<PAGE>
As filed with the Securities and Exchange Commission on February 14, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
EMISPHERE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-3306985
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
</TABLE>
765 Old Saw Mill River Road
Tarrytown, New York 10591
(914) 347-2220
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
Michael M. Goldberg, M.D.
Emisphere Technologies, Inc.
765 Old Saw Mill River Road
Tarrytown, New York 10591
(914) 347-2220
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
Edwin S. Maynard, Esq. David W. Pollak, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison Morgan, Lewis & Bockius LLP
1285 Avenue of the Americas 101 Park Avenue
New York, New York 10019 New York, New York 10178
(212) 373-3000 (212) 309-6058
</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, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Proposed
Title of Securities To Amount to be Maximum Offering Maximum Aggregate Amount of
Be Registered Registered Price Per Share Offering Price Registration Fee
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value(1)............... 2,875,000 shares(2) $41.19(2) $118,421,250(2)(3) $31,264
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) This Registration Statement also applies to rights under the registrant's
Rights Agreement which are attached to and tradable only with the shares of
Common Stock registered hereby. No registration fee is required for such
rights as they will be issued for no additional consideration.
(2) Includes 375,000 shares subject to the Underwriters' over-allotment option.
(3) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended,
based upon the average of the high and low prices reported on the Nasdaq
National Market on February 7, 2000.
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 THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 14, 2000
PROSPECTUS
2,500,000 Shares
[LOGO] EMISPHERE TECHNOLOGIES, INC.
Common Stock
Our common stock is quoted on the Nasdaq National Market under the symbol
EMIS. On February 11, 2000, the last reported sale price of our common stock on
the Nasdaq National Market was $55.44 per share.
--------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discounts and commissions ......................... $ $
Proceeds to Emisphere, before expenses.......................... $ $
</TABLE>
We have granted the underwriters an option for a period of 30 days to
purchase up to 375,000 additional shares of common stock.
The underwriters are severally underwriting the offered shares. The
underwriters expect to deliver the shares against payment in New York, New York
on March , 2000.
--------
Investing in our common stock involves a high degree of risk.
See "Risk Factors" beginning on page 6.
--------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
Chase H&Q
Deutsche Banc Alex. Brown
Warburg Dillon Read LLC
Adams, Harkness & Hill, Inc.
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................... 3
Risk Factors............................................................... 6
Use of Proceeds............................................................ 14
Capitalization............................................................. 15
Dilution................................................................... 16
Selected Financial Data.................................................... 17
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... 18
Business................................................................... 22
Management................................................................. 33
Principal Stockholders..................................................... 37
Underwriting............................................................... 38
Legal Matters.............................................................. 39
Experts.................................................................... 39
Where You Can Find More Information........................................ 40
Index to Financial Statements.............................................. F-1
</TABLE>
------------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus or incorporated by reference into
this prospectus and oral statements made from time to time by our
representatives constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements include (without limitation) statements regarding: planned or
expected studies and trials of oral formulations that utilize our technology;
the timing of the development and commercialization of our products; potential
products that may be developed using our technology; the potential market size,
advantages or therapeutic uses of our liquid oral heparin formulation or any
other product; and the sufficiency of our available capital resources to meet
our funding needs. These forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause our actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. These factors include, among others, the following: the success of
our oral heparin product and our ability to find a marketing partner to help us
commercialize it; prospects for our salmon calcitonin product candidate in
development with a partner; the viability of our product candidates, most of
which, other than liquid oral heparin, are in the early stages of development;
the need to obtain regulatory approval for our liquid oral heparin and other
product candidates; our dependence on collaborative partners to develop and
commercialize products, our ability to fund such efforts with or without
partners and uncertainty as to the timing or outcome of commercialization
decisions made by our collaborative partners; the risk of technological
obsolescence and risks associated with our highly competitive industry; our
lack of profitable operations and need for additional capital; our dependence
on patents and proprietary rights; our dependence on others to manufacture our
compounds; the risk of product liability and policy limits of product liability
insurance; potential liability for human clinical trials; our dependence on key
personnel and the quality, judgment and strategic decisions of management and
other personnel; uncertain availability of third-party reimbursement for
commercial medical products; general business and economic conditions; and
other factors referred to or incorporated by reference into this prospectus.
2
<PAGE>
SUMMARY
This summary highlights information contained elsewhere in this prospectus
and the documents incorporated by reference. This summary is not complete and
does not contain all of the information that you should consider before
investing in our common stock. You should read this entire prospectus and the
documents incorporated by reference carefully before making an investment
decision.
Emisphere Technologies, Inc.
Emisphere Technologies, Inc. is a biopharmaceutical company specializing
in the oral delivery of therapeutic macromolecules and other compounds that are
not currently deliverable by oral means. Our objective is to become a leader in
the development of oral macromolecule delivery. Our lead product in development
is a liquid oral heparin formulation for the prevention of blood clots in high-
risk surgery patients. We commenced Phase III trials for this product in
December 1999 and began dosing patients in January 2000. In addition, we have
developed with Novartis Pharma AG a capsule form of salmon calcitonin which
incorporates our technology. Salmon calcitonin is a compound used in the
treatment of osteoporosis. Novartis completed a Phase I clinical study for this
product in October 1999. The study's results, released in January 2000,
indicated that Novartis had reached its targeted endpoint of achieving
therapeutic blood levels of salmon calcitonin using our solid dosage
formulation.
Our focus is on developing oral delivery formulations of marketed drugs
that are limited in use because they must be administered intravenously or by
injection. The drugs we target for development, such as heparin, may be off-
patent but their markets are large enough to interest pharmaceutical partners
in an oral formulation. We believe combining available drugs with our
proprietary carriers to create orally administrable formulations reduces
development risk because the underlying compound has already been approved for
use and its safety and efficacy are therefore well established. We also believe
that our technology offers a relatively inexpensive route to generating
significant new product opportunities.
We also seek opportunities to collaborate with pharmaceutical companies to
apply our oral delivery technology to their therapeutic compounds, whether
currently marketed or in development. Since 1997, we have been engaged in a
research collaboration with Novartis under which Novartis may acquire an
exclusive license to market products utilizing our technologies. We believe
that the results of the Novartis Phase I clinical study of salmon calcitonin
represent the first time that a protein macromolecule was successfully
delivered in solid oral dosage form without chemical modification of the
molecule or damage to the biological membrane. We also have license agreements
with Eli Lilly & Company under which we have granted Lilly exclusive worldwide
licenses to use our technologies to develop and commercialize products
involving the oral delivery of two of Lilly's compounds. Both candidates are
currently in preclinical development. In addition, we are conducting a number
of feasibility studies with pharmaceutical and biotechnology companies for
various injectable compounds.
During 1999, we purchased all of Elan Corporation plc's interest in the
joint venture we formed in 1996 to develop and market oral forms of heparin. We
believe that the complete ownership and control of the technology and rights
relating to our oral heparin products will allow for more rapid clinical
development and commercialization and greater flexibility in negotiating with a
pharmaceutical partner for the marketing rights to these products.
Traditional drug delivery companies have developed technologies to control
the release of drugs and improve dosing regimens. However, there is an emerging
group of drug delivery companies, including us, that are developing
technologies that offer alternatives to the existing route of drug
administration, including oral administration of previously injectable drugs.
3
<PAGE>
Oral dosage forms of pharmaceuticals are the safest, and typically most
convenient, dosage forms. We believe oral dosage forms are the largest product
segment of the pharmaceutical industry and that the potential market for many
drugs could be expanded by using novel delivery mechanisms for drugs that are
currently available only in an injectable form. We have demonstrated the oral
delivery of heparin and, with our collaborator, salmon calcitonin in humans and
the oral delivery of a variety of other compounds in animals (including
insulin, human growth hormone, human parathyroid hormone, erythropoietin,
cromolyn and deferoxamine). We believe that annual worldwide sales of
injectable formulations of these compounds are over $8.0 billion and that the
market for these compounds could be larger if oral dosage forms were available.
The Offering
<TABLE>
<S> <C>
Common stock offered by us.......................... 2,500,000 shares
Common stock to be outstanding after this offering.. 17,021,037 shares
Use of proceeds..................................... To fund development of preclinical
stage programs, to fund the Phase
III clinical program for our liquid
oral heparin formulation until a
suitable marketing partner is found
or until completion and for general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol....................... EMIS
</TABLE>
Unless we specifically state otherwise, the information in this prospectus
does not take into account the issuance of up to 375,000 shares of common stock
which the underwriters have the option to purchase solely to cover over-
allotments. If the underwriters exercise their over-allotment option in full,
17,396,037 shares of common stock will be outstanding after this offering.
The number of shares of common stock to be outstanding immediately after
this offering is based upon our shares outstanding as of January 31, 2000 and
does not take into account 4,915,345 shares of common stock issuable upon
exercise of options outstanding at a weighted average exercise price of $10.72
per share, and 817,716 shares available for future grants under our existing
stock option plan and employee stock purchase plan.
------------------
Our principal offices are located at 765 Old Saw Mill River Road,
Tarrytown, New York 10591, and our telephone number is (914) 347-2220.
We maintain a web site at "www.emisphere.com." Information presented on
our web site does not constitute part of this prospectus.
4
<PAGE>
Summary Financial Data
(in thousands, except per share data)
The table below provides a summary of our financial data for the five
fiscal years ended July 31, 1999, the three months ended October 31, 1998 and
1999 and as of October 31, 1999. We derived the summary data for the five
fiscal years ended July 31, 1999 from our audited financial statements, which
were audited by PricewaterhouseCoopers LLP, our independent accountants, and
are included in this prospectus. We derived the summary data for the three
months ended October 31, 1998 and 1999 and as of October 31, 1999 from our
unaudited financial statements. We prepared our unaudited financial statements
on the same basis as our audited financial statements and included all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial data. Operating results for the three months
ended October 31, 1999 are not necessarily indicative of the results that may
be expected for the full year. You should read this summary financial data
together with our financial statements and the notes to those financial
statements.
<TABLE>
<CAPTION>
Three Months
Ended
Fiscal Year Ended July 31, October 31,
-------------------------------------------- ----------------
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ 33 $ 3,131 $ 5,401 $15,868 $ 10,180 $ 3,579 $ 625
------- ------- ------- ------- -------- ------- -------
Costs and expenses:
Research and
development........... 5,802 6,605 7,724 15,190 22,850 4,299 8,745
Acquisition of in-
process research and
development........... -- -- -- -- 9,686 -- --
Loss in Ebbisham Ltd... -- -- 2,550 4,044 3,092 1,161 --
General and
administrative........ 2,404 3,337 3,416 5,344 6,051 1,360 1,258
------- ------- ------- ------- -------- ------- -------
Total costs and
expenses............. 8,206 9,942 13,690 24,578 41,679 6,820 10,003
------- ------- ------- ------- -------- ------- -------
Operating loss.......... (8,173) (6,811) (8,289) (8,710) (31,499) (3,241) (9,378)
Other income (expense).. 389 703 968 1,644 817 261 (505)
------- ------- ------- ------- -------- ------- -------
Net loss................ $(7,784) $(6,108) $(7,321) $(7,066) $(30,682) $(2,980) $(9,883)
======= ======= ======= ======= ======== ======= =======
Net loss per share--
basic and diluted...... $ (1.03) $ (0.72) $ (0.77) $ (0.66) $ (2.63) $ (0.27) $ (0.81)
======= ======= ======= ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
October 31, 1999
------------------------------------
Pro Forma
Actual Pro Forma(1) As Adjusted(2)
------- ------------ --------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable
securities.............................. $ 5,905 $29,405 $158,857
Working capital.......................... 5,190 28,690 158,142
Total assets............................. 26,181 49,681 179,133
Long-term liabilities.................... 23,088 23,088 23,088
Accumulated deficit...................... (97,688) (97,688) (97,688)
Stockholders' equity..................... 1,600 25,100 154,552
</TABLE>
- ------------------
(1) Gives effect to the issuance of 2,300,000 shares of common stock in a
public offering completed on November 2, 1999 as if it had occurred on
October 31, 1999. The net proceeds of that offering were approximately
$23.5 million.
(2) Further adjusted to reflect this offering at an assumed public offering
price of $55.44 per share. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and all of the
other information contained in, or incorporated by reference into, this
prospectus before purchasing our common stock. Investing in our common stock
involves a high degree of risk. Any of the following risks could materially
harm our business, operating results and financial condition and could result
in a complete loss of your investment.
Risks Related to Emisphere Technologies
We are highly dependent on the success of our oral heparin product and we need
to find a marketing partner in order to commercialize it.
Our leading product candidate is a liquid oral heparin UF formulation for
the prevention of deep vein thrombosis. Heparin is currently not available in
oral form. We commenced Phase III clinical trials for this product in December
1999 and began dosing patients in January 2000. The outcome of clinical trials
is inherently subject to uncertainty, as is the FDA's drug approval process. We
therefore cannot assure you that the Phase III trials will be successful or
that our liquid oral heparin product will ultimately receive FDA approval.
The manufacture, marketing and distribution of pharmaceuticals is a
formidable undertaking. We do not have the financial resources or expertise to
bring liquid oral heparin to market on our own. In July 1999, we assumed sole
responsibility for Phase III development and funding. We will need to find a
third party with significant resources to become our partner in manufacturing,
marketing and distributing liquid oral heparin. We cannot assure you that we
will be able to identify a suitable partner or that we can negotiate favorable
terms for our relationship with that partner.
The success of our liquid oral heparin product will also depend on market
acceptance by doctors, patients and third-party payors. We believe that the
market for heparin would expand if an orally administered version were
available, but we cannot assure you that our oral heparin product will be
welcomed and accepted by doctors, patients and third-party payors. In addition,
our liquid oral heparin product will compete with other forms of heparin and
other anti-coagulants that are produced and marketed by major pharmaceutical
companies with significantly greater resources.
If our liquid oral heparin is not approved or we are unable to develop it
into a commercially viable product, our prospects will suffer significantly.
Other than our oral formulation of salmon calcitonin, which has successfully
completed an initial Phase I clinical study, we have no other products that
have entered into human clinical studies.
Our product candidates are in various stages of development, and we cannot be
certain that any will be suitable for commercial purposes.
To be profitable, we must successfully research, develop, obtain
regulatory approval for, manufacture, introduce, market and distribute our
products under development. The time frame necessary to achieve these goals for
any individual product is long and uncertain. Before we can sell any of our
products under development, we must demonstrate through preclinical (animal)
studies and clinical (human) trials that each product is safe and effective for
human use for each targeted indication. We cannot be certain that we will be
able to begin, or continue, our planned clinical trials for our product
candidates, or if we are able, that our product candidates will prove to be
safe and will produce their intended effects.
A number of companies in the drug delivery, biotechnology and
pharmaceutical industries have suffered significant setbacks in clinical
trials, even after showing promising results in earlier studies or trials. We
cannot assure you that favorable results in any preclinical study or early
clinical trial will mean that favorable results will ultimately be obtained in
future clinical trials. Nor can we assure you that results of our
6
<PAGE>
limited animal and human studies are indicative of results that would be
achieved in future animal studies or human clinical studies, all or some of
which will be required in order to have our proposed products obtain regulatory
approval. Similarly, we cannot assure you that any of our product candidates
will be approved by the FDA.
Our future business success depends heavily upon regulatory approvals which can
be difficult to obtain for a variety of reasons, including cost.
Our preclinical studies and clinical trials, as well as the manufacturing
and marketing of our technologies, are subject to extensive, costly and
rigorous regulation by various governmental authorities in the United States
and other countries. The process of obtaining required regulatory approvals
from the FDA and other regulatory authorities often takes many years, is
expensive and can vary significantly based on the type, complexity and novelty
of the product candidates. We cannot assure you that any technologies or
carriers developed by us, either independently or in collaboration with others,
will meet the applicable regulatory criteria in order to receive the required
approvals for manufacturing and marketing. Delays in obtaining United States or
foreign approvals could result in substantial additional costs to us, and,
therefore, could adversely affect our ability to compete with other companies.
Additionally, delays in obtaining regulatory approvals encountered by others
with whom we collaborate, or other licensees of ours, could also adversely
affect our business and prospects.
If regulatory approval of a product is granted, the approval may place
limitations on the intended uses of the product we wish to commercialize, and
may restrict the way in which we are permitted to market the product.
We are dependent upon collaborative partners to develop and commercialize
compounds using our carriers.
A key part of our strategy is to form collaborations with pharmaceutical
companies that will assist us in developing, testing, obtaining government
approval for and commercializing oral forms of therapeutic compounds using our
drug delivery technologies. We do not currently possess the ability or
resources necessary to reach these goals alone, and we do not currently intend
independently to market products incorporating our technologies in the
foreseeable future. Other than our strategic alliances with Novartis and Lilly,
we have no commitments or development agreements currently in effect.
Accordingly, we cannot assure you that:
. we will be able to enter into collaborative arrangements to develop
products utilizing our drug delivery technologies;
. any existing or future collaborative arrangements will be successful;
or
. milestones in these agreements will be met.
If we are unable to obtain development assistance and funds from other
pharmaceutical companies to fund a portion of our product development costs and
to commercialize products, we may have to delay, scale back or curtail one or
more of our projects.
Our strategic alliances with Novartis and Lilly may not result in
commercializable products.
Novartis completed a Phase I study in the United Kingdom in October 1999
of a capsule form of salmon calcitonin developed using our carrier technology.
Novartis may elect to enter into a pre-negotiated licensing agreement with us
regarding salmon calcitonin at any time until March 2000. We cannot assure you
that, despite the positive results achieved, Novartis will exercise its option
to license the product for further commercial development. In December 1999,
the research and development phase of our Novartis collaboration, which led to
the Phase I study, ended and funding from Novartis to us for that research and
development ceased. We are in discussions with Novartis to extend their
research and development funding into calendar 2000. However, we cannot assure
you that these discussions will result in additional funding.
7
<PAGE>
While our license agreements with Lilly provide for payments upon reaching
milestones and for royalties in the event a product is successfully
commercialized by Lilly, there is no provision for minimum royalty payments
and, therefore, no guarantee that we will ever receive additional revenues from
the license agreements. Our strategic alliance with Lilly does not require
Lilly to use our technologies exclusively, and we are aware of collaborations
between Lilly and others pursuing non-oral delivery of both of the proteins
that is the subject of our strategic alliance with them. In addition, the
strategic alliance represents the exclusive vehicle through which we may
develop and market orally deliverable products based on the subject proteins
and our carrier technologies.
In September 1998, Lilly formally selected one of our proprietary carriers
for clinical testing of an oral formulation of Lilly's therapeutic protein for
the treatment of osteoporosis. Lilly subsequently incurred unexpected results
with respect to their injectable form of the protein and suspended its
development. As a result, we are awaiting further direction from Lilly on the
project.
We have incurred substantial losses since inception and expect to incur further
losses.
Since our inception in 1986, we have generated significant losses from
operations and we anticipate that we will continue to generate significant
losses from operations for the foreseeable future. On October 31, 1999, our
accumulated deficit was approximately $97.7 million. Operations to date have
been funded with the proceeds from collaborative research agreements, public
and private equity and debt financings and income earned on investments.
We expect to experience a substantial increase in oral heparin clinical
development expenses in fiscal 2000 as we conduct Phase III clinical trials,
the most expensive phase of the clinical development process. As a result, we
believe that we will continue to incur increasing operating losses for the
foreseeable future.
If we cannot adequately protect our patent and proprietary rights, our business
will suffer.
Our success will depend, in part, on our ability to obtain patent
protection for our products, processes and technologies, to preserve our trade
secrets, and to operate without infringing the proprietary rights of third
parties, in various jurisdictions. We have been granted 46 patents on our drug
delivery technologies in the United States which will expire beginning in 2007.
We cannot assure you that any patent applications relating to our
potential products or processes will result in patents being issued, or that
resulting patents, if any, are valid, enforceable or will provide protection
against competitors who challenge our patents, obtain patents that may have an
adverse effect on our ability to conduct business, or are able to circumvent
our patent position. We cannot assure you that we will have the necessary
financial resources to enforce any of our patents.
The manufacture, use or sale of our product candidates may infringe the
patent rights of others. We may be unable to avoid infringement of those
patents and we may have to seek a license, defend an infringement action, or
challenge the validity of those patents in court. We cannot assure you that a
license will be available to us, if at all, on terms and conditions acceptable
to us or that we will prevail in any patent litigation. If we do not obtain a
license under these patents, are found liable for infringement, or are not able
to have the patents declared invalid, we may be liable for significant monetary
damages, may encounter significant delays in bringing products to market, or
may be precluded from participating in the manufacture, use or sale of products
or methods of treatment covered by these patents. We cannot assure you that we
have identified or will identify in the future, United States and foreign
patents that pose a risk of infringement.
Part of our strategy involves collaborative arrangements with other
pharmaceutical companies for the development of new formulations of drugs
developed by others and, ultimately, the receipt of royalties on sales of the
new formulations of those drugs. These drugs are generally the property of the
pharmaceutical
8
<PAGE>
companies and may be the subject of patents or patent applications and other
forms of protection owned by the pharmaceutical companies. To the extent those
patents or other forms of protection expire, become invalid or otherwise
ineffective, or to the extent those drugs are covered by patents or other forms
of protection owned by third parties, sales of those drugs by the collaborating
pharmaceutical company may be restricted, limited or enjoined, or may cease.
Accordingly, the potential for royalty revenues to us may be adversely
affected.
To protect our proprietary technologies and processes, we rely in part on
maintaining trade secrets protected by confidentiality agreements with our
partners, employees, consultants and contractors. Nevertheless, we cannot
assure you that these agreements will provide adequate protection for our trade
secrets and other proprietary information in the event of any unauthorized use
or disclosure or in the event others lawfully develop the information.
We are dependent on third parties to manufacture our products.
We currently have no manufacturing facilities for large-scale clinical or
commercial production of any compounds under consideration as products. For the
foreseeable future, we intend to rely on third parties to manufacture our
carriers and potential products.
These third-party manufacturers must comply with the applicable FDA good
manufacturing practice regulations, which include quality control and quality
assurance requirements as well as maintenance of records and documentation.
Manufacturing facilities are subject to ongoing periodic inspection by the FDA
and corresponding state agencies, including unannounced inspections, and must
be licensed before they can manufacture any of our carriers or products. We
cannot assure you that our present or future suppliers will be able to comply
with the applicable good manufacturing practice regulations and other FDA
regulatory requirements. After regulatory approvals are obtained, later
discovery of previously unknown problems or failure to comply with the
regulatory requirements may result in restrictions on the marketing of a
product, withdrawal of the product from the market, seizures, injunctions or
criminal sanctions.
We may face product liability claims related to participation in clinical
trials or the use or misuse of our products.
We have product liability insurance with a policy limit of $5.0 million
per occurrence. The testing, manufacturing and marketing of products for humans
utilizing our drug delivery technologies may expose us to potential product
liability and other claims resulting from their use. While we intend to have
human clinical trials conducted by contract research organizations or our
pharmaceutical partners, and to have these parties indemnify us for claims
arising out of those trials, we cannot assure you that indemnity undertakings,
if any, will be sufficient. Similarly, while we have obtained, and will seek to
obtain, waivers of liability from all persons who participate in human clinical
trials conducted by us or on our behalf, we cannot assure you that waivers will
be effective to protect us from liability or the costs of litigation.
Liability may also result from claims made directly by consumers or by
pharmaceutical companies or others selling our products. We seek to structure
future development programs with pharmaceutical companies that would complete
the development, manufacturing and marketing of the finished product, but the
indemnity undertakings for product liability claims that we secure from the
pharmaceutical companies may later prove to be insufficient. While we may
obtain additional product liability insurance if we determine that such
insurance is desirable, we cannot assure you that the insurance we obtain would
be adequate to fully protect us. In the event of a successful suit against us,
if we do not have adequate product liability insurance coverage, we will be
materially adversely affected.
We may require additional funding.
We may require additional funding in order to continue our research and
product development programs and preclinical testing and clinical trials, fund
our operating expenses, pursue regulatory approvals
9
<PAGE>
of our product candidates and establish manufacturing capabilities. We cannot
assure you that we will be successful in raising additional capital. In the
event that a marketing partner for our oral heparin product is not found, we
expect that cash, cash equivalents and marketable securities on-hand, combined
with the proceeds of this offering, will allow us to meet our liquidity
requirements for at least the next two years.
We are dependent on our key personnel and will need to attract and retain
additional key personnel in the future.
Our success depends upon the continued contributions of our executive
officers and scientific and technical personnel. During our operating history,
many key responsibilities within our company have been assigned to a relatively
small number of individuals. The competition for qualified personnel is
intense, and the loss of services of key personnel could adversely affect our
business. In particular, the loss of the services of Michael M. Goldberg, M.D.,
our Chairman of the Board and Chief Executive Officer, could have a material
adverse effect on our operations. We have an employment agreement through July
2000 with Dr. Goldberg, and have obtained key man insurance in the amount of
$1.0 million on his life.
In addition, we rely on members of our scientific advisory board and
consultants to assist us in formulating our research and development strategy.
All of the members of the scientific advisory board and all of our consultants
are otherwise employed and each of these members or consultants may have
commitments to other entities that may limit their availability to us or other
interests that may conflict with our interests.
Risks Related to Our Industry
We face rapid technological change and intense competition.
Our success depends, in part, upon maintaining a competitive position in
the development of products and technologies in an evolving field in which
developments are expected to continue at a rapid pace. We compete with other
drug delivery, biotechnology and pharmaceutical companies, research
organizations, individual scientists and non-profit organizations engaged in
the development of alternative drug delivery technologies or new drug research
and testing, as well as with entities developing new drugs that may be orally
active. Many of these competitors have greater research and development
capabilities, experience, and marketing, financial and managerial resources
than we do, and, therefore, represent significant competition for us.
Our products, when developed and marketed, may compete with existing
injectable versions of the same drug, some of which are well established in the
marketplace and manufactured by formidable competitors, as well as other
existing drugs. For example, our oral heparin products will compete with
injectable heparin, injectable low molecular weight heparin and warfarin, an
oral anti-coagulant. These products are marketed throughout the world by very
large companies such as Aventis SA, Pharmacia & Upjohn, Inc. and E.I. DuPont de
Nemours & Co. Similarly, our salmon calcitonin product candidate, if developed
and marketed, would compete with a wide array of existing osteoporosis
therapies, including a nasal dosage form of salmon calcitonin, estrogen
replacement therapy, bisphosphonates and selective receptor modulators.
Our competitors may succeed in developing competing technologies or
obtaining government approval for products before we do. Developments by others
may render our product candidates, or the therapeutic compounds used in
combination with our product candidates, noncompetitive or obsolete. For
example, we are aware that AstraZeneca PLC has completed Phase II clinical
trials of a pro-drug form of melagantran, a direct thrombin inhibitor, which,
if successfully developed, would compete with our oral heparin products.
Similarly, we are aware that at least one competitor has notified the FDA that
it is developing a competing formulation of salmon calcitonin. We cannot assure
you that, if our products are marketed, they will be preferred to existing
drugs or that they will be preferred to or available before other products in
development.
10
<PAGE>
The unavailability of third-party reimbursement may limit the use of our
products, which would adversely affect our business.
The commercial success of our carrier products and technologies are
substantially dependent on whether third-party reimbursement is available for
the use of our products by hospitals, clinics and doctors. The continuing
efforts of government and insurance companies, health maintenance organizations
and other third-party payors of health care costs to contain or reduce costs of
health care may affect our future revenues and profitability, as well as the
availability of capital. Significant uncertainty exists as to the reimbursement
status of newly approved health care products, such as those we are currently
developing. If we do succeed in bringing products to market, we cannot
guarantee that the products will be considered by third-party payors to be cost
effective or outcome effective, or that adequate third-party reimbursement will
be available to enable us to maintain price levels sufficient to realize an
appropriate return on our investment in product development. Likewise,
legislation and regulations affecting the pricing of pharmaceuticals may change
before our proposed products are approved for marketing.
Commercialized products are subject to continuing regulation.
Even if our products receive regulatory approval, either in the United
States or internationally, we will continue to be subject to extensive
regulatory requirements. These regulations are wide ranging and govern, among
other things:
. adverse drug experience reporting regulations;
. product promotion;
. product manufacturing, including good manufacturing practice, or GMP,
requirements; and
. product changes or modifications.
If we fail to comply or maintain compliance with such laws and
regulations, we may be fined or barred from selling our products. If the FDA
believes that we are not in compliance with the law, it can:
. seize our products;
. mandate a recall;
. stop future sales through injunctive procedures; and/or
. assess civil and criminal penalties against us.
Risks Relating to Our Common Stock
Anti-takeover provisions of our corporate charter documents, Delaware law and
our agreements with collaborators may affect the price of our common stock.
