complied with by the
Selling Stockholders on or prior to the date of such certificate has been
duly, timely and fully performed or complied with.
(m) On or prior to the Closing Date, the Underwriters shall have
received the executed agreements referred to in Section 5(n).
(n) The Shares shall be qualified for sale in such jurisdictions as the
Underwriters may reasonably request, and each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing
Date or the Option Closing Date.
(o) Prior to the Closing Date, the Shares shall have been duly
authorized for listing by the American Stock Exchange upon official notice of
issuance.
(p) The Company and the Selling Stockholders shall have furnished to
the Underwriters such certificates, in addition to those specifically
mentioned herein, as the Underwriters may have reasonably requested as to the
accuracy and completeness at the Closing Date and the Option Closing Date of
any statement in the Registration Statement or the Prospectus or any
documents filed under the Exchange Act and deemed to be incorporated by
reference into the Prospectus, as to the accuracy at the Closing Date, the
Option Closing Date of the representations and warranties of the Company and
the Selling Stockholders herein, as to the performance by the Company and the
Selling Stockholders of its and their respective obligations hereunder, or as
to the fulfillment of the conditions concurrent and precedent to the
obligations hereunder of the Underwriters.
7. INDEMNIFICATION.
---------------
(a) The Company will indemnify and hold harmless each Underwriter, the
directors, officers, employees and agents of each Underwriter and each
person, if any, who controls each Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, liabilities, expenses and damages (including any and all
investigative, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted) to which they, or any of them, may become subject under
the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims,
liabilities, expenses or damages arise out of or are based on any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, the Registration Statement or the Prospectus or any
amendment or supplement to the Registration Statement or the Prospectus or in
any documents filed under
<PAGE> 26
26
the Exchange Act and deemed to be incorporated by reference into the
Prospectus, or the omission or alleged omission to state in such document a
material fact required to be stated in it or necessary to make the statements
in it not misleading provided that, without limitation of the Company's
obligations set forth above (except that the indemnities hereunder shall not
be indemnified more than once for the same damages), each Selling
Stockholder, severally and not jointly, shall also so indemnify and hold
harmless (subject to the limitation described in Section 7(e) below) to the
extent, but only to the extent, that such untrue statement or omission or
alleged untrue statement or alleged omission was made in reliance upon and in
conformity with any representation, warranty, covenant or other agreement
made by or on behalf of such Selling Stockholder contained herein or any
information relating to such Selling Stockholder furnished in writing to the
Company by or on behalf of such Selling Stockholder for use in preparation of
the Registration Statement; provided further that the foregoing indemnity
with respect to any untrue statement contained in or omission from a
preliminary prospectus shall not inure to the benefit of any Underwriter (or
any person controlling such Underwriter) from whom the person asserting any
such loss, claim, liability, expense or damage purchased any of the Shares
that are the subject thereof if the Company shall sustain the burden of
proving that such person was not sent or given a copy of the Prospectus (or
the Prospectus as amended or supplemented, in each case exclusive of the
documents from which information is incorporated by reference) at or prior to
the written confirmation of the sale of such Shares to such person and the
untrue statement contained in or omission from such preliminary prospectus
was corrected in the Prospectus (or the Prospectus as amended or
supplemented) if the Company has furnished prior to such confirmation
sufficient copies thereof to such Underwriter; provided further that none of
the Company or the Selling Stockholders will be liable to the extent that
such loss, claim, liability, expense or damage arises from the sale of the
Shares in the public offering to any person by an Underwriter and is based on
an untrue statement or omission or alleged untrue statement or omission made
in reliance on and in conformity with information relating to any Underwriter
furnished in writing to the Company by the Underwriters expressly for
inclusion in the Registration Statement, the preliminary prospectus or the
Prospectus. For all purposes of this Agreement, the statements in the third
paragraph set forth under the heading "Underwriting" in the Prospectus
constitute the only information relating to any Underwriter furnished in
writing to the Company by the Underwriters expressly for inclusion in the
Registration Statement, the preliminary prospectus or the Prospectus. This
indemnity agreement will be in addition to any liability that the Company or
any Selling Stockholder might otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company, the
Selling Stockholders, each person, if any, who controls the Company or the
Selling Stockholders within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, each director of the Company and each officer of the
Company who signs the Registration Statement to the same extent as the
foregoing indemnity from the Company and the Selling Stockholders to each
Underwriter, but only insofar as losses, claims, liabilities, expenses or
<PAGE> 27
27
damages arise out of or are based on any untrue statement or omission
or alleged untrue statement or omission made in reliance on and in conformity
with information relating to any Underwriter furnished in writing to the
Company by the Underwriters expressly for use in the Registration Statement,
the preliminary prospectus or the Prospectus. This indemnity will be in
addition to any liability that each Underwriter might otherwise have.
