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As filed with the Securities and Exchange Commission on September 4, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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ADVANCED TISSUE SCIENCES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 14-1701513
(State or other jurisdiction of (I.R.S. Employer
incorporation ) Identification Number)
</TABLE>
10933 NORTH TORREY PINES ROAD
LA JOLLA, CALIFORNIA 92037
(619) 450-5730
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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ARTHUR J. BENVENUTO
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
ADVANCED TISSUE SCIENCES, INC.
10933 NORTH TORREY PINES ROAD
LA JOLLA, CALIFORNIA 92037
(619) 450-5730
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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Copies to:
RICHARD A. FINK, ESQ.
Brobeck, Phleger & Harrison LLP
38 Technology Drive
Irvine, California 92618
(949) 790-6300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM
TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are 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. [X]
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. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED PER SHARE(1) OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per share 7,850,000 $2.03125 $15,945,312 $4,704
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee
required by Section 6(b) of the Securities Act and computed pursuant to
Rule 457(c) under the Securities Act based upon the average of the high
and low prices of the Company's Common Stock on September 2, 1998, as
reported on The Nasdaq National Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION
8(A), MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
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PROSPECTUS
(SUBJECT TO COMPLETION, DATED SEPTEMBER ___, 1998)
ADVANCED TISSUE SCIENCES, INC.
7,850,000 SHARES
COMMON STOCK
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THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6 FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
This Prospectus relates to the resale from time to time by certain
stockholders of the Company or by pledgees, donees, transferees or other
successors in interest that receive such shares as a gift, partnership
distribution or other non-sale related transfer (the "Selling Stockholders") of
up to 7,850,000 shares of Common Stock, par value $0.01 per share (the "Common
Stock"), of Advanced Tissue Sciences, Inc. (the "Company"), as may be issuable
by the Company upon conversion of the shares of the Company's Series B
Convertible Preferred Stock (the "Series B Preferred Stock") held by the Selling
Stockholders and as a form of payment of dividends on the Series B Preferred
Stock. The shares of Common Stock as to which this Prospectus relates are
hereinafter referred to as the "Shares." The Company will receive no part of the
proceeds of sales of the Shares by the Selling Stockholders. The Shares are
being registered by the Company pursuant to registration rights granted to the
Selling Stockholders.
On July 10, 1998, pursuant to a Securities Purchase Agreement dated as
of that date (the "Purchase Agreement"), the Company sold 500 shares of the
Series B Preferred Stock for an aggregate purchase price of $25,000,000 in a
private placement to a group of accredited investors in a transaction exempt
from the registration requirements of the Securities Act. The shares of Series B
Preferred Stock are convertible into shares of Common Stock. Each share of
Series B Preferred Stock is convertible into that number of shares of Common
Stock equal to (i) such share's stated value of $50,000 plus any accrued and
unpaid dividends divided by (ii) an initial conversion price of $4.774. The
conversion price is subject to adjustment as follows: the conversion price will
be increased by one-half the amount by which the average of the 15 lowest
average daily trading prices (as defined pursuant to the provisions of the
Series B Preferred Stock) of the Common Stock during the 45 trading days prior
to the date of conversion (the "Trading Price") exceeds $7.956 per share;
conversely, should the Trading Price (as defined) prior to a conversion be equal
to or below $3.58 per share, the conversion price will be such Trading Price.
Notwithstanding the foregoing, if the Company consummates certain types of
equity financings, including, without limitation, a drawdown under its existing
$50 million equity line, thereafter the conversion price will be subject to
adjustment as follows: the conversion price will be increased by one-half the
amount by which the Trading Price exceeds $7.956 per share; conversely, (i)
should the Trading Price prior to a conversion be less than $7.956 per share but
greater than $4.774 per share, the conversion price will be $4.774 per share and
(ii) if the Trading Price prior to a conversion is equal to or below $4.774 per
share, the conversion price will be such Trading Price.
A holder will not be permitted at any time to convert an amount of
Series B Preferred Stock which would result in the holder beneficially owning
(other than shares of Common Stock beneficially owned through ownership of
Series B Preferred Stock) more than 4.99% of the then outstanding capital stock
of the Company absent 61 day prior written waiver by such holder. Subject to
certain conditions, including the Common Stock trading above $9.548 per share,
the Company may elect any time after one year from the issue date to require
conversion of some or all of the Series B Preferred Stock. Any outstanding
balance of Series B Preferred Stock is subject to mandatory conversion or, at
the option of the Company, redemption three years from the date of issuance,
subject to extension upon certain events. Each share of the Series B Preferred
Stock bears cumulative dividends at the rate of 5% (i.e., $2,500) per annum
payable on the first day of each calendar quarter beginning on the earlier of
(i) the first day of the calendar quarter immediately following the date of this
Prospectus or (ii) January 1, 1999. Dividends are payable in shares of Common
Stock (at the then prevailing market price) or, at the option of the Company, in
cash. Subject to certain conditions, the Company has a right beginning in
January 1999 to require the holders of the Series B Preferred Stock to purchase
up to an additional 500 shares of Series B Preferred Stock at a purchase price
of $50,000 per share.
Issuance by the Company of shares of Common Stock upon conversion of
the Series B Preferred Stock equal to or in excess of an aggregate of 7,864,834
shares (20% of the number of shares of Common Stock outstanding on the date of
issuance
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of the Series B Preferred Stock) is subject to the Company's compliance with
Rule 4460(i) of The Nasdaq Stock Market, which would require approval of the
Company's stockholders prior to such issuance.
The Selling Stockholders have not advised the Company of any specific
plans for the distribution of the Shares covered by this Prospectus. It is
anticipated, however, that the Shares may be offered by the Selling Stockholders
from time to time in one or more transactions on The Nasdaq National Market, in
privately negotiated transactions at such prices as may be agreed upon, or in a
combination of such methods of sale. The Selling Stockholders may effect such
transactions by selling the Shares to or through broker-dealers and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders or the purchasers of the Shares for
whom such broker-dealers may act as agent or to whom they sell as principal or
both (which compensation to a particular broker-dealer might be in excess of
customary commissions). The price at which any of the Shares may be sold, and
the commissions, if any, paid in connection with any such sale, are unknown and
may vary from transaction to transaction. The Company will pay all expenses
incident to the offering and sale of the Shares to the public other than any
commission and discounts of underwriters, dealers or agents and any transfer
taxes. See "Selling Stockholders" and "Plan of Distribution."
The Common Stock is listed on The Nasdaq National Market under the
symbol "ATIS." On September 2, 1998 the last sale price of the Common Stock
was 1.96875 per share.
The Securities and Exchange Commission (the "Commission") may take the
view that, under certain circumstances, the Selling Stockholders and any
broker-dealers or agents that participate with the Selling Stockholders in the
sale of the Shares may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). Commissions,
discounts or concessions received by any such broker-dealer or agent may be
deemed to be underwriting commissions under the Securities Act. The Company and
the Selling Stockholders have agreed to certain indemnification arrangements.
See "Plan of Distribution."
THE DATE OF THIS PROSPECTUS IS SEPTEMBER __, 1998.
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NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE BY THIS
PROSPECTUS TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED
IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
STOCKHOLDER OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES
OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SHARES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE OF OR OFFER TO SELL THE SHARES MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information statements
and other information may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, NW, Washington, D.C. 20549, and at the following Regional Offices of the
Commission: New York Regional Office, Seven World Trade Center, Suite 1300, New
York, New York 10048 and Chicago Regional Office, Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained by mail at prescribed rates from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, NW, Washington,
D.C. 20549. The Commission maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov. The Common Stock of the Company is listed on The Nasdaq
National Market, and such reports, proxy and information statements and other
information concerning the Company may be inspected at the offices of Nasdaq
Operations, 1735 K Street, NW, Washington, D.C., 20006.
ADDITIONAL INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, with respect to the Company and the shares of Common Stock offered
hereby, reference is hereby made to the Registration Statement. The Registration
Statement may be inspected at the public reference facilities maintained by the
Commission at the addresses set forth in the preceding paragraph. Statements
contained herein concerning any document filed as an exhibit are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement. Each such statement is
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company (File
No. 0-016607) pursuant to the Exchange Act are hereby incorporated by reference
in this Prospectus:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
(2) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998;
(3) The Amended Quarterly Report on Form 10-Q/A for the quarter ended
March 31, 1998, filed with the Commission on August 27, 1998;
(4) The definitive Proxy Statement for the Company's 1998 Annual
Meeting of Stockholders filed with the Commission on April 17, 1998 pursuant to
Regulation 14A;
(5) The Company's Current Report on Form 8-K filed with the Commission
on July 16, 1998;
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(6) The Company's Registration Statement on Form 8-A dated July 28,
1992;
(7) The Company's Registration Statement on Form 8-A dated January 6,
1995; and
(8) All other reports filed by the Company pursuant to Sections 13(a)
or 15(d) of the Exchange Act since December 31, 1997.
All reports and other documents subsequently filed by the Company
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 shall be deemed
to be incorporated by reference into this Prospectus, to the extent required,
and to be a part of this Prospectus from the date of filing of such reports and
documents.
Any statement contained in a document incorporated by reference into
this Prospectus shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon written and oral request of such person, a copy of any or all of
the foregoing documents incorporated by reference into this Prospectus (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents). Requests for such documents
should be submitted in writing to Investor Relations, Advanced Tissue Sciences,
Inc., 10933 North Torrey Pines Road, La Jolla, CA 92037, or by telephone at
(619) 450-5730.
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THE COMPANY
THE FOLLOWING IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, INCLUDING
THE INFORMATION UNDER "RISK FACTORS."
Advanced Tissue Sciences, Inc. (the "Company") is a leading tissue
engineering company engaged in the development of human-based tissue products
for therapeutic applications. The Company is currently focusing its efforts
primarily on skin, cartilage and cardiovascular products. Utilizing principles
of cell biology, bioengineering, biochemistry, and polymer and transplant
science, the Company has developed and is applying a proprietary core technology
which permits living human cells to be cultured ex vivo in a manner that allows
the cells to develop and assemble into a functioning three-dimensional tissue.
With this proprietary technology, the Company has successfully replicated a
variety of human tissues. The Company's two skin products, Dermagraft(R) and
Dermagraft-TC(R), are currently being sold in certain markets and the Company
has other products in various stages of development.