Our board of directors has the authority to issue up to 1,000,000 shares
of preferred stock and to determine the rights, preferences and privileges of
those shares without any further vote or action by our stockholders. Of these
1,000,000 shares, 200,000 are currently designated Series A Junior
Participating Cumulative Preferred Stock in connection with our stockholders'
rights plan, and the remaining 800,000 shares remain available for future
issuance. Your rights as a holder of common stock may be adversely affected by
the rights of the holders of any preferred stock that may be issued in the
future. Additional provisions of our certificate of incorporation and by-laws
could have the effect of making it more difficult for a third party to acquire
a majority of our outstanding voting common stock. These include provisions
that classify our board of directors, limit the ability of stockholders to take
action by written consent, call special meetings, remove a director for cause,
amend the by-laws or approve a merger with another company.
11
<PAGE>
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law which prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. For purposes of Section 203, a "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an "interested stockholder" is a
person who, either alone or together with affiliates and associates, owns (or
within the past three years, did own) 15% or more of the corporation's voting
stock.
We also have a stockholder's right's plan, commonly referred to as a
"poison pill," that makes it difficult, if not impossible, for a person to
acquire control of us without the consent of our board of directors.
In addition, we have contractual "standstill" agreements with Lilly,
Novartis and Elan which generally prohibit each company from acquiring shares
of our outstanding voting stock above specified levels. We may enter into
additional standstill agreements with future collaboration partners and with
prospective collaboration partners before we begin negotiating collaborations
with them.
Our stock price has been and may continue to be volatile.
The trading price for our common stock has been and is likely to continue
to be highly volatile. The market prices for securities of drug delivery,
biotechnology and pharmaceutical companies have historically been highly
volatile. Factors that could adversely affect our stock price include:
. fluctuations in our operating results;
. announcements of technological collaborations, innovations or new
products by us or our competitors;
. governmental regulation;
. developments in patent or other proprietary rights;
. public concern as to the safety of drugs developed by us or others;
. the results of preclinical testing and clinical studies or trials by us
or our competitors;
. litigation; and
. general market conditions.
Future sales of common stock, or the prospect of future sales, may depress our
stock price.
Sales of a substantial number of shares of common stock, or the perception
that sales could occur, could adversely affect the market price of our common
stock. As of October 31, 1999, we have outstanding options to purchase up to
3,697,246 shares of common stock which are currently exercisable and additional
options to purchase up to 1,264,555 shares of common stock are exercisable over
the next several years. In addition, an aggregate of 25,000 shares of common
stock have been reserved for issuance under our Directors' Deferred
Compensation Plan, of which 3,687 shares are currently issuable. The holders of
these options or rights have an opportunity to profit from a rise in the market
price of our common stock with a resulting dilution in the interests of the
other stockholders. The existence of these options or rights may adversely
affect the terms on which we may obtain additional financing.
We may be adversely affected by the "Year 2000" problem
The "Year 2000 computer problem" refers to the potential for system and
processing failures of date-related data as a result of computer controlled
systems using two digits rather than four to define the applicable year. It
also refers to the possibility that programs may fail to recognize February 29,
2000 as a
12
<PAGE>
leap year date as a result of an exception to the calculation of leap years
that will occur in the year 2000. The Year 2000 computer problem could result
in miscalculations, data corruption, system failures or disruptions of
operation. Because we depend on our business systems and those of third-
parties, residual Year 2000 problems could cause a failure of these systems
that could adversely affect our business.
Even though our operations have not been materially affected by the Year
2000 issue to date, our systems and those of other companies on which our
systems and operations rely could still experience Year 2000 computer problems.
We have established a team to address our Year 2000 risk. This team has
reviewed our infrastructure and believes that it has identified substantially
all of the major business systems used in connection with our internal
operations. We have completed the process of identifying and correcting the
major business systems that needed to be modified, upgraded, or replaced. Costs
incurred to date to correct Year 2000 problems have not been material to our
results of operations. In addition, we have initiated formal communications
with significant suppliers and collaborators to determine the extent to which
we are vulnerable if these third parties fail to remediate their own Year 2000
issues. We are unable to determine, at this time, the probability that any
material supplier or collaborator will not be able to correct any Year 2000
problem in a timely manner. In the event any such third parties cannot provide
us with products, services, or continue to collaborate with us, our results of
operations could be materially adversely affected.
13
<PAGE>
USE OF PROCEEDS
We estimate that the proceeds of this offering will be approximately
$129.5 million, based on an assumed public offering price of $55.44 per share
and after deducting underwriting discounts and estimated offering expenses. We
intend to use the net proceeds of this offering:
. to fund development of our preclinical stage programs;
. to fund the Phase III clinical program for our liquid oral heparin
formulation until a suitable marketing partner is found or until
completion; and
. for general corporate purposes.
Numerous factors, including the timing of entering into a collaboration
agreement with a marketing partner, the progress of our Phase III trials, the
rate of our progress in our research and development programs, the results of
other preclinical and clinical studies and the timing of regulatory approvals,
may affect the amounts we spend on each proposed use. Expenditures will also
depend upon the extent to which we establish collaborative research or
marketing arrangements with other companies, the availability of other
financing and other factors.
Pending application of the proceeds from this offering, we intend to
invest the net proceeds in short-term and intermediate-term investment-grade,
interest-bearing instruments.
14
<PAGE>
CAPITALIZATION
The table below describes our capitalization at October 31, 1999 on an
actual basis, on a pro forma basis to give effect to the offering of common
stock that we completed on November 2, 1999 and further adjusted to reflect
this offering and the application of the proceeds of this offering, which are
estimated to be $129.5 million based on an assumed public offering price of
$55.44 per share and after deducting underwriting discounts and estimated
offering expenses.
<TABLE>
<CAPTION>
October 31, 1999
----------------------------------
Pro Pro Forma
Actual Forma(1) As Adjusted(2)
-------- -------- --------------
(in thousands)
<S> <C> <C> <C>
Debt:
Note payable............................... $ 21,000 $ 21,000 $ 21,000
Stockholders' equity:
Preferred Stock, par value $.01 per share,
1,000,000 shares authorized; no shares
issued and outstanding, actual pro forma
and pro forma as adjusted................. -- -- --
Common Stock, par value $.01 per share,
40,000,000 shares authorized; 12,206,511
shares issued (12,163,011 outstanding)
actual; 14,506,511 shares issued
(14,463,011 outstanding) pro forma;
17,006,511 shares issued (16,963,011
outstanding) pro forma as adjusted(3)..... 122 145 170
Additional paid-in capital................. 99,364 122,841 252,268
Accumulated deficit........................ (97,688) (97,688) (97,688)
Net unrealized gain on marketable
securities................................ (5) (5) (5)
Less 43,500 shares of Common Stock held in
treasury, at cost......................... (193) (193) (193)
-------- -------- --------
Total stockholders' equity.............. $ 1,600 $ 25,100 $154,552
-------- -------- --------
Total capitalization........................ $ 22,600 $ 46,100 $175,552
======== ======== ========
</TABLE>
- ------------------
(1) Gives effect to the issuance of 2,300,000 shares of common stock in a
public offering completed on November 2, 1999 as if it had occurred on
October 31, 1999. The net proceeds of that offering were approximately
$23.5 million.
(2) Gives further effect to this offering, at an assumed offering price of
$55.44 per share, and the application of the proceeds of this offering,
estimated to be $129.5 million after deducting underwriting discounts and
estimated offering expenses.
(3) Does not include (i) 4,961,801 shares of common stock issuable upon the
exercise of options outstanding and 829,380 shares available for future
grant under our existing stock option plans and employee stock purchase
plan and (ii) 3,687 shares of common stock issuable under our Directors'
Deferred Compensation Stock Plan and 21,313 shares available for future
issuance under that plan.
15
<PAGE>
DILUTION
At October 31, 1999, we had a pro forma net tangible book value of $16.8
million, or $1.16 per share of our common stock. Pro forma net tangible book
value per share represents the amount of our total assets less intangible
assets, such as purchased technology, less total liabilities, divided by the
number of shares of our common stock outstanding after giving effect to our
public offering of 2,300,000 shares completed on November 2, 1999. Without
taking into account any changes in pro forma net tangible book value after
October 31, 1999, other than this offering, based on an assumed public offering
price of $55.44 per share and after deducting underwriting discounts and
estimated offering expenses, our pro forma net tangible book value at October
31, 1999 would have been $146.3 million, or $8.62 per share. This represents an
immediate dilution in pro forma net tangible book value of $46.82 per share to
new investors purchasing shares of common stock in this offering and an
immediate increase in pro forma net tangible book value of $7.46 per share to
our existing stockholders. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share to be paid by a new
investor....................................................... $55.44
Pro forma net tangible book value per share before offering..... $1.16
Increase in net tangible book value per share attributable to
new investors.................................................. 7.46
-----
Pro forma net tangible book value per share after offering...... 8.62
------
Dilution per share to new investors............................. $46.82
======
</TABLE>
The computation above is based on the pro forma number of shares of our
common stock outstanding as of October 31, 1999, which does not include
4,961,801 shares of common stock issuable upon the exercise of outstanding
options and 829,380 shares available for future grant under our existing stock
option plan and employee stock purchase plan. In addition, an aggregate of
25,000 shares of common stock have been reserved for issuance under our
Directors' Deferred Compensation Plan, of which 3,687 shares are currently
issuable. To the extent that shares are issued under these plans in the future,
there will be further dilution to new investors.
16
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
The table below provides selected financial data for the five fiscal years
ended July 31, 1999, the three months ended October 31, 1998 and 1999, as of
July 31, 1995, 1996, 1997, 1998 and 1999 and as of October 31, 1999. We derived
the data for the five fiscal years ending July 31, 1999 and as of July 31,
1995, 1996, 1997, 1998 and 1999 from our financial statements and accompanying
notes, which were audited by independent accountants and are included elsewhere
in this prospectus. We derived the data for the three months ended October 31,
1998 and 1999 and as of October 31, 1999 from our unaudited financial
statements. We prepared our unaudited financial statements on the same basis as
our audited financial statements and included all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
financial data. Operating results for the three months ended October 31, 1999
are not necessarily indicative of the results that may be expected for the full
year. You should read this selected financial data together with our financial
statements and the notes to those financial statements as well as the
discussion under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Three Months
Fiscal Year Ended July 31, Ended October 31,
-------------------------------------------- ------------------
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ 33 $ 3,131 $ 5,401 $15,868 $ 10,180 $ 3,579 $ 625
------- ------- ------- ------- -------- -------- -------
Costs and expenses:
Research and
development........... 5,802 6,605 7,724 15,190 22,850 4,299 8,745
Acquisition of in-
process research and
development........... -- -- -- -- 9,686 -- --
Loss in Ebbisham Ltd... -- -- 2,550 4,044 3,092 1,161 --
General and
administrative........ 2,404 3,337 3,416 5,344 6,051 1,360 1,258
------- ------- ------- ------- -------- -------- -------
Total costs and
expenses............. 8,206 9,942 13,690 24,578 41,679 6,820 10,003
------- ------- ------- ------- -------- -------- -------
Operating loss.......... (8,173) (6,811) (8,289) (8,710) (31,499) (3,241) (9,378)
Other income (expense).. 389 703 968 1,644 817 261 (505)
------- ------- ------- ------- -------- -------- -------
Net loss................ $(7,784) $(6,108) $(7,321) $(7,066) $(30,682) $( 2,980) $(9,883)
======= ======= ======= ======= ======== ======== =======
Net loss per share--
basic and diluted...... $ (1.03) $ (0.72) $ (0.77) $ (0.66) $ (2.63) $ (0.27) $ (0.81)
======= ======= ======= ======= ======== ======== =======
<CAPTION>
July 31, October 31, 1999
-------------------------------------------- ------------------
Pro
1995 1996 1997 1998 1999 Actual Forma(1)
------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents
and marketable
securities............. $ 5,620 $18,237 $33,690 $34,828 $ 17,805 $ 5,905 $29,405
Working capital......... 5,173 17,799 31,323 31,457 13,360 5,190 28,690
Total assets............ 7,549 20,039 36,897 53,690 38,476 26,181 49,681
Long-term liabilities... 55 45 35 10,598 22,050 23,088 23,088
Accumulated deficit..... (36,628) (42,736) (50,057) (57,123) (87,805) (97,688) (97,688)
Stockholders' equity.... 6,899 19,267 33,398 31,281 11,287 1,600 25,100
</TABLE>
- ------------------
(1) Gives effect to the issuance of 2,300,000 shares of common stock in a
public offering completed on November 2, 1999 as if it had occurred on
October 31, 1999. The net proceeds of that offering were approximately
$23.5 million.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
We are a biopharmaceutical company specializing in the oral delivery of
therapeutic macromolecules and other compounds that are not currently
deliverable by oral means. Since our inception in 1986, we have devoted
substantially all of our efforts and resources to research and development
conducted on our own behalf and through collaborations with corporate partners
and academic research institutions. We have no product sales to date. Our major
sources of working capital have been proceeds from various public and private
equity and debt financings, reimbursement of expenses and other payments from
corporate partners, and income earned on the investment of available funds.
Neither inflation nor seasonality significantly affect our operations.
Results of Operations
Three Months Ended October 31, 1999 Compared to Three Months Ended October 31,
1998
Contract research revenues were $0.6 million in the first quarter of
fiscal 2000, a decrease of $3.0 million, or 83%, compared to $3.6 million in
the same period of fiscal 1999. Contract research revenues in fiscal 2000 were
from the Novartis Pharma AG research collaboration and were consistent with
revenues received from Novartis in the first quarter of fiscal 1999. Contract
research revenues in fiscal 1999 also included $2.7 million from our former
heparin joint venture and from our collaboration with Eli Lilly & Co. The
research and development funding portion of the ongoing Lilly collaboration was
completed in the third quarter of fiscal 1999. The heparin joint venture was
discontinued in the fourth quarter of fiscal 1999. Revenue for the first
quarters of fiscal 2000 and 1999 were comprised of reimbursed research and
development expenses. Costs of contract research revenue approximate contract
research revenue and are included in research and development expenses.
Total operating expenses were $10.0 million in the first quarter of fiscal
2000, an increase of $3.2 million, or 47%, compared to the same period of
fiscal 1999. The details of this increase are as follows:
Research and development costs were $8.7 million in the first quarter of
fiscal 2000, an increase of $4.4 million, or 103%, compared to the same period
of fiscal 1999. The increase was primarily related to liquid oral heparin
clinical development and continuing Novartis development efforts. The largest
component of the increase in research and development expenses was expenses for
clinical research services related to the liquid oral heparin Phase III
clinical trials. In addition, we increased our scientific and development
personnel in the areas of parallel synthesis, solid dosage formulation, quality
control and regulatory affairs in order to accommodate increased efforts
related to oral heparin development and the Novartis collaboration.
General and administrative expenses were $1.3 million in the first quarter
of fiscal 2000, a decrease of $0.1 million, or 7%, compared to the same period
of fiscal 1999. The decline was due to lower sales and real estate taxes. For
the remainder of the fiscal year, general and administrative expenses are
expected to increase over prior fiscal year levels in order to support
increasing levels of research and development activities.
The loss in Ebbisham Ltd. (our former joint venture with Elan Corporation
plc) decreased to zero in the first quarter of fiscal 2000 from $1.2 million in
the same period of fiscal 1999 due to the discontinuation of the joint venture
in the fourth quarter of fiscal 1999.
As a result of the above, our operating loss was $9.4 million in the first
quarter of fiscal 2000, an increase of $6.2 million compared to $3.2 million
for the same period of fiscal 1999.
18
<PAGE>
Other income and expense decreased to approximately $0.5 million of net
expense in the first quarter of fiscal 2000 compared to $0.3 million of net
income in the first quarter of fiscal 1999. The change is primarily the result
of an increase in interest expense and decreased investment income. The
increase in interest expense is primarily attributable to non-cash interest
expense accrued on the $20.0 million note payable, which was recorded in
conjunction with our fiscal 1999 fourth quarter acquisition of Elan plc's
interest in the former heparin joint venture. Interest was earned on lower cash
and investment balances in the first fiscal quarter of 2000 compared to the
same period of fiscal 1999.
Based on the above, we sustained a net loss of $9.9 million in the first
quarter of fiscal 2000 compared to a net loss of $3.0 million in the same
period of fiscal 1999.
Fiscal 1999 Compared to Fiscal 1998
Contract research revenues were $10.2 million in fiscal 1999, a decrease
of $5.7 million, or 36%, compared to fiscal 1998. The decrease was the result
of discontinuing our joint venture with Elan for the development of oral
heparin and the completion of the research and development funding portion of
the ongoing Lilly collaboration. In addition, revenues in fiscal 1998 included
a $4.0 million milestone payment from Lilly. We received no milestone payments
in fiscal 1999.
Total operating expenses were $41.7 million in fiscal 1999, an increase of
$17.1 million, or 70%, compared to fiscal 1998. The details of the increase are
as follows:
Research and development costs were $22.9 million in fiscal 1999, an
increase of $7.7 million, or 50%, compared to fiscal 1998. This increase is
mainly attributable to increased costs related to oral heparin Phase II
clinical studies, costs associated with initiating Phase III clinical trials,
including purchases of heparin, contract manufacturing of our carriers, and a
number of toxicology studies. In addition, during fiscal 1999, we expanded our
laboratory and analytical capabilities in connection with our oral heparin
development program and our collaboration with Novartis. This resulted in an
increase in scientific personnel and associated laboratory supply costs. We
also experienced an increase in rental expense from a lease of laboratory and
administrative office space entered into in fiscal 1998. We expect that our
research and development spending will increase as we begin our liquid oral
heparin Phase III clinical trials.
The $9.7 million non-cash charge incurred in fiscal 1999 for acquired in-
process research and development was related to our acquisition of Elan's
ownership interest in Ebbisham, Ltd. The loss in Ebbisham was $3.1 million in
fiscal 1999, a decrease of $1.0 million, or 24%, compared to fiscal 1998. This
decrease is primarily due to the lower level of joint development efforts with
Elan preceding the termination of the joint venture. All oral heparin
development expenses are now classified as research and development expenses.
General and administrative expenses were $6.1 million in fiscal 1999, an
increase of $0.7 million, or 13%, compared to fiscal 1998. This increase is
primarily the result of an increase in personnel and related expenses
associated with an increase in management and administrative staff positions,
severance in connection with the departure of a senior executive officer,
contract systems consulting services, and real estate taxes in connection with
our new facility.
As a result of these factors, our operating loss was $31.5 million in
fiscal 1999, an increase of $22.8 million compared to an operating loss of $8.7
million in fiscal 1998.
Our other income and expenses were $0.8 million in fiscal 1999, a decrease
of $0.8 million, or 50%, from fiscal 1998. This decrease is primarily the
result of interest expense on our senior convertible notes and the $20.0
million note payable.
Based on the above factors, we sustained a net loss of $30.7 million in
fiscal 1999, an increase of $23.6 million compared to a net loss of $7.1
million in fiscal 1998.
19
<PAGE>
Fiscal 1998 Compared to Fiscal 1997
Our contract research revenues were $15.9 million in fiscal 1998, an
increase of $10.5 million, compared to $5.4 million in fiscal 1997. The
increase was the result of our receiving research and development funding from
our collaborators over a greater part of the fiscal year.
Total operating expenses were $24.6 million in fiscal 1998, an increase of
$10.9 million, or 80%, compared to fiscal 1997. The details of the increase are
as follows:
Research and development costs were $15.2 million in fiscal 1998, an
increase of $7.5 million, or 97%, compared to fiscal 1997. This increase is
mainly due to increased personnel and laboratory supply costs relating to the
collaborations with Novartis, Lilly and the ongoing clinical work for heparin.
We also increased our funding of outside consultants and universities engaged
to conduct studies to help advance our scientific research efforts, perform
services related to the manufacturing of our carriers and consult on our
ongoing clinical studies with heparin. We also experienced an increase in
rental expense in connection with a new lease for laboratory space.
The loss in Ebbisham was $4.0 million in fiscal 1998, an increase of $1.5
million, or 59%, compared to fiscal 1997. This increase is due to increased
costs associated with ongoing clinical development of oral heparin.
General and administrative expenses were $5.3 million in fiscal 1998, an
increase of $1.9 million, or 56%, compared to fiscal 1997. This increase is
primarily the result of an increase in contract system consulting services
relating to an information technology project. We also experienced an increase
in rental expense in connection with payments for a new lease for
administrative office space and an increase in personnel and related expenses
associated with an increase in administrative staff positions. This increase
was partially offset by a decrease in legal and professional fees paid in
connection with the finalization of the Ebbisham joint venture and the
agreement with Lilly during fiscal 1997. In relocating our operations, we
incurred a charge of $0.3 million, which represented the write-down of
leasehold improvements on our old facility.
As a result of these factors, our operating loss was $8.7 million in
fiscal 1998, an increase of $0.4 million, or 5%, compared to fiscal 1997.
Our other income and expense were $1.6 million in fiscal 1998, an increase
of $0.7 million, or 70%, compared to fiscal 1997. This increase was primarily
the result of increased returns on our larger investment portfolio. This
increase was partially offset by interest expense related to our $13.5 million
senior convertible notes issued in fiscal 1998.
Based on the above factors, we sustained a net loss of $7.1 million in
fiscal 1998, a decrease of $0.3 million or 3%, compared to fiscal 1997.
Liquidity and Capital Resources
As of October 31, 1999, we had working capital of $5.2 million. Total
cash, cash equivalents and marketable securities were $5.9 million, a decrease
of $11.9 million compared to July 31, 1999. The decrease was primarily due to
the increased rate of spending on the oral heparin Phase III clinical
development costs. We also repaid the outstanding balance of $2.6 million of
our senior convertible notes in September 1999.
Our operations over the last three years have been financed primarily with
$26.8 million in equity financing, $13.5 million in debt financing and $30.3
million in research and development funding and milestone payments. In
addition, on November 2, 1999, we issued 2,300,000 shares of common stock for
net proceeds of approximately $23.5 million. The proceeds from that offering
will be used to fund a portion of the Phase III clinical development for our
liquid oral heparin formulation, to fund research and development and for
general corporate purposes.
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In connection with the termination of the Elan joint venture, we issued a
$20.0 million, zero coupon note payable in July 2006 to an affiliate of Elan.
The note accrues interest at 15%, compounded semi-annually, and does not
require periodic cash interest payments. The $20.0 million principal amount,
along with accrued interest, can be paid in part or in full, at our election,
after a new drug application for oral heparin has been filed with the FDA.
Under certain circumstances, we have the option to require Elan to subscribe
for our common stock at then-current market prices.
During the first quarter of fiscal 2000, Novartis initiated and completed
a Phase I clinical study of a capsule form of salmon calcitonin which
incorporates our oral delivery technology. Novartis may elect to enter into a
pre-negotiated licensing agreement with us to commercialize oral salmon
calcitonin at any time until March 2000. If this election is made, Novartis
will be required to make a predetermined milestone payment to us and purchase
$5.0 million of common stock at a previously negotiated price, subject to our
approval. Since the negotiated price is below current market prices, we would
not expect to approve the purchase. We cannot assure you that, despite the
positive results achieved in the Phase I study, Novartis will exercise its
option to license the product for further commercial development. The Novartis
research collaboration expired in December 1999, at which time its quarterly
research and development funding obligations ended. We are in discussions with
Novartis to extend their research and development funding into calendar 2000.
However, we cannot assure you that these discussions will result in additional
funding.
Under our collaboration agreement, Novartis had an option to develop a
second compound using our technology which also expired in December 1999. A
decision to develop a product using a second compound would lead to a new
agreement.
In March 1998, Lilly executed license agreements for two proteins and we
received a $4.0 million milestone payment in connection with the licenses. The
research and development funding portion of the ongoing Lilly collaboration was
completed in February 1999. We supplied Lilly with carriers for both
therapeutic proteins. These carriers are undergoing preclinical evaluations at
Lilly's facilities and our own. During fiscal 1999, Lilly suspended development
of one of its proteins pending further review by them of the injectable version
of the protein. We are awaiting further direction from Lilly with respect to
both compounds. We could receive future payments in the event certain
milestones are achieved, and royalty payments if a commercial product results
from the collaboration.
During the two fiscal years ended July 31, 1999, we spent $12.3 million in
leasehold improvements and scientific equipment (approximately $3.7 million
during fiscal 1999 and $8.6 million during fiscal 1998). These purchases were
in connection with the build-out of our newly leased research and
administrative facility in Tarrytown, New York, and our acquisition of
laboratory equipment to support our increased research activities. Purchases of
laboratory equipment included pilot scale manufacturing equipment to enable the
development of tablet and capsule dosage form prototypes. In connection with
the new lease, the lessor reimbursed us $1.3 million for leasehold
improvements. With the completion of this facility, we expect capital
expenditure levels to decrease in fiscal 2000 to below $2.0 million.
We expect to incur a substantial increase in liquid oral heparin clinical
development expenses in fiscal 2000 as the product continues through its Phase
III clinical trials, the most expensive phase of the clinical development
process. As a result, we expect to continue to incur increasing operating
losses.
Following completion of this offering, we expect that cash, cash
equivalents and marketable securities on-hand will be adequate to meet our
liquidity requirements for at least the next two years. In the event that a
marketing partner for the oral heparin product is not found, or that this
offering is not successful, we will be required to seek alternative financing
and/or curtail our operations, including our Phase III development program.
Impact of the Future Adoption of Recently Issued Accounting Standards
We believe that future adoption of recently issued accounting standards
will not have a material impact on our financial statements.
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BUSINESS
Overview
Emisphere is a biopharmaceutical company focused on:
.the development of a family of oral heparin products;
. the application of proprietary synthetic chemical compounds to serve
as "carriers" to facilitate the transport of therapeutic
macromolecules and other compounds across biological membranes; and
. the development, in conjunction with pharmaceutical collaborators, of
oral formulations of selected therapeutic macromolecules.
Our lead product in development is a liquid oral heparin formulation.
Heparin is an anti-coagulant widely used for the prevention of deep vein
thrombosis and the treatment of myocardial infarction and unstable angina.
Currently, heparin must be administered intravenously or by injection. We
believe that the worldwide sales of heparin are over $2 billion annually.
Heparin is currently marketed in two principal forms, heparin UF and low
molecular weight heparin. Our liquid oral heparin formulation combines heparin
UF with our proprietary molecular carrier.
The lead indication that we are pursuing for our liquid oral heparin
formulation is the prevention of deep vein thrombosis, or DVT. We have
completed eleven Phase I clinical studies for various liquid oral heparin
formulations. A Phase II clinical study for the use of liquid oral heparin to
prevent DVT in 123 subjects was completed in December 1998. The Phase II study
indicated that our liquid oral heparin formulation was well-tolerated and
comparable to heparin injected subcutaneously in preventing DVT. Based on the
results of the Phase II study, which were reviewed with the FDA in August 1999,
we designed a Phase III protocol and commenced Phase III trials in December
1999. In addition, we have produced a prototype tablet form of heparin and
expect to initiate a Phase I clinical study for that product during the first
half of calendar year 2000. We are also in the early stages of developing a
tablet form of low molecular weight heparin.
Our next most advanced product in development is an oral form of salmon
calcitonin. Salmon calcitonin is a synthetic version of a natural hormone that
inhibits bone reabsorption and is used in the treatment of osteoporosis, a
disease that causes bones to become more fragile and, as a result, more likely
to break. Salmon calcitonin is currently administered as an injection or nasal
spray. Osteoporosis affects more than 28 million people in the United States
and over 200 million people worldwide, approximately 80% of whom are women.
We have conducted collaborative research with Novartis on an oral
formulation of salmon calcitonin since 1997. In October 1999, Novartis
completed a Phase I clinical study in the United Kingdom of a capsule form of
salmon calcitonin utilizing our technology. The study results, released in
January 2000, indicated that Novartis had reached its targeted endpoint of
achieving therapeutic blood levels of salmon calcitonin using our solid dosage
formulation. We believe that these results represent the first time that a
protein macromolecule was successfully delivered in solid oral dosage form
without chemical modification of the molecule or damage to the biological
membrane.
In addition to our collaboration with Novartis, we have entered into
license agreements with Eli Lilly & Company with respect to two of Lilly's
therapeutic proteins in the area of endocrinology. Both candidates are
currently in preclinical development. In addition, we are engaged in
feasibility studies regarding the development of products combining our
carriers with therapeutic compounds selected by our collaborators.
We have designed and synthesized a library of over 1,000 potential
carriers and evaluated them for their ability to facilitate the delivery of
therapeutic macromolecules and other compounds across biological
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membranes, including intestinal, nasal, buccal, sublingual, subcutaneous or
intraocular membranes, without altering the therapeutic benefits of these
molecules. We believe that our technology offers the pharmaceutical industry a
relatively inexpensive route to generating significant new product
opportunities. Beyond enabling the oral delivery of heparin and salmon
calcitonin in humans, this technology has demonstrated the oral delivery, in
animals, of a variety of other compounds, including insulin, human growth
hormone, human parathyroid hormone, erythropoietin, cromolyn and deferoxamine.
We believe that total worldwide sales of the injectable formulations of these
compounds in 1998 were over $8.0 billion and that the market for these
compounds will expand if they become available in oral form.