(c) Any party that proposes to assert the right to be indemnified under
this Section 7 will, promptly after receipt of notice of commencement of any
action against such party in respect of which a claim is to be made against
an indemnifying party or parties under this Section 7, notify each such
indemnifying party of the commencement of such action, enclosing a copy of
all papers served, but the omission so to notify such indemnifying party will
not relieve it from any liability that it may have to any indemnified party
under the foregoing provisions of this Section 7 unless, and only to the
extent that, such omission results in material prejudice to the indemnifying
party. If any such action is brought against any indemnified party and it
notifies the indemnifying party of its commencement, the indemnifying party
will be entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after receiving
notice of the commencement of the action from the indemnified party, jointly
with any other indemnifying party similarly notified, to assume the defense
of the action, with counsel satisfactory to the indemnified party, and after
notice from the indemnifying party to the indemnified party of its election
to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below
and except for the reasonable costs of investigation subsequently incurred by
the indemnified party in connection with the defense. The indemnified party
will have the right to employ its own counsel in any such action, but the
fees, expenses and other charges of such counsel will be at the expense of
such indemnified party except to the extent that (1) the employment of
counsel by the indemnified party has been authorized in writing by the
indemnifying party, (2) the indemnified party has reasonably concluded (based
on advice of counsel) that there may be legal defenses available to it or
other indemnified parties that are different from or in addition to those
available to the indemnifying party, (3) a conflict or potential conflict
exists (based on advice of counsel to the indemnified party) between the
indemnified party and the indemnifying party (in which case the indemnifying
party will not have the right to direct the defense of such action on behalf
of the indemnified party) or (4) the indemnifying party has not in fact
employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of
which cases the reasonable fees, disbursements and other charges of counsel
will be at the expense of the indemnifying party or parties. It is understood
that the indemnifying party or parties shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees, disbursements and other charges of more than one separate
firm admitted to practice in such jurisdiction at any one time for all such
indemnified party or parties. All such fees, disbursements and other charges
will be reimbursed by the indemnifying party promptly as they are incurred.
An indemnifying party will not be liable
<PAGE> 28
28
for any settlement of any action or claim effected without its written
consent (which consent will not be unreasonably withheld).
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 7 is applicable in accordance with its terms but
for any reason is held to be unavailable to an indemnified party, each
indemnifying party will contribute to the total losses, claims, liabilities,
expenses and damages (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claim asserted, but after deducting any
contribution received by the Company or the Selling Stockholders from persons
other than the Underwriters, such as persons who control the Company or the
Selling Stockholders within the meaning of the Act, officers of the Company
who signed the Registration Statement and directors of the Company, who also
may be liable for contribution) to which such indemnified party may be
subject in such proportion (subject, in the case of the Selling Stockholders,
to the limitation described in Section 7(e) below) as shall be appropriate to
reflect the relative benefits received by the Company, the Selling
Stockholders and the Underwriters. The relative benefits received by the
Company, the Selling Stockholders and the Underwriters shall be deemed to be
in the same respective proportions as the net proceeds from the offering
(before deducting expenses) received by the Company and each Selling
Stockholder and the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover page of
the United States Prospectus, bear to the aggregate public offering price of
the Shares. If, but only if, the allocation provided by the foregoing
sentence is not permitted by applicable law, the allocation of contribution
shall be made in such proportion (subject, in the case of the Selling
Stockholders, to the limitation described in Section 7(e) below) as is
appropriate to reflect not only the relative benefits referred to in the
foregoing sentence but also the relative fault of the Company, each Selling
Stockholder and the Underwriters with respect to the statements or omissions
which resulted in such loss, claim, liability, expense or damage, or action
in respect thereof, as well as any other relevant equitable considerations
with respect to such offering. Such relative fault shall be determined by
reference to whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling Stockholders or the
Underwriters, the failure of any Underwriter to deliver a copy of the
Prospectus at or prior to the written confirmation of the sale of Shares as
described in Section 7(a) above, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 7(d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by
any other method of allocation which does not take into account the equitable
considerations referred to herein. The Company hereby agrees to pay to each
Underwriter the difference between (i) any amount that would have been due to
such Underwriter by any Selling
<PAGE> 29
29
Stockholder pursuant to the contribution provisions of this Section
7(d) without giving effect to the provisions of Section 7(e) below and (ii)
any amount that would be due to such Underwriter by any Selling Stockholder
pursuant to the contribution provisions of this Section 7(d) after giving
effect to the provisions of Section 7(e) below. The amount paid or payable by
an indemnified party as a result of the loss, claim, liability, expense or
damage, or action in respect thereof, referred to above in this Section 7(d)
shall be deemed to include, for purposes of this Section 7(d), any legal or
other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7(d), no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts received by it,
and no person found guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) will be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute as provided in this Section 7(d) are
several in proportion to their respective underwriting obligations and not
joint. For purposes of this Section 7(d), any person who controls a party to
this Agreement within the meaning of the Act will have the same rights to
contribution as that party, and each officer of the Company who signed the
Registration Statement will have the same rights to contribution as the
Company, subject in each case to the revisions hereof. Any party entitled to
contribution, promptly after receipt of notice of commencement of any action
against such party in respect of which a claim for contribution may be made
under this Section 7(d), will notify any such party or parties from whom
contribution may be sought, but the omission so to notify will not relieve
the party or parties from whom contribution may be sought from any other
obligation it or they may have under this Section 7(d). No party will be
liable for contribution with respect to any action or claim settled without
its written consent (which consent will not be unreasonably withheld).