The Company's objective is to redefine tissue repair and
transplantation by developing, manufacturing and marketing products produced
through tissue engineering. The Company's product strategy is to utilize its
patented core technology to develop multiple products which address unmet
therapeutic needs or offer improved, cost-effective alternatives to current
treatment modalities. By building upon its base of scientific knowledge through
the continued application of its proprietary core technology, the Company
believes it will be able to achieve significant synergies in the development,
clinical testing and manufacture of successive tissue products. In addition, the
Company is focusing its development programs on products which are currently
being or are expected to be regulated as medical devices. Medical devices are
generally subject to a shorter regulatory approval process than biologics or
pharmaceuticals.
Leading the Company's product development efforts are its therapeutic
skin products which address the burn and skin ulcer markets. These products are
based on three-dimensional, human tissues designed by the Company as temporary
or permanent replacements for human dermis. These products were developed for
conditions where the dermis (the inner skin layer) has been injured or
destroyed, such as in severe burns and chronic skin ulcers. The dermis is
essential to normal skin function and healing and, unlike epidermis (the outer
skin layer), does not regenerate into normal tissue after injury.
DERMAGRAFT-TC
In March 1997, the Company received marketing approval from the U.S.
Food and Drug Administration (the "FDA") for its first therapeutic product,
Dermagraft-TC, a temporary covering for severe, full-thickness burns. In
addition, in October 1997, the Company received FDA approval to market
Dermagraft-TC for partial-thickness burns in the United States. Dermagraft-TC is
currently being marketed for burns by Advanced Tissue Sciences through a direct
sales force in the United States. Dermagraft-TC will be marketed throughout the
rest of the world for certain wound care applications under a recently expanded
joint venture with Smith & Nephew plc ("Smith & Nephew") and, in October 1998,
the joint venture will also begin marketing Dermagraft-TC for burns in the
United States. Dermagraft-TC was also approved for sale in Canada for severe and
partial-thickness burns in January 1998.
Dermagraft-TC consists of a dermal tissue with an ultra-thin synthetic
covering that acts as a protective cover. In full-thickness burns, Dermagraft-TC
is designed to help retain fluids and reduce the risk of infection until a
sufficient amount of the patient's own skin becomes available for grafting. In
partial-thickness burns, Dermagraft-TC, as compared to silver sulfadiazine, has
been shown to significantly reduce pain and to heal burns faster and with less
scarring.
Of the approximately 1.2 million people who suffer burn injuries
annually in the United States, up to 13,000 are severely burned and require skin
grafts. Dermagraft-TC was initially approved to address the approximately 1,500
severely burned patients with burns exceeding 20% body surface area. Another
30,000 to 40,000 burn victims, often children, suffer the partial to mid-dermal
burns also being addressed by Dermagraft-TC. These burns frequently result from
household hazards such as scalds from hot liquids, faulty heating pads or misuse
of ignition fluids.
DERMAGRAFT
Dermagraft for the treatment of diabetic foot ulcers was approved for
sale in Canada in August 1997 and was introduced in the United Kingdom and
several other European countries late in 1997 through the joint venture with
Smith & Nephew. The Company also submitted a Premarket Approval ("PMA")
application to the FDA for approval to market Dermagraft for the treatment of
diabetic foot ulcers in the United States. In January 1998, an FDA advisory
panel recommended approval of
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Dermagraft with the condition that the Company perform a post-marketing study to
confirm efficacy and provide physician training. However, in June 1998, the FDA
decided the PMA application was not approvable without supportive data from an
additional controlled clinical trial. The Company has recently received approval
from the FDA allowing it to begin the requested clinical trial. Based on the
clinical plan, the Company believes the additional data could be available for
submission in twelve to eighteen months after trial initiation, assuming a
reasonable rate of patient enrollment and data consistent with its previous PMA
submission.
Dermagraft is a dermal replacement product grown on a bioabsorbable
scaffold. It is designed to provide a healthy, metabolically active dermal
matrix in chronic ulcers to support wound closure. Healing skin ulcers faster
can potentially reduce the risk of infection (and, in the case of diabetic foot
ulcers, the subsequent risk of amputation), the need for skin grafting and
reconstructive procedures. Chronic skin ulcers that may be addressed by
Dermagraft include diabetic foot ulcers, venous ulcers and pressure ulcers.
Approximately 800,000 diabetic foot ulcers are estimated to be treated in the
United States each year, approximately half of which are believed to represent
the target market for Dermagraft. It is estimated that approximately 1.5 million
patients are affected by pressure ulcers and approximately 500,000 patients are
diagnosed with venous ulcers in the United States each year.
Under the joint venture agreement with Smith & Nephew, Advanced Tissue
Sciences has principal responsibility for manufacturing and Smith & Nephew has
primary responsibility for the worldwide sales and marketing of Dermagraft.
Smith & Nephew is a world leader in wound care sales with an established sales
force in over 90 countries. Smith & Nephew is known for its comprehensive
training and customer education programs, and has successfully launched several
advanced wound care products. The joint venture also expects to begin clinical
trials of Dermagraft in the treatment of venous ulcers and pressure ulcers.
ORTHOPEDICS
Through a separate joint venture with Smith & Nephew, the Company is
developing tissue engineered cartilage for orthopedic applications utilizing its
proprietary three-dimensional culture system. Over the past several years, most
of the joint venture's activities have been directed toward the development of a
human tissue engineered articular cartilage product. Tissue engineered articular
cartilage could provide a significant opportunity to treat patients at an
earlier stage of joint degeneration, thereby delaying, or in some cases
eliminating, the need for total joint replacements. The pace of development of a
human-based, tissue engineered articular cartilage slowed during 1997 as a
result of the Company's focus on optimizing the product. Efforts to optimize the
product are continuing in 1998 as the basis for advancing into clinical trials.
The joint venture has also developed prototypes for a tissue engineered meniscus
which it expects to move into preclinical studies during 1998. There are over
1.2 million arthroscopic procedures for repair of the knee, including procedures
involving articular cartilage, meniscus and ligament performed annually in the
United States.
CARDIOVASCULAR
Through the use of its tissue engineering technology, Advanced Tissue
Sciences is working on developing blood vessels which will grow and repair
normally. The Company's tissue engineered products may provide enhanced
biocompatibility and improved patency with a reduced need for the anticoagulant
drugs required with currently available products. In October 1997, Advanced
Tissue Sciences was awarded a $2 million Advanced Technology Program grant from
the National Institute of Standards and Technology. In collaboration with the
Department of Bioengineering at the University of California, San Diego
("UCSD"), the Company is leading a multi-disciplinary effort to design,
construct and evaluate tissue engineered vascular grafts produced from cells
grown on a biocompatible scaffold. The grant is structured to support this
development program over a three-year period. The project will integrate current
advances in cell culture, bioreactor technology, biomaterials and in vivo blood
vessel mechanics to create a unique, living tissue replacement for blood
vessels. The successful integration of these technologies through the
collaboration between the Company and UCSD could lead to the development of
grafts to treat coronary and peripheral artery vascular diseases.
In the United States, over 900,000 people die each year from
cardiovascular disease. More specifically, 14 million people suffer from
coronary artery disease and over 500,000 coronary artery bypass procedures are
performed annually in the United States. Likewise, each year approximately
70,000 patients undergo surgery for the replacement of peripheral vascular
grafts.
SMITH & NEPHEW PLC
In April 1996, the Company entered into an agreement with Smith &
Nephew to form a joint venture for the worldwide commercialization of Dermagraft
in the treatment of diabetic foot ulcers (the "Dermagraft Joint Venture"). Smith
& Nephew is a
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worldwide healthcare company with extensive sales and distribution capabilities.
It develops, manufactures and markets a wide range of tissue repair products,
principally addressing the areas of bone, joints, skin and other soft tissue. In
January 1998, Advanced Tissue Sciences and Smith & Nephew expanded the
Dermagraft Joint Venture to include venous ulcers, pressure ulcers, burns and
other skin wounds. At that time, the Company retained the exclusive right to
market Dermagraft-TC for full and partial-thickness burns in the United States,
while the Dermagraft Joint Venture was granted the right to market Dermagraft-TC
for other skin wounds. In August 1998, the Company and Smith & Nephew expanded
the Dermagraft Joint Venture to include exclusive rights to Dermagraft-TC for
full and partial-thickness burns in the United States effective October 1, 1998.
As consideration for entering into the Dermagraft Joint Venture,
Advanced Tissue Sciences received a $10 million up front fee in 1996 and Smith &
Nephew made a $20 million equity investment in the Company in January 1998. The
Company will also receive an additional $15 million by January 1999 and could
receive, subject to the achievement of certain milestones related to regulatory
approvals, reimbursement and sales levels, additional payments of up to $136
million. Advanced Tissue Sciences and Smith & Nephew are sharing equally in the
revenues and expenses of the Dermagraft Joint Venture, except for $6 million in
clinical and regulatory costs, and certain costs associated with the
commercialization of Dermagraft-TC, which are to be funded by Advanced Tissue
Sciences.
In 1994, Smith & Nephew and Advanced Tissue Sciences entered into a
separate joint venture for the worldwide development, manufacture and marketing
of human tissue engineered cartilage for orthopedic applications (the "Cartilage
Joint Venture"). Under the terms of the Cartilage Joint Venture agreement,
Advanced Tissue Sciences will be responsible for supervising the manufacturing
of cartilage tissue products. The Cartilage Joint Venture will execute the
research and development program, develop a worldwide marketing plan, and will
utilize Smith & Nephew's established selling and distribution network to market
the products. Smith & Nephew Endoscopy, a world leader in arthroscopy, is
separately responsible for developing and manufacturing instrumentation that
could be used for the arthroscopic insertion of the joint venture's cartilage
products. As specified in the Cartilage Joint Venture agreement, Smith & Nephew
contributed the first $10 million in Cartilage Joint Venture funding and the
Company contributed certain technology licenses.
Advanced Tissue Sciences, Inc. was incorporated under the laws of the
State of Delaware in 1987. The Company maintains its executive offices at 10933
North Torrey Pines Road, La Jolla, California 92037, and its telephone number at
that address is (619) 450-5730.