Business Strategy
Our objective is to become a leader in developing orally administered
formulations of therapeutic macromolecules and other compounds that are not
currently deliverable by oral means. Our strategy to achieve this objective
incorporates the following principal elements:
. Establish a partnership for the heparin family of products to:
- complete the development of and commercialize our liquid oral
heparin formulation;
- continue the development of solid dosage forms of heparin UF and
low molecular weight heparin; and
- explore additional indications for which heparin may be beneficial.
. Pursue new product opportunities by:
- furthering the development of compounds that we already have
demonstrated to be orally deliverable in animals;
- identifying additional therapeutic compounds (preferably already
approved for injectable use) that address large markets;
- developing products through Phase I or Phase II studies; and
- establishing relationships with partners to complete the
development of and commercialize these products.
. Enter into strategic alliances with pharmaceutical partners who have
marketed products or compounds in development that would benefit from
our oral delivery technology.
The Drug Delivery Industry
The drug delivery industry develops technologies for the improved delivery
of therapeutic compounds. These enhancements have focused primarily on safety,
efficacy, ease of patient use and patient compliance. In addition, drug
delivery technologies can be utilized to expand markets for existing products,
as well as to develop new products.
Advances in biotechnology have facilitated the development of a new
generation of biopharmaceutical products based on very large molecules such as
proteins, peptides and nucleic acids. Due to the size of these molecules, it
has been very difficult to transport the resulting macromolecule drugs across
biological membranes and into the bloodstream. Most macromolecules are
therefore delivered by injection. Unfortunately, injection therapies have many
drawbacks that negatively affect patient compliance, including discomfort,
inconvenience and potential for infection. Another drawback of injection
therapies is that they are often performed in hospitals or doctors' offices,
making them both expensive and inconvenient.
To address these problems, several non-invasive routes of macromolecule
drug delivery are being explored. The first is to discover new chemical
entities that have the same desired safety and efficacy of the existing drug,
while having the advantage of being orally deliverable. The second approach
involves
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developing advanced technologies, including nasal, transdermal (through the
skin), pulmonary (through the lungs) and oral means to deliver the original
drug. To date, these alternatives have experienced limited success. Nasal
delivery has been shown to have low and variable success due to insufficient
amounts of drug absorbed from the nasal passage into the bloodstream.
Transdermal delivery via a drug patch has been relatively unsuccessful thus far
because the skin is naturally impermeable to many macromolecules. Current
pulmonary drug delivery systems, designed to bypass the pitfalls of the
digestive tract, typically deliver only a fraction of the drug to the deep
lung, where absorption into the bloodstream is most likely to occur. Oral
delivery, while heralded as the safest and typically most convenient dosage
formulation, is characterized as being unable to deliver sufficient quantities
of drug compound across the biological membranes of the digestive system and
into the bloodstream.
Oral Drug Delivery
Oral dosage forms of pharmaceuticals constitute the largest product
segment of the pharmaceutical industry and we believe that the potential market
for many drugs could be significantly expanded if an effective oral delivery
technology were developed for therapeutics that are currently available only as
injectable drugs. We believe that oral administration would represent the
preferred means of delivery for many pharmaceuticals.
The three main barriers to effective oral drug delivery for humans are:
Degradation of Drugs by Acid and Enzymes: The high acid content and
ubiquitous digestive enzymes of the digestive tract can degrade some
drugs well before they reach the site of absorption into the bloodstream.
Poor Absorption of Drugs through Epithelial Membrane: Many
macromolecules and polar compounds cannot effectively traverse the cells
of the epithelial membrane in the small intestines to reach the
bloodstream.
Transition of Drugs to Insoluble Form: Many drugs become insoluble at
the low pH levels encountered in the digestive tract. Since only the
soluble form of the drug can be absorbed into the bloodstream, the
transition of the drug to the insoluble form can significantly reduce the
amount absorbed.
Our Platform Drug Delivery Technologies
The core of our delivery technologies is the design and synthesis of
compounds that maximize the transport of drugs across biological membranes. Our
technologies exploit the properties of supramolecular complexes, which are
formed when two or more compounds are held together in a discrete geometry by
relatively weak molecular interactions. A supramolecular complex will have a
number of properties that are measurably different from its constituent parts.
We believe that the supramolecular complexes formed when our proprietary
carrier compounds are formulated with many injectable drugs will, unlike
earlier attempts at oral delivery, allow the drugs to be transported across
gastrointestinal membranes and into the bloodstream in quantities that are
clinically useful and commercially attractive.
We have synthesized a library of over 1,000 well-defined, proprietary
carrier compounds. These carrier molecules vary widely in their chemical
structure, solubility, hydrophobicity, electrostatic and other
physical/chemical properties. We believe that, through our thorough
understanding of the individual properties of our proprietary carrier
compounds, we can select and customize carriers to facilitate the oral delivery
of a broad range of individual therapeutic agents.
We believe that our oral drug delivery technologies have the potential to
offer the key properties essential for effective and reproducible oral drug
delivery, including:
. absorption of the drug in an appropriate manner;
. consistent release of the drug into the bloodstream;
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. lack of toxicity; and
. maintenance of the biological effects of the drug.
In addition, we believe that the supramolecular complexes formed by our
carriers may have applications in the delivery of drugs through other
biological membranes, including intestinal, nasal, buccal, sublingual,
subcutaneous and intraocular membranes.
Key Characteristics of Our Platform Technologies
We believe that our oral delivery approach may have potential competitive
advantages, including:
Broad applicability: Our carriers are applicable across a diverse
group of molecules (proteins, carbohydrates, and peptides and other
poorly absorbed compounds);
Stand-alone delivery approach: Oral drug delivery using our carriers
does not rely upon the addition of other agents that can have adverse
effects on the intestinal membranes or digestion process (for example,
penetration enhancers);
Versatility of formulation: We believe that various types of oral
formulations, including suspensions, tablets and capsules, can be
created; and
Ease of manufacture: The technology and manufacturing equipment
required to produce our carrier material in commercial quantities are
readily available.
We believe that an efficient and reproduceable delivery system for
macromolecules represents a significant commercial opportunity. This system
could improve patient acceptance of macromolecule drug therapy and compliance
with prescribed regimens, thereby improving treatment results and reducing
costs of administration and treatment.
Lead Product Candidates
Heparin. Our lead product candidate is a liquid oral heparin formulation
that combines heparin UF and one of our proprietary molecular carriers. We
commenced Phase III clinical trials of this product during December 1999 for
the prevention of deep vein thrombosis, or DVT, following total hip
replacement surgery. We expect to conduct our Phase III program at over 90
centers in the United States, the United Kingdom and Canada and expect to
enroll over 3,000 patients. The Phase III program is composed of two
sequential trials. We expect to complete both trials of the Phase III program
in 18 months.
Heparin and low molecular weight heparin, a fractionated version of
heparin, are widely used anti-coagulants. They are primarily used for treating
and preventing DVT, but are readily prescribed for acute myocardial
infarction, coronary angioplasty, coronary artery bypass graft surgery, stroke
and unstable angina. Currently, heparin is given as either a continuous
intravenous infusion or a subcutaneous injection. Upon entry into the
bloodstream, heparin binds to various coagulation components, and thereby
inhibits the normal blood clotting cascade. Low molecular weight heparin has,
by some measures, a longer half-life than heparin, which means it remains in
the bloodstream longer and therefore may require fewer injections. Some
clinical trials have suggested that dosing regimens of low molecular weight
heparins may be marginally safer and more effective than standard heparin
regimens. However, other studies indicate that heparin has pleiotropic
properties and that the low molecular weight heparins lose some of those
potential properties.
Currently, the use of heparin UF is restricted to the hospital setting.
Because low molecular weight heparin may be dosed less frequently, its
introduction has extended the use of injectable heparin into the home setting,
for up to 21 days. However, for many patients, hospital treatment with heparin
is typically followed by a 30 to 90 day or longer course of out-patient
treatment using warfarin, the only oral anti-coagulant available. Warfarin is
not an ideal anti-coagulant in that it has more negative interactions with
other pharmaceuticals than most FDA approved drugs and requires constant
patient monitoring. We believe that the introduction of oral heparin would
open the home market to heparin UF by replacing warfarin and injectable low
molecular weight heparin use. We also believe that our oral heparin products
will ultimately be applicable for a wide range of anti-
coagulant/antithrombotic uses.
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The Phase II clinical study of our liquid oral heparin formulation, which
was completed in December 1998, was conducted with a total of 123 patients in
the United States who had undergone hip replacement surgery. It involved three
arms comparing two different doses of our liquid oral heparin to a dose of
heparin administered subcutaneously. The study indicated that the orally
administered heparin utilizing our proprietary technology was well-tolerated
and comparable to heparin administered subcutaneously in preventing DVT.
In preparation of the investigational new drug application, or IND, for
our liquid oral heparin formulation submitted to the FDA, we engaged in
preclinical testing which included, among other things:
. maximum tolerated dose experiments;
. acute and subacute toxicity testing;
. a pharmacological screen;
. mutagenicity testing;
. bulk carrier and formulation stability analysis; and
. absorption, distribution, metabolism and excretion studies.
The results of these tests demonstrated that the carrier, when dosed at
quantities substantially greater than the quantities that we proposed to
administer to humans:
. caused no damage to intestinal tissue;
. produced no pharmacological activity on its own;
. was not sequestered in any body tissue; and
. caused no genetic alterations.
A summary of the study results from the first three Phase I studies of
liquid oral heparin was presented at the American Heart Association meeting in
November 1996, and a paper outlining these Phase I clinical study results
appeared in the journal Circulation in October 1998. The results of the Phase
II study were presented at the XVII Congress of the International Society of
Thrombosis and Haemostasis in August 1999.
In 1999, we purchased all of Elan's interest in the joint venture formed
in 1996 to develop and market oral forms of heparin. Under the terms of the
purchase agreement, we (i) issued a $20 million zero coupon note accruing
interest at the rate of 15% per year due July 6, 2006 and (ii) agreed to pay
royalties based on receipt of certain milestone payments, and subject to an
annual maximum, on future sales of heparin products. We believe that the
complete ownership and control of the technology and rights relating to oral
heparin products will allow for more rapid clinical development and
commercialization and will provide greater flexibility in negotiating a
partnership agreement with a pharmaceutical partner for the marketing of these
products. We are currently engaged in discussions with a number of
pharmaceutical companies regarding the commercialization of our oral heparin
products, but have not entered into any agreements or understanding to date.
There can be no assurance that any agreements will be consummated as a result
of these discussions.
During fiscal 1999, we improved the manufacturing process for our liquid
oral heparin carrier, increased the overall purity of the carrier and
significantly decreased the per dose production cost. Based on these
improvements, we and our contract manufacturers are in the process of
completing the validation runs of the carrier required by the FDA to show
control over the manufacturing process and are now capable of producing
commercial quantities of our carrier. During fiscal 1999, we also optimized the
composition of our liquid oral heparin formulation and produced a quantity
sufficient to complete the Phase III trials.
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Salmon Calcitonin. Salmon calcitonin is a synthetic version of a natural
hormone that inhibits bone reabsorbtion and is used in the treatment of
osteoporosis, which is a disease that causes bones to become fragile and, as a
result, more likely to break. Salmon calcitonin is currently administered as an
injection or nasal spray. Osteoporosis affects more than 28 million people in
the United States and over 200 million people worldwide, approximately 80% of
whom are women. Annual worldwide sales of salmon calcitonin are estimated to be
in excess of $800 million.
We have conducted collaborative research with Novartis on an oral form of
salmon calcitonin since 1997. Under the terms of our collaboration agreement,
Novartis has made quarterly payments to us to fund research regarding the
application of our technology to salmon calcitonin. In October 1999, Novartis
completed a Phase I clinical study in the United Kingdom of a capsule form of
salmon calcitonin utilizing our technology. The study results, released in
January 2000, indicated that Novartis had reached its targeted endpoint of
achieving therapeutic blood levels of salmon calcitonin using our solid dosage
formulation. We believe that these results represent the first time that a
protein macromolecule was successfully delivered in solid oral dosage form
without chemical modification of the molecule or damage to the biological
membrane.
Novartis' research funding obligations ended in December 1999.
Nevertheless, Novartis may elect to enter into a pre-negotiated license with us
to commercialize oral salmon calcitonin at any time until March 2000. If this
election is made, Novartis will be required to make a predetermined milestone
payment to us and purchase $5.0 million of our common stock at a previously
negotiated price, subject to our approval. Since the negotiated price is below
current market prices, we would not expect to approve the purchase. Novartis is
required to make another milestone payment and equity investment upon the
initiation of Phase III clinical trials and a further milestone payment and
equity investment upon making its first major market regulatory application for
the product. We will receive royalties on sales of any oral products that may
result from the collaboration. We cannot assure you that, despite the positive
results achieved in the Phase I study, Novartis will exercise its option to
license the product for further commercial development.
Collaboration Agreements
We have several strategic alliances and ongoing feasibility studies with
pharmaceutical and biotechnology companies for the development of orally
administrable formulations of therapeutic macromolecules and other compounds.
Eli Lilly & Company. In February 1997, we entered into a research
collaboration and option agreement with Lilly to combine Lilly's therapeutic
protein and formulation capabilities with our carrier technologies. The Lilly
agreement provided for periodic payments to us to fund a research and
development program to study the use of our technologies to develop oral and
non-oral formulations of two of Lilly's therapeutic proteins in the area of
endocrinology.
The Lilly agreement provided Lilly with a series of options each to
acquire an exclusive worldwide license to use our technologies in conjunction
with oral and non-oral formulations of the two Lilly proteins. In March 1998,
Lilly exercised options for each of the two proteins for oral formulation. The
license agreements provide that Lilly is obligated to seek to market the oral
formulations of the proteins, and that we are obligated to provide a material
portion of the supply of carrier necessary for the production of any such
formulations. For so long as Lilly continues to develop oral formulations of
the proteins, Lilly will continue to have options to acquire licenses to use
our technologies in conjunction with non-oral formulations of the proteins.
The research and development funding portion of the ongoing Lilly
collaboration was completed in February 1999, but Lilly's commitments to
royalties with respect to the two licensed compounds it is developing
continues. We have designed and supplied Lilly with carriers for both
therapeutic proteins. In September 1998, Lilly formally selected one of our
proprietary carriers for clinical testing of an oral formulation of Lilly's
therapeutic protein for the treatment of osteoporosis. Lilly subsequently
incurred unexpected results with respect to the injectable form of its
therapeutic protein and suspended its
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development. As a result, we are awaiting further direction from Lilly on the
project. With respect to Lilly's other therapeutic protein under license from
us, Lilly is evaluating our carriers and we are awaiting a report from Lilly on
the results of its evaluation.
Novartis Pharma AG. We have conducted collaborative research with Novartis
on an oral formulation of salmon calcitonin since 1997. Our collaborative work
lead to completion of a Phase I clinical study in October 1999. Novartis may,
at any time prior to March 2000, elect to enter into a pre-negotiated license
with us to commercialize oral salmon calcitonin. We cannot assure you that,
despite the positive results achieved in the Phase I study, Novartis will
exercise its option to license the product for further commercial development.
Under the collaboration agreement, Novartis also had the option to develop a
second compound using our technology which also expired in December 1999. A
decision to develop a product using a second compound would lead to a new
agreement. We are also in discussions with Novartis to extend Novartis'
research and development funding into calendar 2000. However, we cannot assure
you that these discussions will result in additional funding.
We have received an aggregate of $15.1 million for research and
development and milestone payments under the Novartis and Lilly agreements,
including a $4.0 million milestone payment from Lilly in March 1998. We could
receive future payments in the event certain additional milestones are
achieved, and royalty payments if a commercial product results from the
collaboration.
Feasibility Studies. We have also entered into a number of proof-of-
concept studies with additional pharmaceutical and biotechnology companies for
various injectable compounds. These feasibility studies are ongoing.
Other Product Candidates
The table below lists a representative sample of product candidates, other
than heparin and salmon calcitonin, for which we have demonstrated oral
delivery in animal models using our carrier technologies. Some of these product
candidates are the subject of collaboration agreements. In other cases, we do
not plan to fund further development unless a collaborator expresses an
interest in doing so.
<TABLE>
<CAPTION>
Product Candidate Primary Indications
----------------- -------------------
<S> <C>
Therapeutic Protein and Peptide Products
Insulin Diabetes
Human Growth Hormone Growth Disorders
Human Parathyroid Hormone (analogues) Osteoporosis
Erythropoietin Anemia
Poorly Absorbed Organic Compounds and Vaccines
Cromolyn Asthma/Allergy
Deferoxamine Iron Overload
Vaccines Various
</TABLE>
Therapeutic Protein and Peptide Products
Among the protein and peptide products to which we have applied our
carriers are insulin, human growth hormone, human parathyroid hormone
analogues, and erythrypoietin. All of these products are currently marketed as
injectable products, with the exception of parathyroid hormone analogues (which
are currently in clinical development in injectable form).
Insulin. Studies performed by groups such as the Diabetes Control and
Complications Trial Research Group have shown that the risk of degenerative
complications can be greatly reduced if people with Type I diabetes (insulin-
dependent diabetes) lower their average blood glucose level toward the
concentrations typical for non-diabetic individuals. However, a patient needs
to inject insulin several times
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per day in order to properly regulate his or her glucose level. This level of
compliance is difficult to achieve with an injectable formulation of insulin,
and we believe an oral formulation would increase compliance. We have
demonstrated that our lead carrier for insulin is able to achieve therapeutic
utility through oral delivery in a diabetic rat model comparable to that
obtained following subcutaneous injection of the compound in the same model. We
have also demonstrated that the use of our carriers increases the amount of
insulin delivered across pulmonary membranes in rats.
Human Growth Hormone. While a number of new indications are being
explored, the majority of human growth hormone sold is used to treat children
with growth deficiencies. The current preferred dosing regimen in children
entails daily injections for up to 10 years or more. Our lead carriers for
recombinant human growth hormone have been tested in rodents and non-human
primates. The tests indicated oral delivery of therapeutic drug levels in these
animals. In addition, growth studies conducted in animal models have
demonstrated that the drug is as active after delivery to the bloodstream
through the gastrointestinal tract as compared to subcutaneous delivery.
Human Parathyroid Hormone (analogues). Currently, a number of
pharmaceutical companies are in various stages of clinical testing to determine
whether certain analogues of human parathyroid hormone (hPTH) are effective in
reducing the bone fractures that are associated with osteoporosis. We have
demonstrated oral delivery of three different hPTH analogues in non-human
primates.
Erythropoietin. Anemia is a condition that occurs when the body cannot
produce enough of the red blood cells needed to carry oxygen to the different
parts of the body, resulting in a lack of energy and easy tiring.
Erythropoietin is a glycoprotein hormone that is made in the kidneys and acts
on stem cells in the bone marrow to create red blood cells. We have identified
delivery agents for an oral formulation of erythropoietin, have demonstrated
that the oral formulation results in absorption of erythropoietin in rodents
and have filed patents on oral delivery systems for erythropoietin.
Poorly Absorbed Organic Compounds and Vaccines
The majority of pharmaceutical products are small organic molecules.
However, pharmaceutical companies often identify biologically active compounds
that cannot be delivered orally due to poor absorption. Among the compounds and
macromolecules to which we have applied our carriers are cromolyn, deferoxamine
and various vaccines.
Cromolyn. Cromolyn is a mast cell stabilizer used in the treatment of
asthma and allergies. We have demonstrated oral delivery of cromolyn in
rodents.
Deferoxamine. Deferoxamine is the only approved iron chelator for use in
treating iron overload resulting from frequent blood transfusions in the
treatment of illnesses such as beta thalassemia and sickle cell anemia.
Currently, dosing involves a 12-hour subcutaneous infusion five days per week.
We have demonstrated oral delivery of therapeutic levels of deferoxamine in
non-human primates.
Vaccines. We have conducted experiments with a number of antigens to
determine the applicability of our carriers in the field of vaccines. The
result of dosing rodents orally with antigens combined with our carriers was an
increased secretory Immunoglobulin A (sIgA) response, increased Immunoglobulin
G (IgG) response and CD4 T-cell proliferation. These results indicate that oral
vaccination may be possible using our carriers.
Patents
Our strategy is to apply for patent protection on all aspects of our
proprietary chemical and pharmaceutical delivery technologies, including
materials and compositions of matter for both the carrier and complexes of a
carrier with a pharmaceutical or chemical agent. We also seek patent protection
on the processes for manufacturing the carrier, new carriers, uses of the
carriers and improvements on the core technology that are important for the
success of our business.
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We have patents or pending patent applications for carriers that we
currently use in conjunction with heparin, insulin, calcitonin, human
parathyroid hormone, human growth hormone, deferoxamine and sodium cromolyn. We
have been granted 46 patents on our drug delivery technologies in the United
States which will expire beginning in 2007, and have other patents issued or
applications pending in various countries around the world. Eleven U.S. patents
were issued by the U.S. Patent and Trademark Office during fiscal 1999. We have
44 patent applications relating to our drug delivery technologies pending in
the United States. In addition, we have pending or expect to file patent
applications corresponding to most of our U.S. patents and patent applications
in various countries around the world. We have applied to register EMISPHERE as
a trademark with the U.S. Patent and Trademark Office and have initiated an
administrative proceeding with that office to prevent the registration of a
similar mark by another applicant.
Although we have patents for some of our product candidates and have
applied for additional patents, there can be no assurance that patents applied
for will be granted, that patents granted to or acquired by us now or in the
future will be valid and enforceable and provide us with meaningful protection
from competition or that we will possess the financial resources necessary to
enforce any of our patents. There can also be no assurance that any products
that we (or a licensee) develop will not infringe upon any patent or other
intellectual property right of a third party.
We also rely upon trade secrets, know-how and continuing technological
advances to develop and maintain our competitive position. To maintain the
confidentiality of trade secrets and proprietary information, we maintain a
policy of requiring employees, scientific advisors, consultants and
collaborators to execute confidentiality and invention assignment agreements
upon commencement of a relationship with us. These agreements are designed both
to enable us to protect our proprietary information by controlling the
disclosure and use of technology to which we have rights, and to provide for
our ownership of proprietary technology that we develop. There can be no
assurance, however, that these agreements will provide meaningful protection
for our trade secrets in the event of unauthorized use or disclosure of such
information.
Manufacturing
The primary raw materials used in making the carriers for our heparin
products, and the carriers under consideration for our other product
candidates, are readily available from multiple sources and in large
quantities. We have no internal capability for the production of any of our
carriers in batch sizes larger than approximately one kilogram. We currently
have arrangements with third parties to produce these carriers in accordance
with the FDA's good manufacturing practices, or GMP, regulations in batch sizes
of approximately 200 kilograms. Generally, commercial manufacturers can produce
batch sizes of up to 2,000 kilograms.
We are conducting feasibility studies for engineering and location of our
own manufacturing facility. We have identified numerous other commercial
manufacturers meeting the FDA's GMP regulations that have the capability of
producing our carriers. We will continue to manufacture carriers on a small
scale for research purposes and contract with third-party producers for
clinical testing. Once the engineering studies for our production facility are
completed, we will be in a position to decide whether to make or buy the
carriers for future needs. A third-party manufacturer whose facilities comply
with the FDA's GMP regulations is currently producing our carrier and the
liquid oral heparin formulation for our Phase III clinical trials.
Competition
Our success depends, in part, upon maintaining a competitive position in
the development of products and technologies in an evolving field in which
developments are expected to continue at a rapid pace. We compete with other
drug delivery, biotechnology and pharmaceutical companies, research
organizations, individual scientists and non-profit organizations engaged in
the development of alternative
30
<PAGE>
drug delivery technologies or new drug research and testing, as well as with
entities developing new drugs that may be orally active. Many of these
companies and entities have substantially greater research and development
capabilities, experience and marketing, financial and managerial resources than
we do, and represent significant competition for us.
Our competitors may succeed in developing competing technologies and
obtaining governmental approval for products before we do. There can be no
assurance that developments by others will not render our product candidates,
or the therapeutic compounds used in combination with our product candidates,
noncompetitive or obsolete. For example, we are aware that AstraZeneca PLC has
completed Phase II clinical trials of a pro-drug form of melagantran, a direct
thrombin inhibitor, which, if successfully developed, would compete with our
oral heparin products.
We believe that our oral heparin product will be preferred by doctors and
patients over the injectable form. Nevertheless, oral heparin will compete with
generic heparin and low molecular weight heparin, which are only available in
injectable form. Low molecular weight heparin is offered in the U.S.
principally by Pharmacia & Upjohn, Inc., under the trade name "Fragmin" and
Aventis SA, under the trade name "Lovenox." Internationally, there are more
than ten approved forms of low molecular weight heparin. Outside of the
hospital, where patient compliance with any injectable drug is difficult to
achieve and monitor, warfarin is currently prescribed as an anti-
coagulant/antithrombotic. However, for many important indications it is not
considered as effective as heparin. Warfarin is a generic drug marketed under
the trade name "Coumadin" by E.I. DuPont de Nemours & Co. Because warfarin has
more negative interactions with other pharmaceuticals than most FDA approved
drugs, we believe that our oral heparin products will ultimately be the
preferred drug for a wide range of anti-coagulant/antithrombotic uses outside
of the hospital and that an oral alternative may significantly expand the
overall heparin market, currently constrained by injectable-only
administration.
Any oral form of salmon calcitonin developed utilizing our technology also
will compete with other formulations of salmon calcitonin as well as
alternative therapies for osteoporosis. For example, a nasal dosage form of
salmon calcitonin already exists and we are aware of an IND filed for an oral
formulation. Salmon calcitonin will also compete with other osteoporosis
therapies, including estrogen replacement therapy, bisphosphonates, selective
estrogen receptor modulators and several new biologics that are under
development.
Government Regulation
Our operations and products under development are subject to extensive
regulation by the FDA and other governmental authorities in the United States
and other governmental authorities in other countries.
The duration of the governmental approval process for marketing new
pharmaceutical substances, from the commencement of preclinical testing to the
receipt of a governmental final letter of approval for marketing a new
substance, varies with the nature of the product and with the country in which
such approval is sought. For entirely new drugs, the approval process could
take eight to ten years or more; however, for reformulations of existing drugs,
the process is typically shorter. In either case, the procedures required to
obtain governmental approval to market new drug products are costly and time-
consuming, requiring rigorous testing of the new drug product. There can be no
assurance that even after such time and expenditures, regulatory approval will
be obtained for any products that we develop.
The steps required before a new human pharmaceutical product can be
marketed or shipped commercially in the United States include, in part,
preclinical testing, the filing of an Investigational New Drug Application, or
IND, the conduct of clinical trials and the filing with the FDA of either a New
Drug Application, or NDA, for drugs or a Product License Application, or PLA,
for biologics.
31
<PAGE>
In order to conduct the clinical investigations necessary to obtain
eventual regulatory approval, an applicant must file an IND with the FDA to
permit the shipment and use of the drug for investigational purposes. The IND
sets forth, in part, the results of preclinical (laboratory and animal)
toxicology and efficacy testing and the applicant's plans for clinical (human)
testing. If the FDA does not deny the exemption to ship or use the
investigative drug or place a "hold" on clinical testing within 30 days of the
submission of the IND, it becomes effective and clinical testing may begin
after Institutional Review Board approval of research involving human subjects.
Under the FDA's regulations, the clinical testing program required for
marketing approval of a new drug typically involves three clinical phases. In
Phase I, safety studies are generally conducted on normal, healthy human
volunteers to determine the maximum dosages and side effects associated with
increasing doses of the substance being tested. In Phase II, studies are
conducted on small groups of patients afflicted with a specific disease to gain
preliminary evidence of efficacy and to determine the common short-term side
effects and risks associated with the substance being tested. Phase III
involves large-scale trials conducted on disease-afflicted patients to provide
statistical evidence of efficacy and safety and to provide an adequate basis
for product labeling. Frequent reports are required in each phase and, if
unwarranted hazards to patients are found, the FDA may request modification or
discontinuance of clinical testing until further studies have been conducted.
Phase IV testing is conducted either to meet FDA requirements for additional
information as a condition of approval, or to expand market acceptance of the
pharmaceutical product.
Once clinical testing has been completed pursuant to an IND, the applicant
files an NDA or PLA with the FDA seeking approval for marketing the drug
product. The FDA reviews the NDA or PLA to determine if the drug is safe and
effective, and adequately labeled, and if the applicant can demonstrate proper
and consistent manufacture of the drug. The time required for FDA action on an
NDA or PLA varies considerably, depending on the characteristics of the drug,
whether the FDA needs more information than is originally provided in the NDA
or PLA and whether the FDA finds problems with the evidence submitted.
The facilities of each company involved in the manufacturing, processing,
testing, control and labeling must be registered with and approved by the FDA.
Continued registration requires compliance with GMP regulations. The FDA
conducts periodic establishment inspections to confirm continued compliance
with its regulations.