(e) Notwithstanding the foregoing provisions of this Section 7, in no
event shall the liability of any Selling Stockholder for indemnification or
contribution under this Section 7 exceed the lesser of (x) that percentage of
the total amount of such losses, claims, liabilities, expenses or damages to
be indemnified against or contributed to under this Section 7 which equals
the percentage obtained by dividing the total number of Shares sold by such
Selling Stockholder hereunder by the total number of Shares sold hereunder,
or (y) the proceeds received by such Selling Stockholder from the
Underwriters hereunder.
(f) The indemnity and contribution agreements contained in this Section
7 and the representations and warranties of the Company and the Selling
Stockholders contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any investigation made by or on behalf of
the Underwriters, (ii) acceptance of any of the Shares and payment therefor
or (iii) any termination of this Agreement.
8. TERMINATION. The obligations of the several Underwriters under this
Agreement may be terminated at any time prior to the Closing Date (or, with
respect to the
<PAGE> 30
30
Option Shares, on or prior to the Option Closing Date), by notice to
the Company and the Attorneys from the Underwriters, without liability on the
part of any Underwriter to the Company or to any Selling Stockholders, if,
prior to delivery and payment for the Firm Shares (or the Option Shares, as the
case may be), in the sole judgment of the Underwriters, (i) trading in any of
the equity securities of the Company shall have been suspended by the
Commission or the American Stock Exchange, (ii) trading in securities generally
on the New York Stock Exchange shall have been suspended or limited or minimum
or maximum prices shall have been generally established on such exchange, or
additional material governmental restrictions, not in force on the date of this
Agreement, shall have been imposed upon trading in securities generally by such
exchange or by order of the Commission or any court or other governmental
authority, (iii) a general banking moratorium shall have been declared by
either Federal or New York State authorities or (iv) any material adverse
change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any
outbreak or material escalation of hostilities or declaration by the United
States of a national emergency or war or other calamity or crisis shall have
occurred, the effect of any of which is such as to make it, in the sole
judgment of the Underwriters, impracticable to market the Shares on the terms
and in the manner contemplated by the Prospectus.
9. SUBSTITUTION OF UNDERWRITERS. If any one or more of the
Underwriters shall fail or refuse to purchase any of the Firm Shares which it
or they have agreed to purchase hereunder, and the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is not more than one-tenth of the aggregate number of Firm
Shares, the other Underwriters shall be obligated, severally, to purchase the
Firm Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase, in the proportions which the number of Firm Shares
which they have respectively agreed to purchase pursuant to Section 1 bear to
the aggregate number of Firm Shares which all such non-defaulting Underwriters
have so agreed to purchase, or in such other proportions as the Underwriters
may specify; provided that in no event shall the maximum number of Firm Shares
which any Underwriter has become obligated to purchase pursuant to Section 1 be
increased pursuant to this Section 9 by more than one-ninth of the number of
Firm Shares agreed to be purchased by such Underwriter without the prior
written consent of such Underwriter. If any Underwriter or Underwriters shall
fail or refuse to purchase any Firm Shares and the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase exceeds one-tenth of the aggregate number of the Firm
Shares and arrangements satisfactory to the Underwriters, the Company and the
Attorneys for the purchase of such Firm Shares are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter, the Company or any Selling Stockholder for
the purchase or sale of any Shares under this Agreement. In any such case,
either the Underwriters or the Company and the Attorneys shall have the right
to postpone the Closing Date, but in no event for longer than seven days, in
order that the required
<PAGE> 31
31
changes, if any, in the Registration Statement and in the Prospectus or
in any other documents or arrangements may be effected. Any action taken
pursuant to this Section 9 shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.
10. MISCELLANEOUS. Notice given pursuant to any of the provisions of
this Agreement shall be in writing and, unless otherwise specified, shall be
mailed or delivered (a) if to the Company, at the office of the Company, 725
Concord Avenue, Cambridge, Massachusetts 02138, Attention: President, (b) if to
any Selling Stockholder, at the office of the Company, 725 Concord Avenue,
Cambridge, Massachusetts 02138, Attention: Messrs. Jerome Goldstein or Anthony
Annese, or (c) if to the Underwriters, to the offices of PaineWebber
Incorporated, 1285 Avenue of the Americas, New York, New York 10019, Attention:
Corporate Finance Department. Any such notice shall be effective only upon
receipt. Any notice under Section 8 or 9 may be made by telex or telephone, but
if so made shall be subsequently confirmed in writing.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company and the Selling Stockholders and of the
controlling persons, directors and officers referred to in Section 7, and their
respective successors and assigns and no other person shall acquire or have any
right under or by virtue of this Agreement. The term "successors and assigns"
as used in this Agreement shall not include a purchaser of Shares from any of
the several Underwriters.
Any action required or permitted to be taken by the Underwriters under
this Agreement may be taken by them jointly or by PaineWebber Incorporated.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
The Company, the Selling Stockholders and the Underwriters each hereby
irrevocably waive any right they may have to a trial by jury in respect of any
claim based upon or arising out of this Agreement or the transactions
contemplated hereby.