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RISK FACTORS
THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE
CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND UNCERTAINTIES. THE
STATEMENTS CONTAINED IN THIS PROSPECTUS THAT ARE NOT PURELY HISTORICAL ARE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT AND SECTION 21E OF THE EXCHANGE ACT, INCLUDING WITHOUT LIMITATION,
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, ESTIMATES, INTENTIONS
AND STRATEGIES ABOUT THE FUTURE. WORDS SUCH AS "ANTICIPATES," "EXPECTS,"
"INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES," VARIATIONS OF SUCH WORDS
AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE
SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO
PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR
FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS, ELSEWHERE IN
THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. THE
COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
POTENTIAL INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS, AS WELL AS
THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND IN THE
DOCUMENTS INCORPORATED BY REFERENCE, BEFORE MAKING A DECISION TO INVEST IN THE
SHARES OFFERED HEREBY.
UNCERTAINTY OF MARKET ACCEPTANCE
The Company believes that its growth over the next several years will
depend in large part upon broad market acceptance of Dermagraft for the
treatment of diabetic foot ulcers and, to a lesser extent, of Dermagraft-TC in
the United States and key international markets targeted by the Company and
Smith & Nephew. In January 1998, an FDA Advisory Panel recommended approval of
the Company's PMA application for Dermagraft for the treatment of diabetic foot
ulcers subject to certain conditions. However, the FDA elected not to follow the
panel's recommendation and requested that an additional controlled clinical
trial be completed by the Company in support of its PMA application for
Dermagraft in the treatment of diabetic foot ulcers. No assurance can be given
that the Company will successfully complete the clinical trial, the clinical
trial will be completed within any specific timeframe or the Company will obtain
FDA or other regulatory approvals of Dermagraft (or that any such approvals will
be obtained on a timely basis). (See "Government Regulation.") The Company has
received FDA approval to market Dermagraft-TC and has been marketing that
product since March 1997. Accordingly, the commercial acceptance of Dermagraft
for the treatment of diabetic foot ulcers has yet to be tested and Dermagraft-TC
has been marketed and sold by the Company for only a limited period of time.
Each of these products is based on new and innovative technologies and
there can be no assurance that such products will be broadly accepted by either
the medical community or the general population as alternatives to existing
methods of treatment. The acceptance of the Company's products may be adversely
affected by their respective cost, concerns related to efficacy, the
effectiveness of alternative methods of treatment and the insufficiency of
third-party reimbursement. Any future reported adverse events or other
unfavorable publicity involving patient outcomes from use of the Company's
products or FDA enforcement actions could also adversely affect acceptance of
such products. The Company has limited experience marketing or obtaining
third-party reimbursement for its products.
In addition, the Company will have to establish an effective internal
sales and marketing organization and/or rely on Smith & Nephew or on
arrangements with others to market its products domestically and
internationally. Moreover, in the near term, the Company's success in generating
market acceptance of Dermagraft and Dermagraft-TC will depend in large part on
the marketing efforts of Smith & Nephew. The Company cannot control the amount
and timing of resources Smith & Nephew may devote to marketing and selling the
Dermagraft and Dermagraft-TC products, and there can be no assurance that Smith
& Nephew will perform its obligations under the Dermagraft Joint Venture as
expected. The failure of the Company to achieve broad acceptance of Dermagraft
for the treatment of diabetic foot ulcers and, to a lesser extent, Dermagraft-TC
would have a material adverse effect on the Company's business, financial
condition and results of operations.
ABSENCE OF PROFITABLE OPERATIONS; NEED FOR ADDITIONAL FUNDS
To date, the Company has experienced significant operating losses in
funding the research, development, testing and marketing of its products and
expects to continue to incur substantial operating losses. The Company has
incurred cumulative
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net operating losses of $198.1 million through June 30, 1998. The Company's
ability to achieve profitability will depend in part upon its ability, either
independently or in collaboration with Smith & Nephew, to successfully
manufacture and market Dermagraft for skin ulcers and Dermagraft-TC for burns.
There can be no assurance that the Company will ever achieve a profitable level
of operations or that profitability, if achieved, can be sustained on an ongoing
basis.
The further development of the Company's technology and products as
well as any further development of manufacturing capabilities or the
establishment of any additional sales, marketing and distribution capabilities
will require the commitment of substantial funds. While the Company believes
that its existing working capital, the milestone payments under the expanded
Dermagraft Joint Venture, its borrowing capacity under the Cartilage Joint
Venture and its access to funds under an equity line will be sufficient to meet
its present operating and capital requirements for at least the next twelve
months, the Company may ultimately need to raise additional funds to support its
long-term product development and commercialization programs. The Company could
acquire such additional funding through collaborative arrangements, the
extension of existing arrangements, additional public or private offerings of
debt or equity securities or other means.
There can be no assurance that the Company will satisfy the milestones
for additional funds under the Dermagraft Joint Venture or that adequate funds
will be available under other existing or future arrangements when such funds
are needed or, if available, on terms acceptable to the Company. Insufficient
funds may require the Company to delay, scale back or eliminate certain of its
research and product development programs or to license third parties the right
to commercialize products or technologies that the Company would otherwise
commercialize itself.
UNCERTAINTY OF COLLABORATIVE ARRANGEMENTS AND STRATEGIC ALLIANCES
The Company is particularly dependent on Smith & Nephew with respect to
the Dermagraft and the Cartilage Joint Ventures. Although the Company believes
that Smith & Nephew has a significant economic motivation to succeed in
performing its contractual responsibilities under the Dermagraft and Cartilage
Joint Venture agreements, the amount and timing of resources to be devoted to
such performance are not within the control of the Company, and there can be no
assurance that Smith & Nephew will perform its obligations as expected.
Moreover, the Dermagraft and Cartilage Joint Ventures would be materially and
adversely affected if Smith & Nephew had a strategic shift in its business
focus. In addition, the Dermagraft and Cartilage Joint Venture agreements
provide that they may be terminated prior to their expiration under certain
circumstances that are outside the control of the Company. A termination of such
agreements, or a failure of Smith & Nephew to adequately perform its obligations
thereunder, would have a material adverse effect on the Company's ability to
successfully complete the development and testing of the products covered
thereby and to successfully penetrate the markets for such products. Any such
event could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company continually seeks and considers collaborative arrangements
to obtain funding for the development of its products. Such arrangements may
involve the issuance of additional equity or debt securities and marketing
rights to the funding party. The Company may seek collaborative arrangements and
separate funding for its programs which may include joint ventures, third party
equity investments or other financing structures. There can be no assurance
however that the Company will be able to negotiate additional collaborative
arrangements in the future on acceptable terms, if at all, or that such
collaborative arrangements will be successful. To the extent that the Company
chooses not to or is unable to establish such arrangements, it would experience
increased capital requirements to undertake research, development and marketing
of its proposed products at its own expense. In addition, the Company may
encounter significant delays in introducing its proposed products into certain
markets or find that the development, manufacture or sale of its proposed
products in such markets is adversely affected by the absence of such
collaborative agreements.
STAGE OF PRODUCT DEVELOPMENT
Although Dermagraft-TC has been approved for commercial sale and
Dermagraft for the treatment of diabetic ulcers is undergoing an additional
controlled clinical trial in the United States, the remainder of the Company's
other products are at earlier stages of research, development and testing. These
products will require significant additional research and development, including
extensive preclinical and clinical testing, and regulatory approvals prior to
commercialization.
All of the Company's products are subject to the risks of failure
inherent in the development of products based on innovative technologies. Such
risks include the possibilities that any or all of these products are found to
be unsafe or ineffective or otherwise fail to receive necessary regulatory
approvals, that the products are uneconomical to market, that third parties may
hold proprietary rights that preclude the Company from marketing its products,
or that the Company's products fail to achieve market acceptance in light of
competing technologies and products. See "Patents and Proprietary Rights."
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UNCERTAINTIES REGARDING HEALTHCARE REIMBURSEMENT AND REFORM
The Company's ability to commercialize products successfully will
depend in part on the extent to which reimbursement for the costs of such
products and related treatments will be available from government health
administration authorities, private health insurers and other organizations. In
the United States, government and other third-party payors are increasingly
attempting to contain healthcare costs by limiting both coverage and the level
of reimbursement for new products approved for marketing by the FDA, and by
refusing, in some cases, to provide any coverage for uses of approved products
for indications for which the FDA has not granted marketing approval.
Initiatives to reduce the federal deficit and to reform healthcare delivery are
increasing these cost containment efforts. As managed care organizations
continue to expand as a means of containing healthcare costs, the Company
believes there may be attempts by such organizations to restrict the use of,
delay authorization to use, or limit coverage and the level of reimbursement
for, new products, such as those being developed and commercialized by the
Company, pending completion of cost/benefit analyses of such products by those
managed care organizations. Internationally, where national healthcare systems
are prevalent, little if any funding may be available for new products, and cost
containment and cost reduction efforts can be more pronounced than in the United
States.
The Company has supported health economics studies and research and is
developing cost offset or cost-effectiveness models with respect to its
Dermagraft-TC and Dermagraft products in an effort to help obtain appropriate
and adequate third party coverage and reimbursement for these products. However,
these products are novel and as such are subject to inherent uncertainty in the
area of reimbursement. There can be no assurance that adequate government or
private payor coverage or levels of reimbursement will be available for any of
the Company's products or for the Company to maintain price levels sufficient
for the realization of an appropriate return on its investment in such products.
Failure to obtain sufficient coverage and reimbursement levels for uses of the
Company's products could have a material adverse effect on the market acceptance
of such products and the Company's business, financial condition and results of
operations.
PRODUCT LIABILITY CLAIMS AND INSURANCE
The use of any of the Company's products, whether for commercial
applications or during clinical trials, exposes the Company to an inherent risk
of product liability claims in the event such products cause injury, disease or
result in adverse effects. Such liability might result from claims made directly
by healthcare institutions, contract laboratories or others selling or using
such products. The Company and the Dermagraft Joint Venture currently maintain
product liability insurance coverage; however, there can be no assurance that
the level or breadth of any insurance coverage will be sufficient to fully cover
potential claims. Such insurance can be expensive and difficult to obtain. There
can be no assurance that adequate insurance coverage will be available in the
future at an acceptable cost, if at all, or in sufficient amounts to protect the
Company against such liability. The obligation to pay any product liability
claim in excess of whatever insurance the Company or the Dermagraft Joint
Venture are able to acquire could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's tissue repair and transplantation products are complex
and must be manufactured under well-controlled and sterile conditions, in
addition to meeting strict product release criteria. Any manufacturing errors or
defects, or uncorrected impurity or variation in a raw material, either unknown
or undetected by the Company, could affect the quality and safety of the
Company's products. If any of the defects were material, the Company could be
required to undertake a market withdrawal or recall of the affected products.