We are also subject to various federal, state and local laws, regulations
and recommendations relating to such matters as laboratory and manufacturing
practices and the use, handling and disposal of hazardous or potentially
hazardous substances used in connection with our research and development work.
Although we believe we are in compliance with these laws and regulations in all
material respects, there can be no assurance that we will not be required to
incur significant costs to comply with environmental and other laws or
regulations in the future.
Employees
As of January 31, 2000, we had 91 employees, 70 engaged in scientific
research and technical functions and 21 performing administrative and clerical
functions. Of the 91 employees, 30 hold Ph.D. or M.D. degrees. We believe that
our relationships with our employees are good.
32
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding our executive
officers and directors:
<TABLE>
<CAPTION>
Name Age Position
------------------------------------------ --- ----------------------------
<C> <C> <S>
Michael M. Goldberg, M.D.................. 41 Chairman of the Board of
Directors, and Chief
Executive Officer
Robert A. Baughman, Jr., Pharm.D., Ph.D... 50 Senior Vice President,
Development
Lewis H. Bender........................... 41 Senior Vice President,
Business Development
Barry B. Kanarek, M.D., Ph.D.............. 53 Senior Vice President,
Clinical Affairs and Chief
Medical Officer
Charles H. Abdalian, Jr. ................. 49 Vice President, Chief
Financial Officer and
Secretary
Joseph D. Poveromo........................ 35 Controller and Chief
Accounting Officer
Steven Dinh, Ph.D......................... 44 Vice President, Research
John E. Smart, Ph.D....................... 56 Vice President, Director of
Basic Research
Shepard M. Goldberg....................... 44 Vice President, Operations
Jere E. Goyan, Ph.D. (1).................. 69 Director
Mark I. Greene, M.D., Ph.D. (2)........... 51 Director and Scientific
Advisor
Peter Barton Hutt, Esq. (1)............... 65 Director
Howard M. Pack (1)(2)..................... 81 Director
Joseph R. Robinson, Ph.D. (2)............. 60 Director and Scientific
Advisor
Robert J. Levenson........................ 58 Director
</TABLE>
- ------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Michael M. Goldberg, M.D. has served as our Chairman of the Board of
Directors since November 1991 and as Chief Executive Officer and a director
since August 1990. In addition, Dr. Goldberg served as President from August
1990 to October 1995. Dr. Goldberg received a B.S. from Rensselaer Polytechnic
Institute and an M.D. from Albany Medical College of Union University in 1982
and an MBA from Columbia University Graduate School of Business. Pursuant to
our employment agreement with him, Dr. Goldberg is to serve as our Chairman and
Chief Executive Officer and is to be nominated to serve as a member of the
Board of Directors.
Robert A. Baughman, Jr., Pharm.D., Ph.D. joined us in September 1991. He
became Senior Vice President in September 1993 and Director of Development in
June 1994. Previously he was our Vice President and Director of Research and
Development. Dr. Baughman holds a B.S. from Loyola University and a Pharm.D.
and a Ph.D. in pharmaceutical chemistry from the University of California, San
Francisco.
Lewis H. Bender joined us in 1993. He became Senior Vice President of
Business Development in April 1997 and Vice President of Business Development
in October 1995. Previously he was our Director of Business Development. Mr.
Bender received a B.S. and an M.S. in chemical engineering from the
Massachusetts Institute of Technology, an M.A. in international studies from
the University of Pennsylvania and an MBA from the Wharton School of the
University of Pennsylvania.
Barry B. Kanarek, M.D., Ph.D. joined us in May 1998. From January 1997 to
March 1998, he was Vice President, Medical Operations for the Americas at
ClinTrials Research Inc. Before that, he was with Glaxo-Wellcome where he
served most recently as Vice President of Medical Affairs and as acting head of
Medical Operations. He also sat on the U.S. site Operating Committee, co-
chaired the Product Strategy committee and was Chief Medical Officer during the
integration phase of the combination of Glaxo and Wellcome. Dr. Kanarek
received his M.D. and Ph.D. from the University of Salamanca in Spain.
33
<PAGE>
Charles H. Abdalian, Jr. joined us in April 1999. He was Executive Vice
President and Chief Financial Officer of ClinPath Associates, Inc. in 1998,
Vice President and Chief Financial Officer of Del Laboratories, Inc. from 1997
to 1998, Chief Financial Officer of the medical products manufacturing
subsidiary of W.R. Grace & Co. from 1994 to 1997 and a partner with Coopers &
Lybrand before 1994. Mr. Abdalian holds an MBA from the Wharton School of the
University of Pennsylvania.
Joseph D. Poveromo has been our Controller and Chief Accounting Officer
since July 1994. He has been with us since 1993 and was previously Controller
of a private pet food company. He also held senior accounting positions with
Marshall Granger & Company and Rayfield & Licata. Mr. Poveromo received a
B.B.A. in public accounting from Pace University.
Steven Dinh, Ph.D. joined us in April 1999. He was previously Vice
President and Chief Scientific Officer with Lavipharm Laboratories. Before
joining us he held various research positions in transdermal product
development and basic pharmaceutics research with Novartis Pharmaceuticals
Corp., CIBA-Geigy Corporation and with E. I. DuPont de Nemours & Co. Dr. Dinh
holds a Sc.D. in Chemical Engineering from the Massachusetts Institute of
Technology.
John E. Smart, Ph.D. joined us in 1996 as Vice President, Director of
Research and has been Director of Basic Research since 1998. He was previously
the Vice President of Research at Creative Biomolecules, Inc., a
biopharmaceutical company. He received his Ph.D. in biochemistry and biophysics
from the California Institute of Technology and has over 20 years of experience
in academia and the health care industry.
Shepard M. Goldberg has been our Vice President, Operations, since April
1998. Previously, he was President and owner of two regional distribution
businesses. He received a B.S. in electrical engineering from Polytechnic
Institute of N.Y. and an MBA from Adelphi University. He is also a first cousin
of Michael M. Goldberg, M.D., our Chairman and Chief Executive Officer.
Jere E. Goyan, Ph.D. has been a director of our company since 1992. Until
he retired in 1999, he was President, Chief Operating Officer, and a director
of Alteon, Inc. He started at Alteon as Senior Vice President Research and
Development in January 1993. Before that, he was a Professor of Pharmacy and
Pharmaceutical Chemistry and also Dean of the School of Pharmacy at the
University of California. He has also served in various other academic,
administrative and advisory positions, including Commissioner of the FDA. He
currently is a director of the biopharmaceutical companies Atrix Laboratories
Inc., SciClone Pharmaceuticals, Penwest Pharmaceuticals Co. and Boehringer
Ingelheim.
Mark I. Greene, M.D., Ph.D. has been a director of our company since 1995.
He has been the John Eckman Professor of Medical Science, School of Medicine at
the University of Pennsylvania for more than five years. He currently is a
director of Ribi ImmunoChem Research, Inc., a biopharmaceutical company.
Peter Barton Hutt, Esq. has been a director of our company since 1992. He
has been a partner at the law firm of Covington & Burling in Washington, D.C.
for over five years. He specializes in food and drug law. He was formerly Chief
Counsel of the FDA.
Howard M. Pack has been a director of our company since our inception in
1986. He was our Executive Vice President of Finance until he retired in
October 1988.
Joseph R. Robinson, Ph.D. has been a director of our company since 1997.
For over five years he has been Professor of Pharmacy and Ophthalmology at the
University of Wisconsin. He currently is a director of Cima Laboratories, Inc.
Robert J. Levenson has been a director of our company since 1998. For over
five years he has been Executive Vice President of First Data Corporation.
Before that he was Senior Executive Vice President and
34
<PAGE>
Chief Operating Officer of Medco Containment Services, Inc. and Group President
of Automatic Data Processing, Inc. He currently is a director of First Data
Corporation, Superior Telecom, Inc. and Vestcom International, Inc.
Scientific Advisors
Our scientific advisors consult with us on developments relating to
current and future forms of drug delivery technology, chemistry, gastro-
intestinal physiology and protein structure. As a group, our scientific
advisors possess substantial experience in biomaterials, controlled release and
polymeric delivery systems, proteins, pharmaceutics, analytical techniques and
immunology. They also consult with us on aspects of drug delivery product
planning and feasibility studies and assist our scientists in establishing
research priorities, provide guidance for our clinical evaluation programs,
advise our scientists with regard to new developments and alert us to potential
partners. Also, we have funded various research projects and collaborations
with a number of our scientific advisors and we intend to continue to expand
our scientific collaborations with current and future scientific advisors.
None of the scientific advisors are our employees. Scientific advisors
devote only a small portion of their time to our affairs and have other
commitments and obligations to other institutions which may compete with their
obligations to us. We require each of our scientific advisors to execute a
confidentiality agreement when they commence their relationship with us. The
agreements generally require that all confidential information made known to
them during the term of their relationship with us shall be our exclusive
property, kept confidential and not disclosed to anyone except in specified
circumstances. Scientific advisors receive annual compensation, are reimbursed
for their expenses for each meeting attended and are granted stock options on a
case-by-case basis. Drs. Greene and Robinson also serve as directors.
The names, positions and areas of expertise of our scientific advisors
follow:
<TABLE>
<CAPTION>
Name and Position Area of Expertise
----------------- -----------------
<C> <S>
Mark I. Greene, M.D., Ph.D. Immunology, computer modeling
Professor of Medicine,
Department of Pathology,
School of Medicine
University of Pennsylvania
Joseph R. Robinson, Ph.D. Mucoadhesives, pharmaceutics and
Professor, School of Pharmacy gastrointestinal physiology
University of Wisconsin
Garret FitzGerald, M.D. Anti-coagulants and
Robinette Professor of Cardiovascular antithrombotics and clinical
Medicine, Director, Center for research
Experimental Therapeutics
Director, Clinical Research Center
University of Pennsylvania
Elazer Edelman, M.D., Ph.D. Indicators for anti-
Director coagulant/antithrombotic therapy
Harvard-MIT Biomedical Engineering
Center
Robert Linhardt, Ph.D. Structure, activity, analysis and
Professor synthesis of complex
College of Pharmacy carbohydrates
University of Iowa
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Name and Position Area of Expertise
----------------- -----------------
<C> <S>
Sam Money, M.D. Indicators for nonclinical
Head of Vascular Surgery antithrombotic modeling
Ochsner Clinic
Russell Hull, M.D. Anti-coagulants and
Professor of Medicine antithrombotics and clinical
University of Calgary research, clinical trial design
Joshua Korzenik, M.D. Gastroenterology and clinical
Assistant Professor of research
Gastroenterology
Washington University School of Medicine
Victor J. Marder, M.D. Anti-coagulants and
Director of Vascular Medicine antithrombotics and clinical
University of California at Los Angeles research
</TABLE>
36
<PAGE>
PRINCIPAL STOCKHOLDERS
Except as noted, the table below sets forth as of January 31, 2000, the
beneficial ownership of our common stock by (i) each person or group known to
us to be the beneficial owner of more than 5% of our outstanding common stock,
(ii) each of our directors, (iii) our Chief Executive Officer and each of our
four other most highly compensated executive officers and (iv) all of our
directors and executive officers as a group. Except as otherwise noted, the
named beneficial owner has sole voting and investment power over the shares
listed.
<TABLE>
<CAPTION>
Amount and Nature of Percent of Class
Name and Address of Beneficial Owner Beneficial Beneficially Owned
(1) Ownership (2) After Offering
- ------------------------------------ -------------------- ------------------
<S> <C> <C>
SAFECO Corporation................... 987,635(3) 5.8%
SAFECO Plaza
Seattle, Washington 98185
Michael M. Goldberg, M.D. ........... 1,406,805(4) 7.7%
Robert A. Baughman, Jr., Pharm.D.,
Ph.D. .............................. 190,273 1.1%
Howard M. Pack....................... 174,363 1.0%
Lewis H. Bender ..................... 111,326 *
Jere E. Goyan, Ph.D. ................ 84,000 *
Peter Barton Hutt, Esq. ............ 84,000 *
Mark I. Greene, M.D., Ph.D. ......... 77,000 *
Joseph R. Robinson, Ph.D. ........... 53,000 *
Robert J. Levenson................... 15,000(5) *
Barry B. Kanarek, M.D., Ph.D. ....... 28,029 *
Charles H. Abdalian, Jr. ............ 20,708 *
All directors and executive officers
as a group (11 persons)............. 2,244,504(4)(5) 11.8%
</TABLE>
- ------------------
* Less than 1%
(1) Unless otherwise specified, the address of each beneficial owner is c/o
Emisphere Technologies, Inc., 765 Old Saw Mill River Road, Tarrytown, New
York 10591.
(2) Includes for each of the following persons the number of shares with
respect to which the person has the right, exercisable within 60 days, to
acquire beneficial ownership upon exercise of outstanding stock options:
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
Dr. Goldberg........................................... 1,353,353
Dr. Baughman........................................... 184,378
Mr. Pack............................................... 84,000
Mr. Bender............................................. 105,020
Dr. Goyan.............................................. 84,000
Mr. Hutt............................................... 84,000
Dr. Greene............................................. 77,000
Dr. Robinson........................................... 53,000
Mr. Levenson........................................... 7,000
Dr. Kanarek............................................ 25,000
Mr. Abdalian........................................... 20,000
All directors and executive officers as a group........ 2,076,751
</TABLE>
(3) Includes 592,935 shares of common stock held by SAFECO Common Stock Trust
and 300,700 shares of common stock held by SAFECO Asset Management Company.
SAFECO Common Stock Trust is an investment company registered under the
Investment Company Act of 1940, to which SAFECO Asset Management Co., a
subsidiary of SAFECO Corporation, provides investment advice.
(4) Does not include 130,000 shares which members of Dr. Goldberg's family have
the right to acquire upon exercise of outstanding stock options and which
Dr. Goldberg disclaims beneficial ownership.
(5) Includes 1,000 shares held by the Robert J. and Mira Levenson Family
Foundation, with respect to which Mr. Levenson disclaims beneficial
ownership.
37
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, Chase
Securities Inc., Deutsche Bank Securities Inc., Warburg Dillon Read LLC and
Adams, Harkness & Hill, Inc. have severally agreed to purchase from us all of
the shares of our common stock offered by this prospectus. The number of shares
of common stock that each underwriter has agreed to purchase is listed opposite
its name below:
<TABLE>
<CAPTION>
Number
Name of Shares
---- ---------
<S> <C>
Chase Securities Inc............................................
Deutsche Bank Securities Inc....................................
Warburg Dillon Read LLC.........................................
Adams, Harkness & Hill, Inc.....................................
---------
Total......................................................... 2,500,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in our business and the receipt of certificates,
opinions and letters from us, our counsel and independent auditors. The
underwriters have committed to purchase all shares of common stock if any of
the shares are purchased.
The underwriters propose to offer the shares of common stock directly to
the public at the public offering price set forth on the cover page of this
prospectus and to selected dealers at such price less a concession not in
excess of $ per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $ per share to other dealers. After
the public offering of the shares, the offering price and other selling terms
may be changed by the underwriters.
We have granted to the underwriters an option, exercisable no later than
30 days after the date of this prospectus, to purchase up to 375,000 additional
shares of common stock at the public offering price, less the underwriting
discount, set forth on the cover page of this prospectus. The underwriters may
exercise the option in whole or in part, and we will be obligated, pursuant to
the option, to sell shares to the underwriters to the extent the option is
exercised. The underwriters may exercise the option only to cover over-
allotments made in connection with the sale of common stock offered by this
prospectus.
The following table summarizes the compensation that we will pay to the
underwriters in connection with this offering:
<TABLE>
<CAPTION>
Total
--------------------
Without
Per Over- With Over-
Share Allotment Allotment
----- --------- ----------
<S> <C> <C> <C>
Underwriting discounts and commissions............... $ $ $
</TABLE>
The offering of the shares is made for delivery when, as and if accepted
by the underwriters and subject to prior sale and to withdrawal, cancellation
or modification of the offering without notice. The underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
We have agreed to indemnify the underwriters against liabilities,
including liabilities under the Securities Act, and to contribute to payments
the underwriters may be required to make with regard to those potential
liabilities.
We and all of our executive officers and directors have agreed not to
offer, sell, contract to sell, or otherwise dispose of any shares of common
stock, options or warrants to acquire shares of common stock or securities
exchangeable for or convertible into shares of common stock during the period
from the date of this prospectus continuing through the date 90 days after the
date of this prospectus without the prior written consent of the underwriters,
except, in our case, pursuant to our employee benefit plans, qualified stock
plans and other employee compensation plans existing on the date of this
prospectus and pursuant to currently outstanding options and rights.
38
<PAGE>
The underwriters may over-allot or effect transactions which stabilize,
maintain or otherwise affect the market price of the common stock at levels
above those which might otherwise prevail in the open market, including by
entering stabilizing bids or effecting syndicate covering transactions. A
stabilizing bid means the placing of any bid or effecting of any purchase for
the purpose of pegging, fixing or maintaining the price of the common stock. A
syndicate covering transaction means the placing of any bid on behalf of the
underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with an offering. These transactions may be
effected on the Nasdaq National Market, in the over-the-counter market, or
otherwise. If commenced, this stabilizing may be discontinued at any time.
In connection with this offering, the underwriters and selling group
member (if any) who is a qualified market maker on the Nasdaq National Market
may engage in passive market making transactions in our common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, as amended. During the business day prior to
the pricing of the offering before the commencement of offers or sales of our
common stock, passive market makers must comply with applicable volume and
price limitations and must be identified as such. In general, a passive market
maker must display its bid at a price not in excess of the highest independent
bid of such security; if all independent bids are lowered below the passive
market maker's bid, however, the bid must then be lowered when certain purchase
limits are exceeded.
We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $480,000.
LEGAL MATTERS
Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York will pass
upon the validity of the common stock and other legal matters related to this
offering for us. Morgan, Lewis & Bockius LLP, New York, New York will pass upon
legal matters related to this offering for the underwriters.
EXPERTS
PricewaterhouseCoopers LLP has audited the audited financial statements
included and incorporated by reference in this prospectus. The companies and
periods covered by these audits are indicated in the individual reports of
PricewaterhouseCoopers LLP included with those financial statements. We have
included and incorporated by reference these audited financial statements in
this prospectus in reliance on the reports of PricewaterhouseCoopers LLP given
on their authority as experts in accounting and auditing.
39
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission. You can read and copy these reports, proxy
statements and other information at the Commission's Public Reference Room
located at 450 Fifth Street, N.W., Washington, D.C. 20549. Call (800) SEC-0330
for more information on the Public Reference Room. The Commission maintains an
Internet site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission. The site's address is "www.sec.gov."
We have filed a Registration Statement on Form S-3 under the Securities
Act with respect to this offering. For further information regarding us and
our common stock you should refer to the Registration Statement and its
exhibits and schedules.
The Commission allows us to "incorporate by reference" the information in
documents that we file with them. This means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is an important part of this prospectus, and
information in documents that we file later with the Commission will
automatically update and supersede this information.
We incorporate by reference the documents listed below:
(1) Our Annual Report on Form 10-K for the fiscal year ended July 31, 1999
as amended by our Form 10-K/A for the fiscal year ended July 31, 1999;
(2) Our Quarterly Report on Form 10-Q for the fiscal quarter ended October
31, 1999;
(3) The description of our preferred stock purchase rights contained in our
Registration Statement on Form 8-A, dated March 5, 1996; and
(4) The description of our Common Stock contained in our Registration
Statement on Form 8-A, dated September 11, 1990.
We also incorporate by reference into this prospectus all documents that
we file pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this prospectus and prior to the termination of this
offering.
We will provide a copy of any or all of these documents (other than
exhibits unless the exhibits are specifically incorporated by reference into
the document), without charge, upon written or oral request to: Emisphere
Technologies, Inc., 765 Old Saw Mill River Road, Tarrytown, NY 10591,
Attention: Secretary, telephone (914) 347-2220.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed to be modified or
superseded for the purposes of this prospectus to the extent that a statement
contained in this prospectus or in any other subsequently filed document which
also is or is deemed to be incorporated by reference modifies or supersedes
that statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus.
40
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
Index
<TABLE>
<CAPTION>
Emisphere Technologies, Inc. Page(s)
- ---------------------------- -------
<S> <C>
Unaudited Financial Statements:
Condensed Balance Sheets as of October 31, 1999 and Pro-Forma Balance
Sheet as of October 31, 1999........................................ F-2
Condensed Statements of Operations for the three months ended October
31, 1999 and July 31, 1999.......................................... F-3
Condensed Statements of Cash Flows for the three months ended October
31, 1999 and 1998................................................... F-4
Notes to Unaudited Financial Statements.............................. F-5
Report of Independent Accountants...................................... F-7
Audited Financial Statements:
Balance Sheets as of July 31, 1999 and 1998.......................... F-8
Statements of Operations for the fiscal years ended July 31, 1999,
1998 and 1997....................................................... F-9
Statements of Cash Flows for the fiscal years ended July 31, 1999,
1998 and 1997....................................................... F-10
Statements of Stockholders' Equity for the fiscal years ended July
31, 1999, 1998 and 1997............................................. F-11
Notes to Audited Financial Statements................................ F-12
<CAPTION>
Ebbisham Limited
- ----------------
<S> <C>
Report of Independent Accountants...................................... F-26
Audited Financial Statements:
Balance Sheet as of July 31, 1998.................................... F-27
Statements of Operations for the period from August 1, 1998 to July
2, 1999, the fiscal year ended July 31, 1998, the period from
September 26, 1996 (inception) to July 31, 1997, and the cumulative
period from September 26, 1996 (inception) to July 2, 1999.......... F-28
Statements of Stockholders' Deficit for the cumulative period from
September 26, 1996 (inception) to July 2, 1999 including the period
from August 1, 1998 to July 2, 1999, the fiscal year ended July 31,
1998, and the period from September 26, 1996 (inception) to July 31,
1997................................................................ F-29
Statements of Cash Flows for the period from August 1, 1998 to July
2, 1999, the fiscal year ended July 31, 1998, the period from
September 26, 1996 (inception) to July 31, 1997, and the cumulative
period from September 26, 1996 (inception) to July 2, 1999.......... F-30
Notes to Financial Statements........................................ F-31
</TABLE>
F-1
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
October 31, 1999 and Pro Forma as of October 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
October 31,
October 31, 1999
1999 (Note 6)
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................ $ 418,089 $ 23,918,089
Marketable securities............................ 5,487,005 5,487,005
Prepaid expenses and other current assets........ 777,814 777,814
------------ ------------
Total current assets........................... 6,682,908 30,182,908
Equipment and leasehold improvements, at cost, net
of accumulated depreciation and amortization...... 11,182,837 11,182,837
Purchased technology, net of accumulated
amortization...................................... 8,254,710 8,254,710
Other assets....................................... 60,164 60,164
------------ ------------
Total assets................................... $ 26,180,619 $ 49,680,619
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses............ $ 1,492,663 $ 1,492,663
------------ ------------
Total current liabilities...................... 1,492,663 1,492,663
Note payable....................................... 21,000,000 21,000,000
Deferred lease liability........................... 2,087,662 2,087,662
------------ ------------
Total liabilities.............................. 24,580,325 24,580,325
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value; authorized
1,000,000 shares; none issued and outstanding...
Common stock, $.01 par value; authorized
40,000,000 shares; issued 12,206,511 shares
(12,163,011 outstanding) on October 31, 1999 and
issued 14,506,511 shares (14,463,011
outstanding) pro forma October 31, 1999......... 122,065 145,065
Additional paid-in capital....................... 99,363,783 122,840,783
Accumulated deficit.............................. (97,687,572) (97,687,572)
Accumulated other comprehensive (loss)........... (5,169) (5,169)
------------ ------------
1,793,107 25,293,107
Less, common stock held in treasury, at cost;
43,500 shares................................... (192,813) (192,813)
------------ ------------
Total stockholders' equity..................... 1,600,294 25,100,294
------------ ------------
Total liabilities and stockholders' equity..... $ 26,180,619 $ 49,680,619
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-2
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
For the three months ended October 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Contract research revenues.......................... $ 625,000 $ 3,579,061
----------- -----------
Costs and expenses:
Research and development.......................... 8,147,985 3,938,287
General and administrative expenses............... 1,258,412 1,360,193
Depreciation and amortization..................... 596,578 361,066
Loss in Ebbisham Ltd. ............................ -- 1,160,768
----------- -----------
10,002,975 6,820,314
----------- -----------
Operating loss.................................. (9,377,975) (3,241,253)
----------- -----------
Other income and expense:
Other income...................................... 274,158 497,157
Interest expense.................................. (778,903) (236,250)
----------- -----------
(504,745) 260,907
----------- -----------
Net loss........................................ $(9,882,720) $(2,980,346)
=========== ===========
Net loss per share, basic and diluted............... $ (0.81) $ (0.27)
=========== ===========
Weighted average shares outstanding, basic and
diluted............................................ 12,147,000 11,005,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended October 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................... $(9,882,720) $(2,980,346)
----------- -----------
Adjustments to reconcile net loss to net cash used
in operating activities:
Non-cash interest expense........................ 707,836 --
Depreciation and amortization.................... 455,873 361,066
Amortization of purchased technology............. 140,705 --
Increase in deferred lease liability............. 37,620 1,226,433
Amortization of deferred financing cost.......... 21,015 67,500
Amortization of discount on marketable
securities...................................... 94 20,773
Loss in Ebbisham Ltd. ........................... -- 1,160,768
Changes in assets and liabilities.................. (789,968) (1,669,159)
----------- -----------
Total adjustments................................ 573,175 1,167,381
----------- -----------
Net cash (used in) operating activities.......... (9,309,545) (1,812,965)
----------- -----------
Cash flows from investing activities:
Proceeds from sales of marketable securities....... 850,000 1,000,000
Capital expenditures............................... (137,942) (1,763,889)
Purchases of marketable securities................. -- (855,023)
----------- -----------
Net cash provided by (used in) investing
activities...................................... 712,058 (1,618,912)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of options and employee
stock purchases................................... 202,053 153,558
Redemption of senior convertible notes............. (2,647,603) --
----------- -----------
Net cash (used in) provided by financing
activities...................................... (2,445,550) 153,558
----------- -----------
Net (decrease) in cash and cash equivalents...... (11,043,037) (3,278,319)
Cash and cash equivalents, beginning of period....... 11,461,126 21,358,308
----------- -----------
Cash and cash equivalents, end of period......... $ 418,089 $18,079,989
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-4
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Financial Statements
The accompanying unaudited condensed financial statements of Emisphere
Technologies, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all information and disclosures necessary for a
presentation of the Company's financial position, results of operations, and
cash flows in conformity with generally accepted accounting principles.
In the opinion of management, the accompanying Condensed Statements of
Operations for the three months ended October 31, 1999 and 1998, Condensed
Statements of Cash Flows for the three months ended October 31, 1999 and 1998,
and the Condensed Balance Sheets as of October 31, 1999 reflect all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the Company's financial position, results of operations, and
cash flows for such periods and as of such date. These interim financial
statements should be read in conjunction with the Company's financial
statements and notes thereto included herein for the fiscal year ended July 31,
1999.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
The results of operations for any interim period are not necessarily
indicative of the results for the full year.
The Company expects to incur a substantial increase in liquid oral heparin
clinical development expenses during the remainder of fiscal 2000 as the
product enters into Phase III clinical trials, the most expensive phase of the
clinical development process. As a result, the Company expects to continue to
incur increasing operating losses and will require substantial resources to
continue its liquid oral heparin clinical development program and ongoing
research and development efforts.
In order to assure funding for its future operations, the Company will
need to obtain a marketing partner for its oral heparin product and may be
required to obtain additional financing for Phase III development on its own
until a partner is found. However, no assurances can be given that the Company
will be successful in attracting a marketing partner or in raising additional
capital. In the event that a marketing partner for the oral heparin product is
not found, the Company expects that cash, cash equivalents, and marketable
securities on-hand, combined with and contingent upon either additional
financing and/or delaying clinical trials and curtailment of operations, will
be adequate to meet its liquidity requirements into the third quarter of fiscal
2001.
2. Net Loss Per Share
Net loss per share, basic and diluted, is computed using the weighted
average number of shares of the Company's common stock outstanding during the
period. Had the Company been in a net income position, diluted earnings per
share would have included the shares used in the computation of basic net loss
per share, as well as an additional 4,144,479 and 316,588 shares for the three
months ended October 31, 1999 and 1998, respectively, relating to outstanding
options (after application of the Treasury Stock Method).
F-5
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
3. Comprehensive Income
Comprehensive loss of the Company includes net loss adjusted for the
change in net unrealized gain or loss on marketable securities. The net effect
of income taxes on comprehensive loss is immaterial. For the three months ended
October 31, 1999 and 1998, the components of comprehensive loss were:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net loss............................................ $(9,882,720) $(2,980,346)
Change in net unrealized (loss) gain on marketable
securities......................................... (6,415) 102,849
----------- -----------
Total comprehensive loss.......................... $(9,889,135) $(2,877,497)
=========== ===========
</TABLE>
4. Senior Convertible Notes Payable
The remaining balance of approximately $2.6 million, along with interest
thereon, was repaid on September 15, 1999.