<PAGE> 32
32
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
ADVANCED MAGNETICS, INC.
By:
-------------------------------
Chairman of the
Board of Directors,
President and Treasurer
THE SELLING STOCKHOLDERS
NAMED IN SCHEDULE II
ATTACHED HERETO
The Attorneys
By:
-------------------------------
Confirmed as of the date first
above mentioned:
PAINEWEBBER INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
OPPENHEIMER & CO., INC.
TUCKER ANTHONY INCORPORATED
PAINEWEBBER INCORPORATED
By
--------------------------------
Title:
<PAGE> 33
SCHEDULE I
<TABLE>
UNDERWRITERS
<CAPTION>
Number of
Firm Shares
Name to be Purchased
- ---- ---------------
<S> <C>
PaineWebber Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
Oppenheimer & Co., Inc.
Tucker Anthony Incorporated
---------
Total 1,350,000
=========
</TABLE>
<PAGE> 34
SCHEDULE II
<TABLE>
SELLING STOCKHOLDERS
<CAPTION>
Name of Selling Total Number of Firm Shares
Stockholders to be Sold by Selling Stockholders
- --------------- ----------------------------------
<S> <C>
Jerome Goldstein 50,000
Marlene Kaplan Goldstein 62,017
Lee Josephson 24,483
Paula M. Jacobs 3,000
Jerome M. Lewis 3,000
Leslie Goldstein 27,500
Ernest V. Groman 25,000
Rachel Goldstein 15,000
Lisa Goldstein 15,000
Guerbet, S.A. 25,000
-------
Total 250,000
=======
</TABLE>
<PAGE> 35
EXHIBIT A
ADVANCED MAGNETICS, INC.
------------------------
PRICE DETERMINATION AGREEMENT
-----------------------------
April , 1996
--
PAINEWEBBER INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
OPPENHEIMER & CO., INC.
TUCKER ANTHONY INCORPORATED
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Reference is made to the Underwriting Agreement, dated April , 1996 (the
"Underwriting Agreement"), among Advanced Magnetics, Inc., a Delaware
corporation (the "Company"), the persons named in Schedule II thereto (the
"Selling Stockholders"), and PaineWebber Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation, Oppenheimer & Co., Inc. and Tucker Anthony
Incorporated (collectively, the "Underwriters"). The Underwriting Agreement
provides for (a) the purchase by the Underwriters from the Company and the
Selling Stockholders, subject to the terms and conditions set forth therein, of
an aggregate of 1,350,000 shares (the "Firm Shares") of the Company's common
stock, par value $.0l per share (the "Common Stock"), and (b) the purchase by
the Underwriters from the Company, pursuant to the option granted by the Company
to the Underwriters, subject to the terms and conditions set forth therein, of
up to an aggregate of 202,500 additional shares of Common Stock (the "Option
Shares"). The Firm Shares and the Option Shares are referred to collectively
herein as the "Shares". This Agreement is the Price Determination Agreement
referred to in the Underwriting Agreement.
Pursuant to Section 1 of the Underwriting Agreement, the undersigned
agree with the Underwriters as follows:
1. The initial public offering price per share for the Shares shall be
$________.
<PAGE> 36
A-2
2. The Purchase price per share for the Shares to be paid by the several
Underwriters shall be $ _______, representing an amount equal to the initial
public offering price set forth above, less $_______ per share.
The Company represents and warrants to each of the Underwriters that the
representations and warranties of the Company set forth in Section 3 of the
Underwriting Agreement are accurate as though expressly made at and as of the
date hereof.
The Selling Stockholders represent and warrant to each of the
Underwriters that the representations and warranties of the Selling Stockholders
set forth in Section 4 of the Underwriting Agreement are accurate as though
expressly made at and as of the date hereof.
As contemplated by the Underwriting Agreement, attached as Schedule I is
a complete list of the several Underwriters, which shall be a part of this
Agreement and the Underwriting Agreement.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
If the foregoing is in accordance with your understanding of the
Agreement among the Underwriters, the Company and the Selling Stockholders,
please sign and return to the Company a counterpart hereof, whereupon this
instrument along with all counterparts and together with the Underwriting
Agreement shall be a binding agreement among the Underwriters, the Company and
the Selling Stockholders in accordance with its terms and the terms of the
Underwriting Agreement.
<PAGE> 37
A-3
Very truly yours,
ADVANCED MAGNETICS, INC.
By:
------------------------------
Chairman of the
Board of Directors,
President and Treasurer
THE SELLING STOCKHOLDERS
NAMED IN SCHEDULE II TO THE
UNDERWRITING AGREEMENT
The Attorneys
By:
------------------------------
Confirmed as of the date
first above mentioned:
PAINEWEBBER INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
OPPENHEIMER & CO., INC.
TUCKER ANTHONY INCORPORATED
PAINEWEBBER INCORPORATED
By:
-------------------------------
Title:
<PAGE> 38
EXHIBIT B
Form of Lock-Up Agreement
--------------------------
, 1996
-----------
PAINEWEBBER INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
OPPENHEIMER CO., INC.