There can be no assurance a product recall will not occur in the future. The
cost of a market withdrawal or product recall could be significant and could
have a material adverse effect on the Company's business, financial condition
and results of operations. See - "Government Regulation."
TECHNOLOGICAL CHANGE AND COMPETITION
The biomedical technology industry is subject to rapid, unpredictable
and significant technological change. Competition from universities, research
institutions and pharmaceutical, chemical and biotechnology companies is
intense. Many competitors or potential competitors have greater financial
resources, research and development capabilities and manufacturing and marketing
experience than the Company. In general, the first biomedical product to be
commercialized for a particular therapeutic indication is often at a significant
competitive advantage relative to later entrants to the market. Accordingly, the
relative speed with which the Company can develop products, complete clinical
trials, obtain regulatory approvals and develop commercial manufacturing
capability may be determinative factors in establishing the Company's
competitive position. The Company's ability to attract and retain qualified
scientific, manufacturing, marketing and other personnel, obtain and maintain
patent protection and secure funding are also expected to be key competitive
factors for the Company.
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In the field of tissue engineering and the treatment of damaged or
diseased tissue, the Company competes with several companies which are
developing various tissue replacement products, including skin substitutes and
cultured cartilage. In addition, the Company is aware of a number of
biotechnology, pharmaceutical, medical device and chemical companies that are
developing other types of products as alternatives to tissue replacement for a
variety of indications, including burns and chronic skin ulcers. These
treatments employ a variety of approaches such as growth factors, tri-peptides
and completely synthetic materials.
In the area of burns, the Company competes primarily with cadaver skin
or porcine tissue. The Company is also aware of several companies that have
developed technologies involving processed cadaver skin used as a dermal
replacement (LifeCell Corporation), or sheets of epidermis grown from the
patient's own skin (Genzyme Tissue Repair and Cell Culture Technology). These
products have not required FDA approval and are, therefore, currently available
on the market for the treatment of severe burns. Integra Life Sciences
("Integra") is marketing Integra Artificial Skin, consisting of a bovine
collagen and glycosaminoglycan matrix with a synthetic polymer covering, for the
treatment of burn wounds. In addition, the Company is aware that Ortec
International, Inc. is currently in clinical trials with its composite cultured
skin product, consisting of fibroblasts and keratinocytes on a bovine collagen
sponge, for the treatment of burn wounds. Several other companies are also
developing or plan to develop growth factors as a treatment for partial
thickness or small full-thickness wounds.
In the area of diabetic foot ulcers, Chiron Corporation and the
Ortho-McNeil division of Johnson & Johnson, have received FDA approval and
recently began marketing a platelet-derived growth factor ("PDGF") for the
treatment of diabetic foot ulcers. In addition, Organogenesis, Inc.
("Organogenesis") has begun clinical trials for the use of Apligraf, a product
using cultured human cells seeded onto a bovine collagen matrix, for the
treatment of diabetic foot ulcers. Organogenesis has already received regulatory
approval to market Apligraf for the treatment of venous ulcers in the United
States and Canada. Organogenesis has entered into an alliance with Novartis
Pharma AG for the marketing of Apligraf.
With respect to cartilage repair, Genzyme Tissue Repair is currently
selling a service to process a patient's own cartilage cells as a treatment for
articular defects in the knee. The Company is aware that Integra and Osiris
Therapeutics, Inc. are also engaged in research on cultured cartilage products.
The Company is not aware of any competitor that is developing an off-the-shelf,
human cartilage tissue that can be arthroscopically inserted.
For all of its products, the Company expects to compete primarily on
the uniqueness of its technology and product features, on the quality and
cost-effectiveness of its products and, in some cases, on the timing of
commercial introduction. The Company believes that its tissue engineered
products may have many attributes that differentiate it from other competitors,
including the fact that the Company's products are human-based tissue products
designed to be available "off-the-shelf" to the end-users. However, other
factors such as its ability to secure regulatory approval for its products, to
implement production and marketing plans and to secure adequate capital
resources, will also impact its competitive position. There can be no assurance
that the Company will have the resources to compete successfully with the
above-mentioned companies or other companies or that competition generally will
not adversely affect the Company's results of operations or ability to
successfully market its products.
PATENTS AND PROPRIETARY RIGHTS
The Company's ability to compete effectively will depend, in part, on
its ability to maintain the proprietary nature of its technology and
manufacturing processes. The Company relies on patents, trade secrets and
know-how to maintain its competitive position. To date, the Company owns 23
issued and nine allowed patents in the United States. In addition, 20 foreign
counterparts to some of the United States patents have issued in several foreign
countries. The United States patents expire at various times between 2005 and
2016. The Company has additional United States and foreign patent applications
relating to its tissue engineering technology. The Company has certain licensing
rights to United States and foreign patents and patent applications filed by
Massachusetts Institute of Technology related to cell growth and organ
regeneration and repair, and biodegradable polymers, subject to certain
limitations as to applicable tissues and fields of use, and by the University of
Florida related to a stem cell proliferation factor.
There can be no assurance that any applications will result in issued
patents or that any current or future issued or licensed patents, trade secrets
or know-how will afford protection against competitors with similar technologies
or processes, or that any patents issued will not be infringed upon or designed
around by others. In addition, there can be no assurance that others will not
independently develop proprietary technologies or processes which are the same
as or substantially equivalent to those of the Company. The Company could also
incur substantial costs in defending itself in suits brought against it on such
patents or in bringing suits to protect the Company's patents or patents
licensed by the Company against infringement. In addition to patent protection,
the Company relies on trade secrets, proprietary know-how and technological
advances which the Company
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seeks to protect in part by confidentiality agreements with its collaborative
partners, employees and consultants. There can be no assurance that these
agreements will not be breached, that the Company will have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known or independently discovered by competitors.
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the manufacture and marketing of the
Company's present and proposed products and in its ongoing research and product
development activities. The Company's preclinical studies and clinical trials
and the manufacturing and marketing of its products are subject to extensive,
costly and rigorous regulation by various governmental authorities in the United
States and other countries. Many of the Company's proposed products will require
regulatory approval prior to commercialization. In particular, human therapeutic
products are subject to rigorous preclinical and clinical testing as a condition
of approval by the FDA and by similar authorities in foreign countries. The
process of obtaining required regulatory approvals by 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. There
can be no assurance that any products developed by the Company, independently or
in collaboration with others, will meet applicable regulatory criteria to
receive the required approval for manufacturing and marketing.
In the United States, the FDA regulates the clinical testing,
manufacture, distribution and promotion of medical devices and biologics
pursuant to the Federal Food, Drug and Cosmetic Act (the "FDC Act") and
regulations promulgated thereunder. The Company's Dermagraft-TC and Dermagraft
products and cartilage products are subject to regulation by the FDA as medical
devices. The Company's other tissue replacement products, currently in various
stages of development, could be regulated either as medical devices or as
biologic products. Legislative and regulatory initiatives concerning the
regulation of tissue and organ transplants are ongoing and could possibly affect
the future regulation of the Company's tissue engineered products. It is not
possible at the present time to predict accurately either the timeframe for
such action, or the ultimate effect that such initiatives could have, if any, on
the products under development by the Company. Unlike PMA submissions for
medical devices, the FDA has no regulatory time limit within which it must
review and act upon submissions treated as biologics. As a result, the time
period for final action often takes several years from submission, usually
exceeding that expected for a PMA application.
The Company's Dermagraft-TC and Dermagraft products are regulated by
the FDA as medical devices. To obtain FDA approval to market medical devices,
the FDA may require proof of safety and efficacy in human clinical trials
performed under an Investigational Device Exemption (an "IDE"). An IDE
application must contain preclinical test data demonstrating the safety of the
product for human investigational use, information on manufacturing processes
and procedures, and proposed clinical protocols. If the IDE application is
approved, human clinical trials may begin. The results obtained from these
trials, if satisfactory, are accumulated and submitted to the FDA in support of
a PMA application. Premarket approval from the FDA is required before commercial
distribution of devices similar to those under development by the Company is
permitted in the United States.
A PMA application must be supported by extensive data, including
preclinical and human clinical trial data, to prove the safety and efficacy of
the device, and information about the device and its components including, among
other things, manufacturing, labeling and promotion. By regulation, the FDA has
180 days to review a PMA application and during that time an advisory committee
may evaluate the application and provide recommendations to the FDA. While the
FDA has responded to PMA applications within the allotted time period, reviews
more often occur over a significantly protracted period, usually twelve to
thirty-six months, and a number of devices for which a PMA application was
submitted by other companies have never been approved for marketing. The review
time is often significantly exceeded as the FDA may need additional information
or clarification of information provided. The FDA may also make a determination
that, based on deficiencies in the application or its interpretation of the
information provided, additional clinical trials are required. This process is
lengthy and expensive and there can never be assurance that FDA approval will be
obtained.
If the FDA's evaluation of the PMA application is favorable, the FDA
typically issues a letter requiring the applicant's agreement to specific
conditions (e.g., changes in labeling) or specific additional information to
secure final approval of the PMA application. Once the requirements are
satisfied, the FDA will issue a PMA for the approved indications, which can be
more limited than those originally sought by the manufacturer. The PMA can
include post-approval conditions that the FDA believes necessary to ensure the
safety and effectiveness of the device, such as restrictions on labeling,
promotion, sale and distribution. Failure to comply with the conditions of
approval can result in adverse enforcement action, including the loss or
withdrawal of the approval. Even after approval of a PMA, a new PMA or PMA
supplement is required in the event of a modification to the device, its
labeling or its manufacturing process affecting the safety or effectiveness of
the device.
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In addition, FDA regulations obligate a manufacturer to inform the FDA
whenever there is reasonable evidence to suggest that one of its devices may
have caused or contributed to death or serious injury, or where one of its
devices malfunctions and if the malfunction were to recur, the device would be
likely to cause or contribute to a death or serious injury.