5. Ebbisham Ltd.
Ebbisham Ltd., the Company's former oral heparin joint venture with Elan
Corporation plc, was terminated in the fourth quarter of fiscal 1999.
Thereafter, the Company assumed sole responsibility for clinical development
and funding of oral heparin. Previously, the Company accounted for its
investment in Ebbisham in accordance with the equity method of accounting.
6. Subsequent Event and Pro Forma Balance Sheet
On November 2, 1999, the Company issued 2.3 million shares of common stock
in a public offering. The net proceeds were approximately $23.5 million. The
proceeds from the offering will be used to fund a portion of the Phase III
clinical development of the Company's oral heparin formulation, to fund
research and development and for general corporate purposes.
The pro forma column of the balance sheet has been prepared to show the
effect that this transaction would have had on the balance sheet as if it had
occurred on October 31, 1999.
7. Subsequent Event--Amendments to Stock Plans
On January 18, 2000, the stockholders approved amendments to the Company's
1991 Stock Option Plan and the 1995 Non-Qualified Stock Option Plan, increasing
the number of shares available for grant by 500,000 and 200,000 respectively.
F-6
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Emisphere Technologies, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Emisphere Technologies, Inc., at
July 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended July 31, 1999 in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted
auditing standards, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
September 30, 1999, except Note 15 as to
which the date is November 2, 1999
F-7
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
BALANCE SHEETS
July 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents....................... $ 11,461,126 $ 21,358,308
Marketable securities........................... 6,343,515 13,469,733
Receivable due from Ebbisham Ltd................ -- 7,710,056
Prepaid expenses and other current assets....... 694,366 729,587
------------ ------------
Total current assets.......................... 18,499,007 43,267,684
Equipment and leasehold improvements, at cost, net
of accumulated depreciation and amortization..... 11,500,767 9,619,856
Purchased technology, net of accumulated
amortization of $46,902.......................... 8,395,415 --
Deferred financing costs, net of accumulated
amortization of $137,718 and $67,500............. 21,015 742,500
Other assets...................................... 60,164 59,970
------------ ------------
Total assets.................................. $ 38,476,368 $ 53,690,010
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable................................ $ 834,959 $ 724,848
Accrued expenses................................ 1,656,388 1,002,233
Senior convertible notes, current portion....... 2,647,603 3,500,000
Investment deficiency in Ebbisham Ltd........... -- 6,583,670
------------ ------------
Total current liabilities..................... 5,138,950 11,810,751
Note payable...................................... 20,000,000 --
Senior convertible notes.......................... -- 10,000,000
Deferred lease liability.......................... 2,050,042 598,111
------------ ------------
Total liabilities............................. 27,188,992 22,408,862
------------ ------------
Commitments
Stockholders' equity:
Preferred stock, $.01 par value; authorized
1,000,000 shares; none issued and outstanding.. -- --
Common stock, $.01 par value; authorized
40,000,000 shares; issued 12,181,468 shares
(12,137,968 outstanding) in 1999 and 11,037,238
shares (10,993,738 outstanding) in 1998........ 121,815 110,372
Additional paid-in capital...................... 99,161,980 88,481,742
Accumulated deficit............................. (87,804,852) (57,123,403)
Accumulated other comprehensive income.......... 1,246 5,250
------------ ------------
11,480,189 31,473,961
Less, common stock held in treasury, at cost;
43,500 shares in 1999 and 1998................. (192,813) (192,813)
------------ ------------
Total stockholders' equity.................... 11,287,376 31,281,148
------------ ------------
Total liabilities and stockholders' equity.... $ 38,476,368 $ 53,690,010
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-8
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
For the fiscal years ended July 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Contract research revenues............ $ 10,179,925 $15,868,310 $ 5,400,880
------------ ----------- -----------
Costs and expenses:
Research and development............ 22,849,687 15,189,811 7,723,995
Acquisition of in-process research
and development.................... 9,685,794 -- --
Loss in Ebbisham Ltd................ 3,092,125 4,043,712 2,549,956
General and administrative
expenses........................... 6,051,215 5,344,665 3,416,061
------------ ----------- -----------
41,678,821 24,578,188 13,690,012
------------ ----------- -----------
Operating loss.................... (31,498,896) (8,709,878) (8,289,132)
------------ ----------- -----------
Other income and expense:
Investment income................... 1,466,216 1,879,840 967,827
Rental income....................... 218,376 -- --
Interest expense.................... (867,145) (236,250) --
------------ ----------- -----------
817,447 1,643,590 967,827
------------ ----------- -----------
Net loss.......................... $(30,681,449) $(7,066,288) $(7,321,305)
============ =========== ===========
Net loss per share, basic and
diluted.............................. $ (2.63) $ (0.66) $ (0.77)
============ =========== ===========
Weighted average shares outstanding,
basic and diluted.................... 11,668,893 10,777,728 9,519,028
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-9
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
For the fiscal years ended July 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................. $(30,681,449) $(7,066,288) $(7,321,305)
------------ ----------- -----------
Adjustments to reconcile net loss to
net cash used in operating
activities:
Acquired in-process research and
development....................... 9,685,794 -- --
Loss in Ebbisham Ltd............... 3,092,125 4,043,712 2,549,956
Depreciation and amortization...... 1,586,412 953,615 441,768
Increase (decrease) in deferred
lease liability................... 1,451,931 563,569 (10,281)
Non-cash compensation.............. 275,000 295,000 250,000
Non-cash interest expense.......... 258,333 -- --
Amortization of deferred financing
cost.............................. 137,718 67,500 --
Amortization of discount on
marketable securities............. 69,717 13,440 --
Amortization of purchased
technology........................ 46,902 -- --
Net realized gain on sale of
marketable securities............. (1,254) (14,123) (60)
Write-off of leasehold
improvements...................... -- 337,961 --
Changes in assets and liabilities:
Decrease (increase) in receivable
due from
Ebbisham Ltd...................... 7,710,056 (7,061,270) (648,786)
Decrease (increase) in prepaid
expenses and other current
assets............................ 35,221 (281,473) (158,345)
(Increase) in deferred financing
cost.............................. -- (810,000) --
(Increase) in investment in
Ebbisham Ltd...................... (7,225,440) -- (9,998)
(Increase) decrease in other
assets............................ (194) 4,273 (3,000)
Increase in accounts payable and
accrued expenses.................. 505,934 539,018 196,786
------------ ----------- -----------
Total adjustments.................. 17,628,255 (1,348,778) 2,608,040
------------ ----------- -----------
Net cash used in operating
activities........................ (13,053,194) (8,415,066) (4,713,265)
------------ ----------- -----------
Cash flows from investing activities:
Capital expenditures................. (3,730,814) (8,601,855) (1,036,993)
Purchases of marketable securities... (3,346,350) (14,938,128) (13,550,937)
Proceeds from sales of marketable
securities.......................... 10,400,101 12,741,076 8,645,357
------------ ----------- -----------
Net cash provided by (used in)
investing activities.............. 3,322,937 (10,798,907) (5,942,573)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from exercise of options and
employee stock purchases............ 957,213 610,814 1,179,609
Redemption of senior convertible
notes............................... (1,124,138) -- --
Proceeds from issuance of long-term
debt................................ -- 13,500,000 --
Net proceeds from issuance of common
stock............................... -- 4,062,500 19,970,522
------------ ----------- -----------
Net cash (used in) provided by
financing activities.............. (166,925) 18,173,314 21,150,131
------------ ----------- -----------
Net (decrease) increase in cash and
cash equivalents.................. (9,897,182) (1,040,659) 10,494,293
Cash and cash equivalents, beginning of
year.................................. 21,358,308 22,398,967 11,904,674
------------ ----------- -----------
Cash and cash equivalents, end of
year.................................. $ 11,461,126 $21,358,308 $22,398,967
============ =========== ===========
Supplemental disclosure of cash flow
information:
Interest paid........................ $ 158,671
============
Non-cash investing and financing
activities:
Note issued for purchased
technology........................ $ 20,000,000
============
Conversion of debt to equity....... $ 9,459,468
============
Capital expenditures in accounts
payable........................... $ 263,490
===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-10
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the fiscal years ended July 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated Common Stock
Common Stock Other Held In Treasury
------------------- Additional Accumulated Comprehensive ----------------
Shares Amount Paid-in Capital Deficit Income (Loss) Shares Amount Total
---------- -------- --------------- ------------ ------------- ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1996.. 9,450,760 $ 94,508 $62,129,161 $(42,735,810) $(28,291) 43,500 $(192,813) $ 19,266,755
------------
Net loss................ (7,321,305) (7,321,305)
Unrealized gain on
securities............. 52,798 52,798
------------
Comprehensive loss...... (7,268,507)
------------
Sale of common stock
under employee stock
purchase plans and
exercise of options.... 133,117 1,331 1,178,278 1,179,609
Issuance of common stock
in connection with a
public offering, net of
expenses............... 1,150,000 11,500 19,959,022 19,970,522
Issuance of stock
options in exchange for
services rendered...... 250,000 250,000
---------- -------- ----------- ------------ -------- ------ --------- ------------
Balance, July 31, 1997.. 10,733,877 107,339 83,516,461 (50,057,115) 24,507 43,500 (192,813) 33,398,379
------------
Net loss................ (7,066,288) (7,066,288)
Unrealized loss on
securities............. (19,257) (19,257)
------------
Comprehensive loss...... (7,085,545)
------------
Sale of common stock
under employee stock
purchase plans and
exercise of options.... 53,361 533 610,281 610,814
Exercise of warrants by
Elan International
Services Ltd........... 250,000 2,500 4,060,000 4,062,500
Issuance of stock
options in exchange for
services rendered...... 295,000 295,000
---------- -------- ----------- ------------ -------- ------ --------- ------------
Balance, July 31, 1998.. 11,037,238 110,372 88,481,742 (57,123,403) 5,250 43,500 (192,813) 31,281,148
------------
Net loss................ (30,681,449) (30,681,449)
Unrealized loss on
securities............. (4,004) (4,004)
------------
Comprehensive loss...... (30,685,453)
------------
Sale of common stock
under employee stock
purchase plans and
exercise of options.... 144,628 1,447 955,766 957,213
Conversion of senior
convertible debt, net
of costs............... 999,602 9,996 9,449,472 9,459,468
Issuance of stock
options in exchange for
services rendered...... 275,000 275,000
---------- -------- ----------- ------------ -------- ------ --------- ------------
Balance, July 31, 1999.. 12,181,468 $121,815 $99,161,980 $(87,804,852) $ 1,246 43,500 $(192,813) $ 11,287,376
========== ======== =========== ============ ======== ====== ========= ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-11
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations. Emisphere Technologies, Inc. (the "Company") is a
biopharmaceutical company specializing in the oral delivery of therapeutic
macromolecules and other compounds that are not currently deliverable by oral
means. Since its inception in 1986, the Company has devoted substantially all
of its efforts and resources to research and development conducted on its own
behalf and through collaborations with corporate partners and academic research
institutions. The Company has no product sales to date.
The Company expects to incur a substantial increase in oral heparin
clinical development expenses in fiscal 2000 as the product enters into Phase
III clinical trials, the most expensive phase of the clinical development
process, and will no longer receive funding from its former joint venture
partner, Elan Corporation. As a result, management believes that the Company
will continue to incur increasing operating losses and will require substantial
financial resources to continue its oral heparin clinical development program
and on going research and development efforts.
In order to assure funding for its future operations, the Company will
need to obtain a marketing partner for its oral heparin product and may be
required to obtain additional financing for Phase III development on its own
until a partner is found. However, no assurances can be given that the Company
will be successful in attracting a marketing partner or in raising additional
capital. In the event that a marketing partner for the oral heparin product is
not found, the Company expects that cash, cash equivalents, and marketable
securities on-hand, combined with, and contingent upon, either additional
financing and/or delaying clinical trials and curtailment of operations will be
adequate to meet its liquidity requirements into the second quarter of fiscal
2001.
Concentration of Credit Risk. Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist of cash
equivalents and marketable securities. The Company invests excess cash in
accordance with a policy objective seeking to preserve both liquidity and
safety of principal. The Company generally invests its excess funds in
obligations of the U.S. government and its agencies, bank deposits, mortgage-
backed securities, and investment grade debt securities issued by corporations
and financial institutions. The Company holds no collateral for these financial
instruments.
Cash and Cash Equivalents. The Company considers all highly liquid,
interest-bearing debt instruments with a maturity of three months or less when
purchased to be cash equivalents.
Equipment and Leasehold Improvements. Equipment and leasehold improvements
are stated at cost. Depreciation and amortization are provided for on the
straight-line basis over the estimated useful life of the asset. Leasehold
improvements are amortized over the life of the lease or of the improvements,
whichever is shorter. Expenditures for maintenance and repairs that do not
materially extend the useful lives of the respective assets are charged to
expense as incurred. The cost and accumulated depreciation or amortization of
assets retired or sold are removed from the respective accounts and any gain or
loss is recognized in operations.
Purchased Technology. Purchased technology is amortized on a straight-line
basis over a period of 15 years, the average life of the related patents.
Impairment of Long-Lived Assets. The Company reviews its long-lived assets
for impairment whenever events or changes in circumstances, such as the manner
in which an asset is used, indicate that their carrying amount may not be
recoverable. Impairment losses are recognized when a long-lived asset's
carrying value exceeds the expected undiscounted cash flows related to that
asset. The amount of the
F-12
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
impairment loss is the difference between the carrying value and the fair
market value of the asset. The fair market value of an asset is determined
based upon discounted cash flows.
Deferred Financing Costs. Direct costs incurred in connection with
obtaining financing have been capitalized and are being amortized on a basis
that approximates the interest method over the term of the financing.
Deferred Lease Liabilities. Various leases entered into by the Company
provide for rental holidays and escalations of the minimum rent during the
lease term, as well as additional rent based upon increases in real estate
taxes and common maintenance charges. The Company records rent expense from
leases with rental holidays and escalations using the straight-line method,
thereby prorating the total rental commitment over the term of the lease. Under
this method, the deferred lease liability represents the differences between
the minimum cash rental payments and the rent expense computed on a straight-
line basis.
Revenue Recognition. The Company is currently engaged in contract research
and development of its proprietary technology. Revenue derived from contract
research and feasibility studies is recognized as the related services are
performed. Revenue earned upon the achievement of research and development
milestones is recorded when such milestones are achieved.
Patent Costs. As a result of research and development efforts conducted by
the Company, it has received, applied for, or is in the process of applying for
a number of patents to protect proprietary inventions. Costs incurred in
connection with patent applications have been expensed as incurred.
Purchased In-Process Research and Development. Purchased in-process
research and development represents the value assigned in a purchase business
combination to research and development projects of the acquired business that
were commenced but not yet completed at the date of acquisition and which, if
unsuccessful, have no alternative future use. Amounts assigned to purchased in-
process research and development are charged to expense at the consummation
date of the purchase business combination.
Income Taxes. Deferred tax liabilities and assets are recognized for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. These liabilities and assets are
determined based on differences between the financial reporting and tax basis
of assets and liabilities measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
Stock-Based Employee Compensation. The accompanying financial position and
results of operations of the Company have been prepared in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25").
Under APB No. 25, generally no compensation expense is recognized in connection
with the awarding of stock option grants to employees, provided that, as of the
grant date, all terms associated with the award are fixed and the quoted market
price of the Company's stock as of the grant date is equal to or less than the
option exercise price.
Disclosure required by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), including pro
forma operating results had the Company prepared its financial statements in
accordance with the fair value based method of accounting for stock-based
compensation, has been included in Note 9.
The fair value of options and warrants granted to non-employees for goods
or services are included in the financial statements and expensed as the goods
are utilized or the services performed.
F-13
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Net Loss Per Share. Net loss per share, basic and diluted, is computed
using the weighted average number of shares of the Company's common stock
outstanding during the period. Had the Company been in a net income position,
diluted earnings per share would have included the shares used in the
computation of basic net loss per share, as well as an additional 2,559,295,
4,029,129, and 4,128,298 shares for the fiscal years ended July 31, 1999, 1998,
and 1997, respectively, relating to outstanding options (after application of
the Treasury Stock Method).
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Fair Value of Financial Instruments. The carrying amounts for cash, cash
equivalents, accounts payable, and accrued expenses approximate fair value
because of their short-term nature. The carrying amounts for the Company's debt
instruments approximate fair value.
Reclassifications. Certain prior year amounts have been reclassified to
conform to the current year presentation.
Impact of the Future Adoption of Recently Issued Accounting
Standards. Management believes that the future adoption of recently issued
accounting standards will not have a material impact on the Company's financial
statements.
2. Marketable Securities
The Company considers its marketable securities to be "available-for-
sale," as defined by Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No.
115"). Accordingly, unrealized holding gains and losses are excluded from
operations and reported as a net amount in a separate component of
stockholders' equity. The following table summarizes the amortized cost basis
and aggregate fair value of marketable securities, and the unrealized holding
gains and losses, at July 31, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
Unrealized Holding
-----------------------
Amortized
Cost Basis Fair Value Gains (Losses) Net
----------- ----------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
1999
Maturities less than one
year:
Corporate debt securities.. $ 3,848,268 $ 3,849,615 $4,295 $(2,948) $1,347
Maturities between one and
three years:
U.S. government
securities................ 994,001 993,900 -- (101) (101)
Corporate debt securities.. 1,500,000 1,500,000 -- -- --
----------- ----------- ------ ------- ------
$ 6,342,269 $ 6,343,515 $4,295 $(3,049) $1,246
=========== =========== ====== ======= ======
1998
Maturities less than one
year:
Corporate debt securities.. $ 4,300,701 $ 4,301,393 $1,161 $ (469) $ 692
Maturities between one and
three years:
Corporate debt securities.. 9,163,782 9,168,340 6,058 (1,500) 4,558
----------- ----------- ------ ------- ------
$13,464,483 $13,469,733 $7,219 $(1,969) $5,250
=========== =========== ====== ======= ======
</TABLE>
F-14
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Realized gains and losses are included as a component of investment
income. For the fiscal years ended July 31, 1999, 1998, and 1997, gross
realized gains and losses were not significant. In computing realized gains and
losses, the Company determines the cost of its marketable securities on a
specific identification basis. Such cost includes the direct costs to acquire
the securities, adjusted for the amortization of any discount or premium. The
fair value of marketable securities has been estimated based on quoted market
prices.
3. Equipment and Leasehold Improvements
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
Useful Lives
in Years 1999 1998
------------- ----------- -----------
<S> <C> <C> <C>
Equipment............................... 3-7 $ 6,133,395 $ 4,674,232
Leasehold improvements.................. Life of lease 11,167,029 9,269,339
----------- -----------
17,300,424 13,943,571
Less, Accumulated depreciation and
amortization........................... 5,799,657 4,323,715
----------- -----------
$11,500,767 $ 9,619,856
=========== ===========
</TABLE>
During May 1998, the Company relocated its operations and subleased
certain office and laboratory space. In connection with the sublease, the
Company recorded a charge of approximately $300,000 to general and
administrative expenses, which represented the writedown of leasehold
improvements, net of accumulated amortization, at the subleased space offset by
the excess of sublease rental income over related rental expense.
4. Accrued Expenses
Accrued expenses consist of the following as of July 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Compensation....................................... $ 343,500 $ 266,000
Professional fees.................................. 379,000 203,000
Interest........................................... 292,164 168,750
Other.............................................. 641,724 364,483
---------- ----------
$1,656,388 $1,002,233
========== ==========
</TABLE>
5. Senior Convertible Notes Payable
In 1998, the Company issued $13.5 million of its 5% Senior Convertible
Notes, due May 1, 2001 (the "Notes"). Interest is payable annually in arrears
and at the Company's option can be made either in cash or, subject to certain
conditions, in shares of the Company's common stock. At July 31, 1999 and 1998,
the Company had accrued $33,830 and $168,750, respectively, of interest on the
Notes.
In connection with the issuance of the Notes, the Company incurred direct
costs to obtain the financing of approximately $800,000. Such amount has been
classified as deferred financing costs. Amortization of these costs totaled
$137,718 and $67,500 for the fiscal years ended July 31, 1999 and 1998,
respectively.
During 1999, the note holders converted principal and interest of
approximately $9.7 million and $315,000, respectively, into 999,602 shares of
the Company's common stock. Deferred financing costs of
F-15
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
$583,767 were recorded as a reduction to additional paid-in-capital upon
conversion of the notes. In addition, the Company repaid $1.1 million of the
Notes in cash. In June 1999, certain terms and covenants were modified,
including increasing the amount of additional indebtedness allowed and changing
the due date to September 15, 1999. The remaining balance of approximately $2.7
million and interest thereon were repaid on that date.
As of July 31, 1999, the estimated fair value of the Notes approximated
their carrying value, based on near term maturity.
6. Commitments
Leases. The Company leases office and laboratory space under noncancelable
leases expiring in various years through 2008. As of July 31, 1999, future
minimum rental payments are as follows:
<TABLE>
<CAPTION>
Minimum
Years Ending July 31, Rental Payments
--------------------- ---------------
<S> <C>
2000..................................................... $ 1,034,120
2001..................................................... 1,187,864
2002..................................................... 1,121,826
2003..................................................... 1,308,544
2004..................................................... 1,333,200
Thereafter............................................... 4,110,700
-----------
$10,096,254
===========
</TABLE>
As described in Note 3, in July 1998, the Company entered into a sublease
(the "Sublease") for a portion of its former premises, which extends to January
2002.
As of July 31, 1999, future minimum rentals to be received under the
Sublease are as follows:
<TABLE>
<CAPTION>
Minimum
Rentals to
Years Ending July 31, be Received
--------------------- -----------
<S> <C>
2000......................................................... $272,200
2001......................................................... 218,866
2002......................................................... 111,995
--------
$603,061
========
</TABLE>
Rent expense for the fiscal years ended July 31, 1999, 1998 and 1997 was
approximately $1,079,000, $1,230,000 and $256,000, respectively. Additional
charges for real estate taxes and common maintenance charges for the fiscal
years ended July 31, 1999 and 1998, were $240,000 and $459,000, respectively.
Other. The Company, for the fiscal years ended July 31, 1999, 1998 and
1997, made payments for research totaling approximately $578,000, $847,000 and
$847,000, respectively, to several universities and a research organization
(the "Entities"). Certain members of the Company's Board of Directors are
affiliated with these Entities.
7. Income Taxes
As of July 31, 1999, the Company has available, for tax reporting
purposes, unused net operating loss carry-forwards of approximately $72.0
million, which will expire in various years from 2001 to 2013. The Company's
research and experimental tax credit carry-forwards expire in various years
from 2001 to 2013.
F-16
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Future ownership changes may limit the future utilization of these net
operating loss and research and development tax credit carry-forwards as
defined by the Internal Revenue Code. The tax effect of temporary differences,
net operating loss carry-forwards, and research and experimental tax credit
carry-forwards as of July 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets and valuation allowance:
Accrued liabilities........................ $ 980,130 $ 356,194
Equipment and leasehold improvements....... 722,317 70,132
Net operating loss carry-forwards.......... 29,415,588 19,404,873
Research and experimental tax credit carry-
forwards.................................. 2,936,205 2,454,215
Valuation allowance........................ (34,054,240) (22,285,414)
------------ ------------
$ -- $ --
============ ============
</TABLE>
8. Stockholders' Equity
a. During 1999, the Company's shareholders voted to increase the number of
common shares authorized from 20.0 million to 40.0 million shares.
b. The Company's certificate of incorporation provides for the issuance of
1,000,000 shares of preferred stock with the rights, preferences,
qualifications, and terms to be determined by the Company's Board of Directors.
As of July 31, 1999 and 1998, there were no shares of preferred stock
outstanding.
c. In 1996, the Board of Directors (the "Board") adopted a stockholder
rights plan in which Preferred Stock Purchase Rights (the "Rights") were
granted at the rate of one one-hundredth of a share of Series A Junior
Participating Cumulative Preferred Stock ("A Preferred Stock") at an exercise
price of $80 for each share of the Company's common stock.
The Rights are not exercisable, or transferable apart from the common
stock, until the earlier of (i) ten days following a public announcement that a
person or group of affiliated or associated persons have acquired beneficial
ownership of 20% or more of the outstanding common stock of the Company or (ii)
ten business days (or such later date, as defined) following the commencement
of, or announcement of an intention to make, a tender offer or exchange offer
the consummation of which would result in the beneficial ownership by a person,
or group, of 20% or more of the outstanding common stock of the Company.
Furthermore, if the Company enters into consolidation, merger, or other
business combinations, as defined, each Right would entitle the holder upon
exercise to receive, in lieu of shares of A Preferred Stock, a number of shares
of common stock of the acquiring company having a value of two times the
exercise price of the Right, as defined. The Rights contain antidilutive
provisions, are redeemable at the Company's option, subject to certain defined
restrictions, for $.01 per Right, and expire on February 23, 2006.
As a result of the Rights dividend, the Board designated 200,000 shares of
preferred stock as A Preferred Stock. A Preferred Stockholders will be entitled
to a preferential cumulative quarterly dividend of the greater of $1.00 per
share or 100 times the per share dividend declared on the Company's common
stock. Shares of A Preferred Stock have a liquidation preference, as defined,
and each share will have 100 votes and will vote together with the common
shares.
F-17
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
d. The Company adopted the provision of Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130"). The statement
establishes standards for the reporting and display of comprehensive income and
its components. The disclosures required by SFAS 130 have been included within
the statement of stockholders' equity. The effects of income taxes on
comprehensive loss was not material.
9. Stock Plans
Stock Option Plans. Under the Company's 1991 Stock Option Plan and the
1995 Non-Qualified Stock Option Plan (individually, the "91 Plan" and "95
Plan," respectively, or collectively, the "Plans") a maximum of 2,500,000 and
2,350,000 shares of the Company's common stock, respectively, are available for
awards to employees, consultants, and other individuals who render services to
the Company. The 91 Plan provides for the grant of either incentive stock
options ("ISOs"), as defined by the Internal Revenue Code, or options which do
not qualify as ISOs. An independent committee of the Board, which determines
option terms including exercise price and vesting period, awards the options.
Generally, the options expire within a five to ten-year period as determined by
the committee and as defined by the Plans. The terms of the 95 Plan provide for
the granting to officers and other key employees the option to purchase the
Company's common stock. The number and terms of each grant will be determined
by an independent committee of the Board, which will determine option exercise
price, termination date, vesting, and expiration date. Options granted under
the Plans generally vest over a five-year period. As of July 31, 1999, shares
available for future grants under the Plans amounted to 734,065.
The following table summarizes stock option information for the Plans as
of July 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- --------------------------
Weighted
Average
Range of Remaining Weighted Weighted
Exercise Number Contractual Average Number Average
Price Outstanding Life in Years Exercise Price Exercisable Exercise Price
-------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.50 86,737 5.76 $ 1.50 67,977 $ 1.50
$2.63 3,937 5.78 $ 2.63 3,787 $ 2.63
$4.00-
$4.40 71,124 4.81 $ 4.01 70,324 $ 4.01
$6.13-
$9.00 1,630,175 6.70 $ 8.33 1,223,000 $ 8.63
$9.50-
$13.75 1,766,134 4.46 $11.67 1,347,214 $12.03
$15.13-
$21.25 454,322 7.75 $17.17 157,138 $17.74
$23.00-
$23.25 8,000 5.92 $23.09 4,000 $23.19
--------- ---------
$1.50-
$23.25 4,020,429 5.78 $10.60 2,873,440 $10.45
========= =========
</TABLE>
F-18
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Transactions involving stock options awarded under the Plans during fiscal
1997, 1998 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Number Average
Outstanding Exercise Price Exercisable Exercise Price
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Balance, July 31, 1996... 1,981,418 $ 8.90 506,962 $ 9.75
1997
Granted................ 1,260,531 $12.43
Canceled............... (43,000) $13.75
Exercised.............. (33,323) $ 9.86
---------
Balance outstanding
July 31, 1997......... 3,165,626 $10.23 1,868,085 $10.98
1998
Granted................ 340,272 $17.08
Canceled............... (6,350) $15.50
Exercised.............. (15,819) $ 5.98
---------
Balance outstanding
July 31, 1998......... 3,483,729 $10.85 2,012,463 $10.95
1999
Granted................ 603,375 $ 8.84
Canceled............... (57,420) $10.90
Exercised.............. (9,255) $ 2.59
---------
Balance outstanding
July 31, 1999......... 4,020,429 $10.60 2,873,440 $10.45
=========
</TABLE>
Outside Directors' Plan The Company has adopted a stock option plan for
outside directors who are neither officers nor employees of the Company nor
holders of more than 5% of the Company's common stock (the "Outside Directors'
Plan"). This plan, as amended, provides for the granting of options to
directors (i) to purchase 35,000 shares of the Company's common stock on the
date of initial election or appointment to the Board and (ii) to purchase
21,000 shares on the fifth anniversary thereof and every three years
thereafter. The options have an exercise price equal to the fair market value
of the Company's common stock on the date of grant, vest at the rate of 7,000
shares per year, and expire ten years after the date of grant.