TUCKER ANTHONY INCORPORATED
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
In consideration of the agreement of the several Underwriters, pursuant
to which PaineWebber Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation and Oppenheimer Co., Inc. (collectively, the "Underwriters") intend
to underwrite a proposed public offering (the "Offering") of Common Stock, par
value $.0l per share (the "Common Stock"), of Advanced Magnetics, Inc., a
Delaware corporation, as contemplated by a registration statement (the
"Registration Statement") with respect to such shares to be filed with the
Securities and Exchange Commission on Form S-3, the undersigned hereby agrees
that the undersigned will not for a period of 90 days after the effective date
of the registration statement, without the prior written consent of PaineWebber
Incorporated, (1) offer to sell, sell, contract to sell or otherwise dispose of
any shares of Common Stock or rights to acquire shares of Common Stock (other
than pursuant to employee stock option plans or in connection with other
employee incentive compensation arrangements)* or (2) enter into any swap or
similar agreement that transfers, in whole or in part, any of the economic
consequences of the ownership of the Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise, other than (a) the sale of
Common Stock by the Selling Stockholders contemplated by the Registration
Statement or (b) transfers of Common Stock to the Company.
Notwithstanding the foregoing, if the undersigned is an individual, he
or she may transfer Common Stock either during his or her lifetime or on death
by gift, will or intestacy to his or her immediate family or to a trust the
beneficiaries of which are exclusively the undersigned and/or a member or
members of his or her immediate family; provided, however, that in any such case
it shall be a condition to the transfer that the transferee execute an agreement
stating that the transferee is receiving and holding the Common Stock subject
to
- ------------------
* Insert if this letter agreement will be signed by an employee or director
of the Company.
<PAGE> 39
B-2
the provisions of this Agreement, and there shall be no further transfer of
such Common Stock except in accordance with this Agreement.
Very truly yours,
By:
---------------------------
Print
Name:
-------------------------
<PAGE> 40
EXHIBIT C
Form of Opinion of
Counsel to the Company
----------------------
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, is duly licensed or
qualified to do business in the Commonwealth of Massachusetts and the State of
New Jersey, has full corporate power and authority to conduct all the activities
conducted by it, to own or lease all the assets owned or leased by it and to
conduct its business as described in the Registration Statement and the
Prospectus and has all governmental licenses, permits, consents, orders,
approvals and other authorizations necessary to carry on its business as
contemplated in the Prospectus, except (a) where a failure to have such license,
permit, consent, order, approval or authorization would not have a material
adverse effect on the Company's financial condition or results of operations and
(b) regulatory approvals relating to the Company's products, as to which we have
not been requested to comment.
2. All of the outstanding shares of Common Stock have been, and the
Shares, when paid for by the Underwriters in accordance with the terms of the
Agreement, will be, duly authorized, validly issued, fully paid and
nonassessable and will not be subject to any preemptive or similar right imposed
by the Certificate of Incorporation or By-laws of the Company or, to our
knowledge, any agreement to which the Company is a party.
3. No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of the
Shares by the Company, in connection with the execution, delivery and
performance of the Agreement by the Company or in connection with the taking by
the Company of any action contemplated thereby, except (i) any order of a court
of appropriate jurisdiction required in the context of the [second] undertaking
of the Company contained under the caption "Undertakings" in Part II of the
Registration Statement, and (ii) such as have been obtained under the Act and
the Rules and Regulations and such as may be required by applicable state or
foreign securities or Blue Sky laws and the by-laws and rules of the NASD in
connection with the purchase and distribution by the Underwriters of the Shares
to be sold by the Company.
4. The authorized and outstanding capital stock of the Company as of the
effective date of the Registration Statement is as set forth in the Registration
Statement and the Prospectus. The description of the Common Stock contained in
the Prospectus conforms to the terms thereof contained in the Company's
Certificate of Incorporation.
5. The Registration Statement, any Rule 462(b) Registration Statement
and the Prospectus comply as to form in all material respects with the
requirements of the Act and
<PAGE> 41
C-2
the Rules and Regulations, and the documents incorporated by reference
in the Registration Statement and Prospectus complied in all material respects
as to form with the Exchange Act and the Exchange Act Rules and Regulations at
the time they were filed (except that we express no opinion as to financial
statements, schedules and other financial and statistical data contained in the
Registration Statement or the Prospectus or incorporated by reference therein).
6. The Registration Statement has become effective under the Act and, to
the best of our knowledge, no order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that purpose has
been instituted or is threatened, pending or contemplated.