In December 1996, the Company submitted a PMA application requesting
approval of Dermagraft for the treatment of diabetic foot ulcers. In February
1997, the FDA accepted the application for filing. The PMA submission was based
on the results of a pivotal trial from patients receiving Dermagraft within a
therapeutic range identified retrospectively from the clinical trial. Patients
receiving Dermagraft within the therapeutic range represented a majority but not
all the evaluable patients in the trial. The Company believes the data from
patients receiving Dermagraft within the therapeutic range demonstrate a
statistically significant improvement in complete healing at twelve and
thirty-two weeks. For all evaluable patients, although statistical significance
was not seen at twelve weeks in the pivotal clinical trial, a statistically
significant improvement in complete healing as compared to the control treatment
was seen at thirty-two weeks.
In January 1998, the General and Plastic Surgery Devices Panel of the
Medical Devices Advisory Committee to the FDA recommended that the FDA approve
Dermagraft for the treatment of diabetic foot ulcers in the United States, with
the conditions that the Company perform a post-marketing study to confirm
product efficacy at twelve weeks and provide physician training. During the
advisory panel meeting, certain panel members and representatives of the FDA
raised questions and concerns regarding the use and nature of the retrospective
analyses performed by the Company in identifying the therapeutic range.
Nevertheless, the advisory panel recommended approval of the product by a vote
of seven to two (one of the dissenting panel members voted against the
recommendation on the grounds that a post-marketing study was too burdensome).
However, in June 1998, the FDA decided the PMA application was not approvable
without supportive data from an additional controlled clinical trial. The
Company has recently received approval from the FDA allowing it to begin the
requested clinical trial. Based on the clinical plan, the Company believes the
additional data could be available for submission in twelve to eighteen months
after trial initiation, assuming a reasonable rate of patient enrollment and
data consistent with its previous PMA submission. No assurance can be given that
the Company will successfully complete the clinical trial, the clinical trial
will be completed within any specific timeframe or the Company will obtain FDA
or other regulatory approvals of Dermagraft (or that any such approvals will be
obtained on a timely basis).
The Company has constructed a commercial manufacturing facility for its
Dermagraft-TC and Dermagraft products. This facility must be registered,
inspected, and licensed by various regulatory authorities, including the
California Department of Health and Human Services, and must comply with FDA's
Good Manufacturing Practices (GMP) requirements, with elaborate testing,
control, documentation and other quality assurance procedures. The manufacturing
facility was initially inspected by the FDA in 1996, prior to the approval of
Dermagraft-TC for the treatment of full-thickness burns.
Following another inspection of the manufacturing facility in
conjunction with the Company's PMA application for the approval of Dermagraft
for the treatment of diabetic foot ulcers, the FDA notified the Company of
numerous objectionable observations under a Form FDA 483 letter (the "483
Letter") with respect to the Company's manufacturing processes and systems for
Dermagraft and Dermagraft-TC. On March 26, 1998, the FDA issued a warning letter
requiring the Company to investigate and correct the objections identified by
the FDA. Specifically, the warning letter required the Company to address
objectionable observations with respect to (i) the control of environmental
conditions, (ii) procedures for implementing corrective and preventive actions,
(iii) procedures for the acceptance of products, (iv) investigations of
complaints, (v) compliance with medical device reporting regulations, and (vi)
justification of extended expiration dates. In response to certain issues raised
by the FDA inspection, the Company voluntarily recalled certain lots of
Dermagraft and Dermagraft-TC which contained a raw material that was out of
specification. All of the recalled lots complied with finished product
specifications. The Company did not receive any reports of patient injury or
complications that it believes are a result of products in the recalled lots.
The Company believes the recall was a prudent course of action to ensure that
patients receive product of the highest quality.
The Company has responded to the 483 Letter and has instituted
corrective actions to address the FDA's concerns. The Company's manufacturing
facility is scheduled to be re-inspected by the FDA in the third quarter of
1998. There can be no assurance, however, that the Company's corrective actions
will satisfy the FDA's concerns, that the FDA will not raise additional issues
on re-inspection, or that other enforcement actions will not be taken by the FDA
relating to the 483 Letter, the warning letter or the Company's manufacturing
and quality assurance systems. The FDA has informed the Company that these
problems will need to be corrected or resolved to the agency's satisfaction in
order for the FDA to consider approving a PMA application for Dermagraft in the
treatment of diabetic foot ulcers.
In general, if as a result of FDA inspections, adverse event reports or
information derived from any other source, the FDA believes the Company is not
in compliance with laws or regulations or that the Company's products pose any
health risk, the FDA can refuse to approve pending PMA applications; withdraw
previously approved PMA applications; require notification
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to users regarding risks; request corrective labeling, promotional or
advertising materials; issue warning letters; require the Company to temporarily
suspend marketing or undertake product recalls; impose civil penalties; or
institute legal proceedings to detain or seize products, enjoin future
violations, or seek criminal penalties against the Company, its officers or
employees. Civil penalties may be imposed for GMP violations if the violations
involve a significant or knowing departure from the requirements of the FDC Act
or a risk to public health. The FDA provides manufacturers with an opportunity
to be heard prior to the assessment of civil penalties. If civil penalties are
assessed, judicial review is available.
The Company exports, or intends to export, its products to foreign
countries. Exports of products that have market clearance from the FDA in the
United States do not require FDA authorization for export. However, foreign
countries often require, among other things, an FDA certificate for products for
export (a "CPE"). The FDA warning letter states that the agency will refuse to
issue a CPE until the outstanding GMP violations are corrected.
With respect to the manufacture of products for which premarket
approval is granted, the Company will be subject to routine inspection by the
FDA and certain state agencies, including the California Department of Health
and Human Services, for compliance with GMP requirements, adverse event
reporting requirements, and other applicable regulations. In addition, Congress
has approved the Food and Drug Administration Modernization Act of 1997 (the
"Modernization Act"). The Modernization Act makes changes to the device
provisions of the FDC Act and other provisions in the Modernization Act affect
the regulation of devices. Among other things, the changes will affect the IDE
and PMA processes, and also will affect device standards and data requirements,
procedures relating to humanitarian and breakthrough devices, tracking and
post-market surveillance, accredited third party review, and the dissemination
of off label information. The Company cannot predict how or when these changes
will be implemented or what effect the changes will have on the regulation of
the Company's products. There can be no assurance that the Company will not
incur significant costs to comply with laws and regulations in the future or
that laws and regulations will not have a material adverse effect upon the
Company's business, financial condition or results of operations.
Although the FDA has classified Dermagraft-TC as a medical device, the
State of California and the State of New York have notified the Company that it
must register as a tissue bank in order to manufacture or distribute
Dermagraft-TC in those states. Although many states do not regulate tissue
banks, there are certain other states besides California and New York that do.
Such states could take a position similar to California and New York with regard
to the regulatory status of Dermagraft-TC. In June 1997, the Company submitted a
request to the FDA for an advisory opinion that the FDA's regulation of this
product as a medical device preempts New York from regulating it as human tissue
under a different licensing scheme. Both New York and California have provided
written submissions to the FDA urging the agency to deny the Company's request.
To date, the FDA has not ruled. If states are permitted to regulate
Dermagraft-TC as a human tissue, the Company and its customers could be
subjected to a costly new layer of regulation. In addition, under the laws of
some states that regulate tissue, including New York and Florida, the sale of
human tissues for valuable consideration is prohibited. The Company is currently
distributing Dermagraft-TC in the State of New York under a provisional tissue
banking license. Due to the similarities of the products, regulations applicable
to Dermagraft-TC are also expected to apply to the Company's Dermagraft product
as well.
Whether regulated by the FDA as a medical device or biologic, or
otherwise by any state or foreign authority, the approval process for any of the
Company's products is expensive and time consuming and no assurance can be given
that the FDA or any regulatory agency will grant its approval. The inability to
obtain, or delays in obtaining, such approval would adversely affect the
Company's ability to commence marketing therapeutic applications of its
technology. There is no assurance that the Company will have sufficient
resources to complete the required testing and regulatory review processes.
Furthermore, the Company is unable to predict the extent of adverse governmental
regulation which might arise from future United States or foreign legislative or
administrative action. In addition, any products distributed by the Company
pursuant to the above authorizations are subject to pervasive and continuing
regulation by the FDA. Labeling and promotional activities are subject to
scrutiny by the FDA and, in certain instances, by the Federal Trade Commission.
The Company's research and development activities and operations
involve the controlled use of small quantities of radioactive compounds,
chemical solvents and other hazardous materials. In addition, the Company's
business involves the growth of human tissues. Although the Company believes
that its safety procedures for handling and disposing of such materials comply
with the standards prescribed by federal, state and local regulations, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any liability could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company is also subject to various federal, state and local laws,
regulations and recommendations relating to such matters as safe working
conditions, laboratory and manufacturing practices. Although the Company
believes it is in compliance with these laws and regulations in all material
respects, there can be no assurance that the Company will not be required to
incur significant costs to comply with such laws or regulations in the future.
12
<PAGE> 16
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend in large part upon its ability to
attract and retain qualified scientific, management, marketing and sales
personnel as well as the continued contributions of its existing senior
management and scientific and technical personnel. The Company faces strong
competition for such personnel and there can be no assurance that the Company
will be able to attract or retain such individuals. In particular, the loss of
the services of either Arthur J. Benvenuto, the Company's Chairman and Chief
Executive Officer, or Dr. Gail K. Naughton, its President and Chief Operating
Officer, would have a material adverse effect on the Company.
DEPENDENCE ON CERTAIN SUPPLIERS
Although most of the raw materials used in the manufacture of the
Company's Dermagraft products are available from more than one supplier, changes
in certain critical components (such as the polymers used in Dermagraft) could
cause the FDA to require the Company to prove equivalency of the materials or
potentially to modify or perform additional clinical trials for the Dermagraft
products, which could have the effect of restricting product available for sale.
To date, the Company has not experienced difficulty in obtaining necessary raw
materials.
The mesh framework used by the Company in Dermagraft is available under
a supply agreement with only one FDA-approved manufacturing source. Similarly,
the synthetic mesh framework used by the Company in Dermagraft-TC is only
available under a supply agreement with a different FDA-approved manufacturing
source. Because the FDA approval process requires manufacturers to specify their
proposed suppliers of active ingredients and certain component parts and
packaging materials in their applications, FDA approval of a new supplier would
be required if these materials become unavailable from the current supplier.