The following table summarizes stock option information for the Outside
Directors' Plan as of July 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- --------------------------
Weighted
Average
Range of Remaining Weighted Weighted
Exercise Number Contractual Average Number Average
Price Outstanding Life in Years Exercise Price Exercisable Exercise Price
-------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$6.13-
$8.63 105,000 7.16 $ 7.80 70,000 $ 8.63
$13.00-
$13.75 273,000 3.90 $13.17 252,000 $13.13
$23.50 35,000 7.51 $23.50 14,000 $23.50
------- -------
$6.13-
$23.50 413,000 5.04 $12.68 336,000 $12.62
======= =======
</TABLE>
F-19
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Transactions involving stock options awarded under the Outside Directors'
Plan during fiscal 1997, 1998 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Number Average
Outstanding Exercise Price Exercisable Exercise Price
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Balance, July 31, 1996... 280,000 $11.91 196,666 $12.63
1997
Granted................ 98,000 $17.23
-------
Balance outstanding
July 31, 1997......... 378,000 $13.29 243,333 $12.40
-------
1998
Balance outstanding
July 31, 1998......... 378,000 $13.29 291,332 $12.51
1999
Granted................ 35,000 $ 6.13
-------
Balance outstanding
July 31, 1999......... 413,000 $12.68 336,000 $12.62
=======
</TABLE>
Directors' Deferred Compensation Stock Plan Pursuant to the Directors'
Deferred Compensation Stock Plan (the "Directors' Deferred Plan") adopted
during the 1998 fiscal year, outside directors have a right to receive for each
meeting of the Board or a committee thereof attended a number of shares of the
Company's common stock equal to the amount determined by the Board as
compensation for the meeting divided by the fair market value of the Company's
common stock on the date of the meeting. An aggregate of 25,000 shares of the
Company's common stock has been reserved for issuance under the Directors'
Deferred Plan. During fiscal 1999 and 1998, the outside directors earned the
rights to receive an aggregate of 2,778 shares and 570 shares, respectively.
Under the terms of the Directors' Deferred Plan, shares are to be issued to a
director within six months after he or she ceases to serve on the Board.
Non-Plan Options The Company's Board of Directors has issued options to an
executive officer ("Executive"), and a former executive officer, the Emisphere
Charitable Foundation, and a consultant not covered by the Plans or the Outside
Directors' Plan ("Non-Plan Options"). The respective employment agreement for
the Executive also contains provisions whereby the Executive is allowed to
borrow defined amounts from the Company in connection with exercise of options.
Outstanding loans bear interest at rates, as defined. The Board determines the
number and terms of each grant (option exercise price, vesting, and expiration
date). Non-Plan Options generally vest over a five-year period.
The following table summarizes stock option information for the Non-Plan
Options as of July 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- --------------------------
Weighted
Average
Range of Remaining Weighted Weighted
Exercise Number Contractual Average Number Average
Price Outstanding Life Exercise Price Exercisable Exercise Price
-------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$8.00-$ 9.75 387,822 1.82 $8.65 387,822 $8.65
</TABLE>
F-20
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Transactions involving awards of Non-Plan Options during fiscal 1997, 1998
and 1999 are summarized as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Number Average
Outstanding Exercise Price Exercisable Exercise Price
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Balance, July 31, 1996... 1,470,853 $11.28 496,822 $9.59
1997
Canceled............... (987,031) $12.61
Exercised.............. (60,000) $ 8.23
---------
Balance outstanding
July 31, 1997......... 423,822 $ 8.62 423,822 $8.62
1998
Canceled............... (1,000) $18.50
---------
Balance outstanding
July 31, 1998......... 422,822 $ 8.59 422,822 $8.59
1999
Exercised.............. (35,000) $ 8.00
---------
Balance outstanding
July 31, 1999......... 387,822 $ 8.65 387,822 $8.65
=========
</TABLE>
Employee Stock Purchase Plans The Company has adopted two employee stock
purchase plans (the "Purchase Plans") -- the 1994 Employee Stock Purchase Plan
(the "Qualified Plan") and the 1994 Non-Qualified Employee Stock Purchase Plan
(the "Non-Qualified Plan"). The Purchase Plans provide for the grant to all
employees of options to purchase the Company's common stock. These options are
granted for dollar amounts of up to 15% of an employees' quarterly
compensation. The exercise price per share is equal to the lesser of the fair
market value of the Company's common stock on the date of grant or 85% of the
fair market value on the date of exercise. Options are granted automatically on
the first day of each fiscal quarter and expire six months after the date of
grant. The Qualified Plan is not available for employees owning more than 5% of
the Company's common stock and imposes certain other quarterly limitations on
the option grants. Options under the Non-Qualified Plan are granted to the
extent that the option grants are restricted under the Qualified Plan. The
Purchase Plans provide for the issuance of up to 500,000 shares of the
Company's common stock under the Qualified Plan and 100,000 shares under the
Non-Qualified Plan.
Purchases of common stock during the fiscal years ended July 31, 1999,
1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
Qualified Plan Non-Qualified Plan
---------------------- -----------------------
Shares Shares
Purchased Price Range Purchased Price Range
--------- ------------ --------- -------------
<S> <C> <C> <C> <C>
1999........................ 92,276 $4.83-$ 9.68 8,097 $ 6.16-$ 9.68
1998........................ 34,851 $8.23-$17.21 2,749 $13.76-$16.47
1997........................ 31,348 $6.30-$17.75 8,111 $6.26-$ 13.18
</TABLE>
At July 31, 1999, shares reserved for future purchases under the Qualified and
Non-Qualified Plans were 201,568 and 58,591, respectively.
Pro Forma Operating Results The following tables summarize the Company's
pro forma operating results had compensation costs for the Plans, Outside
Directors' Plan, Directors' Deferred Plan, the Non-Plan Options, and the
Purchase Plans been determined in accordance with the fair value-based method
of accounting for stock-based compensation as prescribed by SFAS No. 123. Since
option grants
F-21
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
awarded during 1999, 1998 and 1997 vest over several years and additional
awards are expected to be issued in the future, the pro forma results shown
below are not likely to be representative of the effects, on the future years
of the application of the fair value-based method. The options, exercise price
equals the quoted market price of the Company's common stock on the date of
grant.
<TABLE>
<CAPTION>
Fiscal Years Ended July 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Pro forma net loss.............. $(35,446,893) $(10,409,698) $(15,408,336)
Pro forma net loss per share.... $ (3.04) $ (0.97) $ (1.53)
</TABLE>
For the purpose of the above pro forma calculation, the fair value of each
option granted was estimated on the date of grant using the Black-Scholes
option pricing model. The weighted-average fair value of the options granted
during 1999, 1998 and 1997 was $5.94, $10.96 and $6.82, respectively. The
following assumptions were used in computing the fair value of options granted:
expected volatility of 80%, expected lives of five years (except for the
Purchase Plans where the expected lives are six months), zero divided yield,
and weighted-average risk-free interest rate of 5.2% in 1999, 5.9% in 1998, and
6.4% in 1997.
10. Retirement Plan
The Company has a defined contribution retirement plan (the "Plan"), the
terms of which, as amended, allow eligible employees who have met certain age
and service requirements to participate, by electing to contribute a percentage
of their compensation to be set aside to pay their future retirement benefits,
as defined by the Plan. The Company has agreed to make discretionary
contributions to the Plan. For the fiscal years ended July 31, 1999, 1998 and
1997 the Company made contributions to the Plan totaling approximately
$183,000, $139,000 and $58,000, respectively.
11. Net Loss Per Share
The Company's basic net loss per share amounts have been computed by
dividing net loss by the weighted average number of common shares outstanding.
For the fiscal years ended July 31, 1999, 1998 and 1997, the Company reported
net losses and, therefore, no common stock equivalents were included in the
computation of diluted net loss per share, since such inclusion would have been
antidilutive.
12. The Emisphere Charitable Foundation, Inc.
During 1993, the Board authorized the incorporation of The Emisphere
Charitable Foundation, Inc. (the "Foundation"). The Foundation has since been
incorporated and intends to seek tax exempt status under section 501(c)(3) of
the Internal Revenue Code. The Foundation's charitable purpose is to grant
financial assistance to pay expenses incurred by persons or their families who
are suffering from serious, debilitating, or prolonged illnesses. The Company
intends to contribute cash and Company stock options to the Foundation. Two
officers of the Company are directors of the Foundation. The Foundation
currently has 15,000 options to acquire an equal number of shares of the
Company's common stock at an exercise price of $9.75 per share.
13. Ebbisham Limited
Ebbisham Limited ("Ebbisham"), an Irish corporation owned jointly by Elan
Corporation, plc ("Elan") and the Company until July 1999 when it became a
wholly owned subsidiary of the Company, was formed in September 1996 to develop
and market heparin products using technologies contributed by Elan and the
Company. Elan provided the initial funding of $4.5 million. Thereafter, Elan
and the Company provided funding equally. During the year ended July 31, 1999,
Elan and the Company each contributed approximately $7.5 million to fund
Ebbisham's operations.
F-22
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
In fiscal 1996, the Company issued and sold to an affiliate of Elan
600,000 shares of the Company's common stock and warrants to purchase an
additional 250,000 shares, at $16.25 per share, for a total of $7.5 million. In
fiscal 1998, Elan exercised the warrants.
Pursuant to agreements with Elan and Ebbisham, the Company performed
certain research and development services on behalf of Ebbisham. In connection
therewith, the Company recognized contract research revenues during each of the
three fiscal years ended July 31, 1999 of approximately $5.7 million, $7.1
million, and $4.0 million, respectively. As of July 31, 1998, amounts due from
Ebbisham for services rendered totaled approximately $7.7 million.
In July 1999, Emisphere acquired Elan's ownership interest in Ebbisham, in
exchange for a seven year $20.0 million zero coupon note (the "Ebbisham Note")
carrying a 15% interest rate, compounding semi-annually, plus royalties on oral
heparin product sales, subject to an annual maximum, and certain milestone
payments. Under certain conditions, Elan has agreed to subscribe to the
Company's common stock. This transaction resulted in Ebbisham becoming a wholly
owned subsidiary of the Company.
The acquisition of Elan's ownership interest in Ebbisham has been
accounted for in accordance with the purchase method of accounting. The
purchase price of approximately $18.1 million ($20.4 million, including
transaction costs, net of purchase accounting adjustments for accrued funding
liabilities in excess of actual funding requirements of $2.3 million) has been
allocated $9.7 million and $8.4 million to acquired in-process research and
development, which was expensed at the date of acquisition, and purchased
technology, respectively.
As of the acquisition date, it was determined that the acquired in-process
research and development had not reached technological feasibility and did not
have an alternative future use. Approximately 48%, 80%, and 80% of the research
and development effort remained to be completed for liquid heparin, solid
dosage heparin, and solid dosage low molecular weight heparin, respectively, as
of the acquisition date. Before these products can be commercialized, the
Company is required to complete Phase III clinical trials for liquid heparin,
initiate and complete Phase I through III clinical studies for both solid
dosage forms of heparin and low molecular weight heparin, and file New Drug
Applications with the United States Food and Drug Administration. The Company
currently estimates the cost to complete clinical trials and obtain regulatory
approval to be in excess of $30.0 million. The Company expects to complete
development of liquid heparin in fiscal 2002. In valuing the acquired in-
process research and development, the Company used discounted cash flows over a
10-year period and risk adjusted discount rates ranging from 20% to 45%,
depending on the product's stage of development. Purchased technology is being
amortized using the straight-line method over its expected useful life of
approximately 15 years.
In conjunction with the above transaction, Elan committed to provide the
Company with up to $15.0 million in financial support for Phase III clinical
trials of oral heparin. The provision by Elan of these loans is subject to the
Company attaining certain clinical milestones and other conditions, including
the commencement of oral heparin Phase III clinical trials by October 31, 1999.
The Company does not anticipate commencement of such trials within the
stipulated period.
F-23
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
The following unaudited pro forma information presents a summary of
consolidated results of operations assuming the acquisition had taken place at
the beginning of each fiscal year and excludes the write-off of acquired in-
process research and development of approximately $9.7 million:
<TABLE>
<CAPTION>
(Unaudited)
Fiscal
Years Ended July 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Sales......................................... $ 4,400,000 $ 8,800,000
Net loss...................................... $(25,500,000) $(14,800,000)
Net loss per share............................ $ (2.19) $ (1.37)
</TABLE>
These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
that actually would have resulted had the acquisition occurred on the date
indicated or that may result in the future.
Selected financial data of Ebbisham, prior to acquisition, as of July 31,
1998, for the period from August 1, 1998 to July 2, 1999 (the acquisition
date), the fiscal year ended July 31, 1998, and the period from September 26,
1996 (inception) to July 31, 1997, are as follows:
Balance Sheet Data
<TABLE>
<CAPTION>
July 31, 1998
-------------
<S> <C> <C> <C>
Assets
Cash..................................................... $ 741,184
============
Liabilities and Stockholders' Deficit
Accounts payable (1)..................................... $ 9,408,518
Subordinated debt........................................ 4,500,000
Stockholders' deficit.................................... (13,167,334)
------------
Total liabilities and stockholders' deficit $ 741,184
============
</TABLE>
Statement of Operations Data
<TABLE>
<CAPTION>
Fiscal Period from
Period from Year Ended September 26, 1996
August 1, 1998 to July 31, (inception) to
July 2, 1999 1998 July 31, 1997
----------------- ----------- ------------------
<S> <C> <C> <C>
Total revenue................. $ 104,829 $ 32,760 $ 72,045
Total expenses (2)............ (6,289,084) (8,120,183) (5,171,956)
----------- ----------- -----------
Net loss...................... $(6,184,255) $(8,087,423) $(5,099,911)
=========== =========== ===========
</TABLE>
- ------------------
(1) Includes $7,710,056 due the Company at July 31, 1998.
(2) Includes $5,732,805, $7,061,270, and $3,999,733 related to services
performed by the Company on behalf of Ebbisham for the period from August
1, 1998 to July 2, 1999, the year ended July 31, 1998, and the period from
September 26, 1996 (inception) to July 31, 1997.
14. Strategic Alliances
The Company performs research and development for others pursuant to
research collaborations and feasibility studies. Under the research
collaborations, Emisphere will be reimbursed for development costs and may be
entitled to payments if certain development milestones are achieved. In
addition, the
F-24
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
collaborations contain provisions, which require the Company to negotiate the
terms of a licensing agreement contemplating the exclusive worldwide use of the
Company's proprietary technology. All of the Company's research collaborations
are generally cancelable by the partners without significant financial penalty
to the collaborator. Feasibility studies are of short duration and are designed
to evaluate the applicability of the Company's drug delivery carriers to
specific drugs. Costs associated with research and development collaborations
and feasibility studies are expected to approximate the revenues recognized.
In December 1997, the Company and Novartis Pharma AG ("Novartis") entered
into a research collaboration to investigate the Company's technology for oral
delivery of two selected Novartis compounds. The agreement provides for an
initial research collaboration period expiring in December 1999 and two options
on the part of Novartis to acquire exclusive licenses to use the Company's
technologies for the development and commercialization of oral formulations of
the Novartis compounds.
In the event Novartis exercises its technology license options, it has the
obligation (subject to the Company's approval) to purchase up to $16 million of
the Company's Common Stock. This investment may be made in four tranches at
prices based on market prices at the time of exercise. The first tranche is
subject to certain price limitations.
Under the agreement, Novartis has made quarterly payments to the Company
for work performed by the Company in connection with the collaboration and is
to make future payments in the event certain milestones are achieved. In
September 1999, Novartis initiated clinical testing of a solid oral dosage form
of one of their compounds using the Company's oral drug delivery technology.
In February 1997, the Company and Eli Lilly & Company ("Lilly") entered
into an agreement to combine Lilly's therapeutic protein and formulation
capabilities with the Company's carrier technologies. The agreement provided
for periodic payments to the Company to fund a research and development
program, which was completed during fiscal 1999. Under the agreement, the
Company granted to Lilly a series of options to acquire licenses to use the
Company's technologies. In fiscal 1998, Lilly exercised two of its options and
entered into two license agreements to use the Company's technologies in
connection with two proteins.
During fiscal year 1999, Lilly suspended development of one of the
proteins pending further review by them of the injectable version of the
protein. With respect to the second protein, Emisphere designed and supplied
"carriers" to Lilly for evaluation. As a result, Emisphere is awaiting further
direction from Lilly on both compounds. The above license agreements provide
for future payments, in the event certain milestones are achieved, as defined,
as well as royalty payments if a commercial product results from the
collaboration. As of July 31, 1999, these license agreements were in effect.
During the fiscal years ended July 31, 1999, 1998 and 1997, the agreements
with Novartis and Lilly generated revenues to the Company of $4.3 million, $8.8
million (including milestone payments of $4.0 million from Lilly) and $1.4
million, respectively.
15. Subsequent Event
On November 2, 1999, the Company issued 2,300,000 million shares of common
stock for net proceeds of approximately $23.5 million.
F-25
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Ebbisham Limited:
In our opinion, the accompanying balance sheet and the related statements
of operations, stockholders' deficit and cash flows present fairly, in all
material respects, the financial position of Ebbisham Limited ("Ebbisham") (a
development stage enterprise) at July 31, 1998, and the results of its
operations and its cash flows for the period from September 26, 1996
(inception) to July 31, 1997, the year ended July 31, 1998, the period from
August 1, 1998 through July 2, 1999 and the cumulative period from September
26, 1996 (inception) to July 2, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Ebbisham's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As described in Note 7 to the financial statements, in July 1999,
Emisphere Technologies, Inc. ("Emisphere") acquired Elan Corporation plc's 50%
ownership interest in Ebbisham and, therefore, Ebbisham became a wholly owned
subsidiary of Emisphere. These financial statements have been prepared as of
and for the periods prior to the Emisphere acquisition.
PricewaterhouseCoopers LLP
New York, New York
September 10, 1999
F-26
<PAGE>
EBBISHAM LIMITED
(a development stage enterprise)
BALANCE SHEET
<TABLE>
<CAPTION>
July 31,
1998
------------
<S> <C>
ASSETS
Current assets:
Cash........................................................... $ 741,184
------------
Total assets..................................................... $ 741,184
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Due to Elan Corporation plc.................................... $ 1,698,462
Due to Emisphere Technologies, Inc. ........................... 7,710,056
Accrued expenses............................................... --
------------
Total current liabilities........................................ 9,408,518
Subordinated debt................................................ 4,500,000
------------
Total liabilities................................................ 13,908,518
------------
Stockholders' deficit:
"A" ordinary shares, par value $1.00 per share, 5,000,000
shares authorized, 10,000 shares issued and outstanding at
July 31, 1998. "B" ordinary shares, par value $1.00 per share,
5,000,000 shares authorized, 10,000 shares issued and
outstanding at July 31, 1998.................................. 20,000
Deficit accumulated during the development stage............... (13,187,334)
------------
Total stockholders' deficit...................................... (13,167,334)
------------
Total liabilities and stockholders' deficit...................... $ 741,184
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE>
EBBISHAM LIMITED
(a development stage enterprise)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
period from Cumulative for
For the September 26, the period from
period from For the 1996 September 26,
August 1, fiscal year (inception) 1996
1998 to ended through (inception)
July 2, July 31, July 31, through
1999 1998 1997 July 2, 1999
----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Interest income....... $ 104,829 $ 32,760 $ 72,045 $ 209,634
Expenses:
Research and
development.......... (6,165,393) (8,120,183) (5,171,956) (19,457,532)
General and
administrative....... (123,691) -- -- (123,691)
----------- ----------- ----------- ------------
Net loss................ $(6,184,255) $(8,087,423) $(5,099,911) $(19,371,589)
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE>
EBBISHAM LIMITED
(a development stage enterprise)
STATEMENTS OF STOCKHOLDERS' DEFICIT
For the period from September 26, 1996 (inception) to July 2, 1999,
including the period from August 1, 1998 to July 2, 1999,
the fiscal year ended July 31, 1998, and the period from September 26, 1996
(inception) to July 31, 1997
<TABLE>
<CAPTION>
Number of shares
-----------------
Ordinary Ordinary Ordinary Ordinary Accumulated
"A" "B" "A" "B" deficit Total
-------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ordinary shares issued
in consideration for
cash................... 10,000 10,000 $10,000 $10,000 $ $ 20,000
Net loss for the period
from September 26, 1996
(inception) to July 31,
1997................... (5,099,911) (5,099,911)
------ ------ ------- ------- ------------ ------------
Balance at July 31,
1997................... 10,000 10,000 10,000 10,000 (5,099,911) (5,079,911)
Net loss for the year
ended July 31, 1998.... (8,087,423) (8,087,423)
------ ------ ------- ------- ------------ ------------
Balance at July 31,
1998................... 10,000 10,000 10,000 10,000 (13,187,334) (13,167,334)
Net loss for the period
from August 1, 1998 to
July 2, 1999........... (6,184,255) (6,184,255)
------ ------ ------- ------- ------------ ------------
Balance at July 2,
1999................... 10,000 10,000 $10,000 $10,000 $(19,371,589) $(19,351,589)
====== ====== ======= ======= ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE>
EBBISHAM LIMITED
(a development stage enterprise)
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Cumulative
For the for the
For the period from period from
period from September 26, September
August 1, For the 1996 26, 1996
1998 fiscal (inception) (inception)
to year ended through through
July 2, July 31, July 31, July 2,
1999 1998 1997 1999
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $ (6,184,255) $(8,087,423) $(5,099,911) $(19,371,589)
Changes in assets and
liabilities:
Increase (decrease)
in payable to Elan
Corporation plc.... (1,698,462) 1,058,913 639,549 --
Increase (decrease)
in payable to
Emisphere
Technologies,
Inc................ (7,684,826) 7,061,270 648,786 25,230
Increase in accrued
expenses........... 10,408 -- -- 10,408
------------ ----------- ----------- ------------
Net cash (used in)
provided by operating
activities............. (15,557,135) 32,760 (3,811,576) (19,335,951)
Cash flows from
financing activities:
Proceeds from issuance
of share capital..... -- -- 20,000 20,000
Proceeds from issuance
of subordinated
debt................. 26,847,699 -- 4,500,000 31,347,699
Repayment of
subordinated debt.... (11,949,233) -- -- (11,949,233)
------------ ----------- ----------- ------------
Net cash provided by
financing activities... 14,898,466 -- 4,520,000 19,418,466
Net (decrease) increase
in cash................ (658,669) 32,760 708,424 82,515
Cash at beginning of
period................. 741,184 708,424 -- --
------------ ----------- ----------- ------------
Cash at end of period... $ 82,515 $ 741,184 $ 708,424 $ 82,515
============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE>
EBBISHAM LIMITED
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
1. Organization and Business:
Ebbisham Limited ("Ebbisham"), an Irish corporation, was formed as an
equally owned joint venture between Elan Corporation plc ("Elan") and Emisphere
Technologies, Inc. ("Emisphere") (collectively, the "Partners"), in September
1996 to develop and market heparin products utilizing technologies contributed
by the Partners. In July 1999, Emisphere acquired 100% of Elan's ownership
interest in Ebbisham (see Note 7). As a development stage enterprise,
Ebbisham's primary efforts to date have been devoted to research and
development and raising capital.
2. Summary of Significant Accounting Policies:
Basis of Preparation
The accompanying financial statements of Ebbisham were prepared in
accordance with generally accepted accounting principles in the United States.
Cash
The carrying amount reported in the balance sheet for cash approximates
its fair value. Cash subjects Ebbisham to concentrations of credit risk.
Income Taxes
Ebbisham accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," ("SFAS 109"). SFAS 109 requires that Ebbisham recognize deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined on the basis of the
difference between the tax bases of assets and liabilities and their respective
financial reporting amounts ("temporary differences") at enacted tax rates in
effect for the years in which the temporary differences are expected to
reverse.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Subordinated Debt:
Subordinated debt consists of the following:
<TABLE>
<CAPTION>
Due to Due to
Elan Emisphere
------------ -----------
<S> <C> <C>
Balance at July 31, 1998...................... $ 4,500,000 $ --
Current activity:
Loans....................................... 7,449,233 19,398,466
Repayments.................................. (11,949,233) --
------------ -----------
Balance at July 2, 1999....................... $ -- $19,398,466
============ ===========
</TABLE>
F-31
<PAGE>
EBBISHAM LIMITED
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The subordinated debt is interest-free until Ebbisham has sufficient
equity, as defined, and has earned a profit after tax in the preceding
financial year of not less than $100,000.
The rate of interest in a given financial year is as follows:
.5% if profits after tax for that financial year exceed $100,000 but do
not exceed $5,000,000.
. 10% if profits after tax for that financial year exceed $5,000,000 but
do not exceed $10,000,000.
. 15% if profits after tax for that financial year exceed $10,000,000.
The debt is subordinated to the claims of all other creditors of Ebbisham.
4. Stockholders' Deficit:
Ebbisham's certificate of incorporation provides for the issuance of five
million ordinary "A" shares and five million ordinary "B" shares. The rights
and terms of both types of shares are identical except that Elan held the
ordinary "A" shares through July 2, 1999 and by Emisphere subsequent to that
date, and Emisphere holds the ordinary "B" shares.
5. Income Taxes:
Ebbisham is subject to the provisions of tax laws in Ireland. Accordingly,
in the event that Ebbisham earns royalty income for its patents in the future,
such amounts may be exempt from income tax under certain circumstances. In
addition, in the event that taxable profits are derived from Ebbisham's
manufacture of products, a tax would be imposed on profits earned at tax rates
ranging from 10% to 32%. Ebbisham has available net operating loss
carryforwards of approximately $13 million, which, under certain circumstances,
may be available to offset taxable income arising in the future. As a result of
the uncertainty of whether Ebbisham will have future taxable income and whether
the net operating losses being carried forward will be available to offset such
taxable income, Ebbisham has established a valuation allowance equal to the
total deferred tax asset. The total deferred tax asset, net of the valuation
allowance, was not material.
6. Related Party Transactions:
On September 26, 1996 (inception), Ebbisham entered into certain
agreements with Elan and Emisphere relating to the research and development of
an oral heparin product under development. In accordance with these agreements,
the Partners perform certain research and development activities on behalf of
Ebbisham. For the period from August 1, 1998 through July 2, 1999, Ebbisham
incurred research and development expenses for work performed by Elan and
Emisphere in the amount of $432,588 and $5,732,805, respectively. For the year
ended July 31, 1998, Ebbisham incurred research and development expenses for
work performed by Elan and Emisphere in the amount of $1,058,913 and
$7,061,270, respectively. For the period from September 26, 1996 (inception)
through July 31, 1997, Ebbisham incurred research and development expenses for
work performed by Elan and Emisphere in the amount of $1,172,233 and
$3,999,733, respectively. Cumulatively, for the period from September 26, 1996
(inception) through July 2, 1999, Ebbisham incurred research and development
expenses for work performed by Elan and Emisphere of $2,663,734 and
$16,793,808, respectively.
7. Ownership:
In July 1999, Emisphere acquired Elan's ownership interest in Ebbisham in
exchange for a seven-year $20 million zero coupon note. The acquisition, which
resulted in Ebbisham becoming a wholly owned
F-32
<PAGE>
EBBISHAM LIMITED
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
subsidiary of Emisphere, will be accounted for by Emisphere in accordance with
the purchase method of accounting. The accompanying financial statements are
presented as of and for the periods prior to Emisphere's acquisition. As such,
the accompanying financial statements do not reflect purchase accounting
adjustments recorded by Emisphere relating to this change in ownership.
8. Subsequent Event:
In September 1999, Emisphere initiated procedures to liquidate Ebbisham.
F-33
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,500,000 Shares
[LOGO] EMISPHERE TECHNOLOGIES, INC.
Common Stock
------------------
PROSPECTUS
------------------
Chase H&Q
Deutsche Banc Alex. Brown
Warburg Dillon Read LLC
Adams, Harkness & Hill, Inc.
------------------
, 2000
------------------
You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
We have not taken any action in any jurisdiction outside the United States
to permit a public offering of our common stock or possession or distribution
of this prospectus in any such jurisdiction. Persons who come into possession
of this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering and
the distribution of this prospectus applicable to that jurisdiction.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
the offering described in this Registration Statement. The Company has agreed
to pay all of the costs and expenses of this offering.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 31,264
National Association of Securities Dealers, Inc. filing fee..... 12,343
Nasdaq National Market listing fee.............................. 17,500
Printing and engraving costs.................................... 185,000
Legal fees and expenses......................................... 125,000
Accounting fees and expenses.................................... 105,000
Miscellaneous................................................... 3,893
--------
Total......................................................... $480,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the General Corporation Law of the State of Delaware
provides that a Delaware corporation may 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 (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he 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 cause to believe his conduct was
unlawful.