7. The statements made in the sections of the Registration Statement and
the Prospectus entitled "Description of Capital Stock", to the extent that they
constitute matters of law or legal conclusions, have been reviewed by us and
fairly present the information disclosed therein. We have also reviewed all
contracts, instruments or other documents to which the Company is a party
referred to in the Registration Statement and the Prospectus and such contracts,
instruments or other documents (except contracts, instruments or other documents
referred to under the captions "Business -- Patents and Trade Secrets" and "--
Government Regulation" and except patents, patent applications, trademarks,
trademark applications, Investigational New Drug ("IND") applications, New Drug
applications ("NDA") and other foreign and domestic regulatory filings relating
to the Company's products, as to which we have not been requested to comment)
are fairly summarized or disclosed therein. The Certificate of Incorporation and
By-laws of the Company, as amended, and any material indenture, mortgage, deed
of trust, voting trust agreement, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, lease, contract or other agreement
or instrument known to us to which the Company is a party or by which it or any
of its properties is bound or affected listed as an exhibit to the Registration
Statement or to the documents incorporated by reference in the Registration
Statement (collectively, the "Material Agreements") have been filed as required
as exhibits thereto with the Commission and, after due inquiry, we do not know
of any contracts, instruments or other documents required to be summarized or
disclosed in the Registration Statement or the Prospectus or filed or required
to be filed under the Exchange Act if upon such filing they would be
incorporated, in whole or in part, by reference therein which have not been so
summarized or disclosed or filed.
8. All descriptions in the Prospectus of statutes, regulations or legal
or governmental proceedings to which the Company is a party (except the
statements contained under the captions "Business -- Patents and Trade Secrets"
and "-- Government Regulation and Reimbursement", and descriptions of
proceedings for regulatory approvals relating to the Company's products, as to
which we have not been requested to comment) are accurate and fairly present the
information required to be shown.
<PAGE> 42
C-3
9. The Company has full corporate power and authority to enter into the
Agreement, and the Agreement has been duly authorized, executed and delivered by
the Company.
10. The execution and delivery of the Agreement by the Company, the
consummation by the Company of the transactions therein contemplated and the
compliance by the Company with the terms of the Agreement do not and will not
result in the creation or imposition of any lien, charge or encumbrance upon any
of the assets of the Company pursuant to the terms or provisions of, or result
in a breach or violation of any of the terms or provisions of, or constitute a
default or result in the acceleration of any obligation under, any Material
Agreement or any judgment, ruling, decree, order, statute, rule or regulation of
any court or other governmental agency or body applicable to the business or
properties of the Company (except that we express no opinion as to the
securities or Blue Sky laws of any jurisdiction).
11. Based solely on inquiry of the Company, we know of no actions, suits
or proceedings pending or threatened against the Company or its properties, or
any of its respective officers in their capacities as such, before or by any
federal, state or foreign court, commission, regulatory body, administrative
agency or other governmental body, wherein an unfavorable ruling, decision or
finding might materially adversely affect the Company or its business,
properties, business prospects, condition (financial or otherwise) or results of
operations, except as set forth in or contemplated by the Registration Statement
and the Prospectus.
12. The Company is not an "investment company" or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company", as
such terms are defined in the Investment Company Act of 1940, as amended.
13. The Shares have been duly authorized for listing by the American
Stock Exchange upon official notice of issuance.
We have participated in the preparation of the Registration Statement
and the Prospectus, and from time to time have had discussions with and made
inquiry of directors, officers and employees of the Company, and Coopers &
Lybrand, the independent auditors who examined certain of the financial
statements of the Company included in the Registration Statement and the
Prospectus. Based thereupon, no facts have come to our attention which would
cause us to believe that, as of the Effective Date, the Registration Statement,
or any amendment thereto or any Rule 462(b) Registration Statement as of its
effective date, contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that any Prospectus
or any amendment or supplement thereto, including any documents incorporated by
reference into the Prospectus, as of the date of such Prospectus,
<PAGE> 43
C-4
the date of any such amended or supplemented Prospectus, the Closing
Date and the Option Closing Date, contained or contains any untrue statement of
a material fact or omitted or omits to state a material fact necessary in order
to make the statements therein, in the light of the circumstances in which they
were made, not misleading (except that we express no opinion as to information
relating to patents or as to financial statements, schedules and other financial
or statistical data contained in the Registration Statement or the Prospectus or
incorporated by reference therein). We, however, have not independently verified
and are not passing upon, and do not assume any responsibility for, the
accuracy, completeness or fairness (except as set forth in paragraph (7) above)
of the information contained in the Registration Statement and the Prospectus.
In rendering the foregoing opinion, counsel may rely, to the extent they
deem such reliance proper, on the opinions (in form and substance reasonably
satisfactory to Underwriters' counsel) of other counsel reasonably acceptable to
Underwriters' counsel as to matters governed by the laws of jurisdictions other
than the United States and the States of Massachusetts and Delaware, and as to
matters of fact, upon certificates of officers of the Company, the Selling
Stockholders and of government officials; provided that such counsel shall state
that, in such counsel's opinion, such counsel and the Underwriters are justified
in relying on such opinions of other counsel. Copies of all such opinions and
certificates shall be furnished to counsel to the Underwriters on the Closing
Date. Such counsel may state that such counsel is not passing on any matters
relating to patents or trademarks.