Although the Company has not experienced difficulty acquiring these
materials for the manufacture of its Dermagraft and Dermagraft-TC products, no
assurance can be given that interruptions in supplies will not occur in the
future or that the Company would not have to obtain substitute vendors for these
materials. Any significant supply interruption would adversely affect the
Company's clinical trials as well as its product development and marketing
programs. In addition, an uncorrected impurity or supplier's variation in a raw
material, either unknown to the Company or incompatible with the Company's
manufacturing process, could have a material adverse effect on the Company's
ability to manufacture products.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock, like that of the
securities of other biotechnology companies, has fluctuated significantly in
recent years and is likely to fluctuate in the future. From time to time, the
market for securities of biotechnology companies has in fact experienced
significant price and volume fluctuations that are unrelated to the operating
performance of such companies. In addition, announcements by the Company or
others regarding scientific discoveries, technological innovations, commercial
products, patents or proprietary rights, the progress of clinical trials or
government regulation, public concern as to the safety of devices or drugs, the
issuance of securities analysts' reports and general market conditions may all
have a significant effect on the market price of the Common Stock. Fluctuations
in financial performance from period to period also may have a significant
impact on the market price of the Common Stock.
COMPLIANCE WITH NASDAQ LISTING REQUIREMENTS; DISCLOSURE RELATING TO LOW-PRICED
STOCK
The Company's Common Stock is quoted on The Nasdaq National Market.
Pursuant to the terms of the Purchase Agreement, the Company is required to list
the Common Stock issuable upon conversion of the Series B Preferred Stock on The
Nasdaq National Market. However, in order to continue to be included in The
Nasdaq National Market, a company must meet certain maintenance criteria.
Effective February 1998, the maintenance criteria require a minimum bid price of
$1.00 per share, $4,000,000 in net tangible assets (total assets less total
liabilities and goodwill) and $5,000,000 market value of the public float
(excluding shares held directly or indirectly by any officer or director of the
Company and by any person holding beneficially more than 10% of the Company's
outstanding shares). Failure to meet these maintenance criteria may result in
the delisting of the Company's Common Stock from The Nasdaq National Market and
the quotation of the Company's Common Stock on the Nasdaq SmallCap Market (the
"SmallCap Market"), if the requirements for inclusion on the SmallCap Market are
met. As a result of quotation on the SmallCap Market, an investor may find it
more difficult to dispose of the Company's Common Stock. Effective February
1998, a company must have $4,000,000 in net tangible assets or $50,000,000
market capitalization or $750,000 net income in two of the last three years, a
minimum bid price of $4.00 per share and a public float of $5,000,000 for
inclusion in the SmallCap Market, subject to certain exceptions. Failure to meet
The Nasdaq National Market inclusion
13
<PAGE> 17
criteria, or the failure to meet the SmallCap Market maintenance criteria, may
result in the delisting of the Company's Common Stock. Trading, if any, in the
Company's Common Stock would thereafter be conducted in the over-the-counter
market. As a result of such delisting, an investor may find it more difficult to
dispose of, or to obtain accurate quotations as to the market value of, the
Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE; DILUTION
Substantially all of the Shares are eligible for sale in the public
market. The issuance of Common Stock upon conversion of the Series B Preferred
Stock, as well as future sales of such Common Stock by the Company or by its
existing stockholders, or the perception that such sales could occur, could
adversely affect the market price of the Common Stock. The shares of Common
Stock issuable upon conversion of the Series B Preferred Stock are being
registered hereunder. Conversion of the Series B Preferred Stock into shares of
Common Stock could adversely affect the market price of the Common Stock. In
addition, investors could experience substantial dilution upon conversion of the
Series B Preferred Stock into Common Stock as a result of either (i) a decline
in the market price of the Company's Common Stock prior to conversion or (ii) an
event triggering antidilution adjustments to the conversion price of the
outstanding shares of Series B Preferred Stock.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares. All proceeds from the sale of the Shares will be for the account of the
Selling Stockholders, as described below. See "Selling Stockholders" and "Plan
of Distribution" described below.
SELLING STOCKHOLDERS
The following table sets forth as of July 31, 1998, the name of each of
the Selling Stockholders, the number of shares of Series B Preferred Stock owned
by each Selling Stockholder, the number of shares of Common Stock that each such
Selling Stockholder beneficially owns and the number of shares of Common Stock
beneficially owned by each Selling Stockholder that may be offered for sale from
time to time by this Prospectus.
The Company has agreed to initially register 7,850,000 Shares, which
are potentially issuable upon conversion of the Series B Preferred Stock, for
resale by the Selling Stockholders holding the Series B Preferred Stock. This
information set forth below is based upon information provided by the Selling
Stockholders. Because the Selling Stockholders may offer all, some or none of
their Common Stock, no definitive estimate as to the number of shares thereof
that will be held by the Selling Stockholders after such offering can be
provided.
The number of shares set forth in the table represents an estimate of
the number of shares of Common Stock to be offered by the Selling Stockholders.
The actual number of shares of Common Stock issuable upon conversion of the
Series B Preferred Stock or as dividends on the Series B Preferred Stock is
indeterminate, is subject to adjustment and could be materially less or more
than such estimated number depending on factors which cannot be predicted by the
Company at this time, including, among other factors, the future market price of
the Common Stock. The actual number of shares of Common Stock offered hereby,
and included in the Registration Statement of which this Prospectus is a part,
includes such additional number of shares of Common Stock as may be issued or
issuable as dividends on the Series B Preferred Stock or upon conversion of the
Series B Preferred Stock by reason of any stock split, stock dividend or similar
transaction involving the Common Stock, in order to prevent dilution, in
accordance with Rule 416 under the Securities Act.
The Shares being offered by the Selling Stockholders are issuable or
were issued upon conversion of the Series B Preferred Stock acquired from the
Company in a private placement transaction pursuant to the Purchase Agreement.
Pursuant to its obligation under the Purchase Agreement, the Company
(i) filed with the Commission, under the Securities Act, a Registration
Statement on Form S-3, of which this Prospectus forms a part, with respect to
the resale of the Shares from time to time in accordance with the plan of
distribution described elsewhere in this Prospectus, and (ii) has agreed to use
its best efforts to keep such Registration Statement effective until the earlier
of (x) the date all holders may sell all of the Shares freely pursuant to Rule
144(k) without compliance with the registration requirements of the Securities
Act, or (y) the date all of the shares of Common Stock issued upon conversion of
the Series B Preferred Stock have been sold and no shares of Series B Preferred
Stock are outstanding. See "Plan of Distribution".
14
<PAGE> 18
Except as indicated, none of the Selling Stockholders has held any
position or office or had a material relationship with the Company or any of its
affiliates within the past three years other than as a result of their
beneficial ownership of the Company's Common Stock. The Company may amend or
supplement this Prospectus from time to time to update the disclosure set forth
herein.
<TABLE>
<CAPTION>
SHARES OF SERIES B SHARES BENEFICIALLY OWNED
PREFERRED STOCK OWNED PRIOR TO OFFERING (2)(3) SHARES BEING OFFERED (4)(5)
SELLING STOCKHOLDER PRIOR TO OFFERING (1)
- -------------------------------------- --------------------- ------------------------- ---------------------------
<S> <C> <C> <C>
Themis Partners L.P. (6)(7) 40 420,160 628,000
Heracles Fund (6)(7) 100 1,050,400 1,570,000
Halifax Fund, L.P. (6)(8) 80 840,320 1,256,000
Leonardo, L.P. (9) 98 1,029,392 1,538,600
Raphael, L.P. (9) 10 105,040 157,000
Ramius Fund, Ltd. (9) 24 252,096 376,800
GAM Arbitrage Investments, Inc. (9) 5 52,520 78,500
AG Super Fund International, L.P. (9) 3 31,512 47,100
Wingate Capital Ltd. (10) 41 430,664 643,700
Fisher Capital Ltd. (10) 77 808,808 1,208,900
CCG Investment Fund Ltd. (10) 9 94,536 141,300
CCG Capital Ltd. (10) 9 94,536 141,300
Midway Capital Ltd. (10) 4 42,016 62,800
---- ---------- ----------
TOTAL 500 5,251,990 7,850,000
=== ========= =========
</TABLE>
(1) Each share of Series B Preferred Stock is convertible into that number
of shares of Common Stock equal to (i) the share's stated value of
$50,000 plus accrued and unpaid dividends divided by (ii) a conversion
price of $4.774 which is subject to adjustment as follows: the
conversion price will be increased by one-half the amount by which the
average of the 15 lowest average daily trading prices of the Common
Stock during the 45 trading days prior to the date of conversion (the
"Trading Price") exceeds $7.956 per share; conversely, should the
Trading Price prior to a conversion be equal to or below $3.58 per
share, the conversion price will be such Trading Price. Notwithstanding
the foregoing, if the Company consummates certain types of equity
financings, including, without limitation, a drawdown under its
existing $50 million equity line, thereafter the conversion price will
be subject to adjustment as follows: the conversion price will be
increased by one-half the amount by which the Trading Price exceeds
$7.956 per share; conversely, (i) should the Trading Price prior to a
conversion be less than $7.956 per share but greater than $4.774 per
share, the conversion price will be $4.774 per share and (ii) if the
Trading Price prior to a conversion is equal to or below $4.774 per
share, the conversion price will be such Trading Price.
(2) Pursuant to the terms of the Series B Preferred Stock, the Series B
Preferred Stock is convertible by any holder only to the extent that
the number of shares of Common Stock thereby issuable, together with
the number of shares of Common Stock owned by such holder and its
affiliates (but not including shares of Common Stock underlying
unconverted Series B Preferred Stock) would not exceed 4.99% of the
then outstanding Common Stock as determined in accordance with Section
13(a) of the Exchange Act. The number of shares beneficially owned is
determined in accordance with Rule 13d-3 of the Exchange Act, and the
information is not necessarily indicative of beneficial ownership for
any other purpose. Beneficial ownership includes any shares as to which
the individual has sole or shared voting power or investment power and
also any shares which the individual has the right to acquire within 60
days of the date of this Prospectus through the exercise of any stock
option or other right. Unless otherwise indicated in the footnotes,
each person has sole voting and investment power (or shares such powers
with his or her spouse) with respect to the shares shown as
beneficially owned.