Section 145(b) provides that a Delaware corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted under similar standards, except
that no indemnification may be made in respect of 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 in which such action or suit was
brought shall determine that despite the adjudication of liability, such person
is fairly and reasonably entitled to be indemnified for such expenses which 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 in subsections (a) and (b) or in the defense of any
claim, issue, or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith, that
indemnification provided for by Section 145 shall not be deemed exclusive of
any other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under such Section 145.
Section 102(b)(7) of the General Corporation Law provides that a
corporation in its original certificate of incorporation or an amendment
thereto validly approved by stockholders may eliminate or limit personal
liability of members of its board of directors or governing body for breach of
a director's fiduciary duty. However, no such provision may eliminate or limit
the liability of a director for breaching his duty of
II-1
<PAGE>
loyalty, failing to act in good faith, engaging in intentional misconduct or
knowingly violating a law, paying a dividend or approving a stock repurchase
which was illegal, or obtaining an improper personal benefit. A provision of
this type has no effect on the availability of equitable remedies, such as
injunction or rescission, for breach of fiduciary duty. The Company's Restated
Certificate of Incorporation contains such a provision.
The Company's Certificate of Incorporation and By-laws provide that the
Company shall indemnify officers, directors, employees and agents of the
Company, to the full extent permitted by and in the manner permissible under
the laws of the State of Delaware. The Certificate of Incorporation and By-Laws
also permit the Board of Directors to authorize the Company to purchase and
maintain insurance against any liability asserted against any director,
officer, employee or agent of the Company arising out of his capacity as such.
The Company has obtained such directors' and officers' insurance insuring,
subject to certain conditions, its directors and officers against certain
liabilities.
The Underwriting Agreement provides for indemnification by the
Underwriters of the Company, its directors and officers, and persons who
control the Company within the meaning of Section 15 of the Securities Act for
certain liabilities.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
4.1 Restated Certificate of Incorporation of the Company dated June 13, 1997,
as amended by the Certificate of Amendment dated January 25, 1999
(incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the quarterly period ended January 31, 1999).
4.2 By-laws of the Company, as amended December 7, 1998 (incorporated by
reference to the registrant's Quarterly Report on Form 10-Q for the
quarterly period ended January 31, 1999).
4.3 Rights Agreement, dated as of February 23, 1996, by and between the
Company and Continental Stock Transfer & Trust Company (incorporated by
reference to the registrant's Current Report on Form 8-K dated March 5,
1996).
5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (contained in Exhibit
5.1).
23.2 Consent of PricewaterhouseCoopers LLP (regarding the registrant).
23.3 Consent of PricewaterhouseCoopers LLP (regarding Ebbisham Limited).
24.1 Power of Attorney (Included on Page II-4).
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended (the
"Securities Act") each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City and State of New York on the 14th day of February,
2000.
Emisphere Technologies, Inc.
By: /s/ Michael M. Goldberg
----------------------------------
Michael M. Goldberg, M.D.
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Michael M. Goldberg, M.D. and Charles H.
Abdalian, Jr. as his true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (until revoked in writing), to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and any registration statement relating to the same offering as this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) and the Securities Act of 1933 and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on February 14, 2000.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael M. Goldberg Chairman of the Board and February 14, 2000
___________________________________________ Chief Executive Officer
Michael M. Goldberg, M.D. (Principal Executive
Officer)
/s/ Charles H. Abdalian, Jr. Vice President, Chief February 14, 2000
___________________________________________ Financial Officer and
Charles H. Abdalian, Jr. Secretary
/s/ Joseph D. Poveromo Controller and Chief February 14, 2000
___________________________________________ Accounting Officer
Joseph D. Poveromo (Principal Financial and
Accounting Officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Peter Barton Hutt Director February 14,
___________________________________________ 2000
Peter Barton Hutt, ESQ.
/s/ Jere E. Goyan Director February 14,
___________________________________________ 2000
Jere E. Goyan, PH.D
/s/ Mark I. Greene Director February 14,
___________________________________________ 2000
Mark I. Greene, M.D., PH.D.
/s/ Howard M. Pack Director February 14,
___________________________________________ 2000
Howard M. Pack
/s/ Joseph R. Robinson Director February 14,
___________________________________________ 2000
Joseph R. Robinson, PH.D.
/s/ Robert J. Levenson Director February 14,
___________________________________________ 2000
Robert J. Levenson
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<C> <S>
1.1 Form of Underwriting Agreement.
4.1 Restated Certificate of Incorporation of the Company dated June
13, 1997, as amended by the Certificate of Amendment dated January
25, 1999 (incorporated by reference to the registrant's Quarterly
Report on Form 10-Q for the quarterly period ended January 31,
1999).
4.2 By-laws of the Company, as amended December 7, 1998 (incorporated
by reference to the registrant's Quarterly Report on Form 10-Q for
the quarterly period ended January 31, 1999).
4.3 Rights Agreement, dated as of February 23, 1996, by and between
Emisphere Technologies, Inc. and Continental Stock Transfer &
Trust Company (incorporated by reference to the registrant's
Current Report on Form 8-K dated March 5, 1996).
5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (contained in
Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP (regarding the registrant).
23.3 Consent of PricewaterhouseCoopers LLP (regarding Ebbisham
Limited).
24.1 Power of Attorney (Included on signature page).
</TABLE>
<PAGE>
EMISPHERE TECHNOLOGIES, INC.
2,500,000 Shares/1/
Common Stock
UNDERWRITING AGREEMENT
----------------------
, 2000
CHASE SECURITIES INC.
DEUTSCHE BANK SECURITIES INC.
WARBURG DILLON READ LLC
ADAMS, HARKNESS & HILL, INC.
c/o CHASE SECURITIES INC.
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
Emisphere Technologies, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters (as hereinafter defined),
on the terms and subject to the conditions set forth herein, 2,500,000 shares
(the "Underwritten Stock") of its authorized but unissued Common Stock, $0.01
par value per share (the "Common Stock"). The Company proposes to grant to the
Underwriters an option to purchase up to 375,000 additional shares of Common
Stock (the "Option Stock" and, together with the Underwritten Stock, the
"Stock"). The Common Stock is more fully described in the Registration
Statement and the Prospectus (each, as hereinafter defined).
The Company hereby confirms the agreements made with respect to the
purchase of the Stock by the several Underwriters, for whom you are acting,
named in Schedule I hereto (the "Underwriters", which term shall also include
any underwriter purchasing Stock pursuant to Section 3(b) hereof). You
represent and warrant that you have been authorized by each of the other
Underwriters to enter into this Agreement on its behalf and to act for it in the
manner herein provided.
1. Registration Statement. The Company filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3 (No.
333- ) for the registration under the Securities Act of 1933, as amended
(the "Securities Act") of the Stock, and has filed with the Commission such
amendments thereof as may have been required to the date of this Agreement.
Copies of such registration statement and of each amendment thereof, if any,
including the
___________________
1 Plus an option to purchase from the Company up to 375,000 additional
shares to cover over-allotments.
<PAGE>
related Preliminary Prospectus (as hereinafter defined) have heretofore been
delivered by the Company to you.
The term "Preliminary Prospectus" as used in this Agreement means each
prospectus subject to completion filed in connection with the sale of the Stock
or any amendment or supplement thereto and any documents incorporated by
reference therein pursuant to Item 12 of Form S-3 as of the date of such
preliminary prospectus).
The term " Registration Statement" as used in this Agreement means the
registration statement on Form S-3 (No. 333- ) (including all documents,
exhibits, financial schedules and information deemed to be a part thereof
through incorporation by reference of otherwise), in the form in which it became
effective, including the information, if any, deemed to be a part thereof at the
time and on the date of effectiveness (the "Effective Time" and the "Effective
Date", respectively) and contained in the Prospectus pursuant to Rule 430A under
the Securities Act, and any registration statement filed pursuant to Rule 462(b)
of the rules and regulations of the Commission with respect to the Stock (a
"Rule 462(b) registration statement"), and, in the event of any amendment
thereto after the Effective Date, also means (from and after the effectiveness
of such amendment) such registration statement as so amended (including any Rule
462(b) registration statement).
The term "Prospectus" as used in this Agreement means the prospectus,
including the documents incorporated by reference therein, relating to the
Stock first filed with the Commission pursuant to Rule 424(b) and Rule 430A (or
if no such filing is required, as included in the Registration Statement at the
time of effectiveness) and, in the event of any supplement or amendment to such
prospectus after the Effective Date, also means (from and after the filing with
the Commission of such supplement or the effectiveness of such amendment) such
prospectus as so supplemented or amended.
The term "Incorporated Documents" means the documents which at the time are
incorporated by reference in the Registration Statement, any Preliminary
Prospectus, Prospectus or any amendment or supplement thereto.
The Registration Statement, in the form heretofore delivered to the
Underwriters, including all documents incorporated by reference in the
prospectus included therein, have been declared effective by the Commission, and
no post-effective amendment to the Registration Statement or other document with
respect to a document incorporated by reference therein has been filed or
transmitted for filing with the Commission. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants as follows:
(a) The Company is eligible to use Form S-3 under the Securities Act for
registration of the Stock. On its effective date, the Registration Statement
complied, and on the date of the Prospectus, the date on which any post-
effective amendment to the Registration Statement becomes effective, the date on
which any supplement or amendment to the Prospectus is filed with the
Commission, the Closing Date (as hereinafter defined) and any later date on
which Option Stock is to be purchased, the Registration Statement and Prospectus
(and any amendment thereof or supplement thereto) will comply, in all material
respects, with the provisions of the Securities Act and the Securities Exchange
Act of
2
<PAGE>
1934, as amended (the "Exchange Act"), and the rules and regulations of the
Commission thereunder. On the Effective Date, the Registration Statement did
not contain any untrue statement of a material fact and did not omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading; and, on the Effective Date and on the
other dates referred to above, neither the Registration Statement nor the
Prospectus (nor any amendment thereof or supplement thereto) contained or will
contain (as applicable) any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided,
however, that none of the representations and warranties in this subparagraph
(a) shall apply to statements in, or omissions from, the Registration Statement
or the Prospectus made in reliance upon and in conformity with information
herein or otherwise furnished in writing to the Company by or on behalf of the
Underwriters for use in the Registration Statement or the Prospectus. When any
Preliminary Prospectus was first filed with the Commission (whether filed as
part of the Registration Statement or any amendment thereto or pursuant to Rule
424(a) under the Securities Act) and when any amendment thereof or supplement
thereto was first filed with the Commission, such Preliminary Prospectus as
amended or supplemented complied in all material respects with the applicable
provisions of the Securities Act and the rules thereunder and did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading.
(b) The Registration Statement is effective under the Securities Act and
no stop order preventing or suspending the effectiveness of the Registration
Statement or suspending or preventing the use of the Prospectus or any
Preliminary Prospectus has been issued and no proceedings for that purpose have
been instituted or are threatened under the Securities Act. Any required filing
of the Prospectus and any supplement thereto pursuant to Rule 424(b) under the
Securities Act has been or will be made in the manner and within the time period
required by such Rule.
(c) The Incorporated Documents, at the time they were filed with the
Commission or became effective, as the case may be, complied in all material
respects with the requirements of the Exchange Act or the Securities Act, as
applicable, and the rules and regulations thereunder, and any further
Incorporated Documents filed will, when they are filed or become effective, as
the case may be, conform with the requirements of the Exchange Act or the
Securities Act, as applicable, and the rules and regulations thereunder. No
such document when it was filed or became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; and no such further document, when it is filed or becomes effective,
will contain an untrue statement of a material fact or will omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading.
(d) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, has full
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement and Prospectus and as being
conducted, and is duly qualified as a foreign corporation and in good standing
in all jurisdictions in which the character of the property owned or leased or
the nature of the business transacted by it makes qualification necessary
(except where the failure to be so qualified would not have a material adverse
effect on the business, properties, operations, financial condition,
stockholders' equity or results of operations of the Company (a "Material
Adverse Effect")).
3
<PAGE>
(e) The Company does not have any direct or indirect equity interest in
any other corporation, partnership, joint venture, limited liability company or
other entity or any commitment to acquire any such equity interest. The Company
has purchased the interest of Elan Corporation plc in Ebbisham, Ltd., an Irish
corporation, and Ebbisham, Ltd. has since been liquidated by the Company.
(f) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, there has not been any change in the
capital stock of the Company or any materially adverse change in, or development
known to the Company involving a prospective material adverse change in, or
affecting the business, management, properties, financial condition,
stockholders' equity or results of operations of the Company, whether or not
arising from transactions in the ordinary course of business, other than as set
forth in the Prospectus, and since such dates, except in the ordinary course of
business, the Company has not entered into any material transaction not
described in the Prospectus. Since the date of the latest audited financial
statements included or incorporated by reference in the Prospectus, the Company
has not sustained any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, proceeding, order or decree,
otherwise than as set forth or contemplated in the Prospectus.
(g) The Company has good and marketable title in fee simple to all
material real property and good and marketable title to all material personal
property owned by it, in each case free and clear of all liens, encumbrances and
defects of any kind or such as do not materially affect the value or
marketability of such property and do not interfere with the use made and
proposed to be made of such property by the Company. Any material real property
and buildings held under lease by the Company are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company.
(h) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued in accordance with all applicable
federal and state securities laws, rules and regulations, are fully paid and
non-assessable, are free of and were not issued in violation of any preemptive
or similar rights, and conform to the description thereof contained in the
Prospectus or incorporated therein by reference. The Prospectus accurately sets
forth and describes, as of its date, all outstanding options, warrants and other
rights calling for the issuance of, and there are no commitments to issue any
shares of, capital stock of the Company and any security convertible into or
exchangeable or exercisable for capital stock of the Company. Except as
described in the Prospectus, there is no holder of any securities of the Company
or any other person who has the right, contractual or otherwise, to cause the
Company to sell or otherwise issue to him, her or it or permit him, her or it to
underwrite the sale of, any of the Stock.
(i) Each holder of a security of the Company that has any right to require
registration of shares of Common Stock or any other security of the Company
because of the filing of the Registration Statement or consummation of the
transactions contemplated by this Agreement has been notified of the Company's
intent to file the Registration Statement with the Commission and has agreed in
writing to waive such holder's registration rights with respect to the public
offering contemplated thereby and hereby.
4
<PAGE>
(j) The Stock has been duly and validly authorized and, when issued and
sold to the Underwriters as provided herein, will be duly and validly issued,
fully paid and non-assessable, will be free of and will not have been issued in
violation of any preemptive or other similar rights, and will conform to the
description thereof contained in the Prospectus or incorporated therein by
reference. No further approval or authority of any stockholder or the Board of
Directors of the Company will be required for the issuance and sale of the Stock
as provided herein.
(k) The Stock to be sold by the Company has been approved for quotation by
the Nasdaq National Market upon official notice of issuance.
(l) The issuance and sale of the Stock by the Company and the compliance
by the Company with all of the provisions of this Agreement and the consummation
of the transactions contemplated hereby (i) have been duly authorized and
approved by all requisite corporate action on the part of the Company, (ii) do
not and will not as of the Closing Date and any later date on which Option Stock
is to be purchased, conflict with, or result in a breach or violation of,
constitute a default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company pursuant to,
any of the terms and provisions of any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company is a party or by
which the Company or any of its properties or assets are bound or affected
(each, a "Conflict"), (iii) do not and will not as of the Closing Date and any
later date on which Option Stock is to be purchased, result in the violation of
any provision of the Certificate of Incorporation or By-laws of the Company,
(iv) will not result in the violation of any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction of
the Company or any of its properties or assets (each, a "Violation"), and (v) do
not and will not as of the Closing Date and any later date on which Option Stock
is to be purchased require the consent, approval, authorization or other order
of, or registration, filing or qualification with, any such court or
governmental agency or body or other third party (each, a "Consent") except, (A)
in the case of clause (v) as may be required for the registration of the Stock
under the Securities Act and the Exchange Act and compliance with state
securities or Blue Sky laws, all of which have been or will be effected in
accordance with this Agreement and (B) in the case of clause (ii), any such
Conflict that would not, individually or in the aggregate, result in a Material
Adverse Effect or impair or delay the Company's ability to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding agreement of the
Company, enforceable against it in accordance with its terms.
(m) (i) The Company is not in violation of its Certificate of
Incorporation or By-laws, or of any statute, law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any judgment,
injunction, order or decree of any court or governmental agency or body having
jurisdiction over the Company, and (ii) the Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan agreement,
lease or other material agreement or instrument to which it is a party or by
which it or any of its properties may be bound, including, without limitation,
the Lilly Agreement and the Novartis Agreement, each as hereinafter defined,
which default could have a Material Adverse Effect.
(n) The statements set forth in the Registration Statement and Prospectus
(including in the Incorporated Documents), insofar as they are descriptions of
agreements or other legal instruments or documents, or refer to statements of
law or legal conclusions, including without limitation the statements set forth
under the captions "Risk Factors -- Our strategic alliances with Novartis and
Lilly may not
5
<PAGE>
result in commercializable products, " - If we cannot adequately protect our
patent and proprietary rights, our business will suffer", and "-Commercialized
products are subject to continuing regulation" and "Business -Collaboration
Agreements," " -- Patents" and " -- Government Regulation," and in the third
paragraph under "Business - Lead Product Candidates - Salmon Calcitonin" are
accurate summaries thereof and present fairly the information required to be
shown in all material respects.
(o) Except as described in the Prospectus, there are no legal or
governmental proceedings pending to which the Company is a party or to which any
property of the Company is the subject which, if determined adversely to the
Company, would individually or in the aggregate have a Material Adverse Effect;
and, to the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(p) The Company is not and, after giving effect to the sale of the Stock
and the application of the proceeds therefrom as described in the Prospectus,
will not be an "investment company", as such term is defined in the Investment
Company Act of 1940, as amended.
(q) PricewaterhouseCoopers LLP, who have certified certain financial
statements of the Company and delivered their reports with respect to the
audited financial statements and schedules contained or incorporated by
reference in the Registration Statement and the Prospectus, are independent
public accountants as required by the Securities Act and Exchange Act and the
rules and regulations of the Commission thereunder.
(r) The financial statements and schedules of the Company and the related
notes thereto, included or incorporated by reference in the Registration
Statement and the Prospectus present fairly the financial position of the
Company as of the respective dates of such financial statements and schedules,
and the results of operations and changes in financial position of the Company
for the respective periods covered thereby. Such statements, schedules and
related notes have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis and (where audited) as
certified by the independent accountants named in Section 2 (q). No other
financial statements or schedules are required to be included in the
Registration Statement or the Prospectus. The summary and selected financial
data set forth in the Prospectus under the captions "Capitalization" and
"Summary Financial Data" present accurately and fairly the information shown on
the basis stated in Registration Statement.
(s) There are no contracts or other documents required to be described in
the Registration Statement or in any Incorporated Document or the Prospectus or
to be filed as an exhibit to the Registration Statement or to any Incorporated
Document that have not been described or filed as required by the Securities
Act, the Exchange Act or the rules and regulations of the Commission thereunder.
The contracts so described in the Prospectus are in full force and effect on the
date hereof, and neither the Company nor, to the Company's knowledge, any other
party is in breach of or default under any of such contracts where such breach
or default, individually or in the aggregate, would be material to the Company.
Except as described in the Prospectus, the descriptions of such contracts in the
Registration Statement are accurate summaries thereof and fairly present the
information required to be shown in all material respects.
(t) Except as disclosed in the Prospectus, the Company has sufficient and
requisite trademarks, trade names, patent rights, copyrights and licenses and
approvals ("Intellectual Property Rights") to conduct its business as now
conducted (as described in the Prospectus). Without limiting the generality of
the foregoing, the Company is unaware of any limitations with respect to its
Intellectual
6
<PAGE>
Property Rights not described in the Prospectus that would prevent it from (a)
performing its obligations under the Novartis Agreement or Lilly Agreement
(each, as hereinafter defined), and (b) engaging in its contemplated activities,
as described in the Prospectus. The Company does not have any Intellectual
Property Rights material to the operations of the Company's business except as
described in the Prospectus and such Intellectual Property Rights will not
expire earlier than as disclosed in the Prospectus. The Company has no
knowledge of any material infringement by it of Intellectual Property Rights of
others and, to its knowledge, there are no outstanding claims against the
Company regarding Intellectual Property Rights or other infringement which, if
adversely determined, could have a Material Adverse Effect. The Company has no
knowledge of any material infringement by others of its Intellectual Property
Rights.
(u) The Company has taken usual and customary measures for a company of
its size and resources and in its line of business to protect the secrecy,
confidentiality and value of all of its intellectual property (including the
Intellectual Property Rights and any trade secrets necessary or useful in the
conduct of its business) in all material respects.
(v) Except as otherwise disclosed in the Prospectus, the Company now
holds, and at the Closing Date and any later date on which Option Stock is to be
purchased, will hold, all licenses, certificates, approvals and permits from all
state, United States foreign and other regulatory authorities, including but not
limited to the United States Food and Drug Administration (the "FDA") and any
foreign regulatory authorities performing functions similar to those performed
by the FDA (together, "FDA Permits"), that are material to the conduct of the
business of the Company (as such business is currently conducted), except for
such licenses, certificates, approvals and permits the failure of which to hold
would not have a Material Adverse Effect, all of which are valid and in full
force and effect (and there is no proceeding pending or, to the knowledge of the
Company, threatened which may cause any such license, certificate, approval or
permit to be withdrawn, canceled, suspended or not renewed). The Company is
unaware of any reason not described in the Prospectus why it will not be granted
all such FDA Permits as may be necessary in order for it to engage in the
commercialization of the oral heparin products within a reasonable time period.
The Company is not in violation of any law, order, rule, regulation, writ,
injunction or decree of any court or governmental agency or body, applicable to
the investigation of new drugs in animals and humans, including, but not limited
to, those promulgated by the FDA. All of the descriptions in or incorporated by
reference in the Registration Statement and Prospectus of the legal and
governmental proceedings by or before the FDA or any foreign, state or local
government body exercising comparable authority are accurate, complete and fair.
(w) The clinical studies and tests (including, but without limitation, the
animal studies and human clinical trials) conducted by the Company or in which
the Company has participated that are described in the Registration Statement
and Prospectus or the results of which are referred to in the Registration
Statement and Prospectus (and, to the Company's knowledge, such studies and
tests that were conducted on behalf of the Company) were and, if still pending,
are being conducted in all material respects (i) in accordance with the
protocols, procedures and controls for such studies and tests of new medical
devices or drug or biologic products, as the case may be, and (ii) in accordance
with all applicable laws, rules and regulations. The descriptions of the
results of such studies and tests contained or incorporated by reference in the
Registration Statement and Prospectus are accurate, complete and fair, and the
Company has no knowledge of any other studies or tests, the results of which
call into question the results described or referred to in the Registration
Statement and Prospectus. The Company has not received any notices or
correspondence from the FDA, any other governmental agency or
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Institutional Review Board requiring the termination, suspension or modification
of any studies or tests conducted by, or on behalf of, the Company or in which
the Company has participated that are described in the Registration Statement
and Prospectus or the results of which are referred to in the Registration
Statement and Prospectus that would cause the Company to change the descriptions
in the Registration Statement or Prospectus.
(x) The Company is in material compliance with, and has received no notice
or other communication alleging non-compliance with, all applicable foreign,
United States, state and local laws, rules, regulations, treaties, statutes and
codes of any and all governmental authorities.
(y) Without limiting the generality of (x) above, the Company: (i) is in
material compliance with any and all applicable foreign, United States, state
and local laws, rules, regulations, treaties, statutes and codes promulgated by
any and all governmental authorities relating to the protection of human health
and safety, the environment or toxic substances or wastes, pollutants or
contaminates ("Environmental Laws"); (ii) is in material compliance with any and
all applicable foreign, United States, state and local laws, rules, regulations,
treaties, statutes and codes promulgated by any and all governmental authorities
(including pursuant to the Occupational Health and Safety Act) relating to the
protection of human health and safety in the workplace ("Occupational Laws" and,
together with Environmental Laws, "Environmental and Occupational Laws"); (iii)
has received all material permits, licenses or other approvals required of it
under applicable Environmental and Occupational Laws to conduct its business as
currently conducted; and (iv) is in compliance with all terms and conditions of
such permit, license or approval, except with respect to all such cases where
such noncompliance with the applicable Environmental and Occupational Laws or
failure to receive or act in compliance with the required permit, license or
other approval would not, individually or in the aggregate, have a Material
Adverse Effect. No action, proceeding, revocation proceeding, writ, injunction
or claim is pending or, to the Company's knowledge, threatened against the
Company relating to Environmental and Occupational Laws or to the Company's
activities involving Hazardous Materials. The term "Hazardous Materials" as
used in this Agreement means any material or substance that: (A) is prohibited
or regulated by any environmental law, rule, regulation, order, treaty, statute
or code promulgated by any governmental authority, or any amendment or
modification thereto; or (B) has been designated or regulated by any
governmental authority as radioactive, toxic, hazardous or otherwise a danger to
health, reproduction or the environment.
(z) The Company is not or was not engaged in the generation, use,
manufacture, transportation or storage of any Hazardous Materials on any of the
Company's properties or former properties, except where such use, manufacture,
transportation or storage is or was in material compliance with Environmental
Laws. No Hazardous Materials have been treated or disposed of by the Company on
any of the Company's properties or on properties formerly owned or leased by the
Company during the time of such ownership or lease, except in compliance with
Environmental Laws. No spills, discharges, releases, deposits, emplacements,
leaks or disposal of any Hazardous Materials have occurred on or under, or have
emanated from, any of the Company's properties or former properties for which
the cost of remediation would have a material adverse effect on the Company's
business.
(aa) The Company has filed on a timely basis all necessary tax returns
required to be filed with any taxing authority, which returns are complete and
correct and, to the Company's knowledge, are not the subject of any audit
proceedings, and the Company is not in default in the payment of any taxes
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which were payable pursuant to said returns or any assessments with respect
thereto, except for such taxes as are being contested in good faith and as to
which adequate reserves have been provided.
(bb) The Company maintains insurance with insurers of recognized financial
responsibility of the types and in the amounts which are customary in the
businesses in which it is engaged, all of which insurance is in full force and
effect, and there are no claims by the Company under any such policy or
instrument as to which any insurer is denying liability or defending under a
reservation of rights clause.
(cc) Neither the Company nor any agent or employee of the Company has, at
any time during the last five years, (a) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution in
violation of law, or (b) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(dd) Neither the Company nor, to its knowledge, any of its officers,
directors or affiliates has taken, and at the Closing Date and such later date
on which Option Stock is to be purchased, neither the Company, nor, to its
knowledge, any of its officers, directors or affiliates will have taken,
directly or indirectly, any action that has constituted, or might reasonably be
expected to constitute, the stabilization or manipulation of the price of sale
or resale of the Stock.
(ee) The Company has not distributed and, prior to the later to occur of
the Closing Date and completion of the distribution of the Stock, will not
distribute any offering material in connection with the offering and sale of the
Stock other than the Registration Statement, the Preliminary Prospectus, the
Prospectus or other materials, if any, permitted by the Securities Act.
(ff) The execution, delivery and performance by the Company of each of (i)
the Research Collaboration and Option Agreement, dated December 3, 1997, between
the Company and Novartis Pharma AG (the "Novartis Agreement"), (ii) the Research
Collaboration and Option Agreement, dated February 26, 1997, between the Company
and Eli Lilly (the ("Lilly Agreement") and (iii) the Termination Agreement,
dated July 2, 1999, between the Company and Elan plc (the "Elan Termination")
were duly authorized and approved by all requisite corporate and other action on
the part of the Company, and will not constitute or give rise to a Conflict or
Violation or require a Consent, except where any such Conflict or Violation, or
failure to obtain a Consent, would not, individually or in the aggregate, have a
Material Adverse Effect, or impair or delay the Company's ability to consummate
the transactions contemplated thereby.
(gg) The Company has not violated any Federal, state or local law relating
to discrimination in the hiring, promotion or pay of employees nor any
applicable wage or hour laws, nor any provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA") or the rules and regulations promulgated
thereunder. There is (i) no significant unfair labor practice complaint pending
against the Company or threatened against it before the National Labor Relations
Board or any state or local labor relations board, and no significant grievance
or significant arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Company or threatened against it,
(ii) no labor dispute in which the Company is involved nor is any labor dispute
imminent, other than routine disciplinary and grievance matters, and (iii) no
union representation question existing with respect to the employees of the
Company and no union organizing activities are taking place, except, in each
case singly or in the aggregate, such as would not have a Material Adverse
Effect.