<PAGE> 44
EXHIBIT D
Form of Opinion of Counsel to the
Selling Stockholders
-------------------
1. Each of the Selling Stockholders (such Selling Stockholders are
referred to in this opinion as the "Selling Stockholders") has full legal power
and authority to enter into the Agreement, the Custody Agreement and the Power
of Attorney and to sell, transfer and to deliver the Shares to be sold by it
pursuant to the Agreement, the Custody Agreement and the Power of Attorney. All
authorizations and consents necessary for the execution and delivery of the
Agreement, the Custody Agreement and the Power of Attorney on behalf of each of
the Selling Stockholders have been given. The delivery of certificates for the
Shares on behalf of the Selling Stockholders pursuant to the terms of the
Agreement and payment therefor by the Underwriters will transfer good and
marketable title to the Shares to the several Underwriters purchasing the
Shares, free and clear of all liens, encumbrances and claims whatsoever,
assuming that the Underwriters have no notice of any adverse claim.
2. Each of the Agreement, the Custody Agreement and the Power of
Attorney has been duly authorized, executed and delivered by or on behalf of
each of the Selling Stockholders. The Custody Agreements and the Powers of
Attorney constitute legal, valid and binding obligations of the respective
Selling Stockholders party thereto, enforceable against such Selling
Stockholders in accordance with their terms, subject to applicable bankruptcy,
insolvency, moratorium or similar laws affecting the rights and remedies of
creditors generally and also to the extent that the availability of the remedy
of specific enforcement or of injunctive relief is subject to the discretion of
the court before which any proceeding therefor may be brought.
3. No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, transfer, sale or delivery of the Shares by
or on behalf of the Selling Stockholders, in connection with the execution,
delivery and performance of the Agreement, the Custody Agreement and the Power
of Attorney by or on behalf of the Selling Stockholders or in connection with
the taking by or on behalf of the Selling Stockholders of any action
contemplated thereby, except (i) any order of a court of appropriate
jurisdiction required in the context of the [second] undertaking of the Company
contained under the caption "Undertakings" in Part II of the Registration
Statement, and (ii) such as have been obtained under the Act or the Rules and
Regulations and such as may be required by applicable state or foreign
securities or Blue Sky laws and the by-laws and rules of the NASD in connection
with the purchase and distribution by the Underwriters of the Shares to be sold
by the Selling Stockholders.
<PAGE> 45
D-2
4. The execution and delivery of the Agreement, the Custody Agreement
and the Power of Attorney by the Selling Stockholders, the consummation by the
Selling Stockholders of the transactions contemplated therein and the compliance
by the Selling Stockholders with the terms thereof do not (a) violate any
statute, judgment, ruling, decree, order, rule or regulation of any court or
other governmental agency or body applicable to any Selling Stockholders (except
that we express no opinion in this paragraph as to the securities or Blue Sky
laws of any jurisdiction) or (b) result in the creation or imposition of any
lien, charge or encumbrance upon any of the assets of the Selling Stockholders
pursuant to the terms or provisions of, or result in a breach or violation of
any of the terms or provisions of, or constitute a default under or result in
the acceleration of any obligation under, any material agreement or instrument
to which any Selling Stockholder is a party or by which it or any of its
properties is bound or affected and known to us (based solely on inquiry of the
Selling Stockholders).
5. There are no transfer or similar taxes payable under the laws of the
Commonwealth of Massachusetts in connection with the sale and delivery of the
Shares by the Selling Stockholders to the several Underwriters.
In rendering the foregoing opinion, counsel may rely, to the extent they
deem such reliance proper, on the opinions (in form and substance reasonably
satisfactory to Underwriters' counsel) of other counsel that are representing
the Selling Stockholders or reasonably acceptable to Underwriters' counsel as to
matters governed by the laws of jurisdictions other than the United States, the
Commonwealth of Massachusetts and the State of Delaware, and, as to matters of
fact, upon certificates of the Selling Stockholders and of government officials;
provided that such counsel shall state that, in such counsel's opinion, such
counsel and the Underwriters are justified in relying on such opinions of other
counsel. Copies of all such opinions and certificates shall be furnished to
counsel to the Underwriters on the Closing Date. Such counsel may state that
such counsel is not passing on any matters relating to patents or trademarks.
<PAGE> 46
EXHIBIT E-1
Form of Opinion
of Pennie & Edmonds
--------------------
1. To the best of our knowledge, the United States patents and
applications referenced in the Registration Statement or Prospectus as being
owned by the Company and listed on Schedule A are assigned to the Company.
2. To the best of our knowledge, except as otherwise described in the
Registration Statement and Prospectus, the Company has not received any notice
challenging the validity or enforceability of any of the United States patents
referenced in the Registration Statement or Prospectus as being owned by the
Company and listed on Schedule A, and we are not aware of any facts which would
form a reasonable basis for any such challenge.
3. To the best of our knowledge, no third party has any rights to the
United States patents or applications referenced in the Registration Statement
or Prospectus as being owned by the Company and listed on Schedule A.
4. To the best of our knowledge, except as otherwise described in the
Registration Statement and Prospectus, no claims have been asserted against the
Company relating to the potential infringement of, or conflict with, any
patents, trademarks, copyrights, trade secrets, or proprietary rights of others.