(3) The number of Shares shown as beneficially owned prior to the offering
by the Selling Stockholders holding Series B Preferred Stock represents
shares of Common Stock issuable to the Selling Stockholders assuming
conversion, as of July 31, 1998, of all shares of Series B Preferred
Stock issued calculated using an assumed conversion price of $4.774
which represents the minimum price at which the Series B Preferred
Stock may be converted as of the date of this Prospectus (which
conversion price could fluctuate from time to time based on changes in
the market price of the Common Stock). This Prospectus also covers the
resale of such presently indeterminate number of additional shares as
may be issuable as dividends on the Series B Preferred Stock. As
described in note (1) above, the actual number of shares of Common
Stock issuable upon conversion of the Series B Preferred Stock depends,
subject to certain
15
<PAGE> 19
limitations, on the conversion price on the date of conversion which is
subject to adjustment as follows: the conversion price will be
increased by one-half the amount by which the Trading Price (as defined
in above) of the Common Stock on the date of conversion exceeds $7.956
per share; conversely, should the Trading Price prior to a conversion
be equal to or below $3.58 per share, the conversion price will be
equal to such Trading Price. Consequently, the actual number of shares
of Common Stock issuable upon conversion of the Series B Preferred
Stock may be less than or greater than the number of shares shown as
beneficially owned by the Selling Stockholders or otherwise covered by
this Prospectus. Absent certain restrictions on conversions, if the
Series B Preferred Stock had been actually converted on July 31, 1998,
the conversion price would have been $3.504 in accordance with the
terms thereof. The number of Shares shown as beneficially owned does
not include shares of Common Stock issuable upon the conversion of up
to 500 shares of Series B Preferred Stock which, beginning in January
1999 and subject to certain conditions, the Company may cause the
holders of Series B Preferred Stock to purchase.
(4) The number of shares of Common Stock registered pursuant to the
Registration Statement on behalf of the Selling Stockholders holding
Series B Preferred Stock and the number of Shares offered hereby by
such holders have been determined by agreement between the Company and
such Selling Stockholders. Because the number of shares that will
ultimately be issued upon conversion of the Series B Preferred Stock or
as dividends on the Series B Preferred Stock is dependent, subject to
certain limitations, upon trading prices of the Common Stock prior to
conversion as described in note (1) above and potential antidilution
adjustments, such number of shares cannot be determined at this time.
(5) Shares offered pursuant to this Registration Statement consist entirely
of shares of the Company's Common Stock issued or issuable upon
conversion of the Series B Preferred Stock and as dividends on the
Series B Preferred Stock.
(6) Is affiliated with the investors who are party to that certain
Investment Agreement dated February 9, 1996 as amended on July 10,
1998, between the Company and Hatteras Partners, L.P. under which the
Company has been extended a $50 million equity line by such investors.
(7) Promethean Investment Group L.L.C. is the general partner of Themis
Partners L.P. and the investment advisor for Heracles Fund
(collectively, the "Promethean Entities") and consequently has voting
control and investment discretion over securities held by the
Promethean Entities. The ownership for each of the Promethean Entities
does not include the ownership information for other Promethean
Entities. Promethean Investment Group L.L.C. and each of the Promethean
Entities disclaims beneficial ownership of the Shares held by the other
Promethean Entities.
(8) The Palladin Group, L.P. is the investment manager of Halifax Fund,
L.P. and consequently has voting control and investment discretion over
securities held by Halifax Fund, L.P. The Palladin Group, L.P.
disclaims beneficial ownership of the Shares held by Halifax Fund, L.P.
(9) Angelo, Gordon & Co., L.P. is a general partner of Leonardo, L.P., AG
Super Fund International Partners, L.P. and Raphael, L.P., and is
Investment Advisor to GAM Arbitrage Investments, Inc. and the
Investment Managing Member of AG Ramius Partners, L.L.C., the
Investment Advisor of Ramius Fund, Ltd. (collectively, the "Angelo
Gordon Entities"), and consequently has voting control and investment
discretion over securities held by the Angelo Gordon Entities. The
ownership for each of the Angelo Gordon Entities does not include the
ownership information for the other Angelo Gordon Entities. Angelo,
Gordon & Co., L.P. and each of the Angelo Gordon Entities disclaims
beneficial ownership of the Shares held by the other Angelo Gordon
Entities.
(10) Citadel Limited Partnership is the trading manager of Wingate Capital
Ltd., Fisher Capital Ltd., CCG Investment Fund Ltd., CCG Capital Ltd.
and Midway Capital Ltd. (collectively, the "Citadel Entities") and
consequently has voting control and investment discretion over
securities held by the Citadel Entities. The ownership for each of the
Citadel Entities does not include the ownership information for other
Citadel Entities. Citadel Limited Partnership and each of the Citadel
Entities disclaims beneficial ownership of the Shares held by the other
Citadel Entities.
In accordance with the rights and restrictions of the Series B
Preferred Stock, unless waived by the Selling Stockholder upon 61 days prior
written notice, no Selling Stockholder may convert the Series B Preferred Stock
to the extent that the shares to be received by such holder upon such conversion
would cause such holder to beneficially own (other than Shares of Common Stock
so owned through ownership of Series B Preferred Stock) more than 4.99% of the
outstanding shares of Common Stock. In addition, pursuant to the regulations of
The National Association of Securities Dealers, Inc., in the absence of
stockholder approval, the aggregate number of shares of Common Stock issuable to
the Selling Stockholders at a discount from market price upon conversion of the
Series B Preferred Stock may not equal or exceed 20% of the outstanding shares
of Common Stock on July 10, 1998 (i.e., approximately 7,864,834 shares). If
stockholder approval is not obtained to issue shares of Common Stock
16
<PAGE> 20
to the Selling Stockholders in excess of such amount, none of the Selling
Stockholders will be entitled to acquire by conversion more than its
proportionate share of such maximum amount.
PLAN OF DISTRIBUTION
The Shares covered by this Prospectus may be offered and sold from time
to time by the Selling Stockholders, or by donees or transferees of, or other
successors in interest to, the Selling Stockholders. The Selling Stockholders
will act independently of the Company in making decisions with respect to the
timing, manner and size of each sale. The Selling Stockholders may sell the
Shares being offered hereby on The Nasdaq National Market, or otherwise, at
prices and under terms then prevailing or at prices related to the then current
market price or at negotiated prices. The Shares may be sold by one or more of
the following means of distribution: (a) a block trade in which the
broker-dealer so engaged will attempt to sell Shares as agent, but may position
and resell a portion of the block as principal to facilitate the transaction;
(b) purchases by a broker-dealer as principal to facilitate the transaction; (c)
an over-the-counter distribution in accordance with the rules of The Nasdaq
National Market; (d) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; (e) in privately negotiated transactions; (f) to
cover short sales; (g) in other ways not involving market makers or established
trading markets, including direct sales to purchasers or sales effected through
agents; (h) through transactions in options, swaps or other derivatives (whether
exchange-listed or otherwise); and (i) a combination of any of the foregoing. To
the extent required, this Prospectus may be amended and supplemented from time
to time to describe a specific plan of distribution.
From time to time, one or more of the Selling Stockholders may pledge,
hypothecate or grant a security interest in some or all of the Shares owned by
them, and the pledgees, secured parties or persons to whom such Shares have been
hypothecated shall, upon foreclosure in the event of default, be deemed to be
Selling Stockholders hereunder. The number of Selling Stockholders' shares
beneficially owned by those Selling Stockholders who so transfer, pledge, donate
or assign Selling Stockholders' Shares will decrease as and when they take such
actions. The plan of distribution for Selling Stockholders' Shares sold
hereunder will otherwise remain unchanged, except that the transferees,
pledgees, donees or other successors will be Selling Stockholders hereunder. In
addition, a Selling Stockholder may, from time to time, sell short the Common
Stock and, in such instances, this Prospectus may be delivered in connection
with such short sales and the Shares offered hereby may be used to cover such
short sales.
A Selling Stockholder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the Common
Stock in the course of hedging the positions they assume with such Selling
Stockholder, including, without limitation, in connection with distributions of
the Common Stock by such broker-dealers. A Selling Stockholder may also enter
into option or other transactions with broker-dealers that involve the delivery
of the Shares to the broker-dealers, who may then resell or otherwise transfer
such Shares. A Selling Stockholder may also loan or pledge the Shares to a
broker-dealer and the broker-dealer may sell the Shares so loaned or upon a
default may sell or otherwise transfer the pledged Shares. In addition, any
shares that qualify for sale pursuant to Rule 144 may be sold under Rule 144
rather than pursuant to this Prospectus.
In effecting sales, brokers, dealers or agents engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
Selling Stockholders in amounts to be negotiated prior to the sale. Such brokers
or dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales, and any such commissions, discounts or concessions may be deemed to be
underwriting discounts or commissions under the Securities Act. The Company will
pay all expenses incident to the offering and sale of the Shares to the public
other than any commissions and discounts of underwriters, dealers or agents and
any transfer taxes.
In order to comply with the securities laws of certain states, if
applicable, the Shares must be sold in such jurisdiction only through registered
or licensed brokers or dealers. In addition, in certain states the Shares may
not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and there has been compliance therewith.
The Company has advised the Selling Stockholders that the
anti-manipulation rules of Regulation M under the Exchange Act may apply to
sales of Shares in the market and to the activities of the Selling Stockholders
and their affiliates. In addition, the Company will make copies of this
Prospectus available to the Selling Stockholders and has informed them of the
need for delivery of copies of this Prospectus to purchasers at or prior to the
time of any sale of the Shares offered hereby.
At the time a particular offer of Shares is made, if required, a
Prospectus Supplement will be distributed that will set forth the number of
Shares being offered and the terms of the offering, including the name of any
underwriter, dealer or agent,
17
<PAGE> 21
the purchase price paid by any underwriter, any discount, commission and other
item constituting compensation, any discount, commission or concession allowed
or reallowed or paid to any dealer, and the proposed selling price to the
public.
The sale of Shares by the Selling Stockholders is subject to compliance
by the Selling Stockholders with certain contractual restrictions with the
Company. There can be no assurance that the Selling Stockholders will sell all
or any of the Shares.