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(hh) 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 authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assents is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(ii) The Company has reviewed its operations to evaluate the extent to
which its business or operations will be affected by any residual Year 2000
Problem (that is, any significant risk that computer hardware or software
applications used by the Company will not, in the case of dates or time periods
occurring after December 31, 1999 (including February 29, 2000), function at
least as effectively as in the case of dates or time periods occurring prior to
January 1, 2000). As a result of such review, the Company has no reason to
believe, and does not believe, that (i) there are any issues related to the
Company's preparedness to address any residual Year 2000 Problem that are of a
character required to be described in the Registration Statement or Prospectus
which have not been accurately described therein and (ii) any residual Year 2000
Problem will have a Material Adverse Effect. The Company reasonably believes
that it and material third parties used, served by or collaborating with it,
satisfactorily have addressed or are addressing the Year 2000 Problem and will
address any Residual Year 2000 Problem in a timely manner.
3. Purchase of the Stock by the Underwriters.
(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell to
the Underwriters, and each of the Underwriters agrees to purchase from the
Company, the number of shares of Underwritten Stock set forth opposite each
Underwriter's name in Schedule I. The price at which such shares of
Underwritten Stock shall be sold by the Company and purchased by the several
Underwriters shall be $__ per share. The obligation of each Underwriter to the
Company shall be to purchase from the Company that number of shares of
Underwritten Stock which represents the same proportion of the total number of
shares of Underwritten Stock to be sold by the Company pursuant to this
Agreement as the number of shares of Underwritten Stock set forth opposite the
name of such Underwriter in Schedule I hereto represents of the total number of
shares of Underwritten Stock to be purchased by all Underwriters pursuant to
this Agreement, as adjusted by you in such manner as you deem advisable to avoid
fractional shares. In making this Agreement, each Underwriter is contracting
severally and not jointly; except as provided in paragraphs (b) and (c) of this
Section 3, the agreement of each Underwriter is to purchase only the respective
number of shares of Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 8 or 9 hereof) to purchase and pay for
the number of shares of Stock agreed to be purchased by such Underwriter or
Underwriters, the Company shall immediately give notice thereof to you, and the
non-defaulting Underwriters shall have the right, within 24 hours after the
receipt by you of such notice, to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon between you
and such purchasing Underwriter or Underwriters and upon the terms herein set
forth, all or any part of the shares of Stock which such defaulting Underwriter
or Underwriters agreed to
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purchase. If the non-defaulting Underwriters fail so to make such arrangements
with respect to all or part of such shares, the number of shares of Stock which
each non-defaulting Underwriter is otherwise obligated to purchase under this
Agreement shall be automatically increased on a pro rata basis to absorb the
remaining shares and portion which the defaulting Underwriter or Underwriters
agreed to purchase; provided, however, that the non-defaulting Underwriters
shall not be obligated to purchase the shares and portion which the defaulting
Underwriter or Underwriters agreed to purchase if the aggregate number of such
shares of Stock exceeds 10% of the total number of shares of Stock which all
Underwriters agreed to purchase hereunder. If the total number of shares of
Stock which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the 24-hour period
above referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such shares and portion on the terms herein
set forth. In any such case, either you or the Company shall have the right to
postpone the Closing Date determined as provided in Section 5 hereof for not
more than seven business days after the date originally fixed as the Closing
Date pursuant to said Section 5 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the non-defaulting Underwriters nor the Company shall
make arrangements within the 24-hour periods stated above for the purchase of
all the shares of Stock which the defaulting Underwriter or Underwriters agreed
to purchase hereunder, this Agreement shall be terminated without further act or
deed and without any liability on the part of the Company to any non-defaulting
Underwriter and without any liability on the part of any non-defaulting
Underwriter to the Company. Nothing in this paragraph (b), and no action taken
hereunder, shall relieve any defaulting Underwriter from liability in respect of
any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the Company
hereby grants to the several Underwriters an option to purchase, severally and
not jointly, up to all of the Option Stock from the Company at the same price
per share as the Underwriters shall pay for the Underwritten Stock. Said option
may be exercised only to cover over-allotments in the sale of the Underwritten
Stock by the Underwriters and may be exercised in whole or in part at any time
(but not more than once) on or before the thirtieth day after the date of this
Agreement upon written or telegraphic notice by you to the Company setting forth
the aggregate number of shares of Option Stock as to which the several
Underwriters are exercising the option. Delivery of certificates for the shares
of Option Stock, and payment therefor, shall be made as provided in Section 5
hereof. The number of shares of Option Stock to be purchased by each
Underwriter shall be the same percentage of the total number of shares of the
Option Stock to be purchased by the several Underwriters as such Underwriter is
purchasing of the Underwritten Stock, as adjusted by you in such manner as you
deem advisable to avoid fractional shares.
4. Offering by the Underwriters.
(a) The terms of the public offering by the Underwriters of Stock to be
purchased by them shall be as set forth in the Prospectus. The Underwriters may
from time to time change the public offering price after the closing of the
public offering and increase or decrease the concessions and discounts to
dealers as they may determine.
(b) The information set forth in the last paragraph on the front cover
page and under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Stock filed by the Company
(insofar as such information relates to the Underwriters) constitutes the
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only information furnished by the Underwriters to the Company for inclusion or
incorporation by reference in the Registration Statement, any Preliminary
Prospectus, and the Prospectus, and the Underwriters represent and warrant to
the Company that the statements made therein are correct.
5. Delivery of and Payment for the Stock.
(a) Delivery of certificates for the shares of the Underwritten Stock and
the Option Stock (if the option granted by Section 3(b) hereof shall have been
exercised not later than 5:00 p.m., New York time, on the date two business days
preceding the Closing Date), and payment therefor, shall be made at the office
of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York, at 10:00
a.m., New York time, on the third business day after the date of this Agreement,
or at such time on such other day, not later than seven full business days after
such third business day, as shall be agreed upon in writing by the Company and
you. The date and hour of such delivery and payment are herein called the
"Closing Date".
(b) If the option granted by Section 3(b) hereof shall be exercised after
10:00 a.m., New York time, on the date two business days preceding the Closing
Date, delivery of certificates for the shares of Option Stock, and payment
therefor, shall be made at the office of Morgan, Lewis & Bockius LLP, 101 Park
Avenue, New York, New York, at 10:00 a.m., New York time, on the third business
day after the exercise of such option.
(c) Payment for Stock purchased from the Company shall be made to the
Company or its order by wire transfer in same day funds. Such payment shall be
made upon delivery of certificates for the Stock to you for the respective
accounts of the several Underwriters against receipt therefor signed by you.
Certificates for the Stock to be delivered to you shall be registered in such
name or names and shall be in such denominations as you may request at least one
business day before the Closing Date, in the case of Underwritten Stock, and at
least one business day prior to the purchase thereof, in the case of the Option
Stock. Such certificates will be made available to the Underwriters for
inspection, checking and packaging at the offices of Lewco Securities
Corporation, 2 Broadway, New York, New York 10004 on the business day prior to
the Closing Date or, in the case of the Option Stock, by 3:00 p.m., New York
time, on the business day preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later date on which Option Stock is
purchased for the account of such Underwriter. Any such payment by you shall
not relieve such Underwriter from any of its obligations hereunder.
6. Further Agreements of the Company. The Company covenants and agrees
as follows:
(a) The Company will (i) prepare a Prospectus, in a form approved by Chase
Securities Inc., and file the same pursuant to Rule 424(b) under the Securities
Act not later than the Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if applicable, such
earlier time as may be required by Rule 430A(a)(3) under the Securities Act,
containing information previously ommitted at the Effective Time in reliance on
Rule 430A and (ii) not file any amendment of the Registration Statement or
supplement to the Prospectus of which you shall not
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<PAGE>
previously have been advised and furnished with a copy or to which you shall
have reasonably objected in writing or which is not in compliance with the
Securities Act or the rules and regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the event of (i)
the request by the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Stock for sale in any jurisdiction or (v) the receipt by it of notice of the
initiation or threatening of any proceeding for such purpose. The Company will
make every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal thereof
at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you and
counsel to the Underwriters signed copies of the Registration Statement as
originally filed and of each amendment thereto filed prior to the time the
Registration Statement becomes effective and, promptly upon the filing thereof,
a signed copy of each post-effective amendment, if any, to the Registration
Statement (together with, in each case, all exhibits thereto unless previously
furnished to you and all Incorporated Documents), (ii) as promptly as possible
deliver to you, at such office or offices as you may designate, as many copies
of the Prospectus as you may reasonably request, and (iii) thereafter from time
to time during the period in which a prospectus is required by law to be
delivered by the Underwriters or dealer, likewise send to the Underwriters as
many additional copies of the Prospectus and as many copies of any supplement to
the Prospectus and of any amended prospectus, filed by the Company with the
Commission, as you may reasonably request for the purposes contemplated by the
Securities Act.
(d) If at any time during the period in which a prospectus is required by
law to be delivered by you or a dealer any event relating to or affecting the
Company, or of which the Company shall be advised in writing by you, shall occur
as a result of which it is necessary, in the opinion of counsel for the Company
or of your counsel, to supplement or amend the Prospectus in order to make the
Prospectus not misleading in the light of the circumstances existing at the time
it is delivered to a purchaser of the Stock, the Company will forthwith prepare
and file with the Commission a supplement to the Prospectus or an amended
prospectus so that the Prospectus as so supplemented or amended will not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time such Prospectus is delivered to such
purchaser, not misleading. If, after the public offering of the Stock by the
Underwriters and during such period, the Underwriters shall propose to vary the
terms of offering thereof by reason of changes in general market conditions or
otherwise, you will advise the Company in writing of the proposed variation,
and, if in the opinion either of counsel for the Company or of your counsel such
proposed variation requires that the Prospectus be supplemented or amended, the
Company will forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus setting forth such variation. The Company
authorizes the Underwriters and all dealers to whom any of the Stock may be sold
by the Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
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(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by you or any dealer, in keeping
such qualifications in good standing under said securities or blue sky laws;
provided, however, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified. The Company will, from time to
time, prepare and file such statements, reports, and other documents as are or
may be required to continue such qualifications in effect for so long a period
as you may reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, copies of all periodic and special reports
furnished to stockholders of the Company and of all information, documents and
reports filed with the Commission.
(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the Company
will make generally available to its security holders and to you an earning
statement in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.
(i) The Company agrees to pay all costs and expenses incident to the
performance of its obligations under this Agreement, including all costs and
expenses incident to (i) the preparation, printing and filing with the
Commission and the National Association of Securities Dealers, Inc. ("NASD") of
the Registration Statement, any Preliminary Prospectus and the Prospectus, (ii)
the furnishing to you of copies of any Preliminary Prospectus and of the several
documents required by paragraph (c) of this Section 6 to be so furnished, (iii)
the printing of this Agreement and related documents delivered to you , (iv) the
preparation, printing and filing of all supplements and amendments to the
Prospectus referred to in paragraph (d) of this Section 6, (v) the furnishing to
you of the reports and information referred to in paragraph (g) of this Section
6 and (vi) the printing and issuance of stock certificates, including the
transfer agent's fees.
(j) The Company agrees to reimburse you, for blue sky fees and related
disbursements (including counsel fees and disbursements) paid by you or for your
account or by your counsel in qualifying the Stock under state securities or
blue sky laws and in the review of the offering by the NASD.
(k) The provisions of paragraphs (i) and (j) of this Section are intended
to relieve the Underwriters from the payment of the expenses and costs which the
Company hereby agrees to pay.
(l) The Company hereby agrees that, without the prior written consent of
Chase Securities Inc., the Company will not for a period of 90 days following
the commencement of the public offering of the Stock by the Underwriter,
directly or indirectly, (i) sell, offer, contract to sell, make any short sale,
pledge, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of any shares of Common Stock or any
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securities convertible into or exchangeable or exercisable for or any rights to
purchase or acquire Common Stock or (ii) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic consequences or
ownership of Common Stock, whether any such transaction described in clause (i)
or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (a)
the Stock to be sold to the Underwriters pursuant to this Agreement or (b) any
shares of Common Stock and securities convertible into or exchangeable for or
rights to purchase Common Stock issued pursuant to employee benefit plans,
qualified stock plans or other employee compensation plans existing on the date
hereof or pursuant to options, warrants or rights outstanding on the date
hereof.
(m) The Company will apply the net proceeds from the offering of the Stock
in the manner set forth under "Use of Proceeds" in the Prospectus.
(n) The Company is familiar with the Investment Company Act of 1940, as
amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not and
will not be an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person (including each partner or officer thereof) who controls any
Underwriter within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Securities Act, the Exchange Act, the common law or
otherwise, and the Company agrees to reimburse each such Underwriter and
controlling person for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any Rule 462(b) registration statement), or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus or the Prospectus (as amended or as
supplemented, if the Company shall have filed with the Commission any amendment
thereof or supplement thereto) or the omission or alleged omission to state
therein a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that (1) the indemnity agreements of the Company contained in
this paragraph (a) shall not apply to any such losses, claims, damages,
liabilities or expenses if such statement or omission was made in reliance upon
and in conformity with information furnished as herein stated in writing to the
Company by or on behalf of any Underwriter for use in any Preliminary Prospectus
or the Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, and (2) the indemnity
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agreement contained in this paragraph (a) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter (or to the benefit
of any person controlling any Underwriter) from whom the person asserting any
such losses, claims, damages, liabilities or expenses purchased the Stock which
is the subject thereof if at or prior to the written confirmation of the sale of
such Stock a copy of the Prospectus (or the Prospectus as amended or
supplemented) was not sent or delivered to such person (excluding the documents
incorporated therein by reference) and the untrue statement or omission of a
material fact contained in such Preliminary Prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented), unless the failure is
the result of noncompliance by the Company with paragraph (c) of Section 6
hereof. The indemnity agreements of the Company contained in this paragraph (a)
and the representations and warranties of the Company contained in Section 2
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Stock.
(b) Each Underwriter agrees to indemnify and hold harmless the Company,
each of its officers who signs the Registration Statement on his own behalf or
pursuant to a power of attorney, each of its directors, each other Underwriter
and each person (including each partner or officer thereof) who controls the
Company or any such other Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, the common law or otherwise and to reimburse each of them for
any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or as supplemented, if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished as herein stated in writing to the
Company by or on behalf of such indemnifying Underwriter for use in the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto. The indemnity agreement of each Underwriter contained in
this paragraph (b) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified party
and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and (b)
of this Section 7 agrees that, upon the service of a summons or other initial
legal process upon it in any action or suit instituted against it or upon its
receipt of written notification of the commencement of any investigation or
inquiry of, or proceeding against, it in respect of which indemnity may be
sought on account of any indemnity agreement contained in such paragraphs, it
will promptly give written notice (the "Notice") of such service or notification
to the party or parties from whom indemnification may be sought hereunder. No
indemnification provided for in such paragraphs shall be available to any party
who shall fail so to
16
<PAGE>
give the Notice if the party to whom such Notice was not given was unaware of
the action, suit, investigation, inquiry or proceeding to which the Notice would
have related and was prejudiced by the failure to give the Notice, but the
omission so to notify such indemnifying party or parties of any such service or
notification shall not relieve such indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of such indemnity agreement. Any indemnifying party
shall be entitled at its own expense to participate in the defense of any
action, suit or proceeding against, or investigation or inquiry of, an
indemnified party. Any indemnifying party shall be entitled, if it so elects
within a reasonable time after receipt of the Notice by giving written notice
(the "Notice of Defense") to the indemnified party, to assume (alone or in
conjunction with any other indemnifying party or parties) the entire defense of
such action, suit, investigation, inquiry or proceeding, in which event such
defense shall be conducted, at the expense of the indemnifying party or parties,
by counsel chosen by such indemnifying party or parties which shall be
reasonably satisfactory to the indemnified party or parties; provided, however,
that (i) if the indemnified party or parties reasonably determine that there may
be a conflict between the positions of the indemnifying party or parties and of
the indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled to have counsel chosen by such
indemnified party or parties participate in, but not conduct, the defense. If,
within a reasonable time after receipt of the Notice, an indemnifying party
gives a Notice of Defense and the counsel chosen by the indemnifying party or
parties is reasonably satisfactory to the indemnified party or parties, the
indemnifying party or parties will not be liable under paragraph (a) or (b) of
this Section 7 for any legal or other expenses subsequently incurred by the
indemnified party or parties in connection with the defense of the action, suit,
investigation, inquiry or proceeding, except that (A) the indemnifying party or
parties shall bear the legal and other expenses incurred in connection with the
conduct of the defense as referred to in clause (i) of the proviso to the
preceding sentence and (B) the indemnifying party or parties shall bear such
other expenses as it or they have authorized to be incurred by the indemnified
party or parties. If, within a reasonable time after receipt of the Notice, no
Notice of Defense has been given, the indemnifying party or parties shall be
responsible for any legal or other expenses incurred by the indemnified party or
parties in connection with the defense of the action, suit, investigation,
inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable
or insufficient to hold harmless an indemnified party under paragraph (a) or (b)
of this Section 7, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in paragraph (a) or (b) of this Section 7 (i) in such proportion as
is appropriate to reflect the relative benefits received by each indemnifying
party from the offering of the Stock or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each indemnifying party in connection with
the statements or omissions that resulted in such losses, claims, damages or
liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Stock
received by the Company and the total underwriting discount received by the
Underwriters, as set forth in the table on
17
<PAGE>
the cover page of the Prospectus, bear to the aggregate public offering price of
the Stock. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by each indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation or
by any other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparing to defend or defending against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), the Underwriters shall not be required to contribute any amount in excess
of the underwriting discount applicable to the Stock purchased by it. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) The Company shall not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of such Underwriter and each such controlling
person from all liability arising out of such claim, action, suit or proceeding.
8. Termination. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company if after the
date of this Agreement trading in the Common Stock shall have been suspended, or
if there shall have occurred (i) the engagement in hostilities or an escalation
of major hostilities by the United States or the declaration of war or a
national emergency by the United States on or after the date hereof, (ii) any
outbreak of hostilities or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
calamity, crisis or change in economic or political conditions in the financial
markets of the United States would, in the Underwriters' reasonable judgment,
make the offering or delivery of the Stock impracticable, (iii) suspension of
trading in securities generally or a material adverse decline in value of
securities generally on the New York Stock Exchange, the American Stock
Exchange, or The Nasdaq Stock Market, or limitations on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such exchange or system, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of, or
commencement of any
18
<PAGE>
proceeding or investigation by, any court, legislative body, agency or other
governmental authority which in the Underwriters' reasonable opinion materially
and adversely affects or will materially or adversely affect the business or
operations of the Company, (v) the declaration of a banking moratorium by either
federal or New York State authorities or (vi) the taking of any action by any
federal, state or local government or agency in respect of its monetary or
fiscal affairs which in the Underwriters' reasonable opinion has a material
adverse effect on the securities markets in the United States. If this
Agreement shall be terminated pursuant to this Section 8, there shall be no
liability of the Company to the Underwriters and no liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of the
Company under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 6 hereof.
9. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company of all of its obligations to be performed hereunder
at or prior to the Closing Date or any later date on which Option Stock is to be
purchased, as the case may be, and to the following further conditions:
(a) The Registration Statement shall have become effective, and no
stop order suspending the effectiveness of the Registration Statement or
any part thereof shall have been issued and no proceedings therefor shall
be pending or threatened by the Commission. The Prospectus shall have been
filed with the Commission pursuant to Rule 424(b) within the applicable
time period prescribed by the rules and regulations under the Securities
Act.
(b) The legality and sufficiency of the sale of the Stock hereunder
and the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing,
and the form of the Registration Statement and of the Prospectus (except as
to the financial statements contained therein), shall have been approved at
or prior to the Closing Date by Morgan, Lewis & Bockius LLP, counsel for
the Underwriters.
(c) You shall have received from Paul, Weiss, Rifkind, Wharton &
Garrison, counsel for the Company, and from Darby & Darby, patent counsel
for the Company, opinions, addressed to the Underwriters and dated the
Closing Date, covering the matters set forth in Annex A and Annex B hereto,
respectively, and if Option Stock is purchased at any date after the
Closing Date, additional opinions from each such counsel, addressed to the
Underwriters and dated such later date, confirming that the statements
expressed as of the Closing Date in such opinions remain valid as of such
later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not
misleading, (ii) since the Effective Date, no event has occurred which
should have been set forth in a supplement or amendment to the Prospectus
which has not been set forth in such a supplement or amendment, (iii) since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the capital
stock of the Company or any material adverse change or any development
involving a prospective material adverse change in or affecting the
business, management, properties, financial condition, stockholders' equity
or
19
<PAGE>
results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, and, since such dates,
except in the ordinary course of business, the Company does not have nor
has it entered into any material transaction not described in the
Prospectus, (iv) since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus, the Company has
not sustained any material loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus,
(v) the Company does not have any material contingent obligations which are
not disclosed in the Registration Statement and the Prospectus, (vi) there
are not any pending or known threatened legal proceedings to which the
Company is a party or of which property of the Company is the subject which
are material and which are not disclosed in the Registration Statement and
the Prospectus, (vii) there are not any franchises, contracts, leases or
other documents which are required to be filed as exhibits to the
Registration Statement which have not been filed as required, (viii) the
representations and warranties of the Company herein are true and correct
in all material respects as of the Closing Date or any later date on which
Option Stock is to be purchased, as the case may be, and (ix) there has not
been any material change in the market for securities in general or in
political, financial or economic conditions from those reasonably
foreseeable as to render it impracticable in your reasonable judgment to
make a public offering of the Stock, or a material adverse change in market
levels for securities in general (or those of companies in particular) or
financial or economic conditions which render it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any later date
on which Option Stock is purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the Chief Executive
Officer and the Chief Financial Officer of the Company, stating that the
respective signers of said certificate have carefully examined the
Registration Statement in the form in which it originally became effective
and the Prospectus contained therein and any supplements or amendments
thereto, and that the statements included in clauses (i) through (viii) of
paragraph (d) of this Section 9 are true and correct.
(f) You shall have received from PricewaterhouseCoopers LLP, a letter
or letters, addressed to the Underwriters and dated the Closing Date and
any later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the
meaning of the Securities Act and the applicable published rules and
regulations thereunder and based upon the procedures described in their
letter delivered to you concurrently with the execution of this Agreement
(the "Original Letter"), but carried out to a date not more than three
business days prior to the Closing Date or such later date on which Option
Stock is purchased (i) confirming, to the extent true, that the statements
and conclusions set forth in the Original Letter are accurate as of the
Closing Date or such later date, as the case may be, and (ii) setting forth
any revisions and additions to the statements and conclusions set forth in
the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter or
to reflect the availability of more recent financial statements, data or
information. The letters shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties
of the Company which, in your sole judgment, makes it impractical or
inadvisable to proceed with the public offering of the Stock or the
purchase of the Option Stock as contemplated by the Prospectus.
20
<PAGE>
(g) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 6 hereof.
(h) Prior to the Closing Date, the Stock to be issued and sold by the
Company shall have been duly approved for quotation by the Nasdaq National
Market upon official notice of issuance.
(i) On or prior to the Closing Date, you shall have received from all
directors and executive officers of the Company agreements, in form
reasonably satisfactory to Chase Securities Inc., stating that without the
prior written consent of Chase Securities Inc., such person will not, for a
period of 90 days following the commencement of the public offering of the
Stock by the Underwriters, directly or indirectly, sell, offer, contract to
sell, transfer the economic risk of ownership in, make any short sale,
pledge, or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire Common Stock, subject to such exceptions as
Chase Securities Inc. shall agree.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Morgan, Lewis & Bockius LLP, counsel for the
Underwriters, shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with any
provision hereof other than by reason of you default, the Company will reimburse
the Underwriters upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
it in connection with the transactions contemplated hereby.
10. Conditions of the Obligation of the Company. The obligation of the
Company to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company by giving notice to
you. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that in the event of any such termination the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of
21
<PAGE>
the Company under this Agreement, including all costs and expenses referred to
in paragraphs (i) and (j) of Section 6 hereof.
11. Reimbursement of Certain Expenses. In addition to their other
obligations under Section 7 of this Agreement, the Company hereby agrees to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of the Company and the several Underwriters and, with respect to
the provisions of Section 7 hereof, the several parties (in addition to the
Company and the several Underwriters) indemnified under the provisions of said
Section 7, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give to
any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained. The
term "successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the Stock from the Underwriters.
13. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Chase Securities Inc., One Bush Street,
San Francisco, CA 04104; and if to the Company, shall be mailed, telegraphed or
delivered to it at its office, 765 Old Saw Mill River Road, Tarrytown, New York
10591, Attention: President. All notices given by telegraph shall be promptly
confirmed by letter.
14. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or its directors or officers, and (c) delivery and payment for the
Stock under this Agreement; provided, however, that if this Agreement is
terminated prior to the Closing Date, the provisions of paragraphs (1) of
Section 6 hereof shall be of no further force or effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York.
22
<PAGE>
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the Company
and the Underwriters in accordance with its terms.
Very truly yours,
EMISPHERE TECHNOLOGIES, INC.
By:__________________________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written on behalf
of themselves and the other several
Underwriters named in Schedule I
hereto.
CHASE SECURITIES INC.
DEUTSCHE BANK SECURITIES INC.
WARBURG DILLON READ LLC
ADAMS, HARKNESS & HILL, INC.
As representatives of the several
Underwriters
By: CHASE SECURITIES INC.
By:_________________________________
Name:
Title:
23
<PAGE>
SCHEDULE I
EMISPHERE TECHNOLOGIES, INC.
Shares of
Underwriter Underwritten Stock
- ----------- ------------------
Chase Securities Inc........................
Deutsche Bank Securities Inc................
Warburg Dillon Read LLC.....................
Adams, Harkness & Hill, Inc.................
-----------
Total........................ 2,500,000
-----------
24
<PAGE>
Exhibit 5.1
February , 2000
Emisphere Technologies, Inc.
765 Old Saw Mill River Road
Tarrytown, New York 10591
Re: Emisphere Technologies, Inc.
Registration Statement on Form S-3
Ladies and Gentlemen:
In connection with the above-captioned Registration Statement on Form S-3
(the "Registration Statement"), filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations promulgated under it (the "Rules"), we have been
requested by Emisphere Technologies, Inc., a Delaware corporation (the
"Company"), to furnish our opinion as to the legality of the 2,875,000 shares
(the "Shares") offered by the Company (including up to 375,000 shares issuable
by the Company upon exercise of the Underwriters' over-allotment option) of
its Common Stock, par value $.01 per share (the "Common Stock", and together
rights under the Company's Rights Agreement, dated February 23, 1996, the
"Offered Securities") registered under the Registration Statement.
In connection with furnishing this opinion, we have reviewed the
Registration Statement (including all amendments to it), the form of the
Underwriting Agreement included as Exhibit 1.1 to the Registration Statement
(the "Underwriting Agreement"), originals, or copies certified or otherwise
identified to our satisfaction, of the Company's Certificate of Incorporation
and By-laws, as amended to date, and records of certain of the Company's
corporate proceedings. We have also examined and relied upon representations
as to factual matters (both express and implied) contained in certificates of
officers of the Company, and have made such other investigations of fact and
law and have examined and relied upon the originals, or copies certified or
otherwise identified to our satisfaction, of those other certificates,
records, agreements, instruments and documents, as in our judgment are
necessary or appropriate to render our opinion.
In rendering the opinions stated, we have assumed, without independent
investigation, the genuineness of all signatures, the legal capacity of all
individuals who have executed any of the documents reviewed by us, the
authenticity of all documents submitted to us as originals, the conformity to
the original documents of all documents submitted to us as certified,
photocopied, reproduced or conformed copies, the authenticity of all such
latter documents and that the statements regarding matters of fact in the
certificates, records, agreements, instruments and documents that we have
examined are accurate and complete.
Based on the above, and subject to the assumptions, exceptions and
qualifications set forth herein, we are of the opinion that the Offered
Shares, when issued, delivered and paid for as contemplated in the
Registration Statement and the Underwriting Agreement will be duly authorized,
validly issued, fully paid and nonassessable.
Our opinion is limited to the General Corporation Law of the State of
Delaware. Our opinion is rendered only with respect to the laws, and the
rules, regulations and orders under them, which are currently in effect.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to our name under the caption "Legal
Matters" in the prospectus included in the Registration Statement. In giving
this consent, we do not agree that we come within the category of persons
whose consent is required by the Act or the Rules.
Very truly yours,
/s/ Paul, Weiss, Rifkind, Wharton &
Garrison
Paul, Weiss, Rifkind,Wharton & Garrison
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use and incorporation by reference in this
registration statement on Form S-3 of our report dated, September 30, 1999,
except for Note 15 as to which the date is November 2, 1999, related to the
financial statements which are included herein and which appear in Emisphere
Technologies, Inc.'s Annual Report, as amended, on Form 10-K/A for the year
ended July 31, 1999. We also consent to the reference to our firm under the
caption "Experts" in such registration statement.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 14, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use and incorporation by reference in this
registration statement on Form S-3 of our report dated, September 10, 1999,
relating to the financial statements of Ebbisham Limited which are included
herein and which appear in Emisphere Technologies, Inc.'s Annual Report, as
amended, on Form 10-K/A for the year ended July 31, 1999. We also consent to
the reference to our firm under the caption "Experts" in such registration
statement.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 14, 2000