5. To the best of our knowledge, except as otherwise described in the
Registration Statement and Prospectus, there are no material legal or
governmental proceedings, pending or threatened, with respect to any United
States patent referenced in the Registration Statement or Prospectus as being
owned by the Company and listed on Schedule A.
6. To the best of our knowledge, the statements in Registration
Statement and the Prospectus relating to United States patent matters under the
headings RISK FACTORS, Uncertainty Regarding Patent Rights, BUSINESS, Patents
and Trade Secrets, and other references in the Registration Statement and
Prospectus to United States patent matters, insofar as such statements
constitute a summary of legal matters, documents, or proceedings relating to the
patents and applications listed in Schedule A, are accurate and present fairly
the information purported to be shown.
7. To the best of our knowledge, the statements in the Registration
Statement and the Prospectus relating to United States patent matters under the
headings RISK FACTORS, Uncertainty Regarding Patent Rights, BUSINESS, Patents
and Trade Secrets, and other references in the Registration Statement and
Prospectus to United States patent matters,
<PAGE> 47
E-1-2
insofar as such statements relate to the patents and applications listed
in Schedule A, do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
<PAGE> 48
EXHIBIT E-2
Form of Opinion
Bromberg & Sunstein
-------------------
1. The Company has clear title to those patents and patent applications
handled by us;
2. Patents which issued within the United States are entitled to the
presumption of validity under 35 U.S.C. S 282, and we are presently unaware of
any facts which would provide grounds upon which the statutory presumption of
validity of such patents could be rebutted;
3. To the best of our knowledge, there are presently no pending or
threatened legal, governmental or administrative proceedings to which the
Company is a party and which relate to patents or other proprietary rights, or
of which any patent rights of the Company are subject, which, if determined
adversely to the Company, would individually or in the aggregate have a material
adverse effect on the general affairs, financial position, net worth or results
of operations of the Company; and, with regard to the Company's magnetic
particle and colloid products, drug delivery platforms, therapeutic products and
processes as now conducted, which are known to us, no such proceedings have been
threatened or, upon information and belief, are presently contemplated against
the Company by any governmental authorities or others, and, to the best of our
knowledge, no basis for any such proceedings exist; and
4. To the best of our knowledge, the statements in the Prospectus under
the captions "Prospectus Summary -- The Company", "Risk Factors" and "Business"
relating to patents, licenses and technology, are accurate and, insofar as they
constitute a summary of the matters referred to therein, fairly present the
information called for with respect to such matters, and nothing has come to our
attention to lead us to believe that such statements, both at the time of the
effectiveness of the Registration Statement and any Rule 462(b) Registration
Statement and as set forth in the Prospectus, contain any untrue statement of
material fact with respect to licenses, patents or technology owned or used by
the Company, or the manner of its use thereof, or omit to state any material
fact relating to licenses, patents or technology owned or used by the Company,
or the manner of its use thereof, which is required to be stated in the
Registration Statement or the Prospectus or is necessary to make the statements
therein not misleading.
<PAGE> 1
EXHIBIT 5.1
--------------------------
TESTA, HURWITZ & THIBEAULT
--------------------------
ATTORNEYS AT LAW
HIGH STREET TOWER, 125 HIGH STREET
OFFICE (617) 248-7000 BOSTON, MASSACHUSETTS 02110 FAX (617) 248-7100
March 25, 1996
Advanced Magnetics, Inc.
725 Concord Avenue
Cambridge, Massachusetts 02138
Re: Registration Statement on Form S-3
Relating to 1,552,500 Shares of Common Stock
--------------------------------------------
Dear Sir or Madam:
This opinion relates to an aggregate of 1,552,500 shares of Common
Stock, par value $.01 per share (the "Common Stock"), of Advanced Magnetics,
Inc. (the "Company"), which are the subject matter of a Registration Statement
on Form S-3 initially filed with the Securities and Exchange Commission on
March 18, 1996 (the "Registration Statement").
The 1,552,500 shares of Common Stock covered by the Registration
Statement consist of 1,100,000 shares being sold by the Company, 250,000 shares
being sold by certain selling stockholders of the Company (the "Selling
Stockholders") and an additional 202,500 shares subject to an over-allotment
option granted by the Company to the underwriters to be named in the prospectus
(the "Prospectus") included in the Registration Statement.
Based upon such investigation as we have deemed necessary, we are of
the opinion that the shares of Common Stock being sold by the Selling
Stockholders have been legally issued and are fully paid and nonassessable and
that when the 1,302,500 shares of Common Stock to be sold by the Company
pursuant to the Prospectus have been issued and paid for in accordance with the
terms described in the Prospectus, such shares of Common Stock will have been
validly issued and will be fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm in the Prospectus under
the caption "Legal Matters."
Very truly yours,
/s/ Testa, Hurwitz & Thibeault
TESTA, HURWITZ & THIBEAULT
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion and incorporation by reference in this
Amendment No. 1 to the Registration Statement on Form S-3 (file no. 333-1775) of
our report dated November 8, 1995 on our audits of the financial statements of
Advanced Magnetics, Inc. We also consent to the references to our firm under the
caption "Experts" and "Selected Financial Data."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 25, 1996