The Company has agreed to indemnify the Selling Stockholders and any
person controlling a Selling Stockholder against certain liabilities, including
liabilities under the Securities Act. The Selling Stockholders have agreed to
indemnify the Company and certain related persons against certain liabilities,
including liabilities under the Securities Act.
The Company has agreed with certain of the Selling Stockholders to keep
the Registration Statement, of which this Prospectus constitutes a part,
effective until all the shares of Common Stock issued upon conversion of Series
B Preferred Stock are sold by the Selling Stockholders and no shares of the
Series B Preferred Stock remain outstanding or all shares of Common Stock issued
upon conversion of the Series B Preferred Stock are freely tradable subject to
compliance with Rule 144(k) of the Securities Act.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon by
Brobeck Phleger & Harrison LLP, Irvine, California, counsel to the Company.
EXPERTS
The consolidated financial statements of the Company appearing in its
Annual Report on Form 10-K for the year ended December 31, 1997, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
18
<PAGE> 22
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
AVAILABLE INFORMATION.............................................................1
ADDITIONAL INFORMATION............................................................1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................1
THE COMPANY.......................................................................3
RISK FACTORS......................................................................6
USE OF PROCEEDS..................................................................14
SELLING STOCKHOLDERS.............................................................14
PLAN OF DISTRIBUTION.............................................................17
LEGAL MATTERS....................................................................18
EXPERTS .........................................................................18
</TABLE>
<PAGE> 23
ADVANCED TISSUE SCIENCES, INC.
7,850,000 SHARES
OF
COMMON STOCK
PROSPECTUS
<PAGE> 24
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company will pay all expenses incident to the offering and sale to
the public of the shares being registered other than any commissions and
discounts of underwriters, dealers or agents and any transfer taxes. Such
expenses are set forth in the following table. All of the amounts shown are
estimates except the Securities and Exchange Commission ("SEC") registration fee
and The Nasdaq National Market listing fee.
SEC registration fee................................................... $4,704
Nasdaq National Market listing fee.....................................
Legal fees and expenses................................................
Accounting fees and expenses...........................................
Miscellaneous expenses.................................................
Total.........................................................
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Restated Certificate of Incorporation ("Certificate")
provides that, except to the extent prohibited by the General Corporation Law of
the State of Delaware ("DGCL"), the Company's directors shall not be personally
liable to the Company or its stockholders for monetary damages for any breach of
fiduciary duty as directors of the Company. Under DGCL, the directors have a
fiduciary duty to the Company which is not eliminated by this provision of the
Certificate and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of nonmonetary relief will remain available. In
addition, each director will continue to be subject to liability under DGCL
for breach of the director's duty of loyalty to the Company, for acts or
omissions which are found by a court of competent jurisdiction to be not in good
faith or which involves intentional misconduct, or knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
prohibited by DGCL. This provision also does not affect the directors'
responsibilities under any other laws, such as the Federal securities laws or
state or Federal environmental laws. The Company has obtained liability
insurance for its officers and directors.
Section 145 of the General Corporation Law of the State of Delaware
provides that a corporation has the power to indemnify a director, officer,
employee or agent of the corporation and certain other persons serving at the
request of the corporation in related capacities against amounts paid and
expenses incurred in connection with an action or proceeding to which he or she
is or is threatened to be made a party by reason of such position, if such
person has acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation, and, in any
criminal proceeding, if such person had no reasonable cause to believe his or
her conduct was unlawful; provided that, in the case of actions brought by or in
the right of the corporation, no indemnification may be made with respect to any
matter as to which such person has been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances.
The Company's Restated Certificate of Incorporation provides that no
director will be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for authorizing the
payment of a dividend or repurchase of stock or (iv) for any transaction in
which the director derived an improper personal benefit.
The Company's by-laws provide that the Company must 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 Company) by reason of the fact that he or she is or was a director
or officer of the Company, or that such director or officer is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture trust or other enterprise (collectively
"Agent"), against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval may not be unreasonably withheld) actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. The termination of any action, suit or
proceeding by judgment,
II-1
<PAGE> 25
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, will not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the Company, and with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
The Company's by-laws provide further that the Company must 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
Company to procure a judgment in its favor by reason of the fact that he or she
is or was an Agent against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Company, provided that no indemnification may be made in respect of any claim,
issue or matter as to which such person has been adjudged to be liable to the
Company unless and only to the extent that the Delaware Court of Chancery or the
court in which such action or suit was brought determines upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court deems proper.
Pursuant to its by-laws, the Company has the power to purchase and
maintain a directors and officers liability policy to insure its officers and
directors against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1(1) Securities Purchase Agreement by and among Advanced Tissue Sciences,
Inc. and the Investors dated as of July 10, 1998.
10.2(1) Registration Rights Agreement by and among Advanced Tissue Sciences,
Inc. and the Investors dated as of July 10, 1998.
10.3(1) Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of Advanced Tissue Sciences, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-4).
</TABLE>
- --------------------
(1) Incorporated by reference to the Company's Report on Form 8-K filed
with the Commission on July 16, 1998.
II-2
<PAGE> 26
ITEM 17. UNDERTAKINGS.
A. UNDERTAKING PURSUANT TO RULE 415.
The undersigned Registrant ("Registrant") hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) Securities Act of 1933 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which has
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the SEC pursuant to Rule 424(b), if,
in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement;
(iii) to include any material information with
respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the Registration Statement;
provided, however, that paragraphs A(1)(i) and A(1)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 (the "Exchange Act") that are
incorporated by reference in the Registration Statement;
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of this offering.
B. UNDERTAKING REGARDING FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT
DOCUMENTS BY REFERENCE.
The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
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 SEC 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, suite 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
II-3
<PAGE> 27
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-4
<PAGE> 28
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
of 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 of San Diego, California, on this 4th day of September,
1998.
ADVANCED TISSUE SCIENCES, INC.
By: /s/ Arthur J. Benvenuto
--------------------------------------------
Arthur J. Benvenuto
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Arthur J. Benvenuto and Michael V. Swanson, jointly and severally, as
attorneys-in-fact, each with the power of substitution, for him or her in any
and all capacities, to sign any amendment to this Registration Statement and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting to said
attorneys-in-fact, 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 connection
therewith, as fully to all intents and purposes as he or she might or could do
in person hereby ratifying and confirming all that said attorneys-in-fact or any
of them, or their or his or her 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 below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Arthur J. Benvenuto Chairman of the Board and Chief Executive September 4, 1998
- --------------------------------- Officer (Principal Executive Officer)
Arthur J. Benvenuto
/s/ Dr. Gail K. Naughton Director, President and Chief Operating September 4, 1998
- --------------------------------- Officer
Dr. Gail K. Naughton
/s/ Michael V. Swanson Vice President, Finance and Administration September 4, 1998
- --------------------------------- (Principal Financial and Accounting Officer)
Michael V. Swanson
/s/ Jerome E. Groopman, M.D. Director September 4, 1998
- ---------------------------------
Jerome E. Groopman, M.D.
/s/ Jack L. Heckel Director September 4, 1998
- ---------------------------------
Jack L. Heckel
/s/ Ronald L. Nelson Director September 4, 1998
- ---------------------------------
Ronald L. Nelson
/s/ Dayton Ogden Director September 4, 1998
- ---------------------------------
Dayton Ogden
/s/ David S. Tappan, Jr. Director September 4, 1998
- ---------------------------------
David S. Tappan, Jr.
Director September 4, 1998
- ---------------------------------
Dr. Gail R. Wilensky
</TABLE>
II-5
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------------ ------------------------------- ------------
<S> <C> <C>
5.1 Opinion of Brobeck, Phleger & Harrison LLP ........................................
10.1(1) Securities Purchase Agreement by and among Advanced Tissue Sciences, Inc. and the
Investors dated as of July 10, 1998................................................
10.2(1) Registration Rights Agreement by and among Advanced Tissue Sciences, Inc. and
the Investors dated as of July 10, 1998............................................
10.3(1) Certificate of Designations, Preferences and Rights of Series B Convertible
Preferred Stock of Advanced Tissue Sciences, Inc...................................
23.1 Consent of Ernst & Young LLP, Independent Accountants..............................
23.2 Consent of Counsel (included in Exhibit 5.1).......................................
24.1 Power of Attorney (included on page II-4)..........................................
</TABLE>
- --------------------
(1) Incorporated by reference to the Company's Report on Form 8-K filed
with the Commission on July 16, 1998.
<PAGE> 1
EXHIBIT 5.1
September 4, 1998
Advanced Tissue Sciences, Inc.
10933 North Torrey Pines Road
La Jolla, California 92037
Re: Advanced Tissue Sciences, Inc. Registration Statement on Form
S-3 for 7,850,000 Shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to Advanced Tissue Sciences, Inc., a Delaware
corporation (the "Company"), in connection with the resale from time to time by
certain stockholders of the Company of up to 7,850,000 shares of the Company's
Common Stock (the "Shares"), as may be issuable by the Company upon conversion
of the shares of the Company's Series B Convertible Preferred Stock, pursuant to
the Company's 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"). This opinion is being furnished in accordance with
the requirements of Item 16(a) of Form S-3 and Item 601(b)(5)(i) of Regulation
S-K.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of
the Shares. Based on such review, we are of the opinion that the Shares have
been duly authorized, and if, as and when issued in accordance with the
Registration Statement and the related prospectus (as amended and supplemented
through the date of issuance) will be legally issued, fully paid and
nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the Act,
the rules and regulations of the Securities and Exchange Commission promulgated
thereunder, or Item 509 of Regulation S-K.
This opinion letter is rendered as of the date first written above
and we disclaim any obligation to advise you of facts, circumstances, events
or developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or
the Shares.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Advanced Tissue
Sciences, Inc. for the registration of 7,850,000 shares of its common stock and
to the incorporation by reference therein of our report dated February 3, 1998,
with respect to the consolidated financial statements of Advanced Tissue
Sciences, Inc., and our report dated February 27, 1998, with respect to the
combined financial statements of the Dermagraft Joint Venture included in the
Annual Report (Form 10-K) of Advanced Tissue Sciences, Inc. for the year ended
December 31, 1997, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
------------------------------
ERNST & YOUNG LLP
San Diego, California
September 1, 1998
